The Pre-Austrians

0:00I guess modern economics is a scientific doctrine that begins with Cantillon, Richard Cantillon, who is a very interesting character, too. And I really love Cantillon, who's hardly talked about, but to put it in a plug for myself, the general libertarian study is the current issue, now out as an old Cantillon issue. Most stuff has ever been written on Cantillon. It came out of a conference on Cantillon several years ago. Catalan has essentially the praxeological methodology, he's got the methodology of abstract reasoning. He starts off with a rule of one landlord, in other words, one landlord owns the whole country. Not so far off, because the French situation was you have landlords and you have farmers, landlords, absentee landlords, who have gotten the land through conquest, and they would lease the land to farmers, and then you had other people.

0:52So you start off with one land, what happens with him, and they bring in more people, The Theory of Money was magnificent. It had the whole Hume theory except for the process analysis, and it was not equilibrium, in other words, it was equilibrium, but it was the process-political equilibrium.

1:25So you have, in British class economics course, you have different equilibrium states. You have this state and that state. You leap somehow magically from one to the other. I talk only about the equilibrium state. With Catalan, you talk about the process toe of the new equilibrium. For example, when Catalan talks about what happens when the money supply increases in a country, it's very Misesian, so to speak, pre-Misesian. The first people get it, they get the new money, they spend more, prices go up as they spend it, and they're good as they buy, then it's trickling to other people, you have sort of a rippling out effect, and each group gets it until finally you have, say, if you double the money supply, finally you wind up with prices more or less doubled, but not completely because you have a different equilibrium now, you have different wealth effects, etc. And it's a very sophisticated, excellent analysis of internationally so-called Hume's species flow analysis, except Camelot is much better than Hume. Hume was writing about the same time.

2:17A little bit later. Actually, no, this is, say, 1730s, and Hume wrote in 1750s. Hume might probably have read it, and all these guys knew each other. The British knew the French stuff. You can't really have a pre-Austrian analysis, no question about it. It was a process thing with individuals starting with the micro-individuals, they get new money, they spend it, and so you wind up with a doubling of prices, but not automatic doubling, you have a difference and Prices. On the other hand, Hume, a Scotsman, part of the British tradition, was a brilliant writer. I have to concede with Hume that he was one of the few people in the history of thought with a great writer and a little confused thinker. Usually, good writing and clarity of thought come together. Confusion and bad writing come together. In the case of Hume, his writing was better than his theory, so to speak. Anyway, with Hume, you have a pure Pre-Freemanite, pre-monitorist analysis, in other words, all equilibrium states.

3:13As a matter of fact, there's a famous example which Mises uses. It's a good first approximation of what happens with money. What I call the Angel Gabriel model, in other words, you're sleeping overnight. Overnight, the Angel Gabriel descends to man. They hear the mankind is always belly-aching, we haven't got enough money. The Angel Gabriel, benevolent but confused, is a lousy economist. So they'll count, fix these guys up, they'll double their money supply, and then they'll shut up. They'll satisfy their complaints. So overnight everybody's money supply gets doubled magically, your bank account, your wallet, your purse, etc. gets doubled. And Hume talks about it, he doesn't say that he doesn't use the word Angel Gabriel model, that's basically what it is. And then what happens, well then everybody rushes out, spends it, and then according to Hume, prices overall double and that's it. In other words, you leap quickly from the one equilibrium state to the other equilibrium state without talking about the process.

4:01With Cantillon it's very different, you have a different people's benefit and different people lose out. In this model, for example, the guys will know what's going on, rush out at six in the morning or eight in the morning and spend everything immediately. The other guys who decide to save it, of course, are shafted, because they find the prices have doubled before they get around to spending it. So there are differences in sort of benefits or burdens. So with Hume, a very good analysis is the first approximation of how the money supply increases prices. The Pre-Austrian Process and the Differences in Micro-Level

5:02The British have things going on in the micro-world, supplying the man, and suddenly in the macro-world you have quantity and velocity and all that. It's totally different. There's no relationship between the two of them. I should say something about Candelon the man, Richard Candelon. He's a fascinating figure. One of the reasons why he's so good about money is he was a great monetary practitioner. The British Catholic banker who moved to the Jacobite Court in France, where the Stuart Pretender was located, and he became the banker. His cousin's role was very confusing because his cousin's role was named Richard, and his uncle's name was about eight Richard cantalons, and it was easy to get confused. One great cantalon expert, Antoine Murphy, University of Dublin, who was the great big expert on the cantalon family, worked the whole thing out, a genealogical map. At any rate, Cantalon gets to become the banker to Stuart Pretender, and he becomes a big The first paper money ever was 1690 in Massachusetts. Before that, gold was money. The only way

6:05the government could do anything was clip the coin. When paper money comes in, the great new invention for the government means you can just print money ad lib. Essentially, John Law, the Scottish adventurer, gets ahold of the royal government in Paris and convinces them he should be the central banker and print money, and through unlimited inflation you can wipe out the public debt, bring prosperity, and all the rest of it. So Candelon, the legend is, Law goes to Candelon and says, look, you're the only person here who can challenge me. He says, no, I'll give you 24 hours to get out unless we throw you in the Bastille. Canlon says, no, it's better for us to join forces, I'll become a lawyer. So he and law and some other guy named Beau Gage become a three-man triad running this whole system.

6:50So Canlon knew the whole system was going to collapse. And what Canlon did was he loaned a lot of money to these guys at very high interest rates, cashed it in, sold the collateral, and then skipped town, skipped the company, just before the great collapse of the law in the Mississippi bubble. The book was very influential, even when it was still unpublished, in the early 30s, and became published, printed in 1755 after he died, and was read by everybody in France, all the laissez-faire people, all the intellectuals, central senators, and so on.

7:38One of the things about Cantillon was he had mansions in every city in Europe. Probably the only economist history of thought was murdered. I can't think of anybody else except Salerno, a victim or something like that. He was murdered presumably by his disappointed servant, who had skipped town with his jewels or something. At any rate, but Antoine Murphy told me privately, he refuses to publish it because he hasn't got enough data on it yet. It's a marvelous story. He claims that Cantillon really didn't die there. He was heavily The thing is that he skipped out on himself and went to Borneo, where his papers or whatever will remain or die 20 years later, but at any rate, yes, great character, marvelous character. Now the thing is about Catalan, he wasn't a pure free trader, but he was really a man of the doubt. What he said was, he said, well, if we bring treasure into the kingdom, when we spend the money, we'll increase prices.

8:26So he advised the king not to spend the money, it's not a great advice, in other words, After Canallon, we had the physiocrats in the mid-18th century, who were laissez-faire people, who were quite nutty in many ways and had various deviations. The interesting thing about physiocrats, they were the first real sect of school of thought. You know the date at which the school was founded, it was one moment in July 1757 when Dr. Kenay, the founder, the guru of this thing, met Count Mirabeau, who in those days was a Catalonian, a Catalonian disciple, and immediately shifted to Kenay.

