Hayek and His Lamentable Contemporaries

0:00It's pretty well agreed that we're now living in an economic crisis. It's also pretty well agreed that most economists, especially so-called establishment economists, don't know what to do about it. This is pretty unusual considering that up until about five years ago, the ruling economic establishment not only believed but also trumpeted far and wide that they knew exactly what to do about all economic problems. Everything had been solved. As a matter of fact, I think about five years ago, The distinguished Keynesian economist Robert Solow of MIT wrote something to the effect that macroeconomic problems, macroeconomic meaning things like business cycles, inflation, recession, depression, and so forth, that all macroeconomic problems have now been solved and everything is, macroeconomic theory has been taken care of. Now usually when somebody says that, that's the sort of beginning of the deluge. Sure enough, only a few years Years later, the same economists have virtually thrown up their hands and say, We don't know what's going on. We really don't know what to do.

1:00This does not mean, of course, that they've resigned their jobs in Washington, by the way. Which leads me to my favorite story. Anybody who's heard this, I apologize for repeating it. About, I think, in the recession of 1958, which was the first recession where the phenomena of the inflationary recession first began to appear. This was the first time when the prices were still rising during the recession. Here we had an authentic, officially authenticated and certified recession, and yet prices, instead of falling, which is what prices are supposed to be doing in a recession, instead of falling, prices were still going up. They weren't going up very much, but they were going up. Arthur Burns, who at that time had just resigned as head of the Council of Economic Advisers in the Eisenhower administration, I was giving a lecture up at Fordham, which I happened to attend, giving the usual Keynesian policies, which I'll go into a little bit later, what to do about recessions.

1:54Basically, when there's a recession, you pump spending into the system, you meaning the government. One pumps, the government pumps spending into the system, thereby lifting the economy upward, and when there's an inflation, the government takes money out, or takes spending out of the system. You work several variants or changes on this theme, and that's essentially the Keynesian and the Establishment Program. And so Burns was going into explaining this policy and during the question period, I unfortunately, I was a brash young fellow at that time, I said, well, Professor Burns, what do you do if the policy, what you're supposed to do, what the government is supposed to be doing is pump in deficits during a recession and take out spending or have higher taxes or surplus during a boom, what do you do if the both are happening at the same time as it seems to be happening right now?

2:40What do you do if there's an inflation and a recession at the same time? Well, he said, his first reply was, well, there's no problem there because the recession will soon be over, and so forth. And I said, well, okay, and it was soon over in 58. But I said, what happens, Professor Byrd, if at some future date the same phenomena will recur and intensify? We'll have a severe recession, a longer and accelerating inflation. What then would you recommend? And he stopped for a moment and he said, well, in that case, we'd all have to resign. Well, they haven't resigned. The rest, of course, is history. The phenomenon has arrived and is with us right now, and nobody's resigned. It's one of Rothbard's laws of political science that nobody ever resigns from government unless your hand is caught directly in the till. The Nobel Prize to Professor Hayek is very interesting because it comes in this context.

3:29It comes in a context where establishment economics doesn't know what's going on and really admit it. The unusual part of the Nobel Prizes is that all the other Nobel Prizes which have been awarded by the Swedish Academy and going to people who are economists who are completely in the opposite camp as Professor Hayek. In other words, economists who are mathematical forecasters and also left liberals, if you want to use that term, who believe in government planning of the economy. For the first time, the Hayek Award goes directly and completely contrary to this tradition of the Nobel Award, which surprised all of us enormously. Perhaps the clue to why the Nobel Committee did this, presumably they were hedging their bets, was that in the award they hailed Professor Hayek as his pioneering work in the theory of money and economic fluctuations.

4:23Well, they didn't say what this pioneering work was. What I'd like to do tonight is to go into this and try to explain why I think not only that it was Professor Hayek's work pioneering, but it was also the only correct analysis of what's a business cycle's past, present and future. The whole phenomenon of the business cycle began approximately in the mid-18th century. Before that, there was no real business cycle. Businesses would be going along in a certain sort of even pace and then something would happen. Usually the government would mess things up, of course they are accustomed to do. The king would confiscate all of it, would decide to raise money fast by confiscating all the gold of the merchants. And this of course would cause a severe depression. It wasn't a business cycle sort of thing. It There wasn't any kind of mysterious boom bust phenomenon, it was simply that the king suddenly confiscated everybody's money and depression set in.

5:18So that was the sort of thing that would happen until about the mid-18th century when we began to have this peculiar phenomenon of boom bust cycles which appear not periodically but recurrently. In other words, the phenomenon of inflation and prosperity and so forth, rising prices is usually followed by a bank collapse and depression and unemployment, and then followed again by a recovery and then a boom and so forth. And this is kind of a puzzling phenomenon because it didn't fit into the general economic theory. And so shortly after this phenomenon appeared, economists began to try to explain what was going on here. Why was there this recurring phenomenon, not directly, well, clearly related to the king confiscating somebody's money. In other words, something else seemed to be going on here.

6:03couldn't clearly pinpoint the cause. Well, as time went on, two groups of theories began to develop. Of course, there are a lot of different kinds of theories, but essentially they could be classified into two groups. One group, which has been dominant generally, and certainly dominant up to, well, right now, up until the Austrian school revival. Generally, the dominant school held that the root cause must be, since around the middle of the 18th century, at about the time business cycles first developed, and the Industrial Revolution, Industrialization and the Modern Capitalist Economy

7:01Marx was one of the first economists to propound this theory, and John Maynard Keynes, in his famous work in 1936, not only also had a similar view in establishing Keynesian orthodoxy, but also said very explicitly that before him, before Keynes wrote, that classical or free market economists had no theory of the business cycle, they had no explanation of the business cycle or for unemployment or depression, they hadn't thought about it, they hadn't really given their attention to it, he was the first one to really do it, and he therefore understood that depression was caused by some virus of underspending in the private market economy which was supposed to be made up by government spending. In other words, if the cause of depression, say, is the efficiency of spending, obviously the government is the Deus ex machina, a god out of a machine, but the government can magically come out of the system and spend more.

7:54Obviously if you can print money, he didn't quite say that, but that's clearly the implication. The Keynesian Vision of the Economy was, which has been dominant up until the present, so this is not just an antiquarian kind of exercise, the picture was essentially this, while a free market economy can do very well when it handles so-called microeconomic problems, It can clear the market. It can solve the problem of how much wheat to produce or how much brandy or whatever. And it can set the prices and production in these various areas. In the microeconomy, the free market works very well. However, in the macro and so-called macroeconomy, the free market doesn't work. The theory being the free market can't provide the proper amount of total spending.

8:44And so the Keynesian picture of the economy is essentially one where a free market economy is essentially one where the economy is like an automobile and you're driving down a very narrow sort of tightrope or ledge with two abysses on either side, one of the abyss of unemployment which occurs if there's too little spending, the other is the abyss of inflation which occurs if there's too much spending And the task of the government, the government is sort of the pop-up driver of the car, obviously if the economy is a car you have to have somebody driving it. So the task of big brother government is to be at the steering wheel, keeping, fine-tuning the economy in such a way as to keep the key total spending perfectly precisely attuned to the so-called full employment line, The economy doesn't fall off on the one hand of the abyss of depression and the other hand of the abyss of flesh.

