Economics 101 – 8 of 8 – Mises in One Lesson – Murray N Rothbard

8. Mises in One Lesson

Austrian economics has nothing to do with the economics of Austria. Austrian Economics (AE) began with Carl Menger in 1871. It is based on an analysis of individual action, not aggregates or groups.

Economics predated Adam Smith. The British classical economics school could not solve the value paradox. It also embraced the labor theory of value. Another big fallacy was a focus on long-run equilibrium. Additionally, they separated micro and macroeconomics into two hermetically sealed spheres.

Menger and Bohm-Bawerk focused systematically on individual action. The purpose of production is consumption. Value is inferred by the consumer in a subjective marginal unit value theory. This solved the value paradox. Economics is not really a quantitative subject. Value is subjective and cannot be measured. Preferences are ordinal, not cardinal. There is no separate process called distribution. Distribution comes right out of production. People prefer present goods immediately available. Production is a time structure. Capitalism is a network by which the free market responds to constant feedback. Equilibrium economics does not mention this.

Austrians only talked about micro, but had not included macro until Mises’ The Theory of Money and Credit in 1912. Mises shows that more money (as opposed to more of other commodities) destroys economic calculation. Mises explains the origins of money through his regression theorem. Money must originate as a valued market commodity, not by government edict. His ideal system would be 100% reserve banking, or a true Free Banking system.

Mises’ business cycle theory was a simple model. Increases in the money supply and credit go first to those close to the source and mess up the capital structure. Increases are not helicoptered out simultaneously to all. Commercial bank credit expansion, unbacked by private savings, leads to malinvestments. Recession is a necessary process by which bad investment is liquidated. Resources shift out of capital goods back into consumer goods.

Mises taught his views at the University of Vienna in private seminars. He warned about the Great Depression. Socialism arose after WWI. Most recognized immediately that Socialism had an incentive problem, like “Who will take out the garbage?” Mises was one of the few who saw the real problem of Socialism was that it could not calculate. There was no price system. It couldn’t work. Neither does interventionism work. Only laissez-faire capitalism works. Mises’ crowning accomplishment was Human Action. However, Keynes’ General Theory in 1936 swept Mises aside. Hayek did not refute Keynes’ book, as he had a prior work. Mises could not find an academic post, yet he cheerfully established a teaching seminar at NYU. Mises died in 1973. Hayek got the Noble prize in 1974 based upon work that he did on Mises’ business cycle theory.

The final of eight sessions of Murray Rothbard’s Economics 101 series. This lecture may be the most concise overview of the core ideas of the Austrian School of Economics.

A collection of eight speeches and lectures by Murray N. Rothbard, spanning from the 1970s to the early 1990s. He is speaking in a small classroom setting, explaining economics from the ground up, and systematically in the manner of a classic 101 course on the topic—but with a revolutionary approach.

This lecture as a Podcast: http://enemyofthestate.podomatic.com/

Sourced from: https://mises.org/library/economics-101

Source: Economics 101 – 8 of 8 – Mises in One Lesson – Murray N Rothbard – YouTube

http://www.readrothbard.com/economics-101-8-of-8-mises-in-one-lesson-murray-n-rothbard

