Question and Answer Period

0:00We have a question and answer period here. You can ask questions about the lectures themselves, or you can just ask questions about Austrian economics in general, or you can ask questions about general economic questions about the economy. Kevin, I'm from France. Thank you very much. I'm going to end up with a fascinating presentation. I have actually a two-fold question. We've heard all about the basics of Austrian economics, and how it opposes other systems, even classically, in the historical market. My question would be, how does it co-exist with other systems, or the relations between them?

0:46Can they co-exist, actually, in the global economical, or globalisation, globalised world? And the second part of my question is, how do you view another form of economy that includes statism and capitalism, such as China, that has proved 30, more than 30 years of growth, is it viable or not? Have you seen this as Austrian confidence these years? I could take the second part. We actually, the Austrian School was sort of the foundation of economics and were sort of an extension of the classical school, but we're very much at odds with mainstream economics and Keynesian economics in particular, and we see the trend in the economics profession and economics education as dangerously negative.

1:43In other words, things have gotten worse, and they're continuing to get even worse from that. I mean, there's some good stuff in mainstream economics, but the direction of change is actually, they're becoming more and more unrealistic and have a looser foundation with the real world that they're supposed to be discussing. So it's, I think it's a bad trend, except for the fact that Austrian economics is growing as fast or faster than any school of economics ever has. And to speak to the second question, Mises is famous for making the claim that really there are only two choices that you have. Basically you have a choice between capitalism and socialism.

2:30In terms of a social division of labor, so in terms of a coordinated mass division of of Labor with a really complicated structure of production that the only two even conceivable alternatives is the capitalist way of coordinating all those resources or the socialist way of coordinating all those resources. And then he showed that socialism cannot calculate, so socialism is ultimately not going to work. And so what you have is that you have capitalism, but then you have hampered capitalism. So there are state elements, there are state controls and regulations and bureaucracies, but what Mises pointed out is that they are operating within a capitalist milieu, and that it is the property rights, it is the property allocation and the capitalism that is actually rationalizing production and that the bureaucracies are just sort of like consumptive centers within that production, but the bureaucracies aren't rationalizing the social production at all. He says that what you end up having is that if you regulate the economy and if

3:56If you set up all these price controls and other kinds of regulations, that what happens is that those regulations never accomplish the goals which they were meant to accomplish. For example, when you do a price control, you're trying to make things cheaper, you're trying to make things more abundant to people, but then you actually create a shortage and then it's actually less abundant to people. And then there's what he calls a cycle of of Interventionism, that it leads to a problem that then the state tries to solve with another regulation, but that just creates more problems and it just spirals out of control until you end up with full-blown socialism, which actually doesn't actually work and what will happen is that the social division of labor will actually collapse and you'll actually just have autarky, where you don't have a division of labor that you just have, like when the social system collapsed after the Roman Empire, there wasn't a social division of labor.

4:58There was just autarky, feudal autarky, just different little people separate from each other economically. In China, for example, you might say that, oh, well, maybe that's a combination between Socialism and Capitalism. But know that what has led to the plummeting of infant mortality in China and the rise of prosperity is the extent to which they have reigned in the state and opened up their markets ever since the 70s. And so it's not a combination of socialism and capitalism. Another social productive rationalization there is, is capitalism, but it still is hampered to a large degree and if they reduce their regulations and reduce the bureaucracy it would hamper it even less.

5:54I think that's something you can see in the empirical facts too. I mean the United States has gotten more government oriented and its economy has declined, its middle class has declined. The other economies like Sweden have reduced the amount of government in their society and since the malaise in Sweden in the 1990s, their economy has gotten much better. So, whenever we look at those indicators, they're all going in the Austrian direction. Yes, sir? So, the temperature is sharp from Germany. So how do you envision how we can go from here where we are having very strong state-side controlled banking kind of deals with flow of money going back and forth, interest rates being set, where states actually borrow money from big banks and then end up having to pay their interest and everything.

6:44How do you go from there to an Austrian more liberal way for the money to flow more freely on the economic basis that you propose? Like how do you go from today into that era without the market being actually exploding?

7:14Loans tend to be made to good and stable investors rather than to things that need to be subsidized or to the government itself. And the other is the nature of money, whether it's fiat paper money, which has no intrinsic value to the type of system that we envision where money has a commodity basis of gold, silver and copper, for example. People, both of those things need to be achieved and we're very far away ideologically and scientifically from getting the basic social support because we believe that people actually have to know and believe what sound money is and the dangers of fiat money. So ultimately it's a spreading of ideas and a spreading of knowledge and science that is going to be necessary and unfortunately, very often, that takes hard life experience.

8:11Like for example, in your country, in Germany, they went down the wrong path in the late 19th century and after World War I, they ended up imposing harsh reparations on Germany. went through a hyperinflation which broke down society entirely. And for generations after that, Germans have been ideologically sound on money. Yes, sir. Jason Crawford from the UK. It's mainly for Danny initially, I think. Just a quote from you. You said, consumer wants increasingly moves towards public good. Now, of course, consumer wants more money. It's mainly for Danny initially, I think. Just a quote from you, you said, consumer wants increasingly move towards public good.

9:00Now, of course, consumer wants, you've spoken about iPods and all those, the kind of goods, glossies and so on, but of course there's a consumer demand around the world for narcotics, for prostitution, people trafficking, pornography, all of which involve entrepreneurs, exchange of money, goods, value, and all the things you've spoken about in terms of economics. So the question is, how under the Mises economy would that illicit economy be kept under control? Which I don't think most of us in the public get. Well, that's very true. What we've found by studying these markets, and I actually wrote my dissertation on the subject, is that most of the public bads that arise out of the markets for prostitution, gambling, narcotics, and so forth, arise not because of the products themselves, but because they are prohibited.

