The Revival of the Austrian School: Mises and Rothbard

0:00The title of the lecture, The Revival of the Austrian School, Mises and Rothbard, is slightly inaccurate because what I'm really going to do, I'm going to get to that, but I'm going to finish up more or less from yesterday. So really, this is going to talk more about the fall and then the revival of the school and the reasons for the decline. Let me mention, though, before I start, the similarities between Mises and Rothbard, some very interesting similarities even though they're two generations apart. First of all, I consider them the two greatest economists of the 20th century. They were born two generations apart, as I said, and they were worlds apart in their cultural background and in personal temperament.

0:46But, as I said, there were important similarities. There were both creative geniuses who constructed a breathtaking system of economic theory. Both worked in virtual isolation from mainstream academia during very productive periods of their careers. Rothbard for all of his career and Mises for a very productive period of his career beginning in the late 1930s, or actually beginning after World War II. Thoroughly, despite their extraordinary mental abilities, both men displayed tremendous intellectual humility. They didn't seek to reinvent the wheel, to rebuild economics from the ground up.

1:31Their ambition was to refine and advance and correct the work of their acknowledged masters. Mises always acknowledged Boehm-Bawerk as his master, whereas Rothbard always acknowledged Mises as his master. So, they worked within an existing paradigm and tremendously advanced that paradigm. And both published, importantly for us, both published comprehensive treatises on economics at crucial points in the history of economic thought that saved the Austrian School from really disappearing into oblivion. Mises' treatise in 1969, and Rothbard's treatise, Man Economy and State, in 1962.

2:16And finally, both were very passionate and intransigent seekers of truth. There was an article written by Mises' friend on Mises, Jacques Rouef, a liberal economist, member of the Montpelerin Society, and the article was titled, The Intransigence of Ludwig von Mises. They wouldn't take a step back on principle, and Rothbard always talked about compromising on means but never on ends. And they really never deviated from Carl Menger's original vision of economic phenomena as rooted in the valuations and choices of human action. So that's sort of an introduction to the types of, to the two men who did save Austrian economics and who were responsible for its rebirth.

3:05Now, let me talk about the decline, the fall and the rebirth of Austrian economics. First, I'll give you what has come to be the standard account. It's not written down anywhere in detail. It was an account I accepted myself up until the late 1990s when I started rethinking things. You can find it in bits and pieces throughout Israel Kirzner's writing and recently Bruce Caldwell's biography on Hayek incorporates this view. It's a view that almost everyone who was in Austria in the 1970s and later accepted pretty much by osmosis.

3:51And so I'll call it the Kirzner-Caldwell account. Let me just tell the story according to Kirzner and Caldwell. According to this view, Austrian economics was riding high. It was developing tremendously during the 1920s and 1930s. By the early 1930s, it had offered really the only reasonable explanation for the Great Depression. While English-speaking economists were saying that we were going to live through an era of perpetual prosperity and that business cycles had effectively been abolished in the 1920s because the Fed and the Bank of England, mainly the Fed, had stabilized prices and that therefore without an inflation of consumer prices you could never have an ensuing depression.

4:47Irving Fisher, the proto-monitorist and Milton Friedman's inspiration, claimed at the end of the 1920s that this was the era of perpetual prosperity. And when the Great Depression did strike, what occurred was a lack of any explanation for why it should happen. It took many, many people by surprise, both in academia and in business. So the Austrian business cycle theory, which had been developed by Mises and Hayek during the 20s, was ready at hand as an explanation. and it quickly spread its influence throughout the continent and to the United States.

5:33So according to the Kirzner-Caldwell account, the Austrian School was actually flourishing and gaining even more adherence in the 1930s. Then 1936 struck and we had, quote, the Keynesian Avalanche and the Austrian School disappeared down the memory hole. It was buried by the Keynesian Avalanche. Now one problem with this, and I'll talk about it in more detail later, is that's only macro. Certainly the quantity theory, which was developing at Chicago by some of Milton Friedman's mentors, including Mintz and Henry Simons, that theory was also buried in 1936.

6:21in 1936. But Chicago microeconomics wasn't buried. In fact, that continued to flourish. So we have the Keynesian Avalanche explanation of why the Austrian School fell from its level of influence and popularity. It's up here and suddenly, in 1936, it reaches the nadir of its existence, it's barely alive. And then, in this account, there's a big bang theory of its rebirth. Suddenly, someone has a good idea, hey, let's have an Austrian conference in 1974.

7:07And if you saw The Natural, the movie The Natural is a great movie with Robert Redford on baseball. Oh no, I'm sorry, not The Natural, the movie Field of Dreams with Kevin Costner, who's not such a great actor, but the movie was decent. In any case, in that movie, you had the phrase, if you build it, they will come. Well, this account can be summed up in the following, if you hold it, they will come. will come. That is, where did all the 30 participants come from? There was no Austrian school. If the Austrian school was barely alive, there was only a few people writing who had been Mises' students in the 1950s when he came to America, where did the 30 graduate students, myself included, and young faculty members in economics, where did they come from? Why did they suddenly appear in this small Vermont in downtown, just because this conference was being held, no explanation is given.

8:11So in 1974 in the summer there was the South Royalton Conference and then in October, Friedrich Hayek received the Nobel Prize for work that he did in the 1930s and boom, there's this big bang and now we have the reborn Austrian School. Well, in a way, because I'm making this story brief, I am charactering to some extent what they think. But this is basically the story. Now, the problems with this story are many. The first is that it really does not give us any idea, or it attributes almost no role to Mises and Hayek in the rebirth, particularly to the books Human Action and Man Economy and State.

9:04Human Action is looked on as a book that Mises wrote at the end of his productive career in 1949, and yes it's a very good book, but it sort of summed up what he had said earlier, and it wasn't very influential. The Austrian School treats the Austrian School as a monolithic entity whose members all agreed with one another. And this wasn't even true at the beginning, as I've shown you. Mises and Boehm-Bawerk disagreed very profoundly on basic value and price theory. More particularly, it ignores two divergent traditions that grew up right from the beginning of the Austrian School. Both Boehm-Bawerk and Wieser were followers of Menger, but they took divergent paths.

9:55Wieser had a student, Hans Meyer, who tried to develop his thought in a certain direction and didn't do very well. And then Hayek followed Wieser. So we had a tradition, which I'll call the general equilibrium tradition in Austrian economics, which was Wieser, and also Schumpeter was in this tradition. Wieser, Schumpeter, who was in Mises' cohort, he was in the third generation with Mises, and those two from Wieser and Schumpeter to Hayek, who was in the fourth generation. On the other hand, we have the Boehm-Bawerk, Mises, Rothbard tradition. And Hayek himself, and if you'd read my article on the place of Mises' human action and development of modern economic thought, Hayek himself recognizes the difference in tradition and talks about how Mises developed the Boehm-Bawerk line and he himself and Hans Meyer tried to develop the Wieser line and that he was very disappointed that the Wieser line didn't develop more He admits that in the United States the Boehm-Bawerk-Mises line or tradition has dominated.

11:13It also does not deal with the crucial importance of what I talked about yesterday, an institutional framework based on property and resources. That is that a paradigm needs resources to exist and flourish. You can have geniuses like Mises and Rothbard working in isolation, without interaction, much interaction with other minds, developing systems. But most of us are not geniuses. Mises and Rothbard come around once a century.