TRANSCRIPT
00:00
thank you very much this is a real real
00:02
pleasure this is a really difficult to
00:08
work explain World War II economics and
00:10
Mises role and a short period of time
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level try to my best first place about
00:17
all Austrian economics contrary to many
00:21
impressions has nothing to do with
00:23
Austria the I know nothing about the
00:27
economics of Austria doesn’t mean it’s
00:29
not doesn’t mean it’s not a viable
00:30
subject but it’s just good I don’t know
00:33
much about it also there are a few
00:35
Austrians left in Austria yeah they’re
00:40
all here so it’s most unique economics
00:48
began as they in University of Vienna
00:52
and with calm anger and the early
00:55
Austrians were indeed located in Austria
00:57
and then of when the the doctrine
00:59
permeated outward the the the essence of
01:06
Austrian economics is there was it’s
01:09
based on and contrast to all other
01:11
schools including alleged free-market
01:15
schools of economics the ocean economics
01:21
is based on an analysis of individual
01:24
action whereas individuals doing things
01:27
having purposes and goals and pursuing
01:29
them this immediately sets us apart with
01:34
all the other schools the economics deal
01:36
of aggregates groups classes holes and
01:40
one sort or another without without
01:42
focusing on individual first and
01:43
building up from there
01:46
the I’d have to start with I could
01:49
easily make this about five hours
01:51
instead of three five minutes summers I
01:52
try to truncate this ocean economics
01:57
basically lives on an earlier tradition
02:01
of French French and Italian especially
02:03
French continental tradition really
02:06
beginning with a Spanish scholastics in
02:07
the middle in the sixteenth century and
02:09
then proceeding on to
02:12
France with Catalan on tour go in 18th
02:14
century this was buried from one for
02:17
various reasons this knowledge was lost
02:20
to economic thought and superseded by
02:23
the British classical school by Smith
02:25
and Ricardo on there their followers so
02:28
this immediately starts a new now a new
02:30
history of thought because mostly most
02:33
economists I think still think that
02:35
economics began sort of out of a
02:38
forehead of Adam Smith you know some
02:39
piece of these sexy sort of created it
02:41
like Athena springing browsers actually
02:44
economics not only predated Smith by
02:47
several centuries but also was much
02:49
better than Smith Noah Smith Lovelace of
02:52
the Kline any rate the British classical
02:56
school Smith Ricardo etc John Stuart
03:00
Mill focused on aggregates and groups
03:03
and classes rather than the individual
03:04
number one basically the sum up the
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Classical School of several key
03:11
fallacies ur and these this was dominant
03:13
until minger came in ran 1871 one of the
03:19
value economic value price was
03:22
determined by the cost of production the
03:24
course of production embodied in some
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fashion and the product and specifically
03:29
by the quantity of Labor our is embodied
03:31
in it and we can pretty well see almost
03:35
automatically if we look at this thing
03:37
kind of clear-eyed fashion there’s
03:39
something wrong with it because I could
03:40
work
03:41
remember those a movie instead of a
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charming movie a great Z movie came in
03:46
about twenty years ago I forget the
03:48
title but the essence of it was some
03:50
great inventor and somewhere on the West
03:53
of England wasn’t totally isolated and
03:55
he kept inventing great things like a
03:57
radio and then television a lot except
04:00
that already been invented twenty years
04:01
before I think they didn’t know about it
04:04
so he’s a great inventor I just he was
04:06
taken better the wheel or whatever too
04:09
late but he was working put him up to
04:11
put in a hundred thousand labor hours
04:13
and these inventions how many you saw
04:15
obviously zero so the economic value
04:18
obviously depend on his quantity of
04:20
labour hours at any rate the class but
04:25
the classical school had to do dismiss
04:27
is unimportant a whole group of economic
04:30
goods and not able to explain their
04:32
value namely we produced non
04:35
reproducible objects because goods are
04:36
not being produced any more like
04:39
Rembrandt’s me runway I put in a certain
04:41
number of labor hours I suppose but the
04:43
price of Rembrandt keeps fluctuating
04:44
since then not in the Corden’s with some
04:46
of these input one hopes otherwise be
04:49
forgery so so what determines the value
04:54
of Rembrandt’s well they couldn’t figure
04:55
it out they just have to leave it aside
04:56
on us as unimportant and they couldn’t
05:01
deal about what consumers either because
05:03
with consumers that came up against
05:05
famous value and paradox which he cut me
05:08
history of economic thought always tell
05:10
us about it Smith was Buffalo buy the
05:12
value of paradox the peculiar thing was
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he solved with himself about twenty
05:15
years before so it’s very odd kind of
05:17
situation linear a in the wealth of
05:19
nations he sets forth the value of
05:22
paradoxes terrible thing can’t
05:24
understand it on one hand as diamonds
05:26
let’s say in the other hand there’s
05:27
bread or water it can use either one of
05:28
the two and bread is of staff of life
05:32
it’s philosophically extremely important
05:33
and very necessary and yet it’s very
05:36
cheap on the market in other words
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economic value is zilch that’s where
05:39
it’s rich cheap not zero mortar is the
05:42
economic value used to be zero and the
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other hand we have diamonds which are
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mere flickery
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a luxury item and so forth so on and
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Adam Smith being a good Calvinist said
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they have zero value diamonds and yet
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they’re very expensive they’re very high
05:58
economic values so you couldn’t figure
05:59
that out the value of paradox see here’s
06:02
bread which was extremely useful yet has
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very low economic value and diamonds
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were churned useless or almost used
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wasn’t had very high economic value
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included economics can’t solve us to
06:13
just a split between value and use of
06:15
value of an exchange there’s no way to
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solve that we have a rule of exchange
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value forget about use value now you see
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right away that sets up the conditions
06:23
for the whole bunch of left-wing thought
06:27
from late 19th early 20th century out
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there still going on I suppose the
06:30
separation between value for use of
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value for I mean production for use of
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production for profit and so immediately
06:36
sets that up if somehow is a big
06:37
distinction so I he said therefore we
06:42
have to speak aunt view of consumers we
06:44
can’t be able to non reproducible goods
06:45
we have to deal with producible
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reproducible goods and we only talk
06:49
about since you can’t talk about
06:50
consumers value must come from something
06:52
inherent on the object namely labor
06:55
hours another use it reason we use labor
06:58
hours as the time was trying to he and
06:59
Ricardo or trying to measure value of
07:01
time the science meant measurement even
07:04
those days for these people and so
07:07
therefore how do you measure value any
07:09
measure changes we’re looking for some
07:10
hard quantity and it concluded labor
07:13
hours is about the best thing they could
07:14
get to so that was one big fallacy one
07:17
big dominant fallacy and economic
07:19
thought when manor was started right the
07:22
other day another big fallacy is that
07:24
they said they couldn’t deal with
07:26
individuals at all they’re dealing with
07:28
classes they had a separate thing called
07:31
distribution Theory distribution trying
07:33
to figure out this is Ricardo in
07:34
particularly who does who decides well
07:37
how much how much of the national output
07:39
goes the wages how much goes the profits
07:42
how much goes to landlords and so it
07:44
Jenny the way he set it up was is the
07:46
class struggle between feed these two
07:48
three mighty groups in other words the
07:50
good is produced somewhere someday
07:52
produce it and they fight for who gets
07:54
the different shares of income the
07:56
laborers
07:57
laborers getting that get messed up here
08:00
labors of the dirty end of the stick
08:01
but his wages are determined by the iron
08:03
law of wages Malthusian iron Lords down
08:06
a subsistence levels we all know we’re
08:07
sitting here living a subsistence level
08:09
at the Anaheim help
08:12
everybody gets the lowest possible wages
08:15
takes care of the workers and capital
08:18
and capital s and landlords fight it out
08:19
for the rest of it with usually
08:22
landlords winning out because they get
08:24
an increasing share of unproductive
08:26
group of people get increasing share of
08:28
of income
08:29
well this obviously led this analysis
08:32
seems to me led logically straight away
08:34
to Marx and Henry George two different
08:36
sets of thinkers but when each focusing
08:38
