An Investor’s Introduction to Austrian Economics | Murray N. Rothbard

Austrian Economics and Investing. Budapest, Hungary & Vienna, Austria – May 23-31, 1988.

Source: An Investor’s Introduction to Austrian Economics (by Murray N. Rothbard) – YouTube

http://www.readrothbard.com/an-investors-introduction-to-austrian-economics-murray-n-rothbard

TRANSCRIPT

00:00
pleasure to be here at last that was
00:02
slight detour I’m not going to go into
00:06
the history of Austrian economics this
00:07
point I wanted to concentrate and I and
00:09
a introduction of what’s the economics
00:13
for Leslie the people who are investment
00:14
oriented and how it differs from other
00:17
school of economics the Ross School of
00:21
Economics is Mike and Mark said was
00:24
founded in 1871 by carl menger i was
00:28
succeeded by organ from vibhava later
00:31
who became finance minister of austria
00:32
put these put the principles into effect
00:35
by going back to the gold standard and
00:38
toured here for many years a very
00:40
distinguished professor named brilliant
00:42
integrator of capital and interest
00:43
theory
00:45
I’m always brother-in-law friedrich von
00:47
wieser by the way they too were they
00:49
were both students of Menger by the way
00:52
even though they were brothers-in-law
00:53
and i saw each other all the time they
00:54
never discussed the economic they
00:55
differed on various things but i’m bob
00:57
right which was much sounder in general
00:59
and the never they never discussed the
01:01
economic economics in public they argued
01:03
about it in print good way of handling
01:05
their families to Jewish and anyway
01:08
Ludwig von Mises was a student of bomba
01:10
Varick and so he founded this the modern
01:13
Austrian school which essentially
01:16
integrated the macro and micro in other
01:19
words they the older Austrians dealt
01:21
only with with individual prices and
01:23
demand supply did not have a whole ever
01:26
deal with money and business cycles and
01:28
Mises integrated the whole thing into
01:29
one great structure I think one of the
01:33
things to concentrate on as how Austrian
01:36
economics particularly differs from
01:38
every other school of thought even
01:40
alleged free market schools of thought
01:42
including the Chicago I is that only the
01:45
Austrian all only the Austrian school
01:47
focuses on the tremendous importance of
01:48
Andrew preneur as the major actor sort
01:52
of speaking and the economy the
01:54
enterpreneur is the one who meets
01:57
assumes risks meet the uncertainty of
02:00
the world uncertainty of the market
02:02
invest capital and tries to gain profits
02:06
and avoid making losses which is not
02:08
always possible the entrant only a whole
02:11
economic system
02:13
if you look through microtext regular
02:15
micro textbooks and economics or Ollis
02:18
of the other schools of thought let
02:20
alone of course macro tax work goes
02:22
without saying he’s never mentioned the
02:23
entrepreneur is never mentioned you look
02:24
through the whole thing I make no such
02:26
person there’s no there’s hardly any
02:28
mention profits or losses that all drops
02:30
out because the Orthodox economics or
02:33
standard economics assumes that the
02:35
world as always in what they call
02:37
equilibrium everything is always in a
02:38
state of perfect rest contentment and
02:41
perfect knowledge where everybody knows
02:43
everything and in a state of perfect
02:46
knowledge they’re no product of course
02:48
no losses there’s no there’s no problem
02:49
about making forecasts or erroneous and
02:52
no profit so everybody settle down and
02:54
so then an endless round and so this
02:58
peculiar model has risen up over the
03:00
years and standard economic sense there
03:02
and has been not only is totally
03:03
unrealistic it totally falsified what
03:05
goes on but a Zen abused to apply the
03:07
standards to the market in other words
03:09
well the market isn’t working well
03:10
because it’s not like perfect not
03:11
perfect competition or perfect knowledge
03:14
and using that to try to justify
03:16
government intervention to make the
03:18
market as if it were a state where
03:20
everybody was omniscient any rate the
03:23
Austrian school of contrasts focuses on
03:25
the entrepreneur individual entrepreneur
03:27
facing uncertainty investing capital
03:29
hoping to get profits and hoping to
03:32
avoid losses the first lesson of Mises
03:36
in this field on Austrian economics an
03:38
entrepreneur as the first general lesson
03:41
I’ll explain in a minute ways in which
03:43
is not not always totally true but it
03:45
certainly basically true the first
03:47
lesson is the intrapreneur knows more
03:49
about a subject on the economist does
03:51
key key key so Jewish the interpreter
03:54
knows more than the economist about his
03:56
particular market his or her particular
03:58
market if you have an entrepreneur in
04:00
the steel industry or a clothing
04:01
industry a little logging industry or
04:04
whatever this person this interpreter
04:06
knows more about what’s going on about
04:08
demands and costs and what’s what’s
04:10
happening and
04:12
how to act in that industry it was much
04:14
more than economists government
04:16
officials assorted experts and
04:18