11:50Also, this leaves out of account Joseph Schumpeter, who was treated as, if he was just a Volrasian, and wasn't really involved much in Austrian economics. In fact, he was very involved in Austrian economics. Yes, it's true he followed Walroth, but he also followed Wieser. And his books influenced the general equilibrium tradition in Austrian economics. Finally, it portrays Murray Rothbard wrongly as leaving economics sometime in the 1970s and becoming a social philosopher and libertarian activist. And ceasing any contributions to economic theory. or the Austrian economics in general, and that's completely wrong. So that is a standard account. Now what I would call the revisionist account disagrees that the Austrian school suddenly was buried under the Keynesian avalanche in 1936.

12:49In fact, I argue, and this count argues, that the Austrian School is pretty much dead, at least the Boehm-Bawerk-Menger tradition, by the late 1920s, early 1930s. Let me just mention how this happened. By the late 1980s, there was a tremendous flourishing of work. Boehm-Bawerk, Wieser and then many others in Austria began writing works in the tradition of Menger. By the 1890s, the Austrian School had become a worldwide entity. It had great international influence in the US.

13:37A separate American school grew up. They called themselves the American Psychological School. J.B. Clarke, Frank Fetter, Herbert J. Davenport, and let me just show you a few pictures of these men. This is Clarke, who was working along the lines of Menger, but wrote that, in fact, one of his main influences was Menger. And he's known as the father of sort of scientific American economics or marginal utility economics. Here he is with Frank Feder, who taught at Princeton and was a follower of Boehm-Bawerk and developed Boehm-Bawerk's time preference theory of interest into a pure time preference theory and rooted out some errors that Boehm-Bawerk had in his theory.

14:26Theory, also was a great rent theorist and wrote a good principles text, which summed up Austrian principles right on the eve of World War I. His text came out in 1915. And there he is with an older Clark, who we considered to be the leader of the American Psychological School, which was an unfortunate choice. It was really a praxeological school, This is Herbert J. Davenport, who wrote a number of important treatises, was a subjective value theorist, wrote a great treatise, which came out right around the beginning of World War I, called The Economics of Enterprise, in which he stressed the entrepreneur, and was an American-Austrian, part of the American Psychological School.

15:23Unfortunately, as we'll see, this school collapsed because of tremendous personal animosity between Davenport and Fedder. They continually attacked one another in the journals, not just intellectually, but personally. And they were very close in their thought. So that was unfortunate. So they left no students. They left no followers. And then in England, the school, as I mentioned, Jevons, lone follower, Philip Henry Wickstede, also became a Boehm-Bawerkian, a Mengerian, and brought Austrian economics to Great Britain, and there were a few others, Edwin Cannon and William Smart, and well, that's the evil Alfred Marshall, which we'll talk about, or who we'll talk about. So, also in the Romance countries, in Italy and France, as we saw, we had the liberal school transforming itself into a marginalist liberal school following Boehm-Bawerk.

16:16So, the Austrian school became globalized, or became international in the 1890s. It really reached the peak of its influence by 1914. There were three great treatises just in England, just in English, one by Wickstede, one by Davenport, and one by Federer. And they were thorough treatises setting out or presenting Austrian thought up to that point in the Menger-Boehm-Bawerk tradition. What caused the decline of the Austrian School? First, let's look at, very briefly, at events in Austria. in Austria. As I mentioned yesterday, Boehm-Bawerk went into government service in 1889, after he had finished his three volume treatise on capital and interest, and stayed there until 1904.

17:08He returned to academia in 1905, and they created a chair for him at the University of Vienna, but he was in ill health, and his creative powers had been withered. In other words, he ceased to become really a player in Austrian economics at that point when he came back. He couldn't do any innovative or creative work. For example, one person described him as to have seemed older than his years suggested. He was only 54 years old when he came back. He himself, two years after he returned to academia, described himself as an old man.

17:57This is what all those years in government bureaucracy can do to you. He had a tremendous workload and he also tried to keep up his economics at the same time. Also, Mises had an interesting comment. He attended Boehm-Bawerk's famous seminar when Boehm-Bawerk returned, and he observed, quote, Boehm-Bawerk could have produced much more if conditions had permitted it, but his physical constitution would no longer stand, could no longer stand the hard work necessary to embark upon great works. His nerves were failing him. The two-hour seminar per week already taxed his strength. So, Boehm-Bawerk was more or less out of the picture when he returned in 1905, and then he died prematurely in 1914. In the meantime, Menger retired. Menger really stopped writing theoretical articles in the 1890s.

18:48His book went out of print, he refused to revise it, despite the tremendous demand for his book, he refused to revise it and refused to allow it to be reprinted. It was commanding tremendously high prices in used bookstores. It had disappeared from the libraries and yet it wasn't reprinted until after his death by his son. So that book wasn't around. They created a chair or they gave the chair to Wieser. Menger's chair was given to Wieser as the main professor at the University of Vienna, the person who would teach all incoming students economics. and Economics, because as I said, Boehm-Bawerk was in government service at the time. As I pointed out yesterday, or not in too much detail, but Wieser did not follow Menger's causal realistic approach to economic theory, trying to find out the causes of real economic phenomena, of real prices that we observe every day.

19:44That was not what Wieser did. He gave us a huge general equilibrium system, describing how prices would be if everything was pretty much adjusted. That is, how prices would be in a never-never land where there's no changes in the data and so on. He didn't use math and he tried to make it more realistic than the Volrasian mathematical system, but it was still a general equilibrium system. He also published the first complete treatise on economics in Austria in 1914 called Social Economics. Economics. Then in 1903 or 1904, Schumpeter enrolled in the University of Vienna, Joseph Schumpeter, who was a brilliant man, a famous economist. He became a student, but he was also a follower of Walras, though he didn't know much math. He thought Walras was the greatest economist who had ever lived.

20:38He wrote two books at a very young age. In 1908 he wrote a book on the nature and essence of economic theory, and then in 1911 he wrote a book on business cycles, the theory of economic development, and that established an international reputation. So, in the third generation, it was Schumpeter who was seen as a star. Mises, who was Boehm-Bawerk's student also, had only published a book in 1912 on the theory of money. A great book on the theory of money, but he was seen as much narrower than Schumpeter. Schumpeter had produced a book pretty much on methodology, the first book, and the second work on business cycles. So Schumpeter was seen as a system builder and the star of the third generation.

21:27Now when the fourth generation enrolled after World War I, that included Hayek, Fritz Machlup, Gottfried Habler, Oscar Morgenstern, and so on. All of these men either went to Great Britain in the 1930s or the United States, Fritz Machlup taught at Princeton and NYU for many years. Gottfried Habler taught at Harvard for many years, Morgan Stern also taught at Princeton, and so on. Anyway, those people entered the University of Vienna between 1918 and 1921. They studied under Wieser. So their first exposure to economic theory was through this other tradition. Hayek says many great things about Wieser. He calls him my revered teacher.