9:36So the task of government is to keep the economy on this line. The Keynesians came to the conclusion very early that they had the proper tools of doing this. They could pump spending in, as I said before, in case there's too little spending. They can push the steering wheel to the right, so to speak. They can take spending out if there's enough flesh. This was essentially what we can call the established Keynesian orthodoxy of what the government is supposed to be doing and what causes recession. But this has clearly not worked, and it's pretty evident by this time, even the Keynesians, who are desperately flaring around to try to find some other explanation of why they're, why the drawing board, why they have to go back to the old drawing board. Because obviously what's happening now is that there's accelerated inflation. At the same time, there's a recession, and there's recurring recession, which we're going through right now.

10:27And as Arthur Burns said, we all have to resign, except nobody does it. Okay, that's one school of thought, one general area of thought, which locates the cause of the business cycle, the cause of depression, the cause of inflation, somewhere within the market economy, somewhere within the industrial capitalist system. There is another group of economists, another tradition of economics, which has been neglected until very recently, which says something very different. Actually, this was the view of the Ricardo and the classical economists of the 19th century in rudimentary form. Essentially, what the second group says is that something else happened in the middle of the 18th century, not just the Industrial Revolution, Another institution which is directly the cause of the business cycle, and that is the banking system, more precisely the fractional reserve banking system.

11:18And even more precisely than that is the government involvement of the banking system through the central banks. The first simpler model of this, the so-called monetary view of the business cycle, came about with Ricardo and the classical economists. Essentially they had a very simple kind of view, but it was pretty good considering it was in the 19th century economics. Basically what they said was that the government and the banking system, the government promotes bank credit expansion, expansion of the federal fractional reserve banking, money and credit, the supply of money and credit go up, this raises prices, creates a prosperity, a phony prosperity, a real prosperity with whatever value they took on that. This causes the inflationary boom part of the cycle, and then what happens is that the gold of banks in the country begin to lose gold to other countries because as domestic prices go up and foreign prices still remain the same, gold grains out to other countries until finally the pressure gets very intense on the banks, finally gold grains out and their bank credit has increased and so the reserve ratio keeps dwindling and finally they've got to stop expanding and contract in order to save themselves

12:29This confaction causes the recession part of the business cycle. During the recession, money supply falls, prices fall, and gold flows back in for the country and recovery. And then after this happens, the banks are ready to start in again, start expanding again. This is a fairly simple model of the business cycle, but it's pretty accurate as far as it goes. It pinpoints, in my view, the basic cause of the business cycle as not embedded deep within the industrial capitalist free market economy, but within the banking system and the government controlled banking system. Why is the government and the banking system always desirous of increasing the money supply? Well, it's fairly simple. Any group which seizes control of the money supply, in other words, any group which has the only legalized...

13:17But let me put it this way, the government and its controlled banking system is the only institution in society which has the right to counterfeit, in other words, the right to increase the supply of money. If any of the rest of us start counterfeiting, printing dollars, not only do we go to jail, we go to jail very, very swiftly and for a very long period of time. The counterfeiter has always been one of the most reviled criminals on the government books because a private mugger gets off with a slap and a suspended sentence, perhaps, because he's only mugging individual citizens. But the counterfeiter strikes at the root of the government's monopoly on the creation of money, which is much more important for the government than the mugger. So one of the first things the government does early in the game is to seize control, in other words, acquire a compulsory monopoly of the right to print money.

14:04And my contention is, if you have the right to print money, you're going to use it, like anything else, because you can print money, you can spend it. Or you can print money and you can lend it out to favored groups, politically favored groups. So the natural tendency of government and its controlled banking system is to inflate. There's no mystery about it. This is what they always want to do anyway. There are certain checks on the process, such as the fact of losing gold, the gold standard, losing gold abroad, which runs on the banks before the IRC came in in 1933 to stop that. But in the natural course of events, there are basic market checks on this phenomenon, which keep the process at least a little bit in hand. We've managed to eliminate most of those checks at this point, by the way.

14:49So here we have some of the basic model, which places, I say, the blame for the business cycle in the banking system and the government, I should say, the government controlled banking system, the inflationary process of money creation. This, however, wasn't really a totally satisfactory theory of the business cycle. It left out a lot of stuff, for one thing. It left out a problem. Why is it, for example, that there's always a greater boom and bust in the capital goods industries, the machine tools and industrial raw materials and construction? Why is there a much greater business cycle in that area than there is in consumer goods? Why is there a sudden collapse of business forecasting? Businessmen, after all, are sort of expert forecasters. They usually know what's going to happen fairly well. How come they won't suddenly collapse at the crisis point when the recession or depression arrives?

15:38And so these various deficiencies meant there were certain gaps in the theory, which had to be fleshed out. Well, what happened was that Ludwig von Mises, the founder of the modern Austrian School, began the so-called Austrian Theory of Business cycle in 1912 when he published his Theory of Money and Credit. What he did was he built on the McCarty Foundation and the Classwell Foundation, also added the insights of the Swedish economist Knut Vigsel on the key difference between the free market interest rate, the so-called natural interest rate, and the loan rate of banks. And what integrated this whole thing into a theory which is, far as I'm concerned, is the only theory which is integrated completely with regular economics, with so-called microeconomics.

16:25Mises simply outlined this very briefly in 1912 and was left to Frederick Hayek in the late 1920s to spin this whole thing out in two beautiful books, which I still recommend as the best books on the topic, still in print I believe, Prices and Production and The Monetary Theory of the Trade Cycle. The Monetary Theory Trace Cycle introduces this whole subject, sets the thing in perspective, and the prices and production is more technical. Both of these were written in the late 20s. What Mises and Hayek did in the late 20s, and the thing which really struck the rest of the economic world of economists, was that they more or less predicted the Great Depression. In 1927 or 28, the whole world of establishment economics said there was going to be permanent prosperity. There ain't going to be no depressions no more, no more.

17:10And everybody says this, we were living in what the Coolidge-Hoover administration is called the New Era. And the reason was that we had created this wonderful engine called the Federal Reserve System. The Federal Reserve System was to keep everything in an even keel. There was sort of like a pre-Keynesian theory. The idea was if prices fell, the Federal Reserve would pump money in, if prices rose, the Federal Reserve would take money out. As a result, there couldn't be any depression. In the meantime, while this euphoria was being engaged in by the established economists, Mises and Hayek in Austria were saying there was going to be a depression because, well, because what? Well, for one thing, they too, along with the classical economists, said that the cause of the business cycle was not the industry or the market economy or industrialization, but the banking system.

17:56The problem was not so much in the price level, not so much the fact that prices went up and money was pumped in, but that when inflationary credit expansion was pumped into the system, it not only tended to raise prices, it did something even worse than that, in a sense, it tended to distort the production system. In other words, it tended to cause an over-investment in things like construction and capital goods and industrial materials, and an under-investment in consumer goods. And that the longer this happened, this part of this was wrapped up in the fact that interest rates were pushed down artificially by the expanded bank credit. And the longer this process continued, the longer the government kept pushing this, the more severe the recession would have to be. The idea being this, and this is I think unique in the history of economic thought.