9:13And it became a two-man school of thought. I mean, to have a school of thought, you have to have at least two people. And this was it. Now the thing is, they're both very highly placed. Kenay was a physician, distinguished physician. He became the physician of the court. Physician to the court, first to the king's top mistress. There was, by the way, a thing that was the only way to influence the king and try to convert him to laissez-faire was to convert the king's top mistress. This was done by Archbishop Fenningham in the early 18th century, late 17th. And Cain was going to be physician to Madame de Pompadour, who was the king's top mistress, and then become the influential of court. Amirabelle was influential. First of all, he had just written a massive book called A Friend of Man. The multi-part work, which is incomprehensible, but the thing is, it was very popular because it was written in a 17th century style.

10:01Here it is in the mid-18th century, this guy's writing in a mid-17th century style, so it sort of charmed everybody, and it was a bestseller. So Mirabeau and Cantillon, Marquis de Mirabeau, then organized a movement, I mean, Mirabeau, excuse me, in Cannae. They set up their own school of thought, their own journals, their own doctrine, they reviewed each other's books favorably, and so forth and so on. Also, it became sort of a cult of personality. The only guy who thought that Kene was the top guy of all time. For example, his father claimed that Kene looked like Socrates. Kind of difficult to figure out, because we don't really know what Socrates looked like. And they also referred him to the Confucius of Europe, the great sage of Europe. Mirabeau, Winsor Foster, Proclaim that the three greatest inventions in the history of mankind are writing, money, and K. Ney's crazy diagram, the tableau économique, for the beginning of input-output analysis, you know, the arrows.

10:54So, anyway, there were laissez-faire, natural rights people and laissez-faire people. Unfortunately, they were a little deviationist. They were very much in favor of high agricultural prices. I think K&A was a farmer and he owned farms and I think they would have been in favor of farm price supports if anybody had proposed it. In those days there was farm price support at the other elections. Farm prices were kept low and of course they weren't much opposed to that. Maximum price controls on farm products. I think they would have been in favor of minimum price control if that had come up. Anyway, there were laissez-faire people cornered in their lights and their strategic objective, the question is if you're a laissez-faire person, In the late 17th century too, what do you do about it? Do you have an absolute monarchy by this time in France? The thing to do is convert the king.

11:39If you convert the king, you can establish laissez-faire from the top, revolution from the top, so to speak, and that would be it. And so the strategic perspective of Ben-Helon and Turgot and Othysicrat, convert the king, he will establish laissez-faire, and that's it. Well, how do you convert the king? Well, first of all, you convert the mistress. How do you convert the king? Well, you have to convince the king, it's really in his interest

12:30The Tchaikovsky was a top bureaucrat, finally gets in as finance minister in 1774, this is it, this is the key, it will win out, and as soon as he starts his institute on laissez-faire, he's kicked out, so that's his interest, and so at that point, physiocracy sort of disappears. Also, K.N.A. was losing interest in economics. He was not interested in economics until in his 60s. And then he got interested and he formed a cult. By his 80s, or whatever he was when he finally died, he was just a guy interested in mathematics. He claimed to have squared the circle, which, of course, is impossible. Anyway, he claimed to have solved the problem of squaring the circle. The firing of Turgall, I think, really did him in. Now, Turgall, I refer you to as a magnificent person. I've written a pamphlet on this thing, which is available here, I think.

13:18Trudeau is magnificent. He was great. He was one of my really favorite characters in history of thought, considering also the fact that he was, first of all, he spent very little time in economics. He was a busy top bureaucrat. That's kind of our governor. And most of his time, intellectually, was spent on other things, history, linguistics. He was an all-around type. Rowan read a lot on that topic. Economic topics, he was the only sort of good offhand. And he was pressed into it when he had to tell somebody something. For example, his Reflections on Wealth, his longest book, which is about 50 pages, was written under severe time pressure. He was trying to form questions to ask two Chinese students in France about Chinese economy, or preparing them to ask about French economy, I think. And so he wrote this as sort of an outline to himself, as a memorandum of what to, preparing questions to ask. This was a great work on wealth and capital theory, etc.

14:07So, he wrote all of his stuff on a severe time pressure, sort of dashed it off, and it's absolutely magnificent. He has the whole Austrian stuff in there, not only laissez-faire, complete laissez-faire, without any of Smith's evasions, qualifications, etc. But also he's got Austrian time preference theory, he's got Austrian Bumperwerkian capital theory, he's got money in process analysis, he's got the whole business. And done with brilliance, just sort of in passing almost, a few clauses. And I would strongly recommend any of you, All of Turgow's economic writings have been translated into English by P.T. Gronerweggen, who's a Dutch Turgowian expert in New Zealand, I think. And it's called The Economics of A.R.J. Turgow.

14:53It's one of these things, a Dutch paperback costing about $60, something like that, insanely expensive, but it's worth it. And it's got very good notes and introductions and annotations by Gronerweggen, economics

15:35He says one of the important things a capitalist entrepreneur knows is that a person commits resources and capital to an uncertain world, to entrepreneurship. He's just phenomenal, and he's extremely influential. He's got expectations, he's got the whole thing in there. He's also got my Law of Dimension Returns, beautifully presented. Schumpeter says there was no presentation of Law of Dimension Returns to equal it until about 1920. 1760, 1770. All this is forgotten. This whole Turgot corpus drops out of knowledge. Again talking about lost paradigms. Totally lost until right now, until recently, from the 1960s. and why it's lost is an interesting story, by the way along with Turgot we have Kondelac, the brother of Mabley who was a utility theorist and philosopher, who points out very clearly, even more clearly than Turgot that exchange comes from double inequality of wealth, double inequality of utility, in other words the reverse inequality of exchange that I mentioned, sets that down with absolute clarity. There's others like Galiani who's wrote a great book

16:43The book on money, in the age of 23, in 1751, Abbey Galliani, another great character, who was Neapolitan, but loved France and spent most of his time in France as a diplomat. His book on money is super. It hasn't been only parts of it that have been translated, unfortunately, yet. Abbey Galliani was an interesting character. Erratic witty and erudite, and was four and a half feet tall. He became the social lion of the Paris salons. As soon as he got to Paris, he began to sell out. The founding of Mathematical Economics comes in about 1720, the first misfortune on the road to Mathematical Economics by Bernoulli, Daniel Bernoulli, a whole bunch of Bernoullis, all of whom were French mathematicians, probability theorists, inventors of a calculus, things like that.

17:39Renewalized the mathematical theory of the diminishing utility of money purely out of left field. In other words, he wasn't interested in economics at all either before or since. He has arrived at this as part of his probability calculations, and he's got a whole series of fallacies, of course, wrapped up in this. The diminishing marginal utility of money had already been arrived at by a couple of the Spanish scholastics in the 16th century. What he does, of course, he immediately says, well, as the d-u-d-x with the supply of money as a x and utility as u, as soon as you do that, you have at least two major fallacies right there. One is that life is not like the calculus. There's no infinitesimally small actions in life. Everything is discreet. In other words, everything is qualitatively different and therefore there's no infinitely small steps that we can take.