22:14You can tell that Wieser was the main influence on the early Hayek. There's no doubt about that. You can read Hayek on Hayek. No matter how much the other side argues that that's not true, Bruce Caldwell, Israel Kirzner, it is true. In fact, you were not allowed to join Mises' private seminar until after you had had your degree, which means after you had had your economics courses at the University of Vienna. Now, it's true that Mises did teach a course He works at the University of Vienna, as a private dozant, which is someone who is an unpaid lecturer, who the students just give nominal fees to. But Hayek himself says he sat in one day and didn't like Mises' attitude, and so he never completed the course. But even if he had, Mises did not lecture on general economic theory, that was Viser's job.

23:06Mises lectured on things that were interesting to him, things that he was researching on, such as monetary theory, business cycle theory, and so on. So basically, they also, this generation, because Schumpeter had gained an international reputation, they read his books, and it had a lot of influence on them. And he was very, very pro-Volrasian, very pro-general equilibrium. Finally, they did attend Mises' private seminar after they graduated, through the 1920s up to 1934 when Mises left. But by that time, as I mentioned, they had already become economists. Their views had already been formed by Wieser and by reading Schumpeter's books.

23:51And in the seminar, what they discussed were applied topics and advanced topics, okay? Now, that's not to say that Mises didn't have an effect on them. Mises did have an influence on these people. When they read his Socialism, which was published in 1922, most of them were social democrats. and almost all of them became much more liberal in the European classical sense because of that book and Hayek points out how influential that book was. But again, that was a book on one aspect of economics, socialism. So they were very influenced by Mises' monetary theory and Mises' theory of economic calculations, socialism and so on.

24:38But they were looking at these works through the lens of equilibrium theorists because of their early training. Okay, now, that's one reason for the Austrian School, or at least the Mangerian von Boehm-Bawerkian part of the school, dying out. Second reason is, in the rest of the world, there were various factors operating, which I'll go through pretty quickly. Alfred Marshall wrote a very famous, one of the most famous treatises of the 19th century on economics, Principles of Economics, in 1890. By 1910 or so, that book had swept all of England. So the few Austrians that were in England were pretty much marginalized or pushed to the side.

25:26Wickstede didn't have an academic position. He also was a preacher and wrote on religion and so on. and so his treatise was swept aside, the treatise which he wrote in 1911 was more or less forgotten about. By 1920 everybody in England was a Marshallian economist except for one school, the London School of Economics, where Lord Robbins, Lionel Robbins later became Lord Robbins, had read a lot of, knew German and read a lot of the Austrian literature, was very influenced by the Austrians, was also very influenced by Wicksteed's book. There's one outpost that remained in Great Britain after the Marshallian dominance.

26:11And I'll talk about what happened there in a minute. But in the U.S. we had the fight between the Fed and Davenport. They never really went on to found the school. By the 1920s, they were old men. They ceased to contribute to economic theory, and there was a big gap in economic theory, so what happened? Marshalian economics was imported, and the vacuum in economic theory was filled by Frank Taussig, who was sort of a Ricardian mill and a marshalian. They called the talisman the American Marshall because his brand of sort of neoclassical combination of some marginal utility and the old classical school, his brand really dominated American economics.

26:59In France and Italy I mentioned yesterday that the Austrian marginalist school was eventually replaced by a combination of martial with some German historicism. Okay, so Austrian economics died out in the 1920s throughout the world, okay? Then you had the emigration of Hayek from Austria to the London School of Economics. He was invited there by Lord Robbins, who was the chairman of the department, and he gave lectures in 1930, lectures which later became published as his great book, Prices and Production, which was an advance in Mises' business cycle theory.

27:44But what happened was that when he arrived at the London School of Economics, he met a brilliant student of Robin's, John Hicks, who was one of the fathers of sort of modern neoclassical economics. And for whatever reason, he influenced Hicks to re-read Vilfredo Pareto, who was a follower of Vol Ross and who was a mathematical general equilibrium theorist. In the English-speaking world, there was no mathematical general equilibrium theory. There was some in Italy and France and so on. But now in the 1930s, for the first time, this new theoretical system was introduced. And it was introduced through Hayek's influence.

28:31So, Hicks read the book and wrote a book called Value and Capital, which came out in 1939. But he was working on it throughout the 30s. It was a very influential book. And what it did was to introduce general equilibrium analysis into the English-speaking world. Now, Robbins, who was an Austrian and who had read Mises and who had read Striegel, who was also a follower of Boehm-Bawerk and others in German, happened to have a personality flaw. In the beginning, he was under the influence of Hayek very strongly in macroeconomics. After Keynes' book came out, The General Theory, 1936, he quickly changed his mind and became sort of a quasi-Keynesian.

29:20And he had written a great book explaining the Great Depression using the Austrian Business Cycle Theory, simply called The Great Depression. In his autobiography written in the 1970s, he apologizes for writing that book and says that he couldn't even stand to read it through again in preparing for his autobiography. So Hayek once, I heard Hayek speak once, and Hayek said that Robbins was very, very influenced by the strong opinions held by those around him. So many, since everyone in England was becoming a Keynesian, he became a Keynesian. Well, the same thing was true, though, which people don't realize, of his price theory, his microeconomic theory. He was initially a Mangerian. If you look at his great book on the nature and significance of economic science, it's really straight Menger and early Mises and so on. The methodology is very praxeological.

30:14But because Hicks began to write this book, and Hicks was a brilliant man, I also was thinking in terms of general equilibrium. Robbins began to forget about his Mangerian, Boehm-Bawerkian roots and to move to that side of the tradition. And if you look at his reading list for his course in general economic theory, you see this occurring very clearly between 1934 or so and 1938. So in his 1934-1935 session, his syllabus included, under the heading Modern Works and General Theory, he had listed treatises by Boehm-Bawerk, Wichstead, Federer, Clarke and Davenport, all Austrians, all hardcore Austrians.

31:05And he did have, alongside that, he had a few works of Kassel, Pareto, who were general equilibrium theorists. But the main works were Austrian-Boehm-Bawerkian works. However, he did write in a note, it's already 1934, 1935, Hayek's been there for a while, Hicks is thinking in terms of general equilibrium. He appends a note to a syllabus in which he says, The treatment will be non-mathematical in character. Students who wish to witness the same problems treated mathematically should attend course number 66, Introduction to Mathematical Economics. So evidently, by that time, he really saw the two theories as being really just different ways of expressing the same concepts.

31:50Then things got even worse in his syllabus for 1938-39. He moved further away from the Mengerian tradition. He got rid of the general theory heading and he put statics and comparative statics, statics meaning, you know, general equilibrium theory. And no longer were there listed the great treatises by Clark, Federer, and Davenport, or Boehm-Bawerk. He kept Pareto's treatise, mathematical treatise, and then he added Hicks and Allen's article on a reconsideration of the theory of value, which was a precursor of Hicks' book introducing general equilibrium theory into the English-speaking world. He also included another English economist's book called Mathematical Psychics and also books by Edward Chamberlain, The Theory of Monopolistic Competition that was also added and instead of Wicksteed's treatise as being the main book that entering students should read, he listed Knight's Risk, Uncertainty and Profit which was hardly Austrian The London School of Economics lost its Hungarian character in the early 1930s.