18:43The idea being the recession, instead of being a terrible thing coming from sort of a God-given blight or something, In other words, something like an earthquake or a plague, which has to be fought, the recession becomes not that, but a necessary medicine, which is the consequence of the real evil, which is the inflationary boom which was created by the government itself. In other words, as the government and its banking system pumps in more credit to the economy, it not only raises prices but also the storage production, it causes an over-investment in all sorts of unsound investments and unsound machine tool and construction and so forth. And therefore it becomes more and more necessary to have a recession in order to shift resources back into the healthy free market kind of economic system.

19:32It's necessary to liquidate these unsound investments as fast as possible. And if the government tries to eliminate the recession by pre-mortem the agony, in other words by stopping this process in all sorts of ways, all it will do is pre-mortem the agony and lengthen and make the depression chronic instead of acute. For example, the last, Benjamin Anderson, the late economist for the Chase National Mag, at the time, The last free market recession or last free market recovery was 1921. It was a very severe post-World War I depression. Prices fell very rapidly. Unemployment went up very sharply. However, the depression, even though severe, is just the government didn't interfere with it. Didn't try to help out the unemployed by unemployment relief.

20:17Didn't try to shore up unsound investments through government lending operations. Didn't try to create deficits to cure. and so forth. They didn't do anything, and the result of the depression was over very, very rapidly. As a matter of fact, by the time the government figured they should do something about the depression, it was all over. In 1929, when the Hoover administration came in, Hoover acted very, very quickly, unfortunately, and engaged in all the new deal programs, which we associate with Franklin Roosevelt, which were really begun by Herbert Hoover. The whole business, government loans, unsound investments, keeping wage rates up, keeping prices up, deficit spending, cheap credit, no panoply, new deal measures, really begun by Hoover.

21:05In a recent interview, Rex Tugler, a famous Franklin Roosevelt advisor, admitted that Hoover started the whole thing, but he couldn't say it at the time, he couldn't admit it, it was a political fight. Well, the result of the New Deal program, Hoover raised about New Deal was, and instead of the recession being over in approximately 9 or 12 months, as the 1921 recession was, it was lingered for about 11 or 12 years until World War II got us out of it. So the Mises-Hayek approach then is a sort of public policy that emerges from the Mises-Hayek position. It's virtually the direct opposite of the Keynesian policy. In other words, the Keynesian policy is if there's a recession you pump spending in or you pump money in, if there's an inflation you take money out.

21:55The Austrian view is if there's an inflation, first place, stop inflating, which means stop creating new money and credit through the government's controlled banking system. and the banking system. And if there's a recession, don't do anything about it and let it work itself out as quickly as possible. Now obviously this is the direct opposite of the Keynesian prescription. It's also pretty clear as to which policy the government is going to adopt when any kind of a crisis emerges. You see, for example, every time there's a slight problem with liquidity, the cry goes up among businessmen, among bankers, The liquidity crunch is precisely the Austrian retribution catching up with the inflationary boom.

22:45The government always exceeds the short-run pressure to ease the problem, thereby pumping more inflation. One of the differences about the 20s was, one of the reasons why most of the economists in the 1920s did not forecast the depression is because in those days prices did not go up. The general price level remained about constant. The official theory was that the price level remains constant. There can't be any problem with inflation. The Austrian view, however, was that in a normal course of events, prices don't remain constant. They fall. And we can see this, in other words, if you allow a capitalist economy to proceed unhampered. Productivity goes up as new inventions, as mass production comes in, etc. Prices will tend to fall. We see that, for example, in TV sets, which cost about $2,000 in 1948.

23:58System, thereby creating the whole boom-bust cycle even though prices did not go up. And the Austrians, as I say, foresaw that. But what happened was, Mises and Hayek had predicted the 29 Depression, so when the 29 Depression came, their prestige went up among economic circles. Also, fortunately for Anglo-American economics, Hayek at that point left the University of Vienna and came to London School of Economics. and he started gathering around him the best minds among younger English economists. And so from 1931 approximately until 35, 36, most English economists adopted this Austrian position. Adopted the view that the cause of the business cycle was bankrupt expansion, cleaner distortion of production, that the government should leave things alone, stop inflating, leave things alone, and so forth.

24:51Sir John Hicks had won the Nobel Prize last year, was an early Hayek student, and Alvin Hanson, and so forth, and so on, a whole group of people who later shifted. The Austrian theory was adopted precisely because it was the only one that it predicted and also could explain the Great Depression, and it began to be adopted also in the United States. Just at that point comes the so-called Keynesian Revolution, Lord Keynes wrote his book in 1936, and the whole gang flip-flopped. What happens is, and this is very often true in the history of thought, by the way, not just in economics, but social sciences generally, it wasn't that the Keynesians refuted the Austrian theory, the Austrian theory was just forgotten. Nobody ever refuted it, they didn't talk about it, it's just the fashion changes, something like ladies hemlines, fashion changes, and they just stopped talking about the Austrian stuff, they deal with a completely different set of items, and that was it.

25:44The Keynesian Revolution was facilitated by the fact that Lord Keynes was extremely popular in English elite circles, so to speak, and English professors all knew each other in those days. He was very tightly knit group. He was a very charismatic personality and so he swept the whole group with him. Also, the Keynesian, one of the significant things about the Keynesian theory was, for the first time in the history of economic thought, there have been many differences among economists before that, This is the first time that economists, sort of official economists, professors and writers, etc., actually advocated inflation and deficit spending. Before that, economists almost unanimously advocated balanced budgets, sound money, the gold standard, and so forth. And so, in other words, here we have Keynesians advocating what governments would love to do anyway.

26:31Because before that, economists were sort of like the Peck's bad boy, or sort of the doer pessimist in the group, you know. The governments would try to advocate all sorts of wild boondoggles and fancy schemes. The economists would always say, no, it's not going to work. The economists were sort of the official wet blanket among intellectuals and statesmen and so on. But here we have Keynesians who were not wet blankets. They were very exuberant about the idea of government inflation, deficit spending, and so forth. of Worth, and so their ideas were adopted with great enthusiasm by the official political establishment. Lord Keynes said when he was in his book, when he was answering criticisms that in the long run his theories won't work, and one of his very famous statements was, well, who cares, because in the long run we're all dead.

27:21Well, the problem is, of course, that right now Keynes is dead and we're still alive. In other words, we're living in the Keynesian long run and we're suffering from it. If we're interested in then solving the problems created by the Keynesian long run, which we're now living in, we have to return, it seems to me, to the so-called Austrian approach. And what's happening is that as the Keynesian theory is becoming more and more discredited, younger professors and graduate students are more and more adopting and rediscovering the Austrian approach, which to those of us who are sort of veteran Austrians is really like a real phenomenon. At any rate, what happens in the 1920s is a bog settles on American economics, namely institutionalism.