10:00And so when we look at the types of problems that are generated in these illicit black markets, what we find is that there's a lot of violence associated with it, that the products are very poor and very dangerous and that there's a lot of political corruption associated with it, overcrowding of prisons, the list of problems goes on and on and on and actually gets bigger over time. But those problems are almost entirely the result of the fact that the products are prohibited in the first place. That's what creates these black market profits. The lack of property rights in these markets means that people have to and defend their products, they have to defend their sales and their sales territories with guns basically, and so street gangs in the United States are a problem, they're the ones that are distributing drugs and they're the ones that are killing people on the streets.

10:52If Walmart was selling these products and they had to be liable for any damages that those products caused, all those social problems would be eliminated and all you would have So what we have to deal with is individual problems such as addiction or other problems that might result from the consumption of those goods. So you can prohibit them, but that's when you get the negative effects. And Mises said that the idea of prohibition, where do you stop if you say, you can't consume this, you can't consume that. In the next thing you know, the government has the power to restrict the things that you think are perfectly normal, or they have the power of censorship of books and information and ideas.

11:40So in our view, I think generally speaking, the prohibition way of dealing with those type of goods is very counterproductive. In the back? I am from India. I fully understand that the liberal is the ideal way of going to the rest of the world by this. How they have received the past, most of the wars have been caused by the economy. And that is the real world. Today, hair, I see, when we talk about China, they are doing good for themselves, they are setting their house right, trying to become the superpower. So considering this from a realistic point of view, what are your views on this method of liberalism in common because I don't think that can ever be achieved?

12:48just and logically sound system. So even though it's extremely difficult to ever get to that point, we still have to try as hard as we possibly can, because we should always try for those things which are just and right, even if they're very difficult. But as far as, for example, international players and who will be the next superpower and so on, these problems become much less important once you to achieve some liberal reforms because, for example, the United States, when it became the superpower, what that meant was, because at the time it was relatively more free market than it is today, and at that time what it meant to become the superpower was just that it was the United States and the people in it, for example, the entrepreneurs, were really, really good at producing goods and services that were valued by the rest of the world.

13:43So in that sense, being a superpower is not problematic, what is problematic is having a superpower in terms of, say, military dominance over the rest of the world. That's the kind of superpower that we should try to avoid having. But in a purely economic sense that we're talking about, power is only success in satisfying people. So, that type of power, if you want to call it, that is unproblematic, I would say. I'd also say that economics shows the universal benefits of extending the division of labor as far as possible. And so, it's very short-sighted for any economic power to say, oh, I'm going to make myself more powerful by doing beggar thy neighbor policies, by doing trade restrictions, by antagonizing other countries because by doing that you're creating more autarky, you're breaking down the division of labor and that just makes everybody more poor and it's artificial because then by that same logic someone in a country could say well not only do I want

15:06My country has certain advantages over these other countries, so I'm going to do protectionism and that kind of thing. Well, why not have my province have those kinds of advantages over the neighboring province? Or why not have my neighborhood have those kinds of advantages over the neighboring neighborhood or my own household? And so really, that's the logic of autarky. That's the logic of economic isolation. And again, that just makes everyone more poor. David Hume, who was one of the founders of classical economics and of British liberalism, he pointed out the fallacy in this type of reasoning and he ended one of his great essays by saying because of the division of labor, I pray for the business success of people in France and people in Holland because I know that their prosperity, but through mutually advantageous exchanges will only lead to my own prosperity.

16:14And throughout the age of liberalism, people realized that. So there was still, you know, politics and people trying to gain advantages, but for the most part people in Europe realized that if we extend the division of labor and if we have peace with other countries and if we have free trade with other countries that we'll all get richer than we would otherwise have. Sorry, but as of now, where do you see Europe with the economy opening up and all that? We don't see that advantage in taking the economy to the other side, so is that justified in that way?

17:17I mean, you have the European Central Bank and you have the Eurozone and there's a lot of centralization going on there. And so to the extent that Europe is rich is because historically it did liberalize. I mean, it was just, it was a miracle. When you think about all of human history and throughout all of human history, people People have lived basically the same, at the same living standards, that any given person, he lived about the same living standards as his ancestors a hundred years ago. And that person lived about the same living standards of a hundred years before that. But then liberalism grew in Europe, property became more sacrosanct, trade became freer, People became more secure, and for the first time in human history, there was an industrial revolution, and wealth grew amazingly, and goods and services were produced for the masses in a prodigious amount.

18:29Infant mortality went down. Marginal people who would have otherwise starved in other generations, they found work and they found sustenance and so that is really what made Europe rich. Yeah, the Eurozone is now more regulated, more intervention and more government than at any time in its history and we get that first hand every time we get European visitors here. I'm Julio from Colombia. I clearly understood your point of view here, from your example. How would you manage? Because from this point of view, having debilitated money would be better. So how would you manage? Because what would be the benefits of having strong money?

19:34How would you balance that?

19:43You know, and we would like, you know, immediately for the central bank to stop acting in markets, stop intervening in interest, on the interest rate, stop intervening in the market for loans and the market for government bonds, just pull back. But ultimately, we not only want to see the central banks pull back, and we want to see the money itself become based on a commodity like gold, silver, and copper. and when we had a world like that each national country had its own currency but it was all based on gold and silver and copper so even though there was you know again and there was a pound and there was a Frank and there was a lira they were all the same thing it was just different ratios so Frank you take two Franks to buy a British pound but that was the same amount of gold the world The world was in effect on the same monetary system, just different pictures printed onto those coins.

20:47So that's what we ultimately want to get back to in this world because a sound monetary system means that this whole complex world economy and division of labor and free trade, everybody knows what's going on because we're all dealing with the same money in effect. Thank you very much.