33:11Finally, if you look at the socialist calculation debate that occurred during the mid-1930s, Hayek and Robbins emphasized, and we'll talk about this two days from now, Now, they emphasize the difficulty in central planning of collecting all this dispersed knowledge and getting it to the planner. They did not emphasize or stress what Mises had stressed, which was the problem of monetary calculation or economic calculation, trying to determine from market prices what goods are most demanded by consumers and what methods of producing them are the most economic. This is what Mises stressed. It was not stressed by Hayek and Robbins. Theirs was more of a general equilibrium view, that there's a lot of information out there that the price system automatically communicates to the producers, and things are fairly mechanical.

34:09Though I don't want to say that they are straightforward Volrasian general equilibrium theories. So, the final problem leading to the Austrian, final fact leading to the decline of the Austrian School, the death of the Austrian School was that there was some problems in the actual Austrian theory itself, which had been developed up to 1914, okay? First of all, it really did not clarify the proper use of equilibrium. There is a use for equilibrium in economics and it was not clarified even by the most sophisticated treatises of Wickstede and Davenport. Sometimes they talk about a moving equilibrium that the market was moving, that we weren't in a fixed equilibrium, but that equilibrium was moving and the market somehow was chasing it, but they didn't make it clear.

35:01Let's make it clear. They also didn't integrate money and price theory. As Mises says, economics is all about explaining money prices. Where do these money prices that we observe every day come from? From Menger forward, the theory was really a barter theory. It was a theory of relative prices. Money really wasn't integrated into economics. Wickstede tried in his treatise and partially succeeded, I think, but Mises did succeed in 1912, in his book. But he wanted to write a full treatment of economics but was not able to. He didn't do that until he did Human Action. And he says himself that my theory was not complete until I wrote National Economy, which was the German forerunner of Human Action.

35:52And the third problem was that the Austrians really didn't, before Mises wrote Human Action, didn't stress the important role of the entrepreneur in forecasting the future and acting as someone who demands present capital goods. In other words, the entrepreneur is the one who's responsible for the appraisement or for the pricing of factors of production. based on his or her forecast of what future prices will be. So, given these defects, in the 1930s, when general equilibrium theory was introduced in the English-speaking world, economists looked around and said, wait a minute, the Austrian theory is simply an unsophisticated, less rigorous version of general equilibrium theory.

36:44It's basically general equilibrium theory but it's not elegant. It's wordy, we can say the same things in equations, much more simply, much more clearly. So, because of certain errors in the Austrian theory, which undermined or obscured the fact that it was focused on a dynamic, changing, uncertain world, it was just pushed aside because it was inelegant. We can say the same things the Austrians are saying, we can integrate marginal utility by a system of simultaneous equations. Okay, so that's the way things stood in the 1930s. Now, Mises was extremely productive, continued to write articles, books and so on through the early 1930s.

37:37Back in 1933, he came out with a collection of his papers that went from 1928 to 1933 on methodology in which he began to develop a system that came to fruition in human action. And it was at that point, that was already too late for the fourth generation, Hayek's generation, to absorb. They thought that Mises was saying the same thing in some sense as Wieser was saying. Mises was saying, they never really realized that Mises had a whole different system in the back of his mind, a much more dynamic development of Menger and Boehm-Bawerk's price theory. So, Mises now leaves Austria in 1934, remember he was working for the Chamber of Commerce, which was an advisory body to the Austrian legislature.

38:33He was working full-time in writing all these books, and it was a full-time job and still writing books and articles and still teaching at the university and holding a private seminar, so he was extremely productive. But then when he goes to Switzerland, to the Institute of International Relations, I believe, the Graduate Institute of International Relations, something like that, he's invited there. He remains there for six years, and he doesn't write very much there, okay? You're wondering, you know, what's going on. He writes a few book reviews, I think only one academic article, but what he's doing is sitting there realizing that Austrian economics has died, that Mangerian, the dynamic Mangerian-Boehm-Bawerkian approach to price theory is completely gone.

39:20And so he decides to reconstruct this theory, solve the problems, and put forth to the world a general treatise. So he sits there for five years, and he does this. And in 1940, we know timing is everything, in 1940, out comes his book, National Economy. And unfortunately, because of the outbreak of the war, World War II, it can't be distributed in the German-speaking market, and the Swiss publisher goes bankrupt. So the book just disappears. So it doesn't appear until after World War II, when Marchalian economics has completely taken over throughout the world with a little bit of Eurasian economics.

40:09So if you looked at textbooks after World War II in the 1950s, You have 90% of basically Marshall's partial equilibrium analysis and the other 10% at the end you tell the students, well, all of these markets are really connected and we can connect them mathematically. And that's what you have. And then Human Action comes out and no one's going to pay attention to Human Action, given that view of things. So, but the book is there. It's important that the book is there, that this whole system now has been integrated. Mises has solved the problems so what happens in the 1950s then Austrian economics is almost completely dead oh let me mention before before I get to that it's interesting to see Hayek's reaction both to Mises's both first to the decline of the Austrian school in 1930s okay the decline of its price and then to Mises' book on national economy.

41:13First, in my article, I give a quote on page 57 if you're interested, because it really does show how Hayek's thinking is so much different from Mises. Where Mises was in 1934 sitting around attempting to reconstruct Austrian economics, here's what Hayek said about the fact that Austrian economics as an independent tradition disappeared in the 1930s. He's writing this in 1968, looking back. He says, But if this fourth generation, meaning his generation of Austrians, in style of thinking and in interests, still shows the Vienna tradition clearly, nonetheless it can hardly any longer be seen as a separate school in the sense of representing particular doctrines. A school has its greatest success when it ceases as such to exist because its leading ideals have become a part of the general dominant thinking.

42:04The Vienna School has to a great extent come to enjoy such a success, its development has indeed led to a fusion of the thought stemming from Menger with that of Jevins, quasi-mathematical, by way of Philip Wigstead, and of course, of course, of course, of course, of course, of course, of course, of course, of course, of course, of course, of course, of course, of course, of course, of course, of Leon Walras by way of Alfredo Pareto and especially of the leading ideas of Marshall, of Alfred Marshall. So what is he saying? He's saying that the Austrian School has made its mark and it's been combined in this great neoclassical synthesis of Marshall and Walras and all of these guys, okay?

42:50Now tell me that that's, read Human Action and then see if that's Mises' attitude, okay, where he's continually attacking all of these divergent trends, okay? Now, what does he say about... He's shocked when National Economy comes out, because I don't think he realized how differently Mises was thinking. So it comes out in 1940, he reviews it. Overall, he likes the book, but here's some interesting things he sees, perplexed by it. He says... He's perplexed by the fact that Mises had been unaffected by, and I'm quoting Hayek, the general evolution of our subject during the period over which his work extends. In other words, Mises doesn't incorporate Imperfect Competition Theory, doesn't incorporate, you know, Walras, doesn't incorporate Marshall, so he's perplexed by this, okay.

43:39He needs a good whack upside the head. And as he goes on to say, and that the development of Mises' thought during this period, quote, appears to be decidedly autonomous, unquote, meaning, it's a terrible way of saying that Mises hasn't read anything, and that just wrote this, you know, on his own without reading the latest literature. And then he says, oh, why is he confused? He's confused because he can't understand, he fails to realize that this book represented Mises' attempt to autonomously reconstruct a paradigm that could not be reconciled with the general evolution, to use Hayek's term, of economics in the direction of Eurasian-Marshallian combination of which Hayek himself approved. Now, particularly revealing is Hayek's prediction that the central part of the book, okay, now, those are the central chapters of human action, those are the sections on monetary calculation and on prices, okay, which is, you know, a development of Menger.

