Economics and the Power of Ideas

0:00I'm sure you all get the sense from Mark's and Matthew's speeches that the market is a wonderful thing. Every day, you, each and every one of you, are fed, clothed, sheltered, entertained, and made comfortable by a production system. And this production system is made up of the acts of billions and billions of complete In fact, if you did put a computer, or a bunch of planners in charge of it, that would only botch it up, no matter how powerful the computer, or how smart it is.

0:58All it needs is a single institution, a single rule, private property. That's it. If you first use something, it's yours, completely, until you give it away to somebody else, for whatever reason. And then it's his, completely. That's it. Just don't make any exceptions. Don't say, yeah, it's yours, but we decided it's better, you know, use it this way, or most of it's yours, but we just needed to take like a third of it. That's all you need. From that institution, private property, we get exchange. From exchange, we get prices. From prices, we get profit and loss. And from profit and loss, we get entrepreneurs competing with each other.

1:50over who can direct resources in the best way so as to satisfy the wants of the masses of people. So economics is a beautiful science because it explains how this happens, how humanity becomes richer, healthier, safer, and happier. Economics can also be a scary science, because it shows what happens every time the rule of private property is broken. It shows how every tax, every war, every government restriction makes us all poorer, sicker, less safe, and more frustrated.

2:37Economics lets us understand the story of civilization. If civilization is rising up to heights never before seen, economics helps us understand why. If civilization is crashing down all around us, economics can understand why that's happening too. So economics is beautiful and scary, but is it useful? You might ask yourself, why should I care? If the market's working in your life and the lives of your friends and your family just keep getting better every day, why do you need to understand how that's happening? I mean, didn't I just say that the market doesn't need someone overseeing it?

3:23So if it doesn't need someone overseeing it, why does it need someone who understands exactly how it works? or if the opposite is happening, if the market is not working and people's lives are getting worse, why do I need to understand why that's happening? What could I possibly do to change things just by knowing why that's happening? Now, instead of telling you the point, let me show you. Let's go back in time. But before we go back in time, let me just make sure you know a certain phrase. Have you heard of Occupy Wall Street? Occupy Wall Street is a group of protesters and most of them are just a little older than you but a lot angrier. Well, I don't know, you might be angry people and just stomping around outside and just calm down when you came in.

4:12I don't know. But anyway, you seem like not too angry right now, which is good. It's good for a speaker to not feel anger. The 1% and then there's the rest, I'm not sure of the actual number of people. the 99% yeah right there's some Occupy Wall Street people who talk about the 1% and the 110% but they're really confused and they don't really get much accomplished anyway and so they split the world up into the 1% and the 99% and they argue that the richest 1% of the world are just living it up buying fancy and Cars, fancy homes, drinking expensive wines, and they're doing so at the expense of the 99% who are poorer than they should be because the 1% are using up more than they should, more than their fair share of the wealth in society.

5:30Now let's ignore whether that's right or wrong, but let's just, now that we've got Throughout almost all of the history of civilization, the vast majority of the population, the 99%, had a pretty rotten life. They didn't have the neat gadgets we enjoy, they couldn't travel anywhere. Instead of working in comfortable, air-conditioned offices, they had to do back-breaking work to grow their own food. They often couldn't get enough or enough variety of food to stay healthy, so they tended to die super early. When they had kids, a lot of them died before their second birthday. And if they ever had a bad farming season, they were messed up.

6:18They were always one bad winter or one dry year away from complete disaster for themselves and their family. That was how the 99%, how they rolled for almost all of history. The only people who didn't have a rotten life, who weren't always on the verge of hunger, disease and death, were the 1%. And the 1% throughout most of history was almost entirely made up of the government. These were the Persian emperors and French kings and the English nobles and the Roman One senators, the Egyptian administrators and the Sumerian high priests, their lives were incomparably better than the lives of the 99%.

7:08It was like the difference between heaven and hell. They had servants waiting on their beck and call, ready to serve every whim, as much food as they could possibly want, beautiful homes, tons of jewelry, lots of free time to just lounge around. And this kind of lifestyle was supported not by the ruler's own labor, but by taking the goods produced by the blood, sweat and tears of the impoverished masses, the 99%. It was the 99% who produced the bread that stuffed the mouths of the 1%. It was the 99% who produced the materials that made up the gaudy houses of the 1%. Now, if Occupy Wall Street protesters were to travel back in time and see that, they would go nuts.