28:06I apologize to Pete Fetke if he could. Institutional, I consider institutional, frankly, as dumb German historical school types. German historical school people without any scholarship or background or anything, A moronic version of the German. Essentially we're saying there is no economic law, there is no economic theory, the only institution is we should study institutions. Dorfman, who was an institutionalist, tried to claim there are certain subtle differences between them and the German Historical School. I could never really figure them out. I think there are distinctions without a difference. So what you have then in the 1920s is almost no theory going on. Institutionalists like Ely, John R. Cummins, who was Ely's assistant at Wisconsin, was founder of the Wisconsin Idea and he was an interpreter and assistant and post-millennial pietist, head of the Spice Chair of the Institute for Christian Sociology, et cetera, et cetera.

28:57He was the only guy actually studying institutions. Most institutions just gas around a lot, attack everybody else. They don't really do anything. Thomas actually did a lot. He studied legal property rights and American labor history in which he was an excellent labor historian. He did something, so I have to honor him for that. Of course, Dorstein Veblen, famous institutionalist and General Pain in the Neck

29:46The most interesting thing about Bebelin is sort of a Galbraith that couldn't write very well. Galbraith is really totally taken out of Bebelin, except Galbraith is a good writer and Bebelin wasn't. Galbraith of course never acknowledges Bebelin either. Belly aching about conspicuous consumption in the affluent society, all too affluent, and all the rest of it. I don't think it's really worth discussing more than that. The only interesting thing about Bebelin is he didn't get along with the left liberals. Being extreme leftists, he only got along with right wingers. I've seen that happen in other places. It passed along as a phenomenon. Eugene D. Genovese, a brilliant Marxist historian, probably the only scholarly Marxist historian around, has broken everybody on the left. The only person he talks to are right-wingers. So in the 1930s, in the United States, there was a vacuum in American economics. There was no theoretical, no theory at all, really. They were just sort of moping around talking about institutions. There was somebody else who talked about institutions.

30:37and then so bingo when Keynes comes in it sweeps the board the path was open for a Keynesian revolution because there was no real competing theory here this brings me to the Keynes stuff Hayek, well you all know this Hayek was Mises's most famous and best student got an appointment at Austrian Academia, by the way there's a great article out, just came out in Hope History of Political Economy, a long article by Eileen Carver, the wife of Axel Landhoff about Austrian emigres in the United States, Austrian economists I talked about all these people, Mises and all these people, a great and loving length. Austrian economics was tightening up. I mean, academic posts were, and still are in Europe, very scarce. And so they started emigrating to the United States. And Hayek emigrated to, got an offer of a post in London, London School of Economics. Lionel Robbins was a Misesian and brought the knowledge.

31:26He was a professor in London School, a young professor then, and brought Hayek over. He got a chair, and Hayek then hits the English system like a thunderbolt. Hayek's lectures, Prices and Production, was originally a series of lectures, a great book by Hayek, originally a lecture of the London School, Monetary Theory and the Trade Cycle, was originally in German, and then translated quickly, so Raman started sponsoring the translation of a whole bunch of stuff, several books by Hayek, and Hayek converts all the London School people like that, almost everybody we now think of as campers, Keynesians were originally Hayekians, money and business cycles in particular, Abba Lerner, John Hicks, Caldor, Nicholas Caldor, all the top English economists were originally young Hayekians.

32:16And Keynes, Keynes of course was a big shot intellectually, all the English intellectuals knew each other. In the United States nobody knows anybody else particularly, it was all very diffuse. There it's all in London, Oxford and Cambridge, a small restricted area, and Keynes was a glittering big shot for a long time. First of all, she started out as a big shot mathematician writing a bad book on theory of probability, a book hailed in its time, and was also a big intellectual and a member of the Bloomsbury set, a feet artistic set of Bloomsbury, a friend of Virginia Woolf and all these people, and then became an advisor of the Treasury in World War I and fought against the Versailles Treaty. So he was very well known as one of Marshall's top students at Cambridge. Marshall being in Cambridge was the heart of the English economic establishment.

33:04Pagou and Keynes were his two top students. Of course, Keynes had to destroy Pagou in order to establish his dominance, which he did by the help of Joan Robertson and other intellectual thugs of the time, went around and upset Pagou and Robertson and his other people, and disrupting classes and attacking them and so on. Keynes wrote this treatise on money. Keynes sort of waffled around it. I think the best book was The Tract on Monetary Reform, in which he analyzes, I think, great insight, he analyzes hyperinflation and runaway inflation as the people taking back their resources from the government. In other words, the government is printing money all the time and grabbing resources from the public. And hyperinflation is a method by which the public speeds up prices ahead of the increase in counterfeiting, so they can at least keep some resources. Interesting insight. Treatise on Money was supposed to be his big book on money and Hayek destroyed it with one of the great demolition jobs in the London School of Economics.

33:57By the way, Economica was a marvelous publication. It was early in the mid-30s. It was published in the London School and had a lot of Austrian stuff in it, Mabinzi and stuff. Robin's, by the way, Essay on Nature's Significance through Economic Science, which was the big methodology book in English, until Friedman's evil article. I disagree with Kirzner on this. Kirzner thinks that Ramaz is really modern positivism and not Mises. I think it's semi-Misesian. It's Mises diluted. The first edition of Robin's book was even more Misesian. The second edition, which is the one we know about, which is in the library, cuts out reference to Mises and includes stuff about indifference, Kirz, things like that, beginning to waffle. The Theory of Money and Credit, a long last, 1935, and the first time, first English translation, gets it translated.

34:51By the way, this is an interesting footnote on Keynes. Keynes reviewed The Theory of Money and Credit in German when it came out. Keynes was the editor, top editor of the Economic Journal, which is the big Cambridge publication, Hayek says, well, he said it's an interesting book, but there's nothing new in it. If anything you can say about The Theory of Money and Credit, that isn't it. He then writes in his memoirs later, well, he said he didn't really know German very well. He knew enough German to read stuff he already knew, but now he couldn't absorb any new ideas in German. That's okay, but how did he have a goal to review books in German? Hayek demolished The Treatise on Money in two long, late articles in Economica, much of which applies to the general theory, by the way, the attack on capital theory and so forth, Alleged Capital Theory and the rest of it. Keyes then goes back to the drawing board. Essentially acknowledges that he's been smashed

35:37and writes his new work, The General Theory. When Keyes' General Theory came out, Keyes being a big shot was reviewed by big shot. Every journal was reviewed. Go back and read the scholarly reviews. They're all totally negative. Pagood attacks, there's Weiner attacks, there's Knight attacks. They're all big shots, including Alvin Hanson. The case of Alvin Hanson is interesting. Alvin Henry Hanson was a free market type. Professor of the University of Minnesota wrote a semi-Austrian book called Business Cycle Theory about 1933. Not really Austrian, I didn't really understand it, but it was pretty favorable. He also wrote a book called Economic Something in an Unbalanced World, or something like that, in 1931, attacking the idea of public works to cure depression, great free market right-wing work. General Theory came out, he attacked it, and announced it in reviews.

36:22I don't think there was any favorable review of it. Two years later, that swept everybody. Everybody was converted to Keynesianism. including Hanson who became the country's outstanding Keynesian. So what are the reasons for the sweeping of the board? I forget now whether it was Samuelson's Foundations when he wrote the introduction. He said, in a wonderful world it was to be young enough to read Keynes' The General Theory when it came out and to be under 30, because the mind was open to this great new revelation. So why was this super successful? I went to college and graduate school at a time when Keynes' General Theory had just come. We were reading Keynes' The General Theory. Nobody reads The General Theory now, because we read Keynesian interpretations of it. This is before the Keynesians came out with the equations, so we actually had to read this stuff in The Real Thing, The General Theory.