44:38He says that the central part of the book would not be its main interest to most readers, okay? But of course, these are precisely the sections that contain the reconstructed system. So he likes the praxeology, he likes the subjectivism, but he doesn't like the actual price theory, which is the central part of the book. So this is my revisionist view of why Austrian economics died. Sure, the Keynesian Revolution had some effect, but it destroyed one aspect, or made people forget one aspect of Austrian economics, and that was the business cycle theory. But one of the reasons for that was that that business cycle theory was based on sort of not very solid foundations.

45:26It moved away from a dynamic sort of system of pricing and it was based, Hayek himself with his books on business cycle theory, even though they were very good, based it on Volrasian general equilibrium theory. In one of the books he says that the highest form that economic theory takes is that of the Lausanne School. Lausanne School is the school of Volras and Pareto. So what happens then in the 1950s? Well, there's not much being published in the 1950s. What's going on is that Mises does have a seminar at NYU. We can't get a regular position, though there's some debate about this.

46:11Pete Becky has seen letters in the archives at the Hoover Institute, in which Hayek and Machlop are exchanging letters. And Machlop is saying, what are we going to do with our problem child, meaning Mises? He keeps turning down all these positions. Machel tried to get him a position at Johns Hopkins, but he would have to teach undergraduates, and evidently Mises didn't want to teach undergraduates. Mises wanted a position, there was something called the Institute for Advanced Studies, it's at Princeton University, it still exists, it's where Einstein worked, it's where Morgenstern and I think Nash worked out game theory, in any case, he would have liked that, it was a research position, Mises would have liked that position.

46:59position, he reveals that in his memoirs, or no, his wife actually reveals that in her memoirs of my life at Ludwig von Mises, so whether or not he could get, he certainly wasn't flooded with offers, because he was perceived as right wing, free market, anti-socialist, so what happens is that a right wing foundation begins to pay his salary and gets him a visiting professorship at NYU, basically NYU, So what happens is that there's a period in the 1950s in which there is a seminar going on, it's going on at NYU, from NYU, Henry Hazlitt attends it, Murray Rothbard attends it, Israel Kirzner, very bright men, Hans Sennholz, but not much is published during this period.

48:09Hayek has moved out of economics and is writing in social theory on the one hand. What we get published are a few books. Hazlitt writes a great book, Smashing Keynesianism, The Failure of the New Economics. Rothbard writes a great article reconstructing utility and welfare theory. Kirzner writes his dissertation under Mises, a very good book on the economic point of view, which shows, which deals with the history of methodology up to Mises' praxeology. Not much else is written. Mises does write a great treatise on theory and history. It comes out in 1956. The books are very few and far between. The school is almost dead. Now, what happens?

48:56In 1962, Rothbard comes out with Man Economy and State. He had been funded to publish this book by a foundation, the Volcker Fund. He lived on these grants and he began writing the book in the early 1950s, after he had read Human Action. and his initial objective is to fill in the blanks in Human Action, but really to make it a shorter, more accessible book. He winds up really reconstructing economics once again, or let me put it differently, he synthesizes economics. He takes not just Mises, but he takes Federer, Wicksteed, the good things that were written by Robbins, and a tremendous number of some of Clark's stuff, and he synthesizes all of these American and British economists that were influenced by the Austrians.

49:56And in particular, he constructs a tremendous theory of production, I take five chapters of the book, And that theory of production was very, very skimpy in Mises. If you look at the Rothbard letters that he's writing to the people that give him the grants, he mentions that he has to write the production theory himself, because there's very little in Mises to guide him. So he comes up with a new synthesis of economic theory, squarely within the Menger, Boehm-Bawerk, Mises tradition. In fact, Mises himself, for some reason, didn't like the structural production analysis that Hayek had introduced, which came from Boehm-Bawerk.

50:45And Rothbard reintroduces that, so he combines the pure time preference theory of Federer with the structural production theory of Vicksel and Hayek. So it's a tremendous work, but he's not done. In 1963, he comes out with America's Great Depression, a book which applies Austrian theory to the causes of the Great Depression. He also comes out in 1963 with a short primer, people think it's simply an introductory book, a short primer on monetary theory, what has government done for our money, And in it though, he gives us really for the first time, this is really even missing in Mises, a theory of how fiat money comes into existence.

51:38How is it that we have this transformation from a gold standard through to a pure fiat money? Even in Human Action, Mises says it's not clear whether paper money, the previous episodes of paper money were true fiat money. In other words, Mises believed that they could have been credit money, meaning that people were always expecting at some point to go back to the gold standard, because that always happened. You went off, had paper money during a war or during some sort of crisis, but then a few years later you went back. That's what happened in Great Britain from 1797 to 1821. That's what happened in the United States during the Civil War and elsewhere during World War I. in World War I. So the value of money was not purely based on the supply and demand for fiat money.

52:27It was also based on the expectation that, whether it was greater or lesser, that you would go back to gold. So that tended to maintain the value of paper money. But Rothbard shows that, in fact, we have a system of fiat money, and he shows how it develops in this very short book, clearly written book. Okay, so it's a great contribution there. All right, now, he's not done. He's written actually a third volume of Man Economy and State, which is too radical, so the company that is funding him, the foundation, refuses to publish that third volume. They make him cut it down tremendously, take out the anarcho-capitalist analysis in power and market, What Became Power and Market, and he cuts it down, so it was only a two volume Man Economy and State.

53:21But he comes out with the full power and market, which was to be the third volume in 1970. And he gives us an exhaustive typology and analysis of the different types of government interventions, including taxing and spending. If you see that as an intervention, then you see the free market naturally as being a market with competing defense agencies. In 1973, he publishes Four New Liberty, a work in libertarian political economy, which presented the first full argument in defense of a purely anarcho-capitalist society, which was grounded on natural rights. Even though Molinari talked about it, he didn't ground it on natural rights like Rothbard did. and finally in 1974 he publishes a collection of previously published essays called egalitarianism as a revolt against nature. What else has been done?

54:15Not much else has been done during this period. Israel Kirzner finally publishes in 1973 his influential competition on entrepreneurship. The only other notable work in the Austrian tradition published during this period was the The Mists of Antitrust, which was published in 1972 by a very young economist, Dominic Armentano, which was a great Austrian critique of antitrust theory. Hans Sennholtz publishes a number of great pamphlets and articles and booklets criticizing contemporary monetary theory and policy. But it was mainly Rothbard. Now, the rebirth then did not occur in 1974. Why did 30 people come to South Royalton? 30 people came to South Royalton because we were all, to the last man and woman, and I think there was one woman there, maybe two, we were all Rothbardians.

55:07We had read all of these works that had been the fruit of this enormous period of creativity that Rothbard had between 1962 and 1974. Everyone was a Rothbardian. by the Austrian Guardian. Kirzner's book, yes, was very influential and it was a topic of discussion at the South Wharton Conference, but it had just come out. It was out for a year and everyone looked on it as, well, being consistent with Rothbard, just being a critique of the neoclassical microeconomic theory. So, it was 1962, I mark as the revival of Austrian economics, okay? Now, Rothbard's work inspired many graduate students and young members of, you know, young faculty members, right?