7:59Everything they say about the 99% and 1% today would be totally true at that time. Because at that time, wealth in society, it was a pie of a certain size. The bigger the slice of the pie that the 1% got means the smaller the portion of the pie The ancient 1%, the olden times 1%, they really were living at the expense of the 99%. Every bit of luxury that the 1% was enjoying, every bobble, every servant that they had serving them, every bit of luxury was taken from the resources that could have made some Some member of the 99% a little less likely to starve.

8:50So why did the 99% put up with it? Why did all these needy peasants put up with the luxurious kings lording it over them? Now the easy answer would seem to be because the king is stronger than the peasants, right? But that's not really true. The king is just one guy. No matter how buff he is, he himself could only take down like two, maybe three peasants max. Okay. So, well, it's not just the king. The king had nobles and knights to back him up. But even if you counted all the nobles and knights in the 1%, there's still just the 1%. By definition, they're outnumbered vastly by the 99%.

9:37Okay. So maybe it's because they had better weapons and horses. Well, the 99%, you know, there's a lot of them, they could just take the better weapons and horses. So a Scottish guy named David Hume pointed out that the ruler's power can never just be about brute strength alone because the ruled many always vastly outnumber the ruling few. So it has to be about more than just brute strength. Basically the ruled, many, must believe that the ruler's power is somehow good for them.

10:23Maybe the priests have convinced them that the gods will be angry if the rulers are disobeyed and that the rains won't come or the crops won't grow. Maybe the populace believes that the ruler is responsible for all the good laws that keep peace and order in society. The ancient 99% put up with the ancient 1% because, to some extent at least, they thought it was good for them. Not only did they put up with them, they actually put them up. They put them up on the pedestal that they were on. They supported them. The 99% gave the 1% their power. Even before David Hume, a French guy, Etienne de la Boitie, also realized the same thing. He said to the masses, He who thus domineers over you only has two eyes, only two hands, only one body.

11:16He has indeed nothing more than the power that you confer upon him to destroy you. Where has he acquired enough eyes to spy upon you if you do not provide them yourselves? How can he have so many arms to beat you with if he does not borrow them from you? The feet that trample down your cities, where does he get them if they are not your own? Ludwig von Mises, the guy this whole institution is named after, concluded from this line of reasoning that real power always lies in public support, in public opinion, majority opinion. However society is organized, whether we have kings or democracy, whether we have socialism or capitalism, that organization is always the result of public opinion.

12:12If public opinion were to turn on a ruler or a group of rulers, their days would be numbered. Mises said, in the long run, no government can maintain itself in power if it does not Mises also said the struggle for freedom is ultimately not resistance to autocrats or oligarchs, but resistance to the despotism of public opinion. So that explains the political situation in olden times. What about the economic situation?

13:02Why did that pie almost never get bigger? Why was it always the same size? I mean, the pie is supposed to get bigger. You'd think that over time people would kind of get better at making stuff and so the pie would sort of grow, but it didn't really for thousands and thousands of years. The life of some ancient person wasn't that different from the life Life of another ancient person a thousand years before him, their huts and their little farms and their tools and their comforts, they were basically the same. And that guy's lifestyle wasn't that much different from a thousand years before him. That's not progress. Now even back then, there was private property to some extent.

13:49One peasant couldn't just take the cattle of another peasant without facing punishment. And to the extent that there was any wealth in society at all, it was because there was private property to some extent. But throughout most of the history of civilization, that ruling 1% took for themselves a huge portion of what the 99% produced. And if any private person ever accumulated enough private property for it to be noticeable, Some ruler would snatch that too. With such rampant government theft, there was never very much incentive to save. Without massive savings, there can be no massive investment. And without massive investment, there can be no mass production.