on different aspects of Marx focusing on
08:41
the alleged surplus value going to the
08:43
that they capitalist is against the
08:45
workers and somehow capitalism
08:47
conspiring to keep the wages of people
08:50
are valid later keep them down a little
08:53
subsistence waffle on the other hand
08:54
Henry George focusing on evil and evil
08:57
unproductive landlord getting an
08:58
increasing share of a national product
09:00
they should be expropriated now of
09:02
course liquor Ricardo’s not believe it
09:04
should be expropriated and think in
09:05
those terms but it seems to me is pretty
09:06
logical but if you’re looking at
09:08
pictures of injustice rather than only
09:10
economic analysis you will wind up with
09:12
either if you roll a Cardian you might
09:14
have the video and walks us through
09:15
George’s some people of course take both
09:17
paths or muck so George’s okay this so
09:21
this is the second big dominant force
09:24
and classically British cry school
09:27
economics a third one well first things
09:31
asking how could they be so wrong after
09:32
they focus on this unreal situation
09:36
labor hours and by the way the labor
09:38
theory of value I think should backtrack
09:40
a slightly on that this is pure
09:43
speculation but I think it’s probably
09:44
true but it’s no action of only in
09:48
Scotland the labor theory of value
09:49
originated I mean nobody in the
09:51
continent nobody in France Italy no the
09:53
Spanish scholastics that was thought in
09:54
terms of they said labor comes from
09:56
consumers consumer demand told in terms
09:59
of labor value it seems to be not an
10:03
accident because the Scotland of course
10:04
was the classical home of Calvinism the
10:07
Calvinist doctrine is that people labor
10:10
is a key thing it’s okay everybody’s
10:12
room to work gets a consumer enjoyment
10:15
by the way is evil and as Adam Smith
10:18
said Isis you storm of the useless and
10:20
so you you are you see the only
10:24
you can see many things allow you to
10:25
keep working because of God’s
10:26
commandment the sufferer keeps suffering
10:29
so this sort of Calvinist anatoly’s
10:32
pretty quickly I think to a liberal
10:34
theory value at any rate the third so
10:38
it’s one to two big fallacious aspects
10:40
of British classical school labor theory
10:43
value or cost theory value one two
10:46
classes or aggregate class struggle over
10:48
shears of income
10:49
the third things that focus totally on
10:52
non existent unreal long-run equilibrium
10:54
now this is done right now by modern
10:57
microeconomics and macroeconomics that
11:00
matter currently all classic
11:04
neoclassical economics focuses solely on
11:06
reaching the blue graph mentioned before
11:08
they don’t talk about entrepreneurs you
11:10
know three simple why they don’t talk
11:12
about burners they don’t talk about
11:13
active reduced net reproduce be able to
11:15
change an uncertainty you make a profit
11:17
if you can forecast better than the next
11:19
guy you make a losses if you can’t
11:21
forecast then perfect in long-run
11:24
equilibrium at the forecast anything
11:25
nothing ever changes there’s nothing
11:27
ever changes everybody has perfect
11:30
knowledge is they call a perfect
11:31
knowledge perfect everybody is in
11:33
perfect competition no one certainty
11:36
there’s no risk there’s no profits and
11:38
no losses and so the entrepreneur then
11:41
because of pain in the neck it becomes a
11:42
messing up your nice mathematical system
11:45
and this again stems from British
11:47
British classical school it and didn’t
11:49
have a mathematical diagrams or anything
11:50
but they have the the essence Ricardo in
11:52
particular focusing only on long-run
11:55
equilibrium as a result of four thousand
12:00
three the fourth thing which goes along
12:02
with this is again Ricardo’s
12:04
contribution of economics thought
12:06
co-contribution unquote is to separate
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divide totally the macro from the my
12:12
clothes sphere was an overall familiar
12:13
that those of us take current economics
12:16
there’s micro the first term of the
12:18
second lover second term
12:19
Michael you learn about supplying the
12:21
man or whatever and then some of you
12:22
leap in the macro nobody talks about
12:24
supply Immanuel
12:25
our growth curves and velocity and lack
12:27
totally different and this whole split
12:30
starts the vacora also okay and so with
12:36
record over quantity of money only
12:38
determines the general price level the
12:40
increase in money supply prices go up
12:41
has no impact on production on profits
12:44
on interest on relative prices or
12:47
anything else it’s just sort of like to
12:49
hermetically sealed sphere the micro
12:52
sphere where things are going on so
12:53
fairly understandable supplying the man
12:55
prices and all that then of the macro
12:57
sphere totally cuddle off of the micro
12:59
er you have money in places bouncing up
13:02
and down with no relationship between
13:03
the two
13:04
okay was in that kind of atmosphere at a
13:08
set up dominant British classical school
13:12
dominance by the way now turns out but
13:14
not everybody was recording in from 1890
13:17
1971 the British themselves began a peck
13:20
away at Ricardian ISM shortly after he
13:22
died by 1830 there are no record Ian’s
13:25
left but what happened was the John
13:28
Stuart Mill wheat was erected accordion
13:31
ISM his famous principal 1948 he have
13:35
such tremendous moral authority on the
13:37
public they so revered almost anything
13:39
he said was except for the lost gospel
13:41
truth and so he restored require unison
13:44
to its to a dominant politically placed
13:47
it as a dominant pedestal and he did it
13:51
because he was brainwashed by his father
13:52
I was a top riccati and so on so on so
13:54
but again that can of worms this point
13:57
anyway is that atmosphere of the calm
14:00
anger the founder of Austrian economics
14:01
likes his great path-breaking
14:04
magnificent book principles of economics
14:06
in 1871
14:09
what he does he goes on the earlier
14:11
Continental tradition but essentially he
14:12
develops this whole path-breaking system
14:16
okay well what is that what some of up
14:18
the Austrian system was created by Magna
14:21
and a student on barbaric at the
14:23
University of Vienna essentially it’s
14:27
based on methodological individualism I
14:29
was focusing on the individual
14:31
first individuals actions the individual
14:34
the ideas the individual has a purpose
14:36
as goals and once he or she wants to
14:38
pursue in order to pursue being going
14:41
after use resources or means to pursue
14:42
them and it takes time to do all this
14:45
that separates up you start with crew
14:46
sewing and work on up two different
14:49
individuals and exchanges building up
14:51
the whole economic analysis from the
14:54
individual and it hadn’t really been
14:56
done before but none partially had never
14:58
been done systematically as minger did
15:01
it and as Mubarak did developing it even
15:04
further especially in capital Syrians
15:06
and to proneural theory so looking at it
15:10
that way you realize that the purpose of
15:11
production is consumption the idea of
15:13
reason why the inventor worked the
15:15
200,000 labour hours says he hopes that
15:17
somebody will buy it and so value is
15:20
conferred by the consumers but a demand
15:22
of consumers and goes backward from the
15:24
subjective evaluations of consumers down
15:27
through to the factors of production
15:28
that they people receive income so you
15:32
have in other words the demand theory or
15:33
a consumer demand theory of value the
15:35
subjective value theory the sum of the
15:37
cost of production doctrine and now of
15:39
course me to immediately explain by
15:40
Rembrandt sir now you might be two
15:42
million dollars now 1 million dollars 10
15:44
years ago because consumers are paying
15:45
more for they’re willing to pay more for
15:47
it now they were before their valuations
15:50
are higher even because of general
15:52
inflation had more money or because when
15:55
Manson a preferred more to other art
15:57
than they were at 10 years ago
15:59
so secondly we’re looking in focusing on
16:03
the individual action we can see the
16:05
individuals take make their evaluations
16:08
and marginal units this is a so-called
16:09
marginal revolution where they don’t
16:11
take the red diamond paradox which
16:14
mainly on the other margin was solved
16:16
namely nobody is confronted in real life
16:20
you’re looking in real life action
16:22
nobody’s confronted with a choice of all
16:23
the bread in the world versus all the
16:25
diamonds in the world other words if the
16:26
angel Gabriel came down to us tonight
16:29
and so you know
16:31
captured nationwide telling worldwide
16:33
television it’s a people of worth
16:34
listens
16:35
you’re not going to hunt it with a
16:37
choice between all the bread on the
16:38
well from now on forever and all the
16:40
diamonds in the law you lose one of the
16:41
months set probably most of us will vote
16:44
for Brett but the point is we’re not
16:45
confronted with that kind of choice yet
16:47
and we’re confronted with an individual
16:50
choice like should we buy a loaf of
16:52
bread or a five carat diamond or
16:55
something like that and in these
16:56
marginal units than we realize that
16:58
supply becomes myth and major focus here
17:01
in other words the more abundant the
17:03
bread is very abundant the unit of bread
17:06
is not going to be worth much because
17:08
it’s super abundant the other hand says
17:09
if diamonds are very rare each
17:11
individual diamond we work a lot and so
17:14
in other words these valuations take
17:15
place in units marginally so called
17:18
marginal units and loaves of bread or
17:20
pounds of butter or whatever if you look
17:22
at it that way you’ll see why water is
17:24
making very very cost might be priced
17:27
very highly in the desert and was not
17:30
much in a very high water area so this
17:33
solve the value paradox that have been
17:35