bureaucrats and whatever and one of the
04:22
reasons of intrapreneurs knows more to
04:24
the interpreters life is always on the
04:25
line when he does something he best
04:27
capital he risks losing money and he
04:30
hopes to gain money the economists and
04:33
his all of his forecasting other
04:36
activities in Washington are jetting
04:38
back and forth across the country
04:39
economist doesn’t risk his own capital
04:41
as a matter of fact the economists the
04:44
situation is is there’s so-called talk
04:46
among critics of the market of market
04:48
failure as market failure and this
04:50
market rigging on that the only market
04:52
failure I know of and a stock
04:53
fortunately coming to an end as a market
04:55
failure in the market and the
04:56
forecasting industry other words
04:58
economic forecasters have constantly
05:00
made lousy rotten forecasts for 20 years
05:02
and are still still getting customers
05:05
like by the bushel barrel what’s coming
05:07
to an end now last couple of years then
05:09
beat depression and the you can I metric
05:11
forecasting industry you know like
05:13
forecasting industry and for good reason
05:15
they’re always wrong I’ll get to that a
05:16
little bit later but the point is that
05:20
these guys are not risking their there
05:22
or are they not they’re not even
05:23
listening a reputation you might think
05:24
well after all they make a consistent
05:26
string of bad forecast they’re not gonna
05:28
get many customers it’s not really true
05:30
in various ways the reputation doesn’t
05:33
catch up for a long time they continue
05:35
to be eminent for cancer even though
05:37
their forecasts are always wrong one of
05:39
the tactics they use by the way inside
05:40
this this is this is self conscious it’s
05:43
not just not just an – and not just
05:45
intuitive I know for a fact this is true
05:47
well if you notice all the forecasts
05:49
they usually fortunately the typical
05:51
forecasting season is about Christmas
05:53
around the end of the year all the
05:55
economists forecast GNP unemployment
05:58
inflation rates interest rates for the
05:59
next year and they’re almost all the
06:02
same I mean a slight variance variations
06:04
you know one guy says it’s gonna be
06:05
three point eight percent inflation the
06:07
other one says four point two percent
06:08
and that’s about it and the reason why
06:11
it’s such a narrow range is they all
06:13
pull each other up on a phone and make
06:14
sure put the night ranges are narrow
06:17
I know that’s true I know it look always
06:20
looked as if it was true by now and I
06:22
now know it is true they call each other
06:23
up it’s a small industry or they all
06:25
know each other and they collude so they
06:27
make sure other words if they’re all off
06:29
the beam sure often they are above G all
06:31
the top distinguished forecasters made
06:32
the same error I did I can’t be blamed
06:35
it’s not my fault so all the other big
06:39
shots they kind of metric chases of
06:41
forecasting Bureau whatever they also
06:42
the same thing so it’s worked for a long
06:46
time and it’s a right the last couple of
06:48
years is finally it’s finally probably
06:51
cool reality is finally caught up with
06:53
it but has been many studies the last 30
06:55
years or so literally if we cannot
06:57
forecasting II cannot account economic
06:58
forecasts and haven’t successfully been
07:00
everyone every year Wall Street Journal
07:02
yep sort updates it it’s always terrible
07:04
though it awful in other words and not I
07:06
mean worse than if you just took a ruler
07:08
an explicit call extrapolating trend you
07:11
take a ruler if things have been going
07:13
up by by four four four five percent
07:15
last six months you see will go up
07:17
another four or five or seven next six
07:18
months let’s taking a ruler if they took
07:20
a ruler they’d be a little bit they do a
07:22
little bit better and then I actually
07:25
have by the way the forecasters keep
07:27
saying well gee we’re very good we keep
07:29
we keep we keep rectifier high-speed
07:32
computer models are doing very good job
07:34
in forecasting except we can’t forecast
07:36
changes in trend we do okay when the
07:38
trend is the same but let’s allow the
07:40
trend changes we don’t know what we
07:41
can’t understand that yet with a moron
07:44
can take a really honing high-speed
07:45
computer monkeys you take a ruler you
07:47
put in the middle of the curve and you
07:49
get any four can you extrapolate you
07:51
don’t need to spend two million dollars
07:52
a year on these forecasts at any rate
07:55
that’s the the the interpreter knows
07:59
more than economists okay now generally
08:04
and one of the things that happens one
08:06
of the reasons why the entrepreneur
08:07
knows more the economists so lousy
08:09
entrepreneurs get leave the market the
08:11
words is it sort of a sort of survival
08:13
of the fittest mechanism if you’re a
08:15
lousy forecaster you don’t last too long
08:16
as an entrepreneur you go back on the
08:18
Mike’s join me in the max of a poet
08:20
Harriet wage-earners if you do well
08:22
however if you’re a good forecaster you
08:24
make more money you plow it back in
08:26
and your assets keep increasing so
08:29
there’s sort of a built-in mechanism in
08:30
the market is there isn’t most other