37:10Totally incomprehensible work. Keynes was a good writer when he wanted to be, when he was clear-headed, like in the book on reparation, Versailles Treaty, Economic Consequences of Peace. It was a very clearly written book. When he was a muddled thinker, he became a muddled writer, so nobody could really understand. Because he contradicted himself on every page. For example, he'd say, the key to my thought is that saving always equals investment. Always, always, always equals investment. A page later he said the key to my thought is saving always differs from investment. Kind of muggy. Now if you're sort of an average rational person, you'd say this is garbage, and pfft, of course in a wastebasket, which is what the older economists did. So as a result, you have the younger people saying, ah, we're the only ones who can understand the master. It's sort of a cult situation. All those over 30 are locked into their own paradigm. Now we can This is one of the intellectual reasons, plus the fact that Keynes was important in intellectual life in England, they all knew him, but the interesting thing is why did the Hayekians shift over, the Misesians, in other words, every Misesian, every Hayekian in England except Hayek and Lachmann, partially, I think even Lachmann really came in, everybody except Hayek came in, by the end of the 90s, by the early 30s, everybody in London School, all the younger people in England were economists, were Hayekians.

38:24Misesian-Hayekians, by the end of the 30s they were all Keynesians, all shifted over, and all the Misesians shifted over, partially shifted over. So if you read these people, Machlub, for example, one of Machlub's, low point of Machlub's intellectual career is his book on the multiplier, the foreign trade multiplier, came out in the 40s, straight Keynesian analysis. But the thing about these people, Machlub and Haberler, and all these people so loud, the Keynesianism, are shifted over, there's always a Misesian strain there, all the good stuff is Misesian, everything else is Keynesian. They're never quite pure canesies, they always have a slight throwback, holding back. Gerhard Tintner is a big econometrician. He's always slightly apologetic about it. What's true is that we have assumptions here which aren't really true, etc., and he's a Mises student. So the same way with Morgenstern, whose critiques of GNP statistics and all that are fantastic, within the framework, trailing clouds of Misesian glory, so to speak.

39:14So why do they all shift over? Now, the case of Hanson is, I think, fairly clear, at least According to Wilfred King, an old duffer I met in the 40s, who was the originator of income statistics, unfortunately, in the United States, national income statistics, also a price stabilizationist, I think he taught, he preferred the Fisher of Young Irving. So Wilfred King was a free market person, laissez-faire person, except for money and stabilization. He said, yes, yes, we had a lot of money, he taught, I think, in Minnesota with Hanson. Hanson was a very good young lad when he was in Minnesota. As soon as he went to Harvard, he changed. That's certainly part of the picture. According to Schumpeter, he has a very good assiduous critique of Keynes, and in general theory, the reason for the big shift, in addition to the obscurantism and so forth, is the fact that that's what the government wanted.

40:00First of all, governments always want to incur deficits and spend more. That's the essence of government. They're always straining at the leash. And the only people with their finger in the dike, so to speak, holding us back and attacking, have been economists. There's always economists who are saying, no, no, you shouldn't intervene, you shouldn't increase the budget, you shouldn't have deficits. And so, all of a sudden, you have Congress that say, no, no, the great thing is to have deficits. The more deficits, the better. The more spending, the better. It's good. And the guys who say it's bad are really reactionary old footage of it, even though they're not into the new dispensation. And so, of course, the government loves Keynesians, and the Keynesians love the government. We have the marriage of intellectuals and government and the state. Keynesians then take their place in the planning structure. For example, I don't know if you know this, but there was a world, I remember a world

40:40where there was no council of economic advisors. It was a magnificent world. have no planning, no budgetary, no rotten forecasts in the next five years, which are dead wrong, no positions for economists, and that sort of stuff. It was great. And then everybody became more or less Keynesian, even off the burns of my professor. Claimed he wasn't a Keynesian, but of course really was, and so it was all intros, infighting within the Keynesian framework. By the way, I was around when the Keynesian equations first started coming out, Molayani and all these people. My own view is that the current revisionist view is that Keynesians distorted Keynes. Keynes is really a great guy, and Keynesians are really the bad guys. I don't believe it. I think Keynes was a Keynesian, insofar as there was anything at all. In other words, the equation is the only thing that made sense out of the master, made sense out of these contradictions, and they made a certain sense.

41:28They were all wrong, at least their coherent structure. Keynes immediately died early enough that he can't be challenged whether he agrees with the Keynesian equation or not. Hayek said that just before Keynes died, he wrote to Hayek and said the Keynesians are going too far, and I don't really credit that too much. I don't credit letters like that. It's sort of a pleasant trade rather than anything else. So as far as I'm concerned, Keynes is a Keynesian that can prove it otherwise. And as I say, justify deficits, etc. The best reputation of Keynes is kind of a sad story by Henry Hazlitt, who wrote a magnificent book, which nobody has ever read, as far as I know, called The Failure of the New Economics, Hansler did this page by page, going through the entire general theory, a mighty effort, and doing Misesian critique, a hardcore Misesian critique, all the way, every step by step.

42:15Nobody paid it, nobody read it, nobody paid attention to it, much less refute it. That was it, sunk without a trace. I guess for two reasons. One is Hansler did not have a faculty position, did not have a PhD, therefore he was not an economist, quote unquote. He was ruled out as a paradigm by the establishment. Secondly, of course, he was anti-Keynesian and Misesian, which is bad, also bad. It's a great book. It's very clearly written, which of course is a black mark against it, too. It also doesn't deal with the Keynesian, neo-Keynesian equations. It deals with the actual general theory. So I guess that's another black mark. I don't see why it has to deal with the equations. It's got the whole thing there. They also then follow it up with a collection of criticisms of Keynes, of negative reviews for critics of the new economics. So at any rate, not having a scholarly union card and all that, his book was totally ignorant.

42:59Hutt is another great case. Hutt was also a non-Keynesian. Hutt was an Edwin Cannon student in London School. And it's very close to Austrianism, the Cannon-Hutt position, the London position. And Robbins was a student of Cannon. It was very easy for him to become an Austrian. All these guys, they all shifted over. Robbins, Hicks, of course the whole gang. To an amazing extent, they recanted. I mean, very few people actually publicly recant. As far as I know, the only people who really did are ex-communists before publicly recant. and Hicks and Robbins. Robbins wrote an excellent book called The Great Depression, a Misesian analysis of the 1939 depression in 1934, and later in life he attacked the book as being a bad book, a terrible book, nobody should read it. This, of course, was a Misesian book after he became a Keynesian and became a lord and a government planner.

43:44Hicks' Theory of Wages was essentially Austrian, first edition. He later repudiated it as being a terrible book and evil and Austrian and so on and so on. In later life, Hickson became a sort of semi-Austrian again. He appeared at Austrian conferences, looked benignly upon the situation, wrote a friendly story about Hayek, as Austrianism became recrudescent, reviving. I think the reason for the shift over, these people knew better. I mean, actually these people, Mises and Hayek, knew about Keynes, knew the fallacies, and couldn't have been swept away in that young ecstasy like Samuelson. The only explanation I can tell is sell out.

