Austrian Economics Then and Now

0:00My talk this morning is on Austrian economics then and now, and basically it's my own personal perspective on what the Austrian economic movement was 25 years ago compared to what it is today. I was an economics major at St. Bonimacher University during the late 1970s and early 1980s. I liked economics, and there were certainly plenty of important economic issues in the economy, all of them bad, like inflation, unemployment and recession. But even though I liked economics, it was not completely satisfying. I thought supply and demand was great, opportunity cost, analysis of price controls, all of that seemed intuitively obvious and fine.

0:54The things like calculating price indexes and indifference curves were a different matter and didn't seem to me to be scientific enough. Then I discovered libertarianism and eventually Austrian economics. In between I read Milton Friedman, which I thought was a big improvement and somebody that none of my professors had ever mentioned, even Milton Friedman's name, but yet even and Friedman was still unsatisfying. Finally I found the Austrians and I read Israel Kirzner, Murray Rothbard and Ludwig von Mises and I felt like I had found the science of the market. I was especially excited about the Austrian theory of the business cycle and I wanted to really study that in detail because I thought it was a scientific way of understanding the the Macroeconomy and believe me the economy of the 1970s and early 1980s was a wild ride.

1:56The next semester I was signed up to take a course on business cycles and another one on the Russian economy so I thought finally you know I'm going to get some Austrian economics in some of my courses but the course on business cycles was a complete disappointment. Not a word about the Austrian theory of the business cycle, even though every other possible theory of the business cycle was presented and discussed at great length. I asked my professor about the Austrian theory and he said that it wasn't in the book. And that he didn't understand it anyways. The course on the Russian economy was, shall we say, more sinister.

2:43Remember the Soviet Union had invaded Afghanistan and the Iranian Revolution took place in 1979. The Iran-Iraq War started in 1980. I was already involved in the anti-draft movement and believe me, I wanted no part of the Middle East or the Soviet Union. My professor regularly sung the praises of the Soviet Union and its economy. He did show that there were certain and drawbacks like waiting in line to buy goods. But the biggest impression he gave was that the Soviet Union was becoming progressively more powerful and would likely take over the world. Every week he would hand out copies of articles from magazines that would display comparisons between the United States and the Soviet Union and between all NATO countries and all Warsaw Pact countries.

3:35I'm sure you might remember some of these. The charts would represent the size of, say for example, comparative armies. You know, if you had ten divisions, you got one little toy soldier. So if a block had forty-five divisions, you'd get four and a half little toy soldiers in the chart. One week it would be nuclear weapons, the next week it would be tanks and artillery pieces, then we would see, the next week would be aircraft carriers, followed by nuclear submarines, and even things like the amount of farmland or oil reserves and of course in each case the Soviet Union and the Warsaw Pact countries would be made to seem superior. There was never a word about starving people, environmental devastation or that many of the Soviet soldiers were not even given bullets to use in their guns either because there simply were no bullets available or because the Soviet officials did not trust the soldiers with Bullets. Years later, only in retrospect did I grow suspicious of my professor. He

4:43used to spend his summers in Hawaii on some kind of international fellowship, although he never published anything in his entire career. I did have one professor, Scott Sumner, who provided me with a directed readings course in the Austrian theory of the business cycle. He was a recent graduate of Chicago and a relative had given him a copy of Human Action. I saw it on his bookshelf one day and so he did know what the Austrian theory was about and I will be forever grateful for his willingness and assistance as well as his relative's intervention in his graduate studies. I graduated in 1982 and I had to go to graduate school because the economy was in the tanks.

5:30There was no jobs available, essentially. After thinking long and hard, I chose to go to Auburn University for my master's degree in economics. It seemed to me to be the most Austrian-friendly program and was one of the best master's only program graduate in economics in the country. Like most graduate students, I was very disappointed with much of this program. Especially, there were two remarks from my professors that are burned into my memory. One told me that the Austrian Theory of the Business Cycle was a grisly embarrassment. Another told me that the Austrian School was a historical fact. It did exist, but there were only a handful of Austrians still working in the profession, And none of them were at graduate programs putting out new PhDs in economics.

6:27So this school of thought was an historical fact, but it was doomed. It was going to be essentially extinct. Even in Roger Garrison's macroeconomics class, all we discussed was Keynes' general theory, which by the way was a lot of fun, but not much about Austrian theory in particular. In fact, towards the end of the first year, I decided to drop out of graduate school and to take a job offer back home as the economy was starting to recover, and I had even decided not to take my final exam in econometrics. At that time, I found out about the Ludwig von Mises Institute, that they were moving to Auburn, Alabama. They were going to set up seminars, conferences, publications, and that they were going to give me a fellowship.

7:22So this meant for me only one thing. I would have to start cramming for my econometrics exam, which I barely passed. To top it off, at the same time I learned that Auburn would have a new PhD program in economics, which I quickly transferred into. Talk about being at the right place, at the right time. So later on in that summer, armed with only a A Good Idea, a few newsletters, and an electric typewriter, Lew and Marty set up shop in the College of Business at Auburn University in an office that was smaller than the last office I had as a graduate student. Things started to pick up quickly. I was put in charge of the Austrian Economics newsletter.