56:02I was telling some people at lunch yesterday, I was in college and discovered, you know, The Austrian School, I think, in 1970 or so, 1971, the junior college, and a great article in New York Times had come out about the radical alternative, libertarianism and the radical alternative. It was on the front page, this would never happen today, the front page of New York Times Sunday Magazine. And there were two Columbia pre-law students standing there, on the front page they had their fists raised, and they had a black flag behind them. And in it, they mentioned, I had read Rand, and that was really about it, I knew Rand.

56:49And I knew when I arrived at college my freshman year, I realized that there was a difference between conservatives and libertarians. and it was a sort of a magazine called, I forget the name of it, but it was a magazine in which you had the division talked about. So I consider myself a libertarian, but I didn't know much about Austrian economics. And I was taking all these lousy, you know, I took principles of macro, micro and then intermediate, macro, micro. And then, I happen to mention to someone, I read this article in the New York Times Sunday Magazine, and they mentioned this Austrian economist, who I had heard about the Austrian School in my history of thought class, as being von Bawerk, Menger and Wieser, and the teacher was actually a very good professor, and he was very, very excited about it, he wasn't an Austrian himself, but he says one of the first times in the history of thought that three such brilliant men had gotten together

57:47and work together on developing, you know, the same paradigm. So when I read that there's a guy who was in Austria, I said, what is he, 200 years old? So I had heard, so I mentioned to one of the conservatives in the Young Americans for Freedom, there were libertarians and conservatives in this chapter at Boston College that I attended, and we got along pretty well when we argued. He said, well, he's here, he says, I have a pam, and the next day, a pamphlet was called, Depressions, Causes and Cures. So I went home and it was 30 pages with a small little mini book. And I read it and it was by Rothbard and I just saw the light. I just realized that I learned more in reading that in 45 minutes than I did sitting through all the principles of macro and intermediate macro.

58:38And so I just became an Austrian. And so then when I went home that summer and Senior Year, I remember as I was mentioning I was a janitor, it was a depression, it was a recession during that, it was a stagflation, so I had to take a job as a manager, as a janitor. So I'd do my work real fast and I'd sit in this broom closet with this little light and I was reading through America's Great Depression. So I mean, my experience isn't, I'm not alone in that. All of these people throughout the country who were libertarians and who had discovered the Austrian School were reading Rothbard on their own or in very small groups. No one knew the other existed. So when you did have this South Wharleton conference announced, you had people who were already completely grounded in Austrian economics to a greater or lesser extent.

59:36By 1974 I had read Human Action, Price and Production, and so on. Most of Mises and Rothbard and Hayek. And once again, that's not peculiar. That occurred throughout the country. So that's why you had these people coming together, coalescing into a self-conscious movement in 1974. The rebirth started in 1962. Maybe the movement itself, as a self-conscious movement, began in 1974. And then, of course, it was reinforced when Hayek won the Nobel Prize in October of 1974. But without Man Economy and State, without Human Action, you would not have had the Austrian Revival.

1:00:25We can do it counterfactual, or even just with Human Action, one without the other wouldn't have... Well, there would have been no Man Economy and State without Human Action. In fact, I asked Rothbard once, I said, well, before you read Human Action in 1949, he was in graduate school, right? I said, I knew you were a libertarian, but what kind of economics did you hold? He says, basically, I read Alfred Marshall, I knew about supply and demand, I knew price controls were bad, but really, not much else. He says, I was really dissatisfied with economics. He says, I liked when the institutionalists attacked the neoclassicals and when the neoclassicals attacked the institutionalists, but there was no positive theory that attracted me. So Rothbard would have been some sort of a quasi-Marshallian or something without human action, even though he would have still been a libertarian, of course he was.

1:01:18All right, so now the other point I wanted to make, we have a little time here, is what happens is that after this coalition or this coalescing of a new Austrian movement in 1974, In 1974, there were two more conferences run by the Institute for Your Main Studies, which sponsored the first conference. In 1975, there's a conference in which young graduate students such as myself give papers, and senior Austrians such as Rothbard, Kirzner, Haslett, Hutt, Hayek was even there, Leland Jaeger and Ludwig Lachmann, they commented on our papers, and I actually had Hayek comment on my paper, which was really thrilling.

1:02:03And my paper was sort of on international monetary economics and Hayek wrote a great book on this in 1937 and the small book is called Monetary Nationalism and International Order. In any case, so I had cited that quite a bit in there and one of the first things he says was I had forgotten that I made a contribution in this area when he got up. But in any case, what happens then is, then in 1976 there's another conference at Windsor Castle in Great Britain and so a couple of books come out, a book comes out of the first conference in 1974, that book comes out, I think it came out in 1975, it's called The Foundations of Austrian Economics, Then a book comes out of the Windsor Castle Conference, I think it's called New Trends in Austrian Economics.

1:03:00So things look like they're going great. But then in 1977, there's a change in what we might call the property base. A billionaire, Charles Koch, begins to donate money to the Institute for Humane Studies. It comes under his influence and he helps create the Cato Institute, a think tank in Washington, a libertarian think tank. Initially he's very, very friendly to Austrian economics. He and the people that are working for him. But they begin to develop a different strategy about how to go about disseminating the ideas of Austrians. And one of those ideas, strategic ideas, is to downplay the radicalism of Mises, and to play up Hayek's contribution.

1:03:56Because Hayek is much more amenable to modern trends in thought. Hayek isn't a rigid praxeologist like Mises is. He's not as, I don't want to say rabidly, but he's not as opposed to mathematical economics as Hayek and so on. So there's a number of conferences now in which we begin to pass the message on to college students. In the early 1980s, I teach some of these, and they have names like spontaneous order conference. and you don't see a lot of Hayekian topics. Now we were told, we can certainly talk about Mises and Rothbard, there's a lot of readings from Mises and Rothbard, but the form changes, and when the form changes, when you try to moderate your message, eventually what you believe begins to change.

1:04:52So Mises, what I call in my paper, the period from 1977 to 1986, Austrian economics without you know who. Okay, and you know who was Mises, we weren't allowed really to mention his name. They all, IHS also begins to promote the work of Lachman. Lachman considers himself a radical subjectivist, and almost to the point of nihilism, okay, where he believes that economics can't really say anything about the real world, right. He wrote a very good book on capital theory in 1956, but he became more and more radically subjectivist. and so he's brought over, funding is given for a program in Austrian Economics in the late 1970s at NYU and then Lachman is brought over as a visiting professor every other semester he comes from South Africa and teaches there and I point out that now what begins to happen is that you have resources being poured into Kirzner's work and Lachman's work, Rothbard breaks Catallactics has an ideological break, not so much ideological, a strategic break with the Cato Institute.

1:06:08By 1983, the Cato Institute is beginning to hire Chicago economists because they're more amenable to the mainstream, more acceptable to the mainstream. So he breaks over that. I get involved, I'm a young faculty member by then, I get involved in an Austrian program for undergraduates at Rutgers University for two years. University for two years, I think we're given $20,000 a year to run programs. We run a massive conference on inflation in 1978, I believe it was, and the main speakers are not Austrians. I mean there are some young Austrians such as myself, John Egger, I don't know if Roger Garrison came, but the main speakers are people like Martin Feldstein, basically sort of right-wing And then Keynesians are invited. Axel Lehenhoeffer, who is sort of sympathetic to the Austrians, but is himself not Austrian, has a very big name, and a number of others.