18:25and really tosses that out. It tosses out calculus right there. And the UX thing is a ratio, and since utility, as we know, is ordinal and not cardinal, there's no such thing as a ratio. Also, I don't know what it means to have a ratio of utility to money anyway. It doesn't make much sense, but since utility is ordinal and therefore not cardinal, you can't put it into a ratio. You can't equate it to anything either, so the whole thing, the whole series about fallacy, piled on fallacy also thinks, it also says with no proof or no evidence whatsoever that the utility of money is an inverse proportion, declines in inverse proportion of the quantity of money. First of all, what does it mean, inverse proportion? Second of all, there's no evidence whatsoever. Some other mathematicians said, no, it's not an inverse proportion of quantity of money, it's an inverse proportion of the square root of quantity of money, even more silly. I mean, what does this mean?

19:11What are you talking about? What are you talking about? More or less, what's the evidence for it? Just sort of hot air gives me the only way to describe this. All he knows about utility money is it declines. In other words, you have a stock of money. You have a falling demand curve, so to speak, falling utility. And it declines as you get, as each unit, the utility of each unit declines as you add more. That's it. You don't know about this. There's no ratio, there's no inverse, nothing. And then of course he thought it was measurable between people, even more fallacious. In speculation here, why does the knowledge of Catalan and Turgot drop out on the whole French utility, laissez-faire, time preference, whatever tradition, entrepreneurship, and why do people then think that Adam Smith founded economics?

20:07See, all this preceded Adam Smith, all these guys wrote before the Wealth of Nations, kind of like whether the same year, commerce and government, unfortunately, of course, was forgotten on the great Smithian wave. Why did Smith, as Carter says, make waste and rubbish a 2,000 years of economic thought? And why was he allowed to get away with it? Why did nobody even say that he was doing this? For one thing, J.B. Say, who succeeds Turgot in the French tradition, never referred to Turgot in any of these people. He knew them. He was a disciple, basically, of Turgot and Condelec and these people. He was a classical liberal laissez-faire person carrying on the battle through the French Revolution and after it. He was not just an economist, he was also a political thinker and activist. And the question is, why did Say say that Smith founded economics? Say was one of the people responsible for the myth. Why didn't he talk about the I think there's only, there's two explanations, I've puzzled over this for quite some time,

21:11how the Smith myth originated, why these guys, the knowledge of the French theorists got lost. They were discredited in France itself, discredited for two reasons, one because Tours was locked in with the physiocrats even though he really wasn't, he was a political ally of the physiocrats,

21:54Western Ideas, Mercier de la Rivière, the great French political theorist, natural rights theorist, explained to me, Mr. Rivière, about what this physiocracy is all about, and he says, well, madam, essentially, the laws of nature govern, natural rights and laws of nature, and she says, what room is there for the king? Well, the king just follows the laws of nature, and she says, thank you, Mr. Rivière, but I ran lightning out. I didn't want to hear this. There's no role for the king whatsoever. As a matter of fact, there's one lovable guy, I'll finish up with this, Margaret of Baden, who's a physiocrat convert, and he speaks, I think, to, not Mercier, but some other, I think, Mirabel or somebody, and he says, Gee, it seems to me there's no role for government at all in your system. You can all be laissez-faire, sort of anarchistic. The guy draws, I know no sign we need the government for the framework, and blah, blah, blah, et cetera, and of course, Margaret was perfectly correct.

22:44The implications of laissez-faire and natural rights, you don't need the government at all. at any rate, they were a favorite of absolute monarchy, the physiocrats, and so after absolute monarchy disappeared, after the French Revolution, they were politically discredited, nobody wanted to listen to any guy who was a favorite of absolute monarchy. And also, of course, the physiocrats, nobody really believed by this time that agriculture was the only productive factor because there was a lot of industry growing at the time. So for those two reasons, I think, the physiocrats in Toursville got discredited, unfortunately, in France, and nobody would refer to them, and the knowledge drops out, the paradigm's lost. The whole thing drops out as a real tragedy for economic law because then we're stuck for a century stuck with the British. Essentially the Scottish alignment begins with Grotius, the same guy I mentioned, the Dutch Protestant scholastic, who were Protestants but natural law people.

23:31Grotius was heavily influenced by the Spanish scholastics, by Suarez, etc. What happens then is that Pufendorf was a Lutheran Grotian, this was early 17th century, I guess, Pufendorf was mid. mid. So, Grotius' early 17th century and Pufendorf's middle or late. Pufendorf was sort of a popularizer of Grotius, so people would start reading Pufendorf and not Grotius. Grotius mentioned the Spanish scholastics, Heerlum as being his predecessor, Pufendorf being a hardcore Lutheran, hated Catholics, refused to mention any Catholics. As a result, the knowledge of scholastic economics drops out, scholastic political theory drops out almost forever. Proofingorf didn't mention it, and Proofingorf was read by the Scottish Enlightenment people. One reason, by the way, why scholastic economics drops out is when Latin drops out.

24:16Scholastic, of course, usually wrote in Latin. There are not too many Latinists around. And the fact that de Louvre and Schumpeter, these people, actually read Latin is one of the reasons why they were able to bring them back. So Proofingorf brings the National Law of Doctrine and semi-, well, I wouldn't say laissez-faire, sort of semi-free market. It's very vague, but at least it's something. The first Scottish Enlightenment person, the first professor, I forget whether it was Edinburgh or Glasgow, it was one or the other, was Gershom Carmichael. He was the only professor for about two years before he died, but he's the professor, when they began the professorial, before that they were readers or whatever they were, and he translates Prüffendorf and writes a commentary. He's the founder of the Scottish political-economic wing of the Scottish Enlightenment. And so you've got Prüffendorf, Carmichael, and Carmichael is the teacher of Francis Hutchison, who in turn was the teacher of Adam Smith.

25:05Carl Michael Smith-Hutchinson Connection

25:35Not hardcore, but sort of soft-core classical liberals, I would say. Hutchison, by the way, has a very good attack. One of the places where I differ with Hayek strongly in the history of thought is the status of Mandeville. Bernard Mandeville was a Dutch physician who lived in London most of his life, who were the fable of the bees and other such fables, which Hayek claims the origin of the idea of spontaneous order and how the free market works and so forth. No, I disagree with that totally. I think the Weiner position, which was Hutchison's position, which was that essentially Mandeville was not only a statist, but also his favorite to be is really a pre-Keynesian plea for the glories of consumption, that saving is really bad, that you benefit the market and benefit society by consuming a lot. Hutchison had a complaint, I think he basically pointed out that Hutchison is Mandeville only against consumption, his favorite libertinism, a libertinist rather than libertarian, so to

26:28speak. I think that's the correct interpretation. I think what Weiner points out is that Mandeville was a follow-up book called Letters from Dion, or something like that, becomes explicit, even more explicit than the Fable of Bees. So we have now, and only both Carmichael and Hutchison were essentially utility theorists, utility scarcity theorists, economic values brought about by demand and supply, and demand is caused by utility and diminishing utility and scarcity. In other words, essentially the scholastic position, since they were part of the scholastics. And if this is true, where does the labor theory of value come in? The course theory and labor theory. How does it come in? It's very strange. How does it come in, indeed? It's not Hutchinsonian. It's not Carmichael, Carmichaelian, or whatever. And not only that, but Smith himself, in his lectures, gives the correct version.