44:38The only explanation I've gotten with this, and usually it's a pretty fairly good explanation. One of my favorite phrases from that is a famous phrase in the Woodward Bernstein book and movie on Watergate. If you remember when Woodward can't figure out what's going on, he's totally lost, all his leads are gone. He goes to the Deep Throat, and he says, Deep Throat, I'm lost, I have to stop the investigation, tell me what to do, Deep Throat. And he says, follow the money. And of course then this revised the thing, and that's it. So I think, looking at the money factor, or the economic factor, I think it's important to hear stuff under it. In other words, the guys who left the Misesian-Hayekian camp and became semi-Keynesians or Keynesians got posts at Harvard, Princeton, et cetera, and the others didn't. I'm not going to go into critique of Keynesianism, I haven't got the time, unless it's not really...

45:26It's a pretty daffy theory, filled with fallacies and riddles of it and so forth and so on. My favorite critique is the multiplier. I can demonstrate on Keynesian grounds that if you give me $1,000, there will be a huge $2 million multiplier, and the whole national income will go up by about $2 trillion, the magic multiplier. What we have, as I said, there's been an Austrian revival since about 74, I think the, actually in 73 we had the first Austrian conference ever since old Austria, the first United States Austrian conference with young Austrians in it. In 74 Hayek got the Nobel Prize and it was an interesting thing, when he got the Nobel Prize all the economists said, who the hell is Hayek? Who's this guy that got the Nobel Prize, which is the aim of every economist, right, objective.

46:14And who is he? So they had to go back and find out what he was at least, even for sociological purposes. for Political Purposes, and this created a Hayek boom, which is still on. One of my pet peeves, I wrote this in an article in Quarterly Journal of Economics many years ago, is that government functions by statistics. If you cut the statistics out, government can't function at all. I mean, they can't even pretend to plan. They won't know what's going on. In other words, the market provides information to entrepreneurs, businessmen, or whatever, through the price system, etc. So businessmen don't really need much statistics, but they need the statistics they themselves generate, and knowledge about qualitative knowledge of the market. The whole overall statistics, all the stuff that's launched from the Department of Commerce, Department of Labor, etc., is all for government information, basically.

47:00Now, the government, the bureaucrats, the politicians, they do anything, they have to have statistics, because they don't have any real-life, real-world knowledge except for statistics. Therefore, if we cut the statistics off, they're helpless, they can't do anything. So as a laissez-faire person, I've been advocating for many years, eliminating all appropriations of government statistics. And statistics in general has been in service of the state. In other words, the first statisticians in economics were German historical school people who realized they had to use it to plan. The government had to use it to plan. And 19th century statisticians, that was their aim. We have to gather statistics so the government can plan things. We have to know how much unemployment there is so the government can secure it, et cetera, et cetera. Richard T. Ely, my old buddy, who you already mentioned, the government was God's major instrument of redemption, was of course a big empiricist statistician type. I mean, he himself did not gather statistics. He was in favor of it. He said we need empirical

47:49data to quote mold the forces at work in society to improve existing conditions. Samuel Rubbles, who was the American delegate to the International Statistical Congress in Berlin in 1863, said that quote statistics are the very eyes of the statesman, enabling him to survey and and Scan with clear and comprehensive vision, the whole structure and economy of the body politic. It's true, the converse of it, if you strip the government of statistics, they can't do anything. They can't even pretend to know anything. Great. Carol Wright, who was one of the first commissioners of labor in the United States, who was a big statistician, was influenced by a student of Ernst Engel, a German historical school member, the head of the Royal Statistical Bureau of Prussia and the founder of Engel's Law, and whatever that is, of consumption.

48:34Richard Ealy was a former student of Engel. Henry Carter Adams was also a progressive economist along with Ealy and established the Statistical Bureau of the Interstate Commerce Commission to carry on Engel's great work, believing, quote, that every increasing statistical activity by the government was essential for the sake of controlling naturally monopolistic industries. And Irving Fisher, whose life is dedicated, even though fairly free market in most many areas, whose life is dedicated to stabilizing the price level from manipulation and Money and the Federal Reserve, there was work on the making of index numbers to try to show there was a scientific index number, a solution to the index number problem, which of course there isn't. There ain't no scientific index number. There's no such thing as a scientific index number of the cost of living, for example, because everybody's got a different buying pattern. In other words, I buy a lot of books. The cost of living index, which pinpoints the famous, the classic Dayton, Ohio housewife with two kids and the wife of a steel worker,

49:26The book price, which has been skyrocketing as you all know, never gets in the inflation index. My inflation index is very different from the Dayton, Ohio Housewife index, right? And that's not, of course, stamped out. As Fisher said in his book, Making of Index Numbers, until this difficulty can be met, stabilization can scarcely be expected to become a reality. You can't stabilize the price level if you don't know what the price level is. The private of that, boy, we have them. All of these people, Carroll Wright was a Faustian, a progressive reformer, Henry Carter Adams was the son of a New England pious congregational preacher, a missionary in Iowa, who started out to study for the ministry of his father's alma mater and over the theological seminary, Irving Fisher, okay, we get to Irving Fisher, one of my pet peeves here, the alleged greatest economist of the 20th century, was the son of an Rhode Island congregationalist pious preacher, watch out for sons of preachers, I guess, his parents were both of old Yankee stock, his mother a strict saboteurian,

50:24He was an inveterate reformer of a crusading spirit. He was an unbelievable prohibitionist. He wrote three books during the 1920s saying the prohibition works, proving by statistics the prohibition was good. He also believed in the outlawry. You know, get this, he was particularly enthusiastic about purging the world of such iniquities of civilization as alcohol, tea, coffee, tobacco, refined sugar, and bleached white flour, all of which he And of course, he loved Benjamin Strong because he was stabilizing at the price level. Then we have Wesley Clare Mitchell, institutionalist, founder of the National Bureau of Economic Research and beloved figure, student of Thorstein Veblen, and who also was dedicating himself.

51:10He wanted a lot of government statistics, such as in World War I, to be able to plan the system. All these guys, by the way, love World War I. They all put their spots in the collectivist planning system. As Dorfman, who was a friend and student of Mitchell, put it about Mitchell, that he was clearly the type of social scientist, paraphrasing something on Mitchell, saying that clearly the type of social invention most needed today is one that offers definite techniques to which the social system can be controlled and operated at the optimum advantage of its members, of Mitchell. And Dorfman says, to this end, Mitchell constantly sought to extend, improve, and refine the gathering and compilation of data. Mitchell believed that business cycle analysis might indicate the means to the achievement of orderly social control of business activity. I mean, see, all this time Mitchell was claiming to be a value-free scientist. Value-free scientists are gathering statistics in order to do what? In order to be able to plan a system. That's allegedly value-free.