1:07:06In other words, Austrian economics and its radicalism is beginning to be downplayed now. I don't know what's going on. It's great. These people seem to be free market. You also see the divergence between the three main speakers at the South Orphan Conference. When the book comes out, if you look at it, you'll notice that on the one hand, Kirzner is emphasizing the distinction between what he calls a Rubizian economizer, who purposefully allocates resources to given ends, ends that he knows, given his knowledge, and what he calls a Misesian actor, who is supposedly continually alert and seeking new ends, always seeking for new ends and means to pursue these new ends.

1:07:51But if that were true, if human beings were homo querens, meaning a seeking man, rather than homo agens, which is Mises' acting man, Mises talked about homo agens being the acting man, if it's really someone who is continually seeking, they never act. At some point when people act, you must act on the basis of what you know right now and how you rank those values. You're not continually seeking. At the moment of action, all seeking stops. So right now, let's say, at the point where I started to give this lecture, I had been seeking for different ways to present this material. But whether or not this is the best way to present it, it's the way that I believe is at the top of my value scale.

1:08:37So Kirzner is moving away from Misesian praxeology. You can see that in that book. And what's interesting is that Robbins, who Kirzner criticizes quite a bit at the South Wharleton conference, based his concept of choice specifically on Menger's economizing man. Mises, I found out from Guido Hulsman that Mises' German treatise, precursor of human action, had a subtitle, The Theory of Action and Economizing. So Mises believed in the Mangerian economizing, which is, given your state of knowledge at this point in time, you rank your ends, You rank your ends and you choose those ends, which your resources will allow you to choose, which are highest.

1:09:32Then if you look at Lachman's papers, you can't figure out really what he's saying. He's basically saying the market process is ruled by autonomous expectations. People expect different things continually. These expectations have nothing to do with the real world. They're detached from human purpose, judgment and property. The free market is incapable of systematically weeding out bad entrepreneurs over time. I asked him, I went up to Lockman, I said, don't entrepreneurs have the ability to forecast what the revenue will be on certain decisions? They make, he says, absolutely not. So, you know, Mises in Human Action says it's a datum of human action that people have better or worse judgement of the future. We have to take that, we have to accept that.

1:10:17So, you know, once again, you know, Lockman was a very dignified and formidable European professor so, you know, initially I accepted what he was saying, as many of us did, okay. Anyway, by 1978 there's really a headlong retreat for Mises and a praxeological paradigm and the split in Austrian economics is pretty open by that point. by that point. We had something called the Austrian Economics Newsletter, which I was a member of the Board of Editors on, and the late Don Lavoie. He wrote a review of the monthly Austrian Economic Seminar, which was held at NYU, where Israel Kirzner taught. And in one of the issues of that newsletter, he correctly identified two contrasting intellectual tendencies among Austrians, nihilism and Ricardianism.

1:11:12In other words, if you didn't follow Lachman and become a nihilist, you were a Ricardian, you were an objectivist, which was worse. It's better to mean you don't know things than to be an objectivist. He went on to declare, the modern Austrian School can be usefully analyzed as a theoretical tool of this nihilist Ricardian spectrum. So the other side, I mean he's on the Kirzner-Lachmann side, the other side recognizes that these two traditions are still with us, or now there's a different sort of tradition. Then they interview Shackle, who was sort of Lachmann's mentor in this nihilism, and he wrote this book, Epistemics and Economics, which was very influential among young Austrians in the late 1970s.

1:12:04He admits his approach to economics, quote, is a very nihilistic position, and I realize that. He also says, I've been saying for almost 40 years that economics isn't a science, and we ought not to call it a science, unquote. Finally, he says, my idea of welfare economics is that you choose an administrator, a man with a conscience himself and broad sympathy, You choose an administrator, a man with a conscience himself and broad sympathy, with a generous mind, and then you say, leave it to him. Well, it's a dictator. So this is his welfare theory. So let me just sum this up so I can get some questions in here. By late 1970, Rothbard is really deprived of an institutional base.

1:12:55He's teaching at a small college in Brooklyn. Many resources at his disposal. In the early 1980s, after he breaks with the Cato Institute, he's really alone. There's no one there to give him material sustenance. His resource base has shrunk. A second PhD program, which initially, not now, but initially was anti-Misesian and pro-Lokmanian, is opened up at George Mason University in Northern Virginia. It's not an Austrian program, it's a market process economics program. So again, they're following a strategic vision of soft peddling Austrian economics.

1:13:40But regardless, because Rothbard is a genius like Mises, he continues to write on his own, comes out with a tremendous number of papers, contrary to what many Austrians believe in the accepted version of the rebirth of Austrian economics. Rothbard did not leave economics in the late 1970s. He wrote papers like The Myth of Neutral Taxation, 1981, Law, Property Rights and Air Pollution in 1982, the Federal Reserve is a cartelization device in 1984, the case of the genuine gold dollar in 1985, the ethics of liberty comes out in 1982, and the mystery of banking comes out in 1983. So he's continuing to write despite his deprivation of any sort of institutional infrastructure.

1:14:29and Superstructure. Now, this is where the Mises Institute comes in. In 1983, Lew Rockwell founds, or in 1982, he founds the Mises Institute. And it's unabashedly inspired by the scientific vision of Ludwig von Mises. He gets together with Rothbard. Rothbard becomes the head of the academic programs. They talk about starting a journal, which they begin the journal in 1985, I believe. The review of Austrian economics has begun. There is a boycott, Rothbard asked many of the younger Austrians that he knew, such as Don LeVoy and Larry White and myself and others, to be on the board of editors.

1:15:17And they're going to name it the review of Austrian economics. Well, he gets, many of them boycott it and say, know that they don't want to do it because they want it to be run like a real journal, meaning that it has to, you know, in effect, they don't trust Rothbard to have the articles refereed, okay? So, and it's sort of a, and I have some of the letters that they wrote, because they copied me, thinking that I would join the boycott, but I did not. By then I realized that there was a split in Austrian economics, that I wasn't Misesian, and that Rothbard was the most important Austrian, I always thought that, the most important living Austrian economist at the time. So, Lew Rockwell then starts the Institute and it's really in 1986 when the review of Austrian economics begins that you get a real flowering of Austrian economics.

1:16:14Okay, you have Hans Hoppe coming over in 1985, and David Gordon being discovered, and many others, Mark Thornton coming to Auburn, to the PhD program. Now, the Mises Institute being at Auburn draws people here, unfortunately the PhD program was abolished a few years ago, But the Austrian movement now is in full bloom and it continues to grow, and it grows because of the resources and the institutional infrastructure that Lew Rockwell and the Mises Institute has made available to us. We would be nowhere as advanced as we are had it not been for the Mises Institute.