smaller for the Continental centuries
17:37
before but this is a much better neater
17:39
and more for and for our explanation
17:42
another thing that Austrians motion
17:45
isn’t focused on is that economics is
17:47
not really a quantitative subject it’s
17:49
not really a subject it’s not really a
17:51
subject we can make correlations and
17:53
quantitative measurements and source
17:55
stuff because value is subjective and
17:57
can’t be measured how much do I how much
18:01
do I prefer I prefer for example Wonder
18:03
Bread the tasty bread how much who knows
18:05
I can’t say be pointless for me to say
18:08
I’d prefer 3.8 times as much as a loaf
18:10
of tasty bread and everybody’s got
18:12
different he certainly can’t add up
18:14
people’s subjective preferences
18:16
preferences are ordinal their ranking
18:18
rankings sort of now I prefer another
18:22
better tasty bread etc so so by looking
18:27
at this we see with Austrian we look at
18:29
any Austrian book you can almost tell a
18:30
notion but by looking at coming through
18:32
it there’s those no mass and they’re
18:34
very almost none and one of the reasons
18:36
is because it’s not a really a
18:37
mathematical subject it’s really a
18:39
philosophic subject
18:41
okay and the distribution front of the
18:46
reich’s I saw the British classical
18:47
school talk in terms of a class struggle
18:49
between different classes of income
18:51
receiver again the end of the Austrians
18:54
focus on each individual individual
18:55
factor owner the individual laborer
18:58
individual capitalist etc by doing that
19:00
they’re able to explain individual
19:02
factor prices which the classes that we
19:04
talked about and it’s pointed out of the
19:08
free market through compact competitive
19:10
action entrepreneurial action tends to
19:12
impute to each individual factor how
19:14
much how much has his productive share
19:17
of a product a so-called marginal
19:19
product or marginal value product each
19:21
factor tends on the market earn its
19:24
marginal value product its contribution
19:26
to the actual goods being produced
19:30
there’s no longer any split between
19:32
production on the one hand distribution
19:33
on the other John Stuart Mill said the
19:35
theory production is all worked out and
19:36
still they separate from the Theory
19:37
distribution this of course leaves very
19:39
quickly to the socialist position
19:41
because you can say well we’re sure
19:42
we’re a favor of production will allow
19:44
people to produce normal grab this only
19:46
income and divide it equally as a more
19:49
two more two people six feet or whatever
19:51
whatever theory distribution of God
19:53
well those to the economics you realize
19:55
there’s no such scepter there’s no
19:56
separate process called distribution for
19:58
distribution comes right out of
19:59
production people earn what they
20:01
contribute to the production which race
20:03
it’s very simple then
20:05
and also bombard our plan half of first
20:08
time and Frank Feder of the American
20:10
Austrian developed that clarified it the
20:14
interest
20:15
long-run profit is a terminal determine
20:19
comes from type reference this is
20:21
something by whether the corrent I
20:23
usually people could never figure out
20:25
the Catholic Church theologians who
20:27
couldn’t who tended to be favor the free
20:29
market they couldn’t figure out what the
20:31
justification for interest is interest
20:32
on the pure loan I can understand about
20:34
risk they understood about uncertainty
20:36
in the lab they just didn’t understand
20:38
about why should people be able to
20:40
charge three percent or eight percent
20:41
over on a pure loan
20:43
and the answer is that people prefer a
20:45
good right now to waiting for it or the
20:47
present expectation of a good coming in
20:49
here from now 10 years from now or a
20:50
hundred years from now
20:51
everybody’s got a time premium rate and
20:54
present goods immediately available and
20:56
a discount for the future the determines
21:00
the rate of interest also Bambara
21:02
pointed out and men go to the capital is
21:04
a blessing which by the way modern
21:06
economics though is not learned the
21:08
capital takes time production takes time
21:10
capital of the time structure some goods
21:13
are very close to consumers like
21:15
producing Wonder Bread and the retail of
21:19
course is very close to the consumer on
21:21
the other hand the machinery or those
21:23
other my iron ore that goes into making
21:25
the machinery the produces wonderbra’s
21:26
way up the structure it takes a lot of
21:28
time to get as the earlier pasa stage of
21:31
production so to speak or a higher order
21:33
of production so we have then production
21:37
taking time we have capital not as a
21:39
homogeneous lump which in modern
21:41
economics food tends to say just add
21:43
more capital even if it’s somehow a bra
21:45
about their capital is a latticework
21:48
it’s a network a structure which has to
21:51
all have to fit in together and I write
21:52
only the free market can fit in in only
21:54
entrepreneurs the profit loss test often
21:57
lost incentive and a free price system
21:59
can do the fitting see one of the
22:01
problems with socialism for example they
22:03
can make some stuff but they can’t can’t
22:05
fit it together like the orphan and
22:07
Russia have a situation where the
22:08
bristles the toothbrush shortage what
22:10
was under the tooth pressure why their
22:11
food shortage well a bristles are in
22:13
Tomsk inlay and the handles are in pumps
22:15
and they just didn’t benefit the
22:17
bristles together by the handle and the
22:19
free market you never have this problem
22:20
everything fits good there’s a constant
22:22
feedback mechanism so to speak a profit
22:26
and loss and I think prices that and
22:29
Bambara points that I pointed out that
22:31
the capitalist entrepreneur again again
22:33
we focus on intrapreneur Austrians in
22:35
other words the equilibrium is a
22:37
tendency and that was never reached it’s
22:39
a goal with the it’s an ever it’s
22:41
ever-changing goal and never reach it
22:44
so Austrians focus on the process the
22:46
real-world process by which the economy
22:48
tends to move toward equilibrium and and
22:52
thereby force we have a whole
22:53
a risk and uncertainty and change which
22:55
is the real world issues which
22:56
equilibrium economics doesn’t talk about
22:58
and so therefore the entrepreneur
23:01
becomes a key figure in the whole
23:02
process the profit and loss system the
23:04
incentives to make profit and to avoid
23:06
losses and so the capitalist
23:09
intrapreneur in Austrian Theory earns a
23:11
two-part return one is an entrepreneur
23:13
by forecasting better than the next guy
23:15
and be able to forecast the future
23:17
forecast about the man will be FERS
23:19
product what costs will be and also to
23:21
as a capitalist saving up money and then
23:24
paying workers right now in advance of
23:26
the production and sale for which the
23:29
workers in a sense pay him a discount
23:30
they pay the interest return and they’re
23:33
happy to do it because they don’t have
23:34
to wait five years for payroll so these
23:37
are the two basic functions of a
23:39
capitalist entrepreneur entrepreneurship
23:41
and capital saving an investment ok in
23:45
this atmosphere this weekly sketch out
23:47
Austrian economics before one Mises
23:50
Menger bomb barbaric Feder living one
23:54
Mises comes at boondi key needing one
23:57
the brilliant young student of Bambara
24:00
explained the seminar dean receiving
24:02
inner and essentially what he saw was
24:05
that the Austrians had already fixed up
24:07
these classical error the four big
24:08
British classical errors value
24:11
distribution and equilibrium but the one
24:13
thing they hadn’t done yet one of the
24:15
main thing they hadn’t done yet was the
24:17
yield of micro macro split other words
24:19
the Austrians stole had only talked
24:21
about micro they hadn’t they weren’t
24:23
able to extend the Austrian economics to
24:25
the theory of money so that was that was
24:28
mean his first great accomplishment and
24:30
his magnificent first book theory of
24:33
money and credit came out of 1912 and
24:36
it’s a great full of best thing ever
24:37
written on money and what he did was he
24:41
healed a split its artificial split he
24:43
applied the margin utility theory of
24:45
Austrian economics to money integrated
24:48
that he made micro and macro one whole
24:51
beautiful integrated system of economic
24:53
analysis so he C pointed out for example
24:59
Nonie you don’t get the money I don’t
25:01
use M and V don’t forget about supply
25:03
and demand
25:04
the Thea the purchasing power of money
25:06
you know where the value of money can be
25:07
sighs incited on the same basis as
25:09
individual goods and services namely
25:11
supply and demand an increase of the
25:15
supply of money lowers its value this is
25:17
in case of bubble gum or coffee an
25:19
increase of demand for money raises its
25:22
value just like any other good however
25:24
there’s a big difference and this he
25:26
applies some of the Ricardian currency
25:28
school and cites the big difference
25:31
between money on the one hand and other
25:33
goods on the other hand is the other
25:34
goods are necessary to production in
25:35
other words specific quantities for
25:38
example other things being equal to
25:40
increase resources or increase the
25:42
supply of cousin services people’s hast
25:45
a non-living go up that’s a good thing
25:47
so to speak to have more the fine new
25:49
resource to find the oil strike or to
25:52
increase productivity okay
25:54
feel this fear of money it’s very
25:56
different the only real use of money is
25:58
exchanged you know eat money
26:00
put a bluntly and once you have enough
26:03
money to become money on the market you
26:07
don’t need any more in other words any
26:08
supply of money which is arrived at on
26:10
the market is optimal you don’t need any
26:12
more money coming in so the only thing
26:16
that increase the money supply does then
26:18