27:15In other words, the basic, you know, the famous paradox of value, which Smith placed on an economic thought, paradox of value, which is quite famous, is that how come if Diamonds, if red or water, which ever you want to use, is necessary to life, red is good, the staff of life or water is good, how come it's very cheap on the market, whereas diamonds, which are flickery and luxury, how come they're so expensive? In other words, you have a famous split within use value, and when it gets to use value, diamonds are terrible and red is great, but economic value somehow violates that. Smith allegedly couldn't solve this, Ricardo couldn't solve it, so they don't talk about consumption, consumption just drops out. You have a disastrous split between use of value and economic value, which results in marks, and the whole thing of production for use versus production for profit really stems from this idea.

28:01Some of the market values flippories over important stuff like bread, and in real terms, bread is much more valuable. So the usual story is that Smith enunciated this paradox of value, and the Austrian finally solved it. It's not really true that Smith, Hutchison had solved it, Scholastica had solved it. There's no problem, they realize what the problem was. Diamonds are very scarce, there's lots of bread around, it's very simple, you have an enormous amount of bread, an enormous amount of water. Each unit of water or bread is going to be worth much less than diamonds, which are even, you know, philosophically weaker, arm, and much more scarce. It's relative scarcity and utility, it's the whole bit. Not only it hurtles itself, but Smith himself had solved it in his lectures, his unpublished lectures at the time. And you might say, well, after all, the lectures were 20 years before, maybe he's assuming everybody knows the lectures, and then it goes on, that's not true, because the lectures

28:59were never published in his lifetime, only published fairly recently, 20th century. So I think it's quite bizarre, we haven't smitten, not only a decline, a loss of economic thought, from the French, but also from Hutchison, and even from himself and his previous persona, 20 years before. This is true not only of paradox of values, also true of the human international money flow stuff, where he doesn't even have that. That drops out. The whole idea of the money-international money equilibrium and all that stuff drops out. It's very strange. The Law of the Nation is a weird book. Not only is it not true that he did not create economics, but he lost a lot of economics even from his own previous, 20 years ago, his own previous being, whatever you want to call it, 20 years before. Smith was growing up, Smith was a young man in the 1750s, Scottish Enlightenment hit Scotland, so the universities of Edinburgh and Glasgow became the shining lights, intellectual lights

29:52in Europe, especially in Britain. At this point Oxford and Cambridge had degenerated into sort of rich man's playthings or whatever, they're not intellectually important or good or useful at that time, and so as a result Edinburgh and Glasgow become key sectors and people come from all over Europe to study there. Smith started off as a clubman. Clubs were very important in the 18th century, social life and intellectual life. He was a member of about eight different clubs, each of which had weekly meetings and things like that. There was one club, by the way, when David Hume, his friend David Hume, was president. The two were very diffident. They never spoke. Obviously, they were the smartest for all their disagreements with him. They were certainly the brightest people in the club. At any rate, there was a big club life and intellectual life developing. Plus the fact that we have a titanic struggle within the Church of Scotland, which was the established Church in typical British compromise.

30:43Anglicanism was the established Church in England and Presbyterianism was the established Church in Scotland. Anger of the Anglicans in Scotland, of course, tremendously and drove them into the Jacobite camp, by the way. And of course, the pure Calvinists or whatever, the dissident faction broke off and established the Free Kirk of Scotland. In the early right, in the established Scottish Presbyterian Church, there was a titanic struggle between the moderates, as they were calling them, and the evangelicals. The moderates consisted of all the bright people and the multi-types in Glasgow and Edinburgh, and the evangelicals, everybody else. They oppressed rural masses. As a result of fantastic maneuvering, even though the moderates were in the minority, they were able to control the Church until about 1800. That was for approximately 50 years or so. Headed by Principal Robertson, William Robertson, a whole bunch of other people whom Smith was a member, and they all knew each other and they were all friends and compatriots.

31:35Even though the moderates were not as hardcore Calvinists, obviously, as the evangelicals, they were still pretty Calvinistic, especially Smith. Hume was not the least. Hume, I guess, was tending toward deism or atheism or whatever. Human couldn't find an academic post in Scotland, by the way, an interesting commentary on academia, a guy couldn't find a university post. Because of his religious views, he was not impoverished, however, since he was a high aristocrat, an independently wealthy aristocrat, a member of the Hume family, which I think emerged now in Douglas Hume and all that, all the same group. So Smith starts off in this environment, however, was also deeply Calvinist, even though moderate. His mother wanted him to become an Anglican minister and sent him to Oxford, I believe, in order to follow an Anglican fellowship. When he graduated, he was supposed to become an Anglican minister, and he said, heck with that.

32:24When he became a Glasgow professor, he had to sign a Westminster Confession, which was one of the requisites, and he had no difficulty apparently signing it. I think this accounts, well, not only for his adoption of labor theory of value of latent in the game and discarding the utility theory, also for other things. One of his deviations from laissez-faire, one of his many deviations, I'll get into in a minute, was he was in favor of usury laws, and he was in favor of maximum interest rate laws, restricting the supply of credit. Eddie West, as a friend of mine, was a biographer of Smith and worshipped Smith, Edwin G. West, couldn't understand this. He said, when we had a discussion at the Camelon conference, where Smith, of course, came in as a general object of attention, West said, well, gee, Smith deviated, he should have Smith understood that if you have a maximum price control, if you have a maximum interest rate, you will restrict the supply of credit, and so forth, and he didn't seem to realize

33:15that, and so the hole in his doctrine. Roger Garrison gave a comment on that, with Austrian, and pointed out, quite the contrary, Smith understood all too well what the concept was, and he wanted to restrict the supply of credit. That's the whole point. He understood that the usual laws would restrict the supply of credit, and he loved it. He wanted to do it. Why? Because he hated consumption. He wanted credit to be channeled into the prime balls, the prime interest rates, the low interest rates, he wanted to exclude from credit, he wanted a ration credit, so that speculators and high consumer types, with non-Calvinist types, would not get credit. He wanted to channel credit away from dissolute types, and was quite conscious on his part, and I think he's absolutely correct. Even when he gets to the diamond bed paradox, the way he talks about it is kind of interesting.

34:01He doesn't say that diamonds are a luxury and therefore of lesser value. He says diamonds are of no value. No value. And he's a constant thing with Smith, an attack on consumption, an attack on immaterial consumption. And one of the reasons I think he adopts the idea that some labor is productive, labor which embodies material objects, and other labor which is unproductive, in other words, services, He wasn't so much interested in material objects. He was interested in capital. He wanted capital investment. In other words, he disagreed with the time preference, the saving consumption, the preferences of the market. He wanted more saving and less consumption, basically. And one of the ways, usually one way to channel consumption into prime borrowers, in general, he disliked consumption, fripperies, one of the tax consumptions.

34:47He wanted all sorts of ways by which he would, I would say, restructure the preferences of the market. And it all fits in with what I call the Calvinist approach to all this, where luxury becomes evil, anything beyond some moderate consumption becomes wicked. So that was one of his deviations. The idea of productive labor fits right into that, building up capital investment. So the opposite deviation from the physiocratic Mandeville one, where only consumption is good and saving is evil, this is the opposite. And a lot of free market economists, by the way, still hold this. The supply siders, for example, will say we have to lower marginal tax rates because we want people to save and invest more, saving and investment in good, but if saving and investment in good then the consumption must be in some way bad, that's why people are adjusting their own proportions, and so a lot of this you'll get the same sort of, even now, the same sort of idea that saving good and of course consumption bad is not explicitly stated, but of course it is part of the paradigm.