51:59Mitchell's wife and collaborator, Lucy Mitchell, in her memoirs, talking about herself and her husband, said that Mitchell envisions the great contribution the government can make to the understanding of economic and social problems If the statistical data gathered independently by various federal agencies were systematized and planned, then the interrelationships among them could be studied. The idea of developing social statistics not merely as a record but as a basis for planning emerged early in his own work. So he joined war collectivism in World War I. At the end of World War I, an interesting event happened. Namely, the American economic... This is December 1918, one month after the armistice. The American Economic Association and the American Statistical Association have a joint meeting. I don't think they've ever done that before since. A joint conclave in Richmond, Virginia, fairly close to Washington, where they had all been percolating during the war.

52:47And they have a joint meeting with presidential speeches by Fisher to the American Economic Association and Mitchell to the American Statistical Association. And they were very optimistic. Boy, they loved the war, and they loved the post-war world, which they figured would be an extension of the war, which in a sense it was. Because Fischer looks forward to an economic rural reconstruction that would provide glorious opportunities for economists to satisfy their constructive impulses. That means plan the world, right? A class struggle, Fischer noted, would surely be continuing over distribution of the nation's wealth. But by devising a mechanism of what he called readjustment, the nation's economists could occupy an enviable role as the independent and impartial arbiters of a class struggle, these disinterested social scientists making the crucial decisions for the public good. In other words, this is the role of the intellectuals, and Fischer and Mitchell saw themselves, and all these other guys did too.

53:35Everybody else is involved, they're all bound by their own class interests, they're all selfish and narrow and so forth and so on, businessmen, unions, et cetera, et cetera. We the intellectuals, the planners, levitate above the class struggle, where we believe only in the truth, and therefore we are the ones who are divinely appointed, or whatever, to plan everything for everybody else, to decide, make all of these decisions based on the national interest, on the common good. In those days they all said that openly, nowadays it's much more, this is before the science of public relations had been advanced to a high art. Everybody was pretty out front with their position. That's why it's interesting to study this whole period. The engineers would say, we're engineers, the society is complex and thus therefore we should plan the whole world. Engineers and economists should plan, of course, a little squabble is there, but we should be the top planners. Most interesting, guys, Charles Steinmetz, a great inventor,

54:22So, General Electric's main inventor, General Electric being a Morgan firm, by the way. Steinmetz called himself a socialist. He wanted world socialism. And his view was that the world should be planned and run by the corporations, obviously mostly General Electric, and that the top inspiration and guide for the world corporation should be the great world inventor, obviously, namely himself. In other words, his view was of a General Electric world with him running it. This is the idea of socialism, and I guess it was socialism in a different form. And Mitchell proclaimed that the war led to the use of statistics as the president of the American Statistical Association. Not only is it a record of what happened, but it also is a vital factor in planning what should be done, same thing as Lucy Mitchell said. He also said that war had shown that when the community desires to attain a great goal, within a short period of far-reaching social changes can be achieved.

55:11The need for scientific planning of social change yet has never been greater. The chance of making those changes in an intelligent fashion has never been so good. The peace, he said, will bring new problems, but it seems impossible that the various countries will attempt to solve them without using the same sort of centralized directing now employed to kill their enemies abroad for the new purpose of reconstructing their own life at home. This is a constant theme from then on, for the rest of the century, the New Deal period, and World War II. We did such a wonderful job in World War I planning everything, running everything, and cartilaging everything. Why can't we do that for peace as well as war? Why can't we use these great means of collectivism for peaceful purposes? Then he says, in contrast to the quantitative physical sciences, he tells the statisticians, said Mitchell, that the social sciences are still immature, speculative, and filled with controversy and class struggle.

55:58But quantitative knowledge, in other words statistics, could replace such struggle and conflict by commonly accepted precise knowledge, objective knowledge, amenable to mathematical formulation, and capable of forecasting group phenomena. A statistician, Mitchell O'Pine, has quoted either right or wrong and it's easy to demonstrate which, as a result of precise knowledge of facts Mitchell envisioned, we can achieve, quote, intelligent experimenting and detailed planning, rather than agitation and class struggle, unquote. And then he says, to achieve these vital goals, economists and statisticians would provide, of course, the crucial element, for we would have to be, quote, relying more and more on trained people to plan changes for us to follow them up, to suggest alterations, unquote, namely for himself and his buddies. What you have is a naked grab for power. By the way, the Marxists called Mannheim, German Marxists, was presented with a problem. If everybody is determined by their class interests, what about intellectuals? Marx was obviously bourgeois-type and so forth. Where do they fit in?

56:52His answer was that intellectuals are free float. They levitate above the class struggle. So everybody else is determined that we're free. This is, by the way, the typical determinist argument. All you guys are going to tell me that I've somehow broken through this and I have free will. There's some good material on all of this. There's two left-wing books, one by Guy Alcon. It puts it in university press. I think it's called The Invisible Hand of Planning. It's about the 1920s and all these social scientists have been grabbed for power. And he quotes Mitchell and Fisher and so forth. Of course, what he's saying, he's attacking the centrists for selling out Marxism and Leninism or whatever. It really doesn't matter what position the author is as long as he gets the right stuff. James Gilbert has a book called Designing the Industrial State, came out about 20 years ago, about what he called Collectivist Intellectuals of the Progressive Era and World War I.

57:41He's the one who talks about Steinmetz and General Electric Socialism. David Noble has a book, America by Design, which is a paperback, about scientists and the nationalization of science in World War I, how the scientists all grab for power and industry. He said, boy, World War I is great because we have government direction of science. Channel of science and research in different areas which of course requires more funds than you get outside it Designing the industrial state There's a lot of good stuff on this which is neglected by mainstream historians There's a lot of stuff to be done, a lot of research This is really sort of tapping the surface of it I think Manning wanted me to mention some overall references to the history of economic thought There's no really good book on the history of economic thought on an extent The most inclusive book is by Henry W. Spiegel, called The Growth of Economic Thought, the title is all very similar, it's available in paperback and it's huge, like 900 pages, and it's got everything in it, because he's wrong about almost everything, but at least he's got the facts.

58:44Development of Economic Thought or Growth of Economic Thought, something like that, it's published by Prentice Horace, it's widely available. He's got a very good annotated bibliography, about 150 pages. It's very comprehensive, it's the best part of the book. He's got all these people in there, he's got all the groups. The really best book book is Alexander Gray, but it's very short. It came out in 1931. It's called the Development of Economics. It's the same, similar type. And what he does, he only covers a few groups. He covers Smith, Ricardo, Marx, stuff like that. He winds up with the Austrians, interesting. If you know, he wrote it in 1931, he ignores everybody. He ignores Marshall and all the other stuff, goes right to the heart. He's also a great writer, one of the great writers in economic thought, witty, sardonic, and all the rest of the perceptive. Dimash has people with two sentences, things like that. He also wrote a book called The Socialist Tradition on Socialism, great on that.

59:31He has one quip about one of these crazy socialist books, one of these ten volume books or something like that, impossibly written, he says. The sort of book he said you give is one of the six books that Hitler's gonna take to the desert island. The Schumpeter Book is a great book, but it's very obscure, and it's also eccentric, since the Schumpeter is great on some things and bad on other stuff, and you can't predict which is going to be at any moment. Schumpeter was a very interesting economist. I didn't have the time to go into his doctrine. It's the only business cycle theory worth talking about, aside from Mises-Hayek, I think.