the only social effect is a dilute
26:21
purchasing power of each existing
26:23
pre-existing dollar or gold ounce or
26:26
mark or whatever the currency unit is so
26:29
any increase the money supply increase
26:31
in goods and services as good an
26:32
increase in the standard of living
26:34
increase of capital equipment as good
26:36
increases future standard of living and
26:37
increase the money supply is pointless
26:39
because all it does is dilute the
26:42
purchasing power of the original of the
26:43
existing unit there’s no social utility
26:46
whatsoever under the gold standard does
26:48
because the increase of gold supply as a
26:50
non-monetary function of the weather
26:52
unique you can use more go for jewelry
26:54
watches teeth and that sort of stuff
26:56
okay but under paper money of course
26:59
there’s no social function whatsoever
27:00
listen it doesn’t simply dilute
27:03
part of a dollar so Mises goes into this
27:07
knee shows basically that that more
27:10
money and increase the money supply
27:12
beyond the amount of gold available or
27:14
silver available redistributes destroys
27:18
kalmyk calculation generally messes
27:21
everything up messes up a production
27:22
system what happens is a tax were the
27:26
first receivers of money benefit of the
27:28
expense of the late receivers it’s very
27:29
much like counterfeiting as a matter of
27:30
fact it is the set of essentially is all
27:34
legalized monopolies counterfeiter and
27:35
the effect of the Fed increasing the
27:38
money supply or the Bank of England or
27:40
any central bank because essentially is
27:42
very is almost the same as any is any
27:44
counterfeiter you have a legalized
27:45
counter for pouring out money down here
27:47
and I you’ll have the same sort of
27:48
effect an increase moves income of
27:51
people in Anaheim first of the
27:53
counterfeiters next of the people who
27:55
kind of furthers spend the good money on
27:57
retailers let’s say in Anaheim they’re
27:59
they’re in great shape they love
28:00
counterfeiting right and so then they
28:02
begin to spend more prices begin to go
28:04
up those of us are don’t live in Anaheim
28:05
who have a fixed income lose so the
28:09
inflation process is essentially a
28:11
counterfeiting process except that
28:13
people on the run from the Treasury
28:14
Department it is the treasurer it is the
28:16
Federal Reserve doing it okay so Mises
28:21
also built on on-call mangers classic
28:25
article on the origin how money
28:27
originates and expanded that the show
28:29
the money has to originate this way
28:31
namely
28:32
out of the free market out of the
28:33
voluntary actions of the individuals
28:36
trying to overcome with tremendous
28:38
difficulties of border and he shows that
28:42
money has to originate that way money
28:44
cannot originate as a government edict
28:46
or by some social compact everybody gets
28:48
together one big convention it says
28:49
let’s make that money it can’t work that
28:51
way it has to work out of a market
28:53
marketable month market commodity
28:55
unfortunately forced on the government
28:57
can take it over and mess it up but it
28:59
has to originate as a market valuable
29:02
market commodity such as gold or silver
29:04
which have always now competed all the
29:06
other marketable commodities once it’s
29:07
given a chance if people know about gold
29:09
and silver that society knows about they
29:12
will outcome
29:12
I’ll complete them also Mises showed us
29:17
the remaining credit that fractional
29:19
reserve banking is essentially
29:20
fraudulent essentially for issue of
29:23
fraudulent warehouse receipts to
29:25
non-existent gold or cash and it creates
29:29
this whole process and the ideal system
29:31
would be hundred percent reserve banking
29:32
he believed however I think is true
29:35
under a genuine free banking system in
29:38
other words of the banks were compelled
29:40
to meet their contracts like everybody
29:41
else is forced to meet their contracts
29:43
they say I’m going to give you gold on
29:45
demand if you don’t give it to him you
29:47
go bankrupt if that were true we’d have
29:50
a hard money we have an approach toward
29:51
our percent reserve system unfortunately
29:53
of course has never worked that way the
29:55
banks always be bailed out one way or
29:58
another and also he showed in the theory
30:02
money in credit that the utility fix up
30:06
the margin utility here he shows us he
30:08
showed it’s ordinal it can’t be measured
30:09
the other embargo but we gone at he
30:12
showed you can’t since this is a
30:14
subjective you can’t you can’t
30:16
mathematize it I mean right now micro
30:19
textbooks look at any any micro textbook
30:21
I talk about usual you talk about
30:22
utility theory I said well we have you
30:24
told if some people some things worth
30:27
five usuals other things worth eight
30:28
euros those are things that you’d alexei
30:30
util the things this okay but if you
30:34
assume that such a things that you
30:35
Lincoln mathematize that you calculus
30:37
and have graphs and tangents large junk
30:40
it just doesn’t work there’s not true
30:42
okay it’s not junk in mathematics it
30:45
isn’t junk however on economics okay in
30:48
addition to all that there’s an enormous
30:50
contribution or already theory money
30:53
credit had the Genesis and a few pages
30:55
he outlined what would become his theory
30:57
of the business cycle great Austrian
30:59
theory of the business cycle
31:00
he’s Sen theory of business cycle and
31:01
during the 1920s he expanded on that and
31:05
the work which has been translated since
31:07
then called on manipulation money and
31:10
credit and interestingly enough what
31:13
happened was most of us embarked and
31:16
most of the students of course rejected
31:17
this hell application of money in
31:18
business cycles Casilla sees
31:20
on the sound and so forth and the
31:22
measles was a pioneer of scorn even in
31:25
Austria let there not even that
31:27
situation okay an Austrian business
31:29
cycle theory which develops during the
31:31
1920s with FA Hyack as the famous major
31:34
follower but lots of other followers as
31:37
well basically what Mises did was he
31:40
took he formed he took them his own
31:42
money in banking theory okay but what
31:44
determines the prices and my purchasing
31:47
power of money and and he also took the
31:51
currency school Ricardian currency
31:53
school insight which you know the famous
31:55
model that if you increase the money
31:56
supply places will go up and then you
31:58
have a deficit amounts of payments that
32:00
has spices would be too high and imports
32:03
will go up and exports will go down
32:05
he realized with tremendous insight this
32:07
is essentially in a business cycle
32:08
theory never talked about such in the
32:11
textbooks it was not only a theory of
32:13
money in a theory of international
32:14
payments we also business cycle theory
32:16
this is a simple model the banks pumped
32:20
in money prices go up as euphoria and
32:22
something happens after contracting this
32:23
bankruptcies and liquidation it’s a very
32:25
simple model of a business cycle he
32:28
combined that means this with Vic Souls
32:30
which was a Swedish Austrian Swedish
32:33
bomb barbaric follower combine that with
32:35
Vic sells analysis of interest rates and
32:40
how if the local banking rate falls
32:42
below the natural rate of interest of a
32:43
free market rate of interest of the
32:46
inflation if combined that and wound up
32:49
with with they integrated magnificent
32:53
path by game theory of business cycle
32:54
and essentially what it is what it says
32:57
is an increase in supply of money and
32:59
credit through the banking system
33:01
through central banking not only in
33:03
course of inflation everybody will admit
33:04
that we saw Laura well neoclassical will
33:07
if that it that it also causes other
33:10
disturbances it’s not just that the
33:11
Milton Friedman call the helicopter
33:12
effect
33:13
boom treatments I said we assume that
33:15
everybody gets an proportion increase
33:17
the money supply dropped by some magical
33:19
government helicopter so everybody gets
33:21
30% increase there there can’t it
33:23
doesn’t work that way of course if it
33:25
didn’t work that way we will point to it
33:26
the reason why the good
33:28
and you’ve start off because we don’t
33:31
have a three because we don’t have an
33:32
angel an angel Gabriel doubling
33:34
everybody’s my supply overnight they’re
33:36
trying to improve their lot or we have
33:38
it legalized counterfeiters in
33:40
Washington or in London increasing their
33:42
money supply first and lending it out or
33:45
spending it and a ripples out to the
33:46
rest of the society so they always
33:47
they’re always a one leg up and this
33:50
next expropriation process Sunday right
33:54
so Mises show that increase the money
33:55
same unnie in credit not only increases
33:57
prices it also disturbs messes up the
34:00
production system the whole capital
34:02
structure and because one of the
34:05
problems with business cycle theory
34:06
there are two really basic problems
34:08
which any business cycle theory has to
34:11
explain one is how come entrepreneurs
34:14
suddenly make severe losses in other
34:15
words entrepreneurs are trained in
34:16
forecasting they tend to be great
34:18
forecasters say lousy forecasters they
34:20
go out of business pretty quick light so
34:22
successful entrepreneurs tend to be good
34:24
forecaster how come all of a sudden it
34:26
turns out that all of them are many of
34:28
them are most of them went go bankrupt
34:30
they didn’t they didn’t forecast
34:31
successfully if their costs will be much
34:33
higher than selling prices and the
34:35
sudden there’s a sudden cluster of
34:38
entrepreneurial error now this bill
34:40
doesn’t usually happen okay and usually
34:42
an economist or training or Austrian is
34:44
certainly trained if something’s really
34:45
messed up on a system you looked at
34:47
government government must be messing
34:48
things up somewhere and sure enough okay
34:50
this is I said the second the second