14:36And without mass production, there can be no great improvements in the lives of the masses. This is why the 99% had such rotten, short lives for almost all of history. Then in the 1700s, something revolutionary happened. Now when I say that something revolutionary happened in the 1700s, what do you think I'm talking about? The American Revolution. Yeah, the American Revolution, but actually I'm not talking about that. A group of philosophers started thinking really carefully about property, trade, prices and production. These philosophers were called economists. Other philosophers in previous years had shocked the world by discovering laws that regulated how stars and planets and other objects move in space. The economic philosophers shocked the world by discovering and laws that regulate prices and production.

15:42From considering these laws, they concluded that the economy is much more productive if private property is more consistently respected. And I'm not just talking about would-be small-time criminals stealing less. I'm talking about big-time criminals too, the government. Laissez-faire, they said, let business alone. Let people control as much of their property These economic philosophers were theorists, and they came up with these amazing new ideas, and their ideas changed the minds of communicators.

16:30Now, there were professional communicators, like writers and speakers, and there were also amateur communicators, just super thoughtful people. And those communicators changed the minds, they got their ideas from the theorists, and they changed the minds of the sheeple. Have you heard of sheeple? Sheep and people? In other words, the masses, the people that don't really think that much about these affairs and they kind of trust the judgment of other people. Before you knew it, there was a revolution in public opinion and everybody believed in private property more consistently applied.

17:16And because of that ideological revolution, there was a revolution in policy. Pretty soon, taxes were lowered, restrictions were lifted, business barriers were abolished, private property reigned supreme like never before, and the results were miraculous. What we call the Industrial Revolution happened. Like never before in history, the market was unleashed, mass production for the masses arose like never before, items that were once reserved for the elite 1% were soon being mass produced for the 99%. Cool things that didn't even exist Food production soared like never before. The population in the parts of this world where all this happened exploded. People who otherwise would have died found subsistence. People who otherwise would have lived on the edge of disaster found security.

18:07And the people who otherwise would have trudged through a bleak, hard life were able to live lives full of comfort, art, music, refinement. In the New Order there was still a 99% and a 1%, but the 99% of this era lived better than the 1% of times past, lived better than the old kings. And the 1%, insofar as they achieved their place in the market way and not the old government way, could only stay in the 1% by serving the 99% better than anyone else through mass production. Many of the one percenters in older times, to get ahead in life, they would have used their smarts to become rulers and government administrators. But in the new order, in order to get rich, they had to use their smarts to serve the 99% as best as possible.

18:57The masters became servants, really rich servants, but servants nonetheless. This was the age of liberalism. Now, how did – and by liberalism, we don't mean like what often is called liberalism. We actually mean kind of the opposite of that. Liberalism used to mean belief in private property. Now, how did this happen? How did an ideological revolution lead to an industrial revolution? Again, like I said before, public opinion determines society, but ideas determine public opinion. As Mises said, the flowering of human society depends on two factors, the intellectual power of outstanding men and women to conceive sound social and economic theories, and the ability of these or other men to make the ideologies palatable, digestible to the majority.

20:02What times changed, and so did ideas, and they didn't change for the better. There was an ideological revolution in the other way. And the theorists who didn't believe in private property, they started to win out, and they started to convince communicators who then convinced the sheeple. And because of the ideological revolution, there was another revolution in policy. And what that resulted in was a lot of the worst things of the 20th that ultimately resulted in World War I, the New Deal, fascism, nazism, communism, World War II, the Cold War. So ideas are really important and where ideas lead us in the future, it's up to us. Now everyone's somewhere in this continuum and I can tell already just by the fact that you're here, you're not there.

20:55You're not sheeple just by the fact that you're here. You're one of these. You're either a theorist or a communicator, and wherever you're going to be, your role is going to be hugely important. Mises said, everyone carries a part of society on his shoulders. No one is relieved of his share of responsibility of others, and no one can find safe way out for himself if society is sweeping towards destruction. Therefore, everyone in his own interests must thrust himself vigorously into the The intellectual battle, none can stand aside with unconcern, the interests of everyone hang on the result, whether he chooses or not, every man and woman is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.

21:44So the ideologies of the future, the ideas of the future, that's up to us and as long As long as there's room for the ideas to change, there's hope, and looking out at all of you today, I think there's a lot of hope.