08:31
areas in the market just to ensure the
08:34
better forecasters make more money lousy
08:36
forecasters drop and lose money and drop
08:38
out and this means that there will be
08:40
generally fairly accurate well though
08:43
not completely so this and I say much
08:45
more so than economists okay so if if
08:51
forecasters if interpreter is no more
08:54
than economists what is what is also
08:55
economics have to contribute but one
08:57
thing is this knowledge itself I’m Mick
08:59
sort of like showing up energy really
09:01
really better than they think they are
09:03
second of all as an Allen as an analog
09:06
of this is one of the basic reasons why
09:08
all government adventure is kind of
09:09
productive first of all fail the second
09:11
wall is kind of productive because
09:13
government conventions usually of course
09:15
promulgated by experts economist and
09:17
whatever who know less than
09:18
enterpreneurs and therefore of course
09:19
messed things up so that’s that’s that’s
09:22
that’s point number two of what
09:26
economists have to contribute to this
09:28
right Austrian economics has contributed
09:29
is to show that their colleagues and the
09:32
economics profession mess things up and
09:35
there are kind of productive there’s
09:40
another another point the Mises Easton
09:43
mission this and some his seminar at one
09:46
point around I think during the Truman
09:47
administration I think this is Truman
09:49
investor I haven’t checked it in
09:51
nineteen fifty early 50s late 40s for
09:54
some reason economists concluded that
09:56
steel the steel industry wasn’t
09:57
producing enough there was an under
10:00
production of steel the biggest ariana’s
10:02
in the only establishment organs of
10:04
organs of opinion and Truman and is and
10:07
this experts who kept announcing the
10:09
steel industry for not producing enough
10:10
steel weren’t you out there but it see
10:11
more steel and your your monsters for
10:14
doing that you’re unpatriotic for not
10:16
producing more steel now this is a Mises
10:19
pointed pointed out this seminar this is
10:24
very much like a traditional story of a
10:25
minister and the Sunday sermon
10:27
denouncing the Congregation for not for
10:29
not enough people showing up other
10:30
Catholic at the congregation in other
10:32
words he’s asking the very people who
10:33
did show up they
10:36
didn’t get a chance in ourselves it
10:37
didn’t show up he’s taking it out his
10:39
frustration on the people didn’t merit
10:41
it at all they were there very similarly
10:43
it means even said the steel industry at
10:47
least was contributing its share they
10:49
were doing their patriotic duty unquote
10:51
by producing steel why didn’t Truman
10:53
denounce the other people the copper
10:54
industry the automobile industry the the
10:56
clothing industry or whatever they
10:58
didn’t produce any steel at all why do I
11:00
take it out on the steel industry never
11:01
they were doing great job compared to
11:03
the others the other industries
11:04
yet somehow of course the Truman didn’t
11:07
do that in other words as Mises pointed
11:10
out there’s no caste system in the
11:12
United States as though there’s no is
11:13
those law that only u.s. steel but line
11:16
whatever can be was Co anybody can
11:17
produce steel if they want to get into
11:19
the steel industry if they think it’s
11:20
most efficient and most profitable thing
11:22
to do of course the next point as a
11:26
resource allocating point if you think
11:29
they’re supposed to be more steel
11:30
produced that’s the official doctrine of
11:32
the establishment what less should be
11:34
produced these easy to say is easy to
11:36
say more steel should be produced if you
11:38
say that should be less aluminum molest
11:40
peanuts or less copper or less clothing
11:43
or what because you have to take out the
11:45
resources from somewhere to produce more
11:46
and steel of course that that’s never
11:49
nobody ever says what should be produced
11:51
less of that’s never pointed out because
11:53
there’s no criterion the only criterion
11:56
is for free economic whether something
11:58
in economic in Oz if it’s profitable or
12:00
not and it’s not more no more steel was
12:02
being produced because it wasn’t
12:03
profitable to do so and so once you’re
12:06
once you leave the profit loss criterion
12:08
you’re at sea without a rudder just
12:10
everything is totally arbitrary any any
12:11
jerk and say well I think we should be
12:12
20% more steel produced all right but
12:14
20% less of what blank out because
12:22
there’s no standards left are no
12:23
criterion for production you know if you
12:26
leave the market okay and uh what next
12:31
can we say about investors don’t forget
12:33
every investor is an entrepreneur of
12:35
course if you invest your capital you’re
12:37
being an entrepreneur you’re risking
12:38
losses and you’re hoping you gain
12:40
profits can the economists say anything
12:42
about about that well the addition of
12:48
the points I made up till this point
12:51
one was one cautionary note than an
12:53
economist could point out for example if
12:56
you think if you come to conclusion is
12:57
gonna be a growing industry coming up a
12:59
new great new industry like computers
13:01