34:53
thing which has to be explained is how
34:54
come there’s a much greater fluctuation
34:57
and capital goods there is in consumer
34:58
goods in other words there’s much bigger
35:02
boom let’s saying machine-tooled
35:03
construction enrollment industrial raw
35:05
materials and there isn’t a layers at
35:07
controlling depression or recession hits
35:11
the much bigger crash and machine tools
35:14
construction and a sort of finish and
35:16
then a higher order goes in business and
35:18
retail goods should be just the opposite
35:21
if the cacain means a right it should be
35:23
just the opposite should be the first
35:24
thing should be hit with the consumer
35:25
goods quite the contrary in last night
35:28
during the 1929 33 depression attacked
35:32
oil during the 30s retail sales are
35:33
pretty good
35:34
they only decline about 20 15 20 percent
35:36
it was other things was construction or
35:39
machine tools of decline 90 percent 80
35:41
90 out of the Sam 100% and so that’s the
35:45
you have to focus that unexplained those
35:47
two things we lost only the Austrian
35:49
only the Mises theory only Mises Hayek
35:51
theory explains these two problems
35:54
namely an increase in theory money
35:57
increases supply of money and credit
35:58
disturbs the production structure leaves
36:01
messes up the interest rate because more
36:03
money is pouring in but business
36:05
business loans and would have by
36:07
voluntary savings and leaves you’re over
36:09
expansion of capital goods so-called
36:13
higher order does a particular the
36:14
construction raw materials machine tool
36:18
another thing plants basic plant and
36:20
under production and consumer goods so
36:22
what you have then is a malinvestment
36:25
and a whole bunch of capital goods and
36:27
the lower the boom continues the more
36:30
the worst of malinvestment gets and so
36:33
what happens is coarser bit up to high
36:35
for the supply of savings available and
36:37
as soon as a credit expansion stops or
36:41
slows down significantly the recession
36:43
hits because then it then this mountain
36:44
e’s malinvestments are revealed it’s
36:46
revealed Laos starkly to the people they
36:48
entrepreneurs that they’ve now they over
36:50
big costs and wage rates too high and
36:52
much too high for what they can sell it
36:55
to their to their buyers not to the
36:58
consumers so much but to the other
36:59
people down the capital a good structure
37:01
and so the what happens then is the
37:04
recession and the Austrian analysis the
37:06
recession is unfortunate but necessary
37:08
process by which the market returns
37:11
washes out the unsound investments and
37:13
returns to the proper balance between
37:15
capital with the consumer good there was
37:17
a labor land and capital resources are
37:20
shifted back the consumer goods to a
37:22
certain amount and out of these
37:24
excessive
37:25
capital goods so the result is recession
37:30
is a necessary liquidation process and
37:32
any government interference the
37:34
recession prolongs it and makes it
37:35
permanent it doesn’t allow the recession
37:39
process adjustment process to work and
37:42
also in particular the key thing that
37:45
has to happen resources have to shift
37:46
out of
37:47
goes and into consumer goods and this
37:49
means that wage rates and capital goods
37:50
prices have to fall so that wellit’s of
37:54
the consumer goods so that people chef
37:56
the resources will ship to prop the
37:58
rates up which about the New Deal did of
38:00
course the prop them up to prevent them
38:02
from falling totally destroys the whole
38:04
adjustment process it prolongs the
38:05
depression permanently which is what
38:07
happened in 1930s okay this is
38:09
essentially the breakdown a capsule
38:11
summary in the Austrian this is a cycle
38:13
analysis and also by the way also
38:16
explained by current stagflation that’s
38:18
really the only theory explains
38:19
inflationary recession because what in
38:23
every business cycle whether it was pre
38:25
World War two or right now capital those
38:28
prices always going up higher than
38:30
consumer goods prices in a boom and
38:31
consumer those prices always going up
38:33
higher relative to capital goods prices
38:36
in a recession we’re still doing it they
38:38
accept only good old days and means
38:40
before the New Deal period during a
38:44
recession everything was for would there
38:46
be a healthy deflation where with prices
38:48
would fall in general money supply fell
38:50
was a banks are in bad shape so whole
38:52
money supply will go down prices would
38:53
go down but consumer those prices would
38:55
go down not as fast as capital those
38:57
prices in other words retail sales
39:00
furniture will go down 20% and price
39:02
let’s saying and construction cement
39:04
will go down 50% so that’s still
39:06
consumer those prices would be higher
39:08
both of the capital goods prices they
39:10
were before which is when you need in a
39:12
recession however consumers would loved
39:14
it because the absolute prices were in
39:17
money terms were cheaper well now that
39:19
we have a Keynesian monetarist of semi
39:22
Keynesian take take over since 1930s the
39:27
moneys law has never permitted the full
39:29
ever ever again where the Fed is always
39:31
pumping more money to the system
39:32
sometimes little less sometimes a little
39:34
more as a result during a recession we
39:37
never had a form prices ever
39:39
and so this healthy mask of sugar
39:42
coating of a pill is now gone for the
39:44
consumer is in a recession out faced
39:45
with two problems among unemployment
39:47
bankruptcies and all average they always
39:48
were faced with Plus this course of
39:51
living keeps going up
39:52
but as consumer goods prices are slow
39:53
going out relative the capital goes
39:55
price except now
39:56
that both going up in absolute terms
39:58
they’re not going down because of
39:59
healthy deflation so at any rate we now
40:02
have a situation we’re getting the worst
40:03
of both worlds every time it’s a
40:05
recession we still kept get a big
40:06
increase in the cost of living plus we
40:08
get unemployment was the result of 50
40:11
years of fine-tuning my beloved beloved
40:14
economy experts in Washington okay he
40:17
gets back to Mises person firstly the
40:22
these are taught and developed his views
40:24
at the University of Vienna’s true we
40:26
never had a paid post me anniversary of
40:28
the I was discriminated against even
40:29
even in Austria and he worked for the
40:33
Chamber of Commerce so Department of
40:35
Commerce I guess is in Austria and his
40:38
his seminar very famous seminar was
40:40
purely private he hold it held in his
40:41
offices and chamber commerce and this
40:44
seminar the one that attracted all the
40:45
top young economists and you’re about
40:47
philosophers and whatever he converted
40:49
very many of them and I just list a few
40:51
of Hayek Mokpo Pablo Robbins vogelin
40:55
shoots and on and on even future British
40:59
Prime Minister gates Cole when was a
41:01
Mises seminar was really good party
41:03
Prime Minister wasn’t nearly as bad as
41:04
the other Labour Party people possibly
41:06
because of museun influence an
41:09
initiative that this tremendous
41:10
intellectual force that meters had a
41:13
menace the so-called Mises Christ which
41:15
means means a circle my way Muslim
41:17
wonderful thing is to go out every group
41:19
of intellectuals of Vienna of those days
41:21
had their own cafe now there were two
41:23
2,000 cafes and so each one have the
41:26
psychoanalyst the shrinks are their cafe
41:28
and the the positive F of their campaign
41:31
is Fe into their cafe so after the Mises
41:33
seminar over they over a pair the cafe
41:35
in and talked and so forth over coughing
41:37
what Iran’s been great uh also
41:40
politically Mises single-handedly
41:43
stopped the Austrian inflation 1920
41:45
stopped her from becoming hyperinflation
41:47
there was a big inflation but it didn’t
41:49
get as bad as Germany mark largely
41:51
because Mises constant pressure by memos
41:53
and and political influence he later in
41:58
his notes and recollection so maybe he
42:00
shouldn’t have done that maybe what
42:01
better phone thing collapsed earlier
42:02
anyways right the press of that point on
42:05
mention minute
42:07
another thing means is that he warned
42:08
about the Great Depression in nineteen
42:10
twenties as a period were essentially
42:12
essentially a freeman.i period in many
42:14
ways it’s a monetarist period Benjamin
42:17
strong the leader of the Federal Reserve
42:19
banks here was putting into effect
42:22
Irving Fisher’s doctrine which is
42:23
essentially pre feeding the night and
42:24
basically what it was it to keep the
42:26
price level constant that’s that’s the
42:28
key sank booth price level and price
42:29
level wasn’t because the wholesale
42:31
prices remain was saying well during the
42:33
1920s so they figure there’s no probable
42:35
inflation was everybody complaining
42:36
aback by definition that price level is
42:39
constant there’s no problem however the
42:41
Austrian position was and still is that
42:43
the price level is not the key thing but
42:45
especially because in capitalist
42:47
development in free market capitalism
42:50
prices tend to fall because you have a
42:52
tremendous increase in outpouring goods
42:54
and services especially and productive
42:57
goods and so prices tend to fall and
42:59
free and unhampered market thereby
43:01
spreading the advantages of capitalist
43:04
development everybody in the country we
43:07
can see that now with specific things
43:08
like computers and calculators you know
43:10
it’s calculated start off with five
43:12
hundred dollars and have much better
43:13
ones at eighteen dollars or TV sets or
43:15
personal computer tremendous form prices
43:18
during a tremendous inflationary period
43:20
by the way and so what Mises pointed out
43:23
was that the fact that price levels
43:24
constant is not such a great thing
43:25
because they should be falling and
43:27
reason why it’s not falling to the Fed