35:46In addition to the fact that he leaves out the productive labor stuff, he creates a lot of problems. Theory of Value is a very confused writer. Theory of Value is about three or four independent coexisting theories of value in there. On one hand, he puts too much emphasis on the division of labor, the neglect of investment of capital. On the other hand, in his later books, toward the end of the book, he attacks the division of labor, causing alienation and all the rest of this stuff. The Theory of Money leaves out even the Hume stuff, much less the Camelot stuff, on money and Prices. He leaves out a lot of stuff. He leaves out a lot of stuff that either he had or Hutchison had previously.

36:50I have a list of a compilation of deviations from laissez-faire of Smith. They're pretty long. I'll tell you that. Of course, there's the Navigation Acts, the National Defense, which include practically everything. The Marshall Spirit Decay. His favorite government-run education. In order to inculcate obedience to the state among the populace. Scarcely a laissez-faire doctrine. According to Smith, an instructive and intelligent people besides are always more decent and orderly than an ignorant and stupid one. They feel themselves more respectable and more likely to obtain the respect of their lawful superiors, says Smith. And they are therefore more disposed to respect those superiors. They are less apt to be misled in any wanton or unnecessary opposition to the measures of government. That's why he's in favor of government-run education. That was a status, let's face it.

37:36He was a fair person. He was in favor of regulating bank paper, allowing fractional reserve banking, which most of his predecessors were against, by the way, including Hume. Hume was a hardcore, 100% gold person. He thought all banking fractional reserve banking was fraud. Most of his friends and predecessors did. It was only Smith who started bringing in bank credit. He was in favor of public works, including highways, bridges and harbors. on the rationale that private enterprise would not have the incentive to maintain them properly rather odd position to take and a particularly lengthy list of taxes which he advocated each of which interfered in the free market. For example, he was sort of a pre-Georgist as Ricardo was definitely a pre-Georgist. See, all these guys including Smith believe that the landlord had no function and the farmers had a function, the landlord just ownership of land was functionless and therefore can be taxed. It's a tax on rent. The whole smearing The whole vicious smear of rent, which really starts with Smith, and Ricardo maximizes it.

38:36But they didn't understand, for example, that landlords performed a very important function, namely allocating scarce land. Extremely important functions, they didn't think in terms of allocation. They also favored taxes on the import of foreign manufacturers, moderate taxes, taxes on the export of rural world, even when the free trade thing had a lot of deviations on that, and heavy taxes on luxurious consumption, as I mentioned, Taxes on Luxury Carriages Specifically to quote, tax the indolence and vanity of the rich, unquote. Once again, the Calvinist thrust. It also has, again, a puritanical hostility to liquor, which, even though it's not a post-millennialist, but the liquor, the anti-liquor thing was already there. They call for heavy tax on distilleries in order to crack down on hard liquor, and induce people to drink instead the, quote, wholesome and invigorating liquor of beer and ale.

39:23Somehow that was okay, Hard liquor is evil, sin. But even an ale was a failure of a high retail tax and retail sale of rural liquor to discourage ale houses. Of course, he was also in favor of the Soap the Rich policy of progressive income taxation, let it never be forgotten with Smith. I mean, who would wear a Smith tie after this, right? Also, I say, usually the ones I've already gotten into, even though Tour de l'Or and Cantaloupe are already blasted usually off the face of the map. Even Bentham was against the usual rules. Even Bentham was one of my least favorite people also. Now the interesting thing about Smith, one of the most interesting, two charming things, as an article by Anderson, Gary Anderson, I think Tolleson was involved in this thing, right? A marvelous article called Adam Smith and the Custom House.

40:08The one interesting thing about Smith, he was a great free trade laissez-faire person. How come he spent the last 12 years of his life as a customs official? Not just a customs official, but a member of the customs commissioners running the whole customs system. Extracting tariffs and all that. Cracking down on smugglers. How do you square this? The usual whitewash of Smith is, well, he just uses it as a sinecure. It's called a no-show job. Like in the Bronx, we have pothole inspectors. For $8,000 a year, if you find a pothole to report it, you call in. This is a pothole every five yards. It's very easy to do this. But it turns out, it was not a no-show job. He worked hard at it. He was there three days a week.

41:20The net revenue arising from the customs in Scotland is at least four times greater than it was seven or eight years ago, and it has been increasing rapidly these four and the revenue of this year is over a leap by at least one half the revenue of the greatest former year. I find myself as likely to increase still further. Well, God bless them. Are they, however, a champion of laissez-faire and free trade? And he gets this undeserved reputation of being the founder of economics.

42:06And the other guys are lost. And we come to some Smithians now. I think there's a Google store, for example, with Smith's descendants and the University of Glasgow. of Glasgow. Very few people study under Smith himself, but everybody can think of studying under Stuart. For about 10 or 15 years, he was a big shot professor of political economy at Glasgow. James Mill studied under him and a whole bunch of other people, McCulloch and the whole group, whole Scottish group. When we get to the labor theory of value, it's pretty clear that the proponents of labor theory, not only Smith, but also his direct sentence, James Mill, who was originally a top Scottish Calvinist who was studying for the Presbyterian ministry, and as somebody said when James Miller went to London, he lost his Calvinist faith, he became an atheist, but he continued the same zeal for world salvation and crushing the enemy or whatever that he had before.

42:56His cadre doctrine continued apace. As a matter of fact, the great quote about James Miller is that when he was a hardcore Calvinist, he hated Hume for skepticism, and when he was an atheist, he also hated Hume for the same reason. Smith was too middle-headed and skeptical. It wasn't hardcore enough. It's kind of a charming doctrine. Well, Bentham was a Smithian. The Start of Life of the Smithian, the Voted Smithian. He wrote a very good, his only good book, I think, is Defensive Usury, in which he attacked Smith for selling out on the usury question. He wrote that in the 1790s when he was a Voted Smithian. Bentham, of course, was not the founder, but probably the big systematizer of utilitarianism, a bitter opponent of natural rights, natural law, whatever. When you have to cut through the Benthamite movement, a whole bunch of Benthamites around, you cut through, you find the real core of Benthamism, which is pretty monstrous.

43:41Of course, Bentham really is the founder of modern economics, the sense of welfare economics, cost-benefit analysis, it all comes in with Bentham. These people, James Millen and John Stuart Mill, are essentially Benthamites, and bring in the Benthamite, replacing whatever international law doctrine there was. And I think it's all fallacious. I mean, the personal utilitarianism is fallacious, and certainly social utilitarianism, we've try to add up personal utilities and personal benefits and figure out what the maximum, general, greatest good for the greatest number is. It's obvious, I mean, obvious nonsense. You can't add them up, because all utility is subjective and ordinal. Bentham's famous phrase, the greatest good for the greatest number, which is sort of a cornerstone of his doctrine, one of the problems with that, of course, one of the many problems is, what if, supposing you're on a lesser number, then what? What happens then?