1:00:18And I think it's wrong, but it's very interesting. It's derived from the Valrazian. In fact, he was a Valrazian. Unfortunately, he was a Boehm-Bawerkian and shifted to Walras. Although he was probably the best tribute to another economist in the world, ever written by Schumpeter's obituary, memorial article to Boehm-Bawerk. He was magnificent, part of the ten great economists, I think. So I'd say that I think it's a very interesting endeavor, an interesting writer, The original business cycle theory was so obviously wrong, they had to create new epicycles to run your work on business cycles. He said there were several business cycles all going on at once and then accumulating. Unfortunately, it was impossible for bringing the Kondratchev wave into American thought, of which it has still not yet been purged.

1:01:03He's an interesting writer. He didn't finish this book. He's unfair to some people. I can't really recommend it as a key book, as an overview. There's not too much else. Scott has a pretty good book. It's very old. There are certain specific things about specific writers, of course, but as an overall situation, that's about it. Unfortunately, Eklund and Abert's textbook is extremely hoigish. In other words, the sort of thing where everybody is great. Austrians are great. Keynesians are great. They're all a contributor to the world outlook, you know, so for an Austrian it's kind of lovable, because here I'm cited and I come in on a bear favorably, but everybody else is cited favorably too. The thing is I think that since Austrian economics is true, there's a certain desire for truth on the part of people, the truth value of people.

1:01:50For scholars it's supposed to be even more the truth, value of truth, doesn't always work, but in some cases it does. You see, you have this shining truth coming up as being combated by other influence. I think the truth, the shining truth, also what then begins to happen is, eventually faulty theories begin to collapse. So, what happens is that for various reasons, theories begin to collapse. Take Keynesianism, for example, which was dominant for many years. And the government loved it, and they loved it, and everything was great. Keynesianism began to decline on a theoretical level when the equations were worked out. When Modigliani's equation was worked out in 1948, they found that the whole thing, the rest of the assumption of wage rates being rigid downward, otherwise nothing works. But it's not supposed to be that. It's supposed to be all blamed on capitalism. Now we find out the rigid wage rates downward have to be blamed either government or unions.

1:02:37So the whole political focus begins to shift. Other things begin to pop up. The magic multiplier gets reduced to about one, by the Keynesian statisticians. The Magic evaporates, and gradually, on a theoretical level, Keynesian begins to lose out. Not replaced by anything particularly good, but at least the Keynesian paradigm is losing out. And then, when the Keynesian political predictions flop, okay, in other words, and the Keynesian rests basically on the idea that you have, either you have a recession or you have an inflation. In a recession, you pump money in, you pump spending in, whatever proportion you're going to do it. When you have an inflation, you take money out, or you take spending out. What do you do, however, when you have inflation and recession at the same time? As Rand would say, blank out, there's no answer, and this of course began to appear after World War II, especially in 1973, recession, we have a galloping inflation along with the recession, then they had to bug out, and they had it, almost Keynesianism as an intellectual force stopped, doesn't mean the Keynesians stopped, or as the Marxists would say, the ruling class in this case had lost their will to rule, they didn't know what the hell to do, you want to fight, you deflate, what do you do, you know, and so they sort of hung in there trying everything, putting your foot ultimately on the accelerator, on the brake, trying to hope the

1:03:46Something works. And basically, that's what the Keynesians have been in ever since. And that's why the Friedmanites won out. The Friedmanites not won out because of high theory, they won out because Keynesianism was dead, basically. And so people said, hey, maybe the money supply is important, maybe these jerks out there in Chicago are right. Friedmanism was tried. So that's, it was a reality check on filthy theory. Eventually it begins to come a clapper, both on a theoretical ground and on a practical policy ground. Then it begins to collapse. So there's still Keynesians around it, but they really have nothing to say, particularly. So, you know, spinning wheels. And what's interesting enough, I'll have about the monetarists politically, and the Reagan administration. When the Reagan administration first came in, there were four contending economic groups. There were the old-fashioned conservatives, of which libertarians were sort of like extreme variant. Of course, lost out within a year, all kicked out or left, like Martin Anderson, people like that.

1:04:31They were out. Those who were in favor of a low budget, big budget cuts, big tax cuts, not inflating, they were out very fast. Then, so you have the monetarists as a supply side, and the white wing Keynesians, contending for power. The monetarists were big at the beginning, like Sprinkel becomes shooting his mouth off, the Secretary of the Treasury, they were in charge of the money supply. The Reagan administration, what they did was, they put the Keynesians in charge of the budget, because they were interested in the budget, they put the monetarists in charge of the money supply, so each one gets his own turf. So the monetarists were running the Fed for a couple of years, even though Friedman kept saying it's not really monetarist, it's a lot of baloney. 2% off for one 10th of an inch. It really was a monetarist policy for several years. Total flopperoo in monetarist own terms. Since Friedman says that science is prediction, the whole point of science is prediction. They kept making predictions, they kept flopping. Outrageous flops. So if you live by the prediction sword, you're going to die by the prediction sword. And when the prediction comes to a clapper, you've had it. The monetarists were discredited. A whole bunch of folded predictions, including a prediction that you could tamper inflation slowly, turn down inflation without having a recession. Which of course, any law stream could have told them it was impossible.

1:05:36And that was it. These few predictions, as a result, have politically discredited, not so much in the economics profession, but in politics. As a result, Spickler has been relegated to the Council of Economic Advisers, which is now Siberia. No influence, no power, none. He's kept his mouth shut. Now what's happened is the Supply Siders are really Keynesians anyway, become Keynesians. They're sort of a lovely stoopot coalition of Supply Sider Keynesians and Conservative Keynesians. By the way, another thing, Supply Siders are people who now take up the torch of Abba Lerner, saying there's no problem with public debt. by the way, on supply-side, I would recommend everybody read, to understand supply-side doctrine, Jude Wienyski's famous book, The Way the World Works, which came out just before the Reagan election, in the 1980s, 79s.

1:06:23I'm thinking about the Wienyski book, which was the best seller, but I can't find anybody who's ever read it. Wienyski's book is very interesting, it's fascinating, because he has a whole philosophy of history at work. The philosophy of history is basically this. He's what we can call very kindly a right-wing Hegelian. He says, history is the working out of the will of the masses. The will of the masses is correct. It's always correct. The masses know the truth. So the function of the intellectual and the politician is not to enlighten the masses, because the masses know everything anyway. The masses are always right. It's to embody the correct will of the masses into institutions, into history. History is a providential, ambivalent, and upward march by which the masses' correct will is embodied in history. So he has got the two ends in life for Wienyski, the two goals of history, one, world government, and two, world pure democracy because democracy, the more democratic the better because the masses can express their will faster.

1:07:10I swear it's in there. As a matter of fact, he's the only person who's written in the last 50 years who loves World War I. Usually, you know, the famous story of the right-wingers love the Cold War and liberals love World War II. He loves World War I. Why World War I? The most destructive war, the pointless war, because it got rid of the kings. He considers the kings absolute evil because they're not democratic. He says that Hitler and Stalin, despite their various defects, were better than the kings or they were at least democratic. They came in and were, I swear it's in there! But I had to review the book for somebody, I had to read the damn thing. I'd like a sort of scholarly contribution, at least. Thank you very much.