43:28
no other central banks were inflating
43:31
money in credit and propping and I’ve
43:32
been causing malinvestment which will
43:34
cause a recession big recession even
43:36
though prices have been going up he was
43:38
laughed as mr. ridiculous of course the
43:41
the depression where the crash proven
43:43
correct they rate that was he was doing
43:47
that during the twenties and developing
43:49
business cycle theory he did many other
43:51
things during the 20s
43:52
unbelievable achievement humbling will
43:54
decade for from Mises socialism arises
43:58
of course in World War one after World
44:00
War one communism really the same thing
44:02
and everybody everybody this they have
44:06
to start analyzing socialism socialist
44:08
economy everybody realizes
44:09
now by the way the socialism has an
44:11
incentive problem that’s cleared
44:13
everybody in other words even socialists
44:15
will lift us yes yes we have an
44:16
incentive problem the incentive problem
44:19
is summed up in the famous motto under
44:20
socialism who who take out the garbage
44:24
doesn’t really work or who will go to
44:27
Siberia it’s another way to put it the
44:29
world who go to Alaska
44:30
who’s gonna develop the under develop
44:32
out the underdeveloped region and build
44:34
it up well you can’t you can’t use the
44:37
economic incentive under socialism
44:38
because either neither incomes are equal
44:41
or less they’re set by some government
44:42
authority the good the good communists
44:44
get higher incomes a little bit and
44:45
certainly not except by marginal
44:46
productivity so who’s gonna go to
44:48
Siberia to carry out the garbage well
44:51
the answer the socialist traditional
44:53
answer is force morale and sentence in
44:55
other words people will or the creation
44:56
of the school a new socialist man
44:58
everybody be molded by socialist
45:00
government to become totally altruistic
45:01
and love the collective and blow
45:03
everything for the collective
45:05
in other words slave labor will carry
45:07
out the garbage and go to Siberia
45:10
so even socialists recognize that this
45:13
is a problem but what Mises saw was
45:15
something nobody else has seen till then
45:16
there’s another problem even deeper
45:18
economic problem even if everybody has
45:20
the incentive even if everybody is now
45:22
has been brainwashed should be a new
45:23
socialist man or woman and go out there
45:25
and work for the collect whatever the
45:25
collective does I’ll do it I’ll go to
45:27
Siberia I’ll go to the salt mines I
45:30
don’t care as long as the state tells me
45:32
I’ll do it how will this they decide
45:33
what to tell them to do that’s the real
45:35
problem of socialism no way as socialist
45:37
this government can calculate and try to
45:39
figure out who’s who newly synthesized
45:41
Barry how many people but price do we
45:45
set
45:45
who’s going to carry out the garbage how
45:47
many people should carry out the garbage
45:48
is no way that socialist government can
45:50
calculate because it’s meters pointed
45:52
out there’s no free price system there’s
45:54
no private ownership of the means of
45:55
production by definition as though and
45:57
therefore there’s no property titles
45:59
there’s no free market in property
46:01
titles or no way
46:02
set up a real price system there’s no
46:03
way a socialist government can count
46:05
Delia’s economic chaos he pointed out
46:07
his famous article in 1920 which really
46:09
upset the Socialists in Europe I mean it
46:11
really they trying to answer all the
46:14
1920s and 30s there was a whole famous
46:17
calculation debate and you also expanded
46:20
this great book called socialism a
46:21
couple of years later we dealt with
46:23
other aspects of social any rate the
46:26
socialist the when I was going to
46:28
college no too many years ago the answer
46:31
was Oscar longa had already solved
46:33
there’s no problem because you have
46:34
equations and all that and the
46:37
government the government acts as if
46:38
there’s a market well as Mises already
46:40
pointed out is the wrong nonsense you
46:41
can’t this so-called solution it seems
46:44
perfect competition perfect knowledge
46:45
the socialist government has the perfect
46:48
knowledge were already of course and
46:49
prices which obviously they don’t have
46:50
it’s the whole point and also no
46:53
socialist government is ever trying to
46:54
put the longest solution into effect
46:55
never as a matter of fact but what’s
46:58
happening is that socialist planning is
47:00
broken down he was sloppy as going and
47:02
hungry he bumped fairly rapidly toward a
47:04
free price system and even China is
47:06
going toe indirection with price system
47:08
they realizes that doesn’t work and then
47:10
this is true in a situation where they
47:12
still have the world market and world
47:14
prices to which the government socialist
47:15
governments could refer they know what
47:17
the price of wheat is okay and the world
47:20
socialist government they wouldn’t know
47:21
that they’d be totally totally at loss
47:24
some users point out in other words and
47:26
this shows other problem socialism can’t
47:28
work I can’t calculate a modern economic
47:30
system also during the 1920s he means
47:33
put out a theory critique of
47:34
interventionism which shows an
47:36
intervention of the doesn’t work in
47:37
other words price controls create
47:38
shortages
47:39
taxes cripple saving and investment
47:42
inflation causes probably singing
47:44
protectionism the destructive he said it
47:47
also shows that intervention is an
47:48
intensively cumulative as we see all the
47:51
time in other words intervention ISM the
47:52
government sets out to solve a problem
47:54
somebody goes the dermis is a big
47:55
problem to many people over 60 F
47:57
hangnail ups I have a big hangnail gap
47:59
got so you need a multi-billion dollar
48:01
hanging outside
48:04
federal funding so the government that
48:06
investigates hanging out force billions
48:08
of dollars doesn’t solve a handling
48:09
problem and creates other problems at
48:11
the same time whatever I mean couldn’t
48:13
be slide affection as I hang out rugs
48:14
whatever it is so we wind up so every
48:17
time the government intervenes it
48:18
doesn’t solve the original problem and
48:20
creates two or three more problems at
48:21
which governments along have to have
48:23
more intervention of some two or three
48:25
others or they can just forget the whole
48:26
thing
48:27
so interventionism is unstable has a
48:29
cumulative effect any go onward towards
48:31
social and we go back to the from market
48:34
where Nina’s already shown socialism
48:36
can’t work so socialism can’t work and
48:38
dimension ISM is unstable you’re left
48:40
with only one viable option for modern
48:42
industrial world lays a fair capitalist
48:44
and some reason becomes uncompromising
48:48
hard coral is a fair capitalist pounding
48:52
away day after day I was questioned
48:54
making some very unpopular as you might
48:56
expect and this great book on liberalism
48:59
which came in 1927 syphilis forty she
49:02
also shows in liberalism the political
49:04
and civil liberties aspect that the
49:06
economic private property rights
49:08
free-market civil liberties and
49:10
international peace are all in
49:14
inextricably tied together there
49:16
although it’s hard to get something
49:18
please you of us even know to this day
49:20
so that’s a book that everybody had we
49:22
were tremendous profit so this is in
49:26
addition to all this 1920 we’re not
49:29
through yet we’re meeting his
49:29
accomplishments it also sees as a
49:31
challenge to Austrian economics and the
49:34
methodological philosophical front and
49:36
the challenge where truth was twofold
49:37
basically it’s still layer by though I
49:39
think two challenges on one hand
49:41
institutionalism which Mises call anti
49:43
economics a new idea of economics theory
49:45
but no good any like will such things
49:47
economic theory
49:48
now essentially economics becomes only
49:50
history a record of what’s going on okay
49:52
so that’s the one form that this is
49:55
great
49:55
quite dominant in the United States and
49:57
1920s institutionalist approach and to
50:00
which has been the dominant neoclassical
50:02
approach logical positivism
50:04
with the idea that he cannot makes has
50:06
to be like
50:07
quantitative measurable science we
50:09
deduce things if for vaccines ability to
50:12
do stuff some women predict the whole
50:14
the whole thing with the whole
50:15
unfortunately canna metrics mechanistic
50:18
approach which were very familiar with
50:20
now where people are treated as if they
50:22
are stoned and Adams
50:24
unfortunately people are not stones on
50:26
there people have choices that
50:27
consciousness they choose their purposes
50:29
and gold etc and so this whole
50:32
neoclassical economics is totally often
50:34
a long track and so he thinks about this
50:36
maze he sets forth as his views on proxy
50:40
ology what he calls the correctly cause
50:42
pranks geology the correct analysis the
50:44
Austrian analysis of individual action
50:46
where economics essentially deals with
50:49
logical implications of facts that
50:51
people act now do you know the people
50:52
like we just look at you look at
50:53
yourself you look at other people you
50:55
see as they act like stones and atoms
50:56
their purposes and this knowledge
50:58
although the economic theory is deduced
51:00
this is very unfashionable is even more
51:02
unfashionable now that free market as
51:04
you see Mesa has had a tough problem you
51:06
not only have a fight for lazy a fair
51:08
capitalism which was unfashionable
51:10
enough he also had a fight for
51:11
methodology which is totally out of
51:13
fashion hasn’t been in a race to 2880
51:16
physics imitate physics and math and the
51:20
success of nuclear energy in a sort of
51:22
fact so he sets forth this in his great
51:25
book group problem mother national
51:27
economy in 1933 which has been
51:29
translated later
51:32
follows up as theory in history is a