44:27Utilitarianism can justify almost everything. I think Bentham might sort of admit to this. In other words, since there's no justice, no such thing as natural rights, justice, or anything else, it's all manipulating everything for alleged cost-benefit arguments. For example, take the idea of, say, a punishment theory, which is an arcane part of libertarian doctrine, that mentalized before it's pure deterrence theorists, they don't believe in justice, it's all deterrence. Well, deterrence doesn't have, for example, to deter, take for example this sort of situation, most people don't want to commit murder for whatever reason, they don't like it, they're against it, they're reluctant to commit murder. The other hand, a lot of people are willing to steal an apple from a push card or from a food store. Therefore, according to pure deterrence theory, punishment for murder should be very light, and punishment for apple stealing should be capital punishment, preferably in public. I'll make an example of a stealer.

45:13And most of us think there's something wrong with this. It's what the philosophers call counter-intuitive. Or it was nutso. Most of us have a view of justice, even if we don't have an articulate theory of it. But it doesn't throw that all out. Benthamites also were a favorite example of punishing the innocent, execute the innocent, provided the public doesn't know they're innocent. If the public thinks they're guilty, it's good enough, right? Why not? And no more principles and whatever. What I want to talk about with Bentham is the panopticon, which is the key to his thought, which Benthamites don't like to talk about. This is Bentham's great project, he was a great projector, he wrote millions of words, much of which fortunately have not been published yet. He had a fleet of secretaries, a very wealthy aristocrat, and he said we had to employ secretaries to take them down, copy them, there was no force, Xerox machine or typewriter at that epoch.

45:58He was sort of a living and reductive absurd in his own thought. He used to be a Tory, a Tory aristocrat. He converted to democracy, actually converted by James Mill, because the Tories wouldn't adopt his doctrine as panopticon. He figured nothing would be worse than that. Maybe his democracy was adopted by panopticon. Panopticon was a theory which Bentham and my apologists claimed only applied to prisons. It did not apply only to prisons. It's an excellent, very amusing article. There's a lot of good stuff. Douglas Lawing has a book called Bentham and Liberty, a very good scholarly work. Gertrude Himmelfal was usually not one of my favorite people, being a neoconservative. There's an excellent critique of Bentham called The Haunted House of Jeremy Bentham and her book on Victorian minds. Panopticon is a scheme, not just for the prisoner, for almost everybody, for the poor, for children, for vagrants, for everybody to be rounded up.

46:51It's been estimated by Beth and herself that from a third to two-thirds of the population would be incarcerated in panopticons, which are essentially compulsory concentration camps. With scientifics, there's no such thing as justice or privacy. It's all cost-benefit, right? You maximize surveillance, and so you have one guy sitting in the center of a circle, and all the prisoners, and kids, and whatever, you know, paupers, are all lined up so you can see into them. And of course, this was before the age of television, and all that. A brilliant prophecy of the Orwellian future. Even though you couldn't see everybody every time, nobody would know when you're seeing them, so everybody would feel he's under surveillance. That's the philosophy of utilitarianism, it's very important for everybody to feel at all times he's under surveillance by Big Brother, by the Panopticon leadership. and so this would keep them, not only keep them on a straight and narrow, keep them working to the max, we want to get maximum production out of them, let's see 12 and a half hours a day at forced labor and

47:42so forth and so on, and everything beautifully worked out, the idea of course to have maximum production by these slave labor which is essentially what it was, Panopticon by the way is Greek for all seeing, that's the controller who sees everything, so like the the older big brother, also inspection house was another way to put it, this is a big reform, Himmelfahr puts it very neatly, he said The Panopticon is a realization of the divine ideal, spying out the ways of the transgressor or potential transgressor by means of an ingenious architectural scheme, turning night into day with artificial light and reflectors, holding men captive by an intricate system of inspection. The Panopticon becomes omniscient and omnipotent omnipresence of the inspector.

48:28This of course makes things most efficient for the goals of the inspectors. They at one point sent some, so there might be some drawing back to adopt my scheme, because it might be said that these people have become robots instead of people. It might be, he says, productive of an imbecility. So the formerly free man would no longer in a deep sense be fully human. and he asked himself whether the result of his heroic contrivance might not be constructing a set of machines out of the similitude of men and so this critical question, he says, he gives the utilitarian reply, brutal, brusque and utilitarian, namely, who cares? Who cares if they're just machines? The only real question is would happiness be most likely to be increased or diminished by this discipline? Of course, he being a scientist of happiness could answer the question very neatly, namely, as he said, they'll be happy almost by definition.

49:15Call them soldiers, call them monks, call them machines, he says. So there were but happy ones I should not care, as Rizabell Patterson McClelland, the humanitarian with a guillotine, or the slave pen. So economy and productivity were what he was trying to maximize, as he put it, industry is a blessing, seven and a half hours a day was enough for sleep, an hour and a half total for meals, and the rest of the time I was working on a forced labor regime. The punchline of this whole panopticon scheme was that he would run it, it would be a privately owned panopticon, a giant panopticon of slave labor would be owned by him. E. Bentham. We've got to extract the profits from the slave laborers, and this way we have a unity of private and public institutions. And so he tried to lobby in parliament, lobby in the court, and never get it through, fortunately for Great Britain. Bentham had a group of secretaries. The most interesting secretary was James Mill, who went out of turn, who

50:10in a sense was the founder of the Ricardian system. I really think more and more we find Milt, I think, is a fascinating character, not John Stewart, not Olimpo, but James Milt, the father. James Milt, I call him the radical's Lenin, a real cadre type, a real Bolshevik type in every sense, personally, ideologically, whatever. Although he was semi-libertarian, he basically had this kind of mindset. I'd say he was originally a Scottish Presbyterian minister, comes to London and makes a precarious living as a freelance writer, which is always and Blanchard's on to Bentham, that's when he has a lot of money, and writing all the time, he becomes a secretary, he's trying to organize everybody, he's a cadre type person, he's organizing his kid, John Stewart, he's organizing everybody, his friends, his wife, everybody's being organized in a cadre manner, he's trying to organize Bentham, Bentham was very unsystematic, would scribble all night or whatever, he kept saying, Bentham, why don't you work on this, complete this book, and then we'll get you to the next book, Bentham was writing with friends, this young whippersnapper was trying to organize me, so it was a sort of cultural temperament, clash of temperament,

51:10It was Mill who talked Bentham into being a Democrat, but Mill had his own reasons for being in favor of universal suffrage, democracy, universal suffrage. He adopted Bentham's utilitarianism and believed in laissez-faire much more than Bentham at this point, but he felt that he was a true Benthamite. James Mills, he was a very creative thinker, one of the most creative thinkers of this whole modern period, but always pretended, in contrast to Smith and a lot of other people, he originated everything, I'm just a number two man. I'm a faithful Bentham. I'm a faithful Ricardian. I'm just a mouthpiece of the great Bentham and the great Ricardo. Actually, he was contributing much to the doctrine. He was one of the few people in history who thought he underplayed his own role. I was talking to my old friend, Leonard Ligier, about this. It's kind of strange. He said, I might be an economic explanation for this. Usually, I'm quick to this. I wasn't quick enough on a mark.