1:17:04really rescued Rothbard in the sense of giving him an institutional base and giving him an audience for his work. Very interestingly, there was a big fight over what the name of the journal would be and Rothbard stuck to his guns to call it the review of Austrian economics, instead of something like market process or something. Let me close with the following. In 1982, Rothbard closed his remarks on the controversy The Journal's name with the following statement. He wrote, At any rate, we have a tough road to hoe in Austrianism in general to rescue it from Lachmann-Schackel nihilism, Stanford probabil, because some Stanford so-called Austrian economists are talking about probability theory, modern philosophy, fuzzy Hayekianism. All this makes a hardcore institute all the more necessary.

1:17:57And we have that hardcore institute here at the Mises Institute. I'll stop, it's about ten minutes for questions. Yes? Do you have any comments on Fee and Leonard Reed and Anderson Holt? Yeah, I think... How they contributed to... Fee gave Mises an institutional base in the 1950s. I think it was very, very important. Leonard Reed brought people in. See, one of Mises' points that he makes is that it's important for the academics, not just to talk to one another, or to government policy makers, but to reach out to the people, okay? And Rothbard once told me that he was in a meeting when they were talking about starting a graduate school at Fee in Austrian economics.

1:18:43That never panned out. But Mises kept saying that we must, as professors in this graduate school, give talks to businessmen, give talks to laypersons. That is, communicate to them Austrian economics. Why? Because Mises strongly believed that the whole political system and economic system was driven by ideology, driven by the values that people adopted, and that this had to be widespread. So I think Fee was essential in keeping alive in the 1950s the Austrian tradition. And I think the same thing is true with Hans Sennholz. I wrote a little article on him. I think he was an extremely underrated but very important economist. He is a vocational economist who has taught many, many students who have gone on to become active in academia or in the writing of Austrian economics.

1:19:38Yes? I would also add that he just published six months ago that series of lectures for Professor von Mises from 1951. Did I get a hold of that? Did it just come out now, you're saying? I have to look and see what... No, I didn't see that. Well, it's never been in print before. Okay, yeah, I have to take... Oh, yeah, I'm definitely going to read it. Thank you. Under Richard Ebling, they're still doing a good job. Richard Ebling is a good Misesian. A little more tolerant than I am, but a very good Misesian. You touched on it briefly, but I was wondering if you could elaborate more on Kirzner's Seeking Man, the framework within which he can act, that is a new framework of means and ends.

1:20:41Whereas, if you follow that through logically, and I'm sure he would say that I'm going beyond what he's saying, you would never act. You're always looking for better ends to pursue and better means to achieve the ends you're pursuing. Whereas Mises' acting men are Homo Agens, we're acting at every point in time. I mean, time is scarce. We're acting at every point in time. Right now, I am choosing the words that I'm speaking to you. I'm doing it very rapidly and maybe not very well. But if I sat down and thought more about it, well, maybe I could have presented this in a different way.

1:21:26Maybe I could have written something down and put it here and put it up on the wall. But in order to act, you must suspend all seeking. Now, that's not to say that you can't learn from your actions. If that's all that Kirzner means, that's okay. In other words, ex post, you can make a mistake. You can say, aha, it didn't turn out like I thought it would. In similar conditions, next time I would do it differently. I would aim at maybe different ends next time. Let's say I buy a motorcycle and I drive the motorcycle around, and after a few near-brushes, in New Jersey you don't want to drive a motorcycle. A few near-brushes with bad drivers and driving in the rain. I say, geez, I shouldn't have spent that $10,000 on that motorcycle.

1:22:11All right. Well, if I'm in that situation again, I'll seek to do something else, to find a better use of my money. But as Hans Hoppe points out, it's not a controlled experiment. We're never in that situation again, in the exact same situation. So I don't understand. Now, I have given, Kirzner would not call him seeking man, OK? He would call, you know, he would say, this is the act of discovery, okay? Entrepreneurial discovery. See, in his economics, he has the entrepreneur as a person who discovers, okay, discovers opportunities for profit, and then he has these Rabinzian automatons, the consumers and the resource sellers, that simply react to the prices that are offered by the entrepreneurs on output markets and input markets.

1:23:08And so the entrepreneur becomes the seeking man. Now think about it. The entrepreneur never loses any money in Kirzner's world. The entrepreneur just reaches out, he sees things that other people don't see. So he reaches out and grabs $10 bills that are floating down that people don't see. Those $10 bills represent the difference between the input prices and the output prices. I don't like that way of looking at entrepreneurship. The revenue lies in the future. You have to estimate what that revenue will be. Ludwig Lachmann to the contrary. Make some forecast about it. You have to rank the best uses of your investment capital now. You have to stop seeking at some point. Make a commitment. When you make that commitment, you make it based on your best forecast of the future, And then you use your investment capital to bid for resources today and then hope for the best.

1:24:02And the better entrepreneurs will find that they earn a profit in the future, others will learn that they lost money. But those circumstances will never reproduce themselves. So I'm opposed to this whole idea of action being really tied up with discovery in some sense. It's tied up with choice. It's choosing. And if that's what Rabindia Maximizer is, then that's what I think is the core of Austrian economics. I don't like the word maximizer. I think we're just choosers. Yes? Do you have any idea why Menger currently dropped off the base of the earth? You know, he got involved in arguing with the German historical school.

1:24:51He got off the track. He was going to write a three-volume treatise. His principles was an introduction to a three-volume treatise on economics. That would have been great. He wrote two very good theoretical articles in the 1890s, after the debate with the historical school ended, in the early 90s. Then after that, he didn't write much. He retires in 1903, still fairly young, lives until 1921, but Hayek went through his papers Hayek said that he just kept writing and rewriting his economics, and as he got older and older, it just became worse and worse. And so it's almost incomprehensible, the stacks of papers that he kept rewriting. I don't know. Mises somewhere says that Menger and Boehm-Bawerk were both very depressed because they saw the end of Western civilization coming with the interventionism and socialism and wars and so on.

1:25:49That may have sapped his productivity. Menger is a very interesting case and I'd like to know more about that. There's also, by the way, hints, or Mises hinted, I've heard this a couple of times, that Boehm-Bawerk could have committed suicide in 1914. There are hints, I mean, I don't think it's necessarily true, but he was depressed. Yes, I think this might be the last question, yes. I'm curious, is Schumpeter's capitalism, socialism, and democracy, instead of that capitalism can't last, socialism will come and will last, he's got the instances of our population problems, the Gaelians, I like that. To what extent is Schumpeter really an Austrian in practice rather than an Austrian?

1:26:47and Eurasian, that's why he believes that prices, if you know the prices of the outputs and you know the available inputs, well then you can have these imputed back without an entrepreneur, okay? So he believes that you can directly impute prices back to the inputs, which means that you solve the problem of socialism. There doesn't have to be markets for inputs, there doesn't have to be markets for capital goods, they can be collectively owned, right? Now, Hayek criticizes him, but it's not on a Misesian basis. Hayek criticizes him because of the dispersed knowledge problem, not because there's no entrepreneur who's trying to appraise future prices and use his forecast to bid on the markets for inputs.

1:27:35That's where the prices of inputs come from, that's where your cost of production comes from, and that allows you to calculate economically. So, he's an Austrian by birth, but there is strains of Austrianism in Schumpeter, there's no doubt about that. Mises and Schumpeter didn't like each other. When Mises came to the United States, they met once for tea, and his wife said it was very, very frigid. But they didn't get along. I think they were rivals in Boehm-Bawerk's seminar. Okay, I think we can stop here. Okay, thank you.