51:34
marvelous book wrote in 1957
51:37
showing a difference between theory and
51:39
history what their different their roles
51:40
are any right having their own lives if
51:43
he hadn’t done enough yet which is what
51:44
twenty times as much as the average
51:46
economist accomplishes on a lifetime
51:48
he now foresees while he sets forth the
51:50
proper methodology it’s now his passes
51:52
to do something well in other words to
51:54
construct the whole integrated system of
51:56
economic thought based on these on the
51:58
correct methodology and he does it he
51:59
does it was magnificent crowning
52:02
achievement national economy which came
52:04
in on 1914 Geneva which unfortunately
52:06
neglected
52:07
anyway so it was totally neglected and
52:10
then expanded Italy voted in English and
52:12
expanded a human action 1949 which is we
52:15
great works from the concern of the 20th
52:17
century so uh okay while he was doing
52:21
this in 1930 things were happening but
52:23
the existing economic so to speak its
52:26
fountain 1931 Mises this follower Hayek
52:30
shifts from Vienna to the London School
52:33
of Economics he’s brought there by Robin
52:35
so with the Mises seminar he starts
52:37
giving lectures and translating his
52:39
books in Austrian muse Sen capital and
52:43
business cycle theory and he was
52:45
everybody first was a little bit of
52:46
pressure the pressure hadn’t been
52:47
predicted by the Orthodox economists and
52:50
he converts Hayek manages convert all
52:52
the top young economist in England
52:54
Hicks Lerner Kaldor Sir William
52:58
Beveridge wasn’t selling well these guys
53:00
became Austrians at that point you can
53:01
read some of the literature kn’l
53:02
articles in England nearly thirty the
53:05
old sound like Mises was fantastically
53:07
eighteen years and they accepted the
53:10
means I see an analysis of the
53:12
depression the question came at map
53:13
because of federal Federal Reserve and
53:15
Bank of England etc simple bank credit
53:18
expansion and then was prolonged by New
53:20
Deal intervention into the wage rates
53:21
and then and which works at separate
53:24
unfortunately England and even even
53:26
America those days Americans thought
53:28
essentially were followers of English in
53:30
other words we will look to Britain as
53:31
the bigot England is the center of
53:33
economics thought so the English
53:35
economics becoming Hayekian Americans
53:39
began to pick up the bull Alvin Hansen a
53:41
labourer became the top American
53:42
Keynesian was becoming so semi Austrian
53:45
plus a few other people and suddenly
53:47
bingo Keynes the general theory comes
53:49
out 1936 that’s it
53:51
it sweeps everything in his path and by
53:54
the way Keynesianism they’re not went
53:56
out by was patiently refuting austrian
53:58
economics but they’re not work that way
54:01
– i can’t be refuted they didn’t even
54:04
try doing it I just simply it was like
54:06
the change in hemlines
54:07
of changes fashion everybody forgets the
54:09
old
54:10
one of the new bandwagon and and all
54:15
these people accept Hayek all the people
54:17
Hayek converted shifted the Keynesianism
54:19
shouldn’t have a big fashion which
54:20
totally the opposite almost every way of
54:23
Austrian thought the Hayek had
54:25
previously smashed literally cases
54:28
previous great work the treatise on
54:30
money which came in 1931 I gave two long
54:32
reviews and economica showing the whole
54:34
thing is hogwash and was so expected
54:37
that Keynes had to go back to the
54:38
drawing board and do something else
54:39
so inject when the general theory came
54:41
out Hayek made his great strategic error
54:43
he said why should I refute this will be
54:45
going on a couple of years old so and so
54:47
unfortunate he didn’t try he didn’t do
54:49
anything about it and lessons
54:51
unfortunately history where everybody
54:55
was looking for a way to defend the
54:58
concept historically economists always
55:00
on the ones of the proposed inflation
55:02
and mount and deficit spending and here
55:05
all of a sudden deficit spending comes a
55:06
great thing becomes economically
55:07
required and so of course all the
55:09
government’s love that a known economist
55:11
public money could good cushy cushy jobs
55:13
in the establishment so Wallace is going
55:17
on
55:17
poor Mises now as we hit these a refugee
55:19
Justin he flees Vienna which you become
55:22
Nazi in the 30s and goes to Geneva and
55:24
when Germany Contras Western Europe he
55:28
and his wife fleet in United States is
55:30
really so close really like I’m in the
55:31
movie scenario because they could go
55:33
just just the head of the German army
55:35
and in his notes and recollections which
55:38
is an autobiography he wrote during 1940
55:41
very depressed as you can imagine he
55:44
says he he rises they he didn’t think
55:46
when he started off he was his favorite
55:48
the chronicle decline of civilization or
55:51
the end of civilization and he also says
55:53
something interesting there he says the
55:54
Mises major in me withdrew from
55:56
economics and Wamba very committed
55:58
suicide because of World War one and
56:00
were they for the world I want the end
56:01
us to finish at the end of the later
56:04
ideals of liberalism classical
56:06
liberalism and international peace and
56:07
thing markets anyway so me in this state
56:10
means it comes the United States he’s
56:11
penny
56:12
he’s gonna feature about 16 years old or
56:15
so he starts writing in a new language
56:17
and he can’t get an academic post this
56:20
is the eternal blot on an academia this
56:24
is a situation where every every Marxist
56:26
and semi Marxist and 3/4 Marxist we’re
56:29
getting pushing top chairs get Harvard
56:32
and and pinch them and whatever and
56:34
these meters couldn’t find that kind of
56:36
a post he had finally got one NYU and
56:39
the visiting professor or the salary
56:40
paid for of outside businessmen and
56:42
foundations and simply having a Hayek
56:45
high ex post IX our University Chicago
56:47
had never paid for by Chicago was paid
56:49
for by outside business groups as a
56:53
result Mises was scoring in the Maya the
56:55
Dean was against them thing would advise
56:57
people not to take his courses and
56:58
things like that
57:00
see here he wasn’t a fantastically
57:02
miserable situation and yet what was in
57:05
his where I come to the picture I got to
57:06
know him at this point I mean started a
57:09
seminar NYU what was this fear about
57:11
this how did the act was magnificent I
57:13
couldn’t believe it he was cheerful
57:15
he’s never better and ever said that I’m
57:16
calling her about anything any person
57:18
and has constantly trying very sweet
57:21
who’s currently trying to urge people to
57:23
be productive any spark of productivity
57:24
any of us clunks was immediately
57:26
nourished enemies listen you feeling
57:29
people are far below the level of Hayek
57:32
and hardball or etc he didn’t seem to
57:33
bother him at all just just great he try
57:36
to reestablish the seminar atmosphere of
57:38
immediately Vienna we went out the
57:40
child’s restaurant I think it was after
57:42
wedding then and then discussed things
57:45
so uh it was uh he was kindly when
57:49
complaining was never bitter and it was
57:52
a just magnificent experience I told
57:53
that polish story before mine I’ll tell
57:55
it again but I think it’s classic about
57:56
measles it will rain timid a first of
58:00
all half of people didn’t know anything
58:01
didn’t care they’re just there to get
58:02
there there are automatic Biore or
58:04
something the rest of the people those
58:06
who were interested the outside auditors
58:08
mostly we’re to intimidate is a great
58:11
man what do we know what can how can we
58:12
say any
58:13
so when he says look say anything you
58:15
want but whatever whatever you say
58:16
however however idiotic it is has
58:18
already been said before you buy some
58:20
eminent economist of course he’s right
58:24
he was right so he tell these great
58:28
anecdotes about max big his friend Max
58:30
Weber and things like that and so
58:32
they’re just they’re just normal they
58:33
right he in this situation in this being
58:39
scorned etc and not having any any
58:41
callers the beginning he writes human
58:42
actions this great crowning work and
58:45
when human actually came out I was going
58:47
up to see at the time which is the
58:49
foundation for economic education which
58:51
was the only literally the only
58:52
free-market outfit in the country it’s
58:54
not like now every return Dick and Harry
58:56
says he’s in favor of the free market
58:57
and and they said in rhesus I hadn’t met
59:02
me this year they said he’s coming out
59:03
with a new book I so what’s it about I
59:05
said everything and sure enough it’s
59:07
about everything it’s that’s it the
59:09
whole world lacks and I urge you I urge
59:12
you to read it’s a little more energy oh
59:14
it’s magnificent so and I think that’s
59:18
but some despite these conditions it’s
59:20
my precise release or oppression under
59:22
which he worked I there were some range
59:25
of people that emerge out of this means
59:26
a seminar first there’s n holes Israel
59:29
prisoner Sylvester petrol proceeded
59:32
raised and many other people okay and
59:33
it’s really a Mises has inspired much of
59:35
a current hard money movement I think
59:37
it’s always really well do to him ah you
59:41
know I didn’t ninety-two and 1973 after
59:45
a remarkably productive life and year
59:48
later Hayek got the Nobel Prize which
59:50
sort of inspire other Lokhande one who’s
59:52
this guy Hayek why is he getting a Nobel
59:53
Prize and it’s interesting that he got
59:55
the prize specifically for his means Sen
59:57
work that he did in 1930s New Jersey and
60:00
business cycle theory which was swept
60:02
away in the kingdom revolution and since
60:05
then there’s been a notable Austrian
60:06
revival and I think Tolga Mises was just
60:08
unfortunate he didn’t love to see it
60:10
thank you very much

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