51:59The economic explanation being that Mill was impoverished and freelance writer, Bentham was very wealthy and Ricardo was very wealthy, and so this potential of being a humble number two man might have an economic, personal economic financial motive. Yes, master, as a source of a lot of paper, in fact, Bentham kept Mill going for many years until Mill wrote his history of British India, anyway, he does the same thing with Ricardo. He finds Ricardo as a retired stock broker, a really bond dealer, or whatever it was. Ricardo's whole ambition was to retire and become a country squire, forget it, a young retired person. And Mill keeps nagging him, no, no, you've got to be the great economist, and he keeps, quote, forcing, unquote. Ricardo will write this book and keeps correcting every chapter, every chapter that Ricardo gives to Mill, and Mill corrects it and adds stuff to it, important thing, rewrites it and gets him to publish it, and then he says, okay, now you've got to be our cadre leader in parliament of the philosophical radicals.

52:52Mill organized a philosophical radical quadratic problem. He had about 20 or 30 MPs by the 1830s, which had a balance of power position, quite powerful. And it turns out more and more that Mill really originated much of the Ricardian system. For example, one of the few good things in the Ricardian system is the law of comparative advantage, you know, that international trade, you don't have to have, you can have, even if one country or one person, of course, is terrible in everything, unproductive in almost everything, it's still be an advantage to trade of Money, The Theory of Money and State, The Theory of Money and State, The Theory of Money

54:20Ricardo's real interest is monetary theory, money and banking, which I don't have time to go into, and the rest of it might well have been, we don't know really how much Mises contributed, Mises had endless correspondence, endless walks with Ricardo, giving him the line, and we don't really know how much this stuff was James on, and Ricardo said, well, James Mises changed my life, and all that sort of stuff, and James Mises was a fantastic, very charismatic figure, changed his life, changed his life, changed his life, changed his life, changed his life, changed his life, changed his life, changed his life, changed his life,

55:20The historical approach, which Mill didn't have, so I presume he probably got it from then. Basically, libertarian class conflict analysis says, in contrast to Marx, where capitalists and workers are in an extrovert class conflict, the only class conflict comes from the state. In other words, the state exists and does something, it's already a ruling class and a rule class right away. Taxation, tax consumers and tax payers, that people get benefits from the state, that people lose about the state, that creates class conflict. Everything else on a free market is harmony. Class conflict comes about through the state. So, Compton Dunway had this, and they said, well, industrialization requires free markets and free trade. As the state withers away, class conflict will be eliminated. We'll have a classless society, not in the sense of a communist society, but in the sense of a free market. That was the Compton Dunway approach. Well, Mill had something similar, except it was more narrower.

56:08Basically, Mill said there were two classes of society, the ruling few and the ruled many. There was always a ruling class. The ruling class was exploiting the public through taxes and controls, etc., etc., and his object was eliminated, to have pure, free, laissez-faire. The reason why he was a favorite of democracies, he felt that if you have pure democracy and universal suffrage, the public can't exploit themselves, as there's always a minority, therefore the public will guard against the emergence of a ruling class. Of course, you now know it was an incorrect theory. It made a certain amount of sense in that period before democracy was tried. of Life. At any rate, that was his objective, and he convinces Benson to go along with it, convinces Benson of Benson's idea, which it really wasn't. And then he starts cadre activity in that direction, for pure democracy and laissez-faire.

56:55He thought democracy was more important than laissez-faire because democracy is the key thing. If you have universal suffrage, then laissez-faire would flow from it inexorably. He then arranged his followers on a cadre basis, using, for example, organized deception. This is a very good book, Joseph Hamburger, a very good book on James Mill. One is called John Stuart Mill and the Intellectuals. It's really about James Mill, mostly. The other is called The Art of, James Mill and the Art of Revolution. What he shows us, James Mill wrote books and journal articles all the time. He wrote books on practically everything. He wrote a book on logic, a book on psychology, a book on utilitarianism and economics. Books and everything, plus journal articles, plus organizing his friends' kid and wife. and, plus, organizing the Cadre in Parliament. I mean, I don't know how the hell he did it. It was unbelievable.

57:42He also organized the reformed campaign of 1832, the reform bill. Of course, open suffrage of the middle class in England, which to him was a way station on the road to universal suffrage. He really pushed it through by an organized campaign of Cadre deceit. In other words, he got control of most of the press by various means, most of the top newspapers. He got them to lie about the idea that there was a revolution out there. If you don't pass the reform bill, the masses will revolt. It was pure fiction. The Theory of Money and Credit

58:36The reason why he brainwashed his kid, learning Latin at the age of two days, was that he didn't do it just for the hell of it, he didn't do it to try out his theories of education on his kid, he did it because the kid was supposed to be his successor as a Condoré leader, the kid had a little historical responsibility to carry forward the leadership of the Condoré, he was just an ordinary kid, that was his basis, and of course he flopped. John Stuart Miller lived in deception, God was not only muddle-headed, but also engaging in total deceit almost at all times. For example, he wrote an article praising Bentham, this is while his father was still alive, and a Benthamite, praising Bentham, writing it publicly, and at the same time writing an anonymous article attacking Bentham.

59:28He's messed up. This really discloses the fact that he was no longer a cadre leader until his father died. That was about eight years later or something. Anyway, what happens with Ricardianism, I think, again, it's very difficult, first of all, to understand what Ricardo is talking about. Ricardo is to understand what Ricardo is talking about. Both Ricardo and J.B. say we're trying to understand Smith. This is very confusing. As I said, about three or four different theories of value at the same time, using words in obscure manner and so forth and so on.

1:00:26The whole thing is a Turgonian book. It's not a Smithian, even though he says Smith is the greatest. The only thing Smithian is what Smith picked up from Turgot, namely saving and the Say's Law, which is essentially the old Turgot thing, that saving is okay because it results in investment, there's no problem over production and all that. It's really Turgot's law, which Smith gets, and the Say gets from Smith or Turgot. And Smith is also the classical liberal libertarian leader of the movement, in addition to being an economist of note.

1:01:24So the whole thing becomes an equilibrium analysis, which is where you're trying to set some things constant, other things variable, but putting it in words, which makes it almost incomprehensible. Of course, the theory of rent not only says that landlords are unproductive, it also says that rent is not really a part of cost because rent is differential. The poorest land earns zero rent, and therefore any rent is really just a differential. It's not really earned, so to speak. Of course, you could say the same thing about wages. Wages are not part of a course, because anything above unskilled labor never becomes a differential. It can be taxed away or whatever. Ricardo leads directly, not himself, but his followers. Henry George is a straight recording. Marx is a recording on labor theory of value, which Ricardo lifted from Smith.

1:02:13Ricardo systematized Smith by taking the worst stuff in Smith and making a system out of it. And Say systematized by taking the best stuff. And so that's, I think, the difference. And you only agree with saying Ricardo on Say's law. Again, Ricardo is in the same Turgot-Smith tradition. The thing that happens to Ricardo, the whole system, labor theory of value, theory of rent, etc. Again, there's a myth, which you've probably all read. Namely, the Ricardianism dominated English economics until Jebons, until 1870s or even 1880s and Marshall. It's not true. We now know that Ricardianism died out by about 1830. In other words, he died by 1822. In six or seven years, Ricardianism had been smashed by all sorts of people, by utility theorists like Samuel Bailey, by anti-rent people like Thompson, anti-ricardian rent theory.