8:07We had the gold standard conference in Washington D.C. in 1984, which is where I met Ron Paul. And by the way, I've long been a gold bug. I collected coins as a boy, and I made $70 off of selling my junk silver at about the same time the Hunt brothers were trying to cover a quarter of the market in silver, which is the only time I've ever sold, by the way. So I think I have a very good track record. Over the next few years, with the help of the Mises Institute, myself and other graduate students met and had lectures from just about everybody in the Austrian School, including Murray Rothbard, Israel Kirzner, and James Buchanan of the Public Choice School, and as great as all this was, it made you realize that if you got to meet every Austrian economist in a couple of years' time, that you're dealing with a school that was very small.

9:12In fact, at the time, the Austrian School of Economics was not as big as some economics departments. The Mises University was started in 1986, and it was a great program. And I still remember in the early years, thinking and talking to the other students and saying, you know, this is really great, but we were wondering, can we really keep this thing going? You know, before everybody in the world who really wanted to go to the Mises Institute, Institute at the Mises University had already been to one. It was that, you know, our vision of most people at the time was very limited, and my point here is that this was a very small enterprise and a very fragile one, and few people had any vision of what it might actually become.

10:02One of my jobs at the Mises Institute is to answer academic questions from members, from from students and from the media around the world, and I love doing this, but very often members of the Institute especially will express a deep sense of frustration and pessimism about the state of the world, about our government, and about the place of the Austrian School within the broader frame of economics. And I understand that, but from where I sit, I can't help be optimistic about the Austrian School and the world in general. If we start with the world, just think in terms of China and the Soviet Union have all gone to much more market-oriented policies. This is also true of the former British Empire. All the countries of the former British Empire have gone from state socialism to more market-oriented economies. We have a world in which technology is zooming and standards of living are booming. Sure, the United States is a basket case in terms of its economic policies, war and deficits. Sure, we have a president who appears

11:18to want to speed the day of our national bankruptcy, but the funny thing, not funny haha, but the funny thing is that people around the world seem to understand this. In fact, it's gotten The Austrian School has certainly grown from the situation where every Austrian economist knew every other Austrian economist in the world, to the current situation where we don't even know all of the Austrian economists, and we find out about new ones every week. New educational programs are coming online as well as independent institutes inspired by Austrian economics.

12:10Instead of the irregular Austrian economics newsletter, we now have several journals and professional conferences devoted to Austrian economics. We have a website which is the leading most trafficked economic website in the world. These resources combined with the Mises University and the Rowley Summer Fellows Program at the Mises Institute means that our graduate students now have, are no longer handicapped when attempting to earn a graduate degree and attempting to earn an academic position. Indeed, I would almost say that they have an advantage. Not only is the Austrian School getting bigger, it's getting younger over time.

12:56The group of speakers here today may be getting a little long in the tooth, but there are many, many younger economists coming online every day and they are very bright and well-trained. Not only are we getting bigger and younger, the school is getting more refined in terms of theory and more radical in terms of policy. And not only we're getting bigger, younger, more refined and radical, the Austrian School is increasingly recognized in the mainstream press. Whether it's the Wall Street Journal, Barons, The Economist, or the Financial Times in London, the Austrian School is getting increasing recognition. For example, John Desaard, the senior economics columnist of the Financial Times, said recently The only good research on the real estate bubble is being done at the Mises Institute in Auburn, Alabama. Only in our publications would you read about the bubble before it was too late, and only in our publications could you read about when the bubble turned into a bust.

14:07In fact, my research and publications demonstrate that only the Austrians have seen the major turning points in the economy. Prior to the Great Depression, economist Irving Fisher was the architect of modern mainstream macroeconomics and central bank policy. He declared in the fall of 1929 that America had now created a perpetual prosperity. And people still basically are following Fischer's architecture. In 1928, Ludwig von Mises published an entire book demonstrating the fallibility of Fischer's approach and that the economy was soon to go under in a crash.

14:54In the late 1960s, Murray Rothbard and Henry Hazlitt, among others, warned of a stagflation that would consume the 1970s. Meanwhile, the Keynesian chairman of the President's Council of Economic Advisers declared in a book that the business cycle was dead. The book was published the same month that the economy first slipped into recession. During the late 1990s, again, it was the Austrians who recognized the bubble in tech stocks. A good dozen Austrian economists published this in print and warned of the inevitable implosion that was poised to happen. Meanwhile, mainstream and Wall Street economists did not see the bubble coming and were generally getting even more optimistic as the bust approached.

15:49So, in all of that research, I've finally had the opportunity to study and apply the Austrian business cycle theory that had so turned me on in the late 1970s. Far from being a grisly embarrassment, it has been, I think, thoroughly vindicated through experience of what the Austrian economists have done and what mainstream and Wall Street economists have failed to do. So I want to thank all of you. I want to thank Lew Rockwell from snatching me from the grasp of a normal life and allowing me to live out all my dreams. Thank you very much.