1:02:58And so by 1830, Colonel Torrens was addressing the political economy and called it so nobody's Ricardian anymore. The Ricardian system is finished. And so you had a whole bunch of things going on, very interesting stuff. The Irish theorist, the Trinity College Dublin, had a whole bunch of utility theorists, subjective utility theorists, who were excellent, put in by Archbishop Waitley, a very interesting character, who was English and was a professor at Oxford, a master at Oriel College, and he was fighting the fight against the high churchmen in Oxford, the high Tories. He was a latitudinarian type. And when he becomes Archbishop of Dublin, he immediately sets

1:04:05Mouthless comes from Smith. Mouthless gets his anti-population stuff from Smith. The iron law of wages and all that is really derived from it. Ricardo, of course, is a big mouth-thusian on population, not on other things. And Senior essentially smashes that without saying so, and essentially demolishes. It's strange about Mouthless, by the way. Here's a guy growing up after 50 years of the Industrial Revolution. An explosion, a fantastic explosion of the standard of living, and worrying about population increase.

1:05:01of Recording, Rent Theorists, etc. There's one very interesting character, I can't omit in this thing, fascinating character named John Ray, who is a Scotsman, and one person from Bombardier does acknowledge as being a pre-Bombardierian, pre-time preference, pre-Austrian Capital Theorist, and he's a very strange duck. He's a Scottish physician who's sort of unemployed and doesn't do well, he has a marital problem, and anyway he leaves Scotland for Canada. And he's a very contentious character anyway. He gets involved in Canadian, Calvinist politics between, I forget now which faction he was in. Anyway, he was in the losing faction. He had a game, especially kicked out of Canada, and leaves for, I forget what it was, Hawaii. I think probably Hawaii, some minor Hawaiian island. He stays there for the rest of his life as a village physician. Anyway, he writes this thing. His passion in life was geography.

1:05:50He's a work that's definitive work on Canadian geography, Canadian geology and all that. and he writes, he's a big protectionist, he's pro-protection, he hates Adam Smith, so he writes a book in the 1840s, designed to attack Adam Smith and free trade, and then he says, well, before I talk about free trade, I have to deal with capital theory, and he works out a whole history in capital theory, he had no relationship with free trade whatsoever, protection, he works out, it's a fantastic thing, he works this whole thing out, he publishes, the publisher was a New England protectionist, a good firm, anti-Jacksonian, anti-French, of Money, The Theory of Money and Credit of Money and Credit of Money and Credit of Money

1:06:54Thank you, Mr. Mill, because you're the only person ever to talk about my book. I like it. It's kind of pathetic. Poor guys are writing it as a Hawaii village physician. That was it. Nobody referred to it until about 1900 when Peter Mixter discovered it, and then Bob Barber said, you're right, Bob Barber hadn't heard of it either, and praised it. So anyway, he's a very interesting character. So all this was going on, and Mill's book comes in and reestablishes Ricardo, and Mill had such tremendous prestige by this time as a philosopher, logician, intellectual, etc., and everybody just fell for it and sort of toppled over and adopted this and the whole utility stuff drops out and the non-Recardian rent theory drops out and the whole thing sort of caves in and Mill becomes dominant, J.S., from 1848 until the 1880s, let's say, so that's really the dominance, the resurgence of Recardianism.

1:07:43Also, in addition to that, Mill establishes positivism as a self-conscious methodology for the first time. The previous classically economists say was explicitly what we call now a praxeologist. It was deductive. You start with self-evident axioms and you deduce economic theory. Senior was definitely a self-conscious praxeologist. And Mill said, no, no, Mill thought it was the idea of false assumptions, pre-Freemanite views. You have to have false assumptions which you can then deduce and test and all that sort of stuff. It really begins with Mill. And not having great prestige, which the others, of course, didn't have, essentially wins out. And, of course, with Alfred Marshall, it was sort of the same thing with marginal utility theory. Marginal utility theory comes in in the 1870s, Jevin in England, and Balra in Switzerland, and Menger in Austria.

1:08:30Marshall's function in life was to bury marginal utility theory with faint praise. It was to reestablish Ricardo and Mill. That was his whole goal in life. Unfortunately, he succeeded in Britain. I was growing up, when I went to college, I read Marshall's Principles of Economics straight through. That was our seminar. We had a seminar. What we did was read Marshall's Principles. It was great, much better than reading, you know, Keynes or something. That was what we did. First of all, if you read Marshall, you see evangelicalism, you see the pietism shining through. He's constantly making pietist moral arguments throughout, in the midst of talking about the representative firm and all that. But more important here is that when he's doing it, he takes marginal utility and he trivializes it. and what confines it to consumption. Okay, it's true about consumption and you get the diminishing marginal utility and that's it.

1:09:16It's true they solve the value paradox. And from then on, he talks about production, he talks about cost, and cost is the key thing. And so the real essence of the utility theory drops out. And since when I was going to graduate school or college in the 40s, the general view was that Marshall had integrated anything of value in the Austrians. That was it. Any good stuff is in Marshall, the rest of the stuff doesn't have to be read. The view here is that, as Martin Marshall's famous phrase, value is determined by scissors, scissors of supply and demand, you have the demand scissors, the rising supply curve which is the cost, determined by cost, allegedly, and these two scissors determine market price. However, this really starts with Smith, by the way, of course, Ricardo emphasized it, key thing is not market price, who cares about market price, key thing is long run normal Normal pricing and with equilibrium prices, which you never get at anyway. That's much

1:10:08more important. In long run normal, Marshall claimed that the supply blade, the cost blade is triumphant. The man sort of drops out and the really important part of the scissors, the important blade is cost, objective cost determined by labor, disutility and whatever. So what he does is he brings back a sophisticated version of Ricardianism. We don't worry about Market price should worry about long-run costs, and of course, one of the two basic problems is one is that the long-run cost never arrives, so it can't be really the key thing. After all, the key thing is you want to explain the market, the real market, and not the long-run which never shows up. And secondly is that what do you do about goods that have no cost? Rembrandt's, for example. Rembrandt painted the thing and then corked off.

1:10:54The price of Rembrandt's fluctuates. Where is the supply cost? Where is the supply part of the blade? It ain't there, of course. There's only demand. They had to admit, well, it doesn't work for non-reproducible products. Well, after all, non-reproducible is important. That's part of pricing, too. Isn't it better to have a price theory where we have a general explanation of all prices than one which only explains reproducible goods? And so that, of course, is not discussed. Non-reproducible goods were just tossed in a wastebasket along with consumption with Ricardo. All of this is brought back, as I say, in a very sophisticated manner, and Marshall, having tremendous prestige as a Cambridge professor, dominates all of English economics from the 1880s until the 1920s. And Jevons was sort of a maverick, semi-Austrian, so to speak, maverick, doesn't get any hearing, and he dies young, too. That's totally against his influence.

1:11:43So what you have is a re-establishment of Ricardianism with Mill and Marshall, in a more sophisticated form. That really ushers in the 20th century.