were still are but computers were
13:02
particularly a few years ago or like
13:04
plastics were in 1950s if you see great
13:07
new industry or arising don’t
13:09
necessarily think there’s a lot of
13:10
profits to be made in it because it
13:12
depends whether the market has
13:13
discounted how much the market this
13:15
cannabis this expectation in other words
13:16
how many other people and many other
13:18
investors that were also anticipated it
13:20
and a bit up the price of the share of
13:22
stock so the fact that a company or
13:25
industry is going to be growing and not
13:27
necessarily a key but if you have to
13:29
think of how your other colleagues other
13:31
investor colleagues how much they have
13:33
also discounted the this expectation and
13:36
how much therefore they bit up the price
13:37
of the stocks is no longer profitable so
13:39
that’s one plan economists can make a
13:41
cautionary note try to look around try
13:45
to estimate how much other investors of
13:48
this cannabis is possibility of future
13:51
profits give the other as a general
13:59
point a general point of Austrian
14:02
economics oxen are economic improves to
14:04
contribute our general principles
14:05
particularly a macro principle so to
14:08
speak in other words when a set of
14:10
entrepreneurship when I’ve said about
14:12
counterproductive government
14:13
intervention and discounting the future
14:16
is just that all it can be said about
14:18
individual industries or individuals
14:19
stocks however there are general
14:22
principles which of money and business
14:24
cycles which touch everything which
14:25
touch all industries in different ways
14:27
and it’s difficult for investors retro
14:30
voters to have the general knowledge of
14:32
the whole economy as economy as Austrian
14:34
economics does so even though the
14:36
editors may know more about the
14:38
steel-drum industry of a clothing
14:39
industry than economists do they know
14:41
less about money in banking your
14:43
business cycles is one thing sound
14:46
economics can contribute to sum up the
14:50
Austrian view of this some use a siient
14:52
view of this is an increase in my supply
14:54
will cause for increase in prices will
14:57
cause a if it’s done through business
15:00
lending expansion business lending which
15:01
you
15:02
is it will cause over an over investment
15:06
in capital goods and industries and
15:09
under investment consumer goods and
15:11
therefore a whole bunch of millet Matt
15:14
missed reason woman give me raw
15:18
materials construction projects things
15:20
like that which is not really enough
15:23
voluntary savings to complete finish and
15:27
so this is again an act of government
15:29
intervention but it’s an active
15:31
government eventual it’s not quite as
15:32
clear as other things mean if the
15:33
government you know heavily taxes the
15:35
liquor industry you know darn well
15:36
liquor profits and liquor can be less
15:39
than than other profits but this this
15:42
sort of bank credit expansion
15:43
inflationary bank credit expansion is
15:45
much more subtle and not obvious to
15:48
anyone
15:49
Antron or anybody else so so this uh so
15:58
we never watch between business cycles
15:59
we know that every influence and again
16:01
this is the only school of economics
16:03
believes this any place Sharia expansion
16:05
any inflationary credit expansion must
16:07
lead to a recession the recession
16:08
becomes unnecessary inevitable and good
16:11
in other words once you’ve got the boom
16:12
you have to have a recession to
16:14
liquidate the malinvestments and go back
16:16
to sound production where which
16:18
satisfies the desires of consumers the
16:20
most profit and most efficient manner
16:21
so recession becomes not only inevitable
16:24
comes good quote unquote visa vie the
16:26
fact you have to wipe out investments
16:28
malinvestments unsound investments so
16:31
that means that when a recession comes
16:33
which always comes after after a credit
16:36
expansion either stops or slows down
16:38
significantly for whatever reason if
16:40
people sometimes people get scared about
16:41
inflation other times the banks could
16:43
start collapsing whatever the reason is
16:45
once the credit expansion stops or
16:49
significantly slows down recession then
16:51
becomes inevitable and immediate at that
16:54
point the Austrian economists say good
16:56
let it have it as quickly as possible in
16:58
other words let this recession process
17:00
is an adjustment process it’s the same
17:01
things as definite profit it’s a painful
17:03
but necessary adjustment and the more
17:06
you leave it alone the more they just
17:07
know faster the adjustment being a
17:09
sooner recovery process will what come
17:11
and will come
17:12
pass any attempt by the government
17:14
interfere really adjust with the job
17:16
recession adjustment any attempt to
17:17
bailout bankrupt businesses prop up wage
17:21
rates pop out prices whatever or inflate
17:23
credit more or Public Works expansion
17:25
that sort of like any attend of that
17:28
sort / Lola does prolong the recession
17:30
makes it worse makes the consequences
17:32
works makes unemployment worse than all
17:34
the rest of it and it creates another
17:35
depression or recession a few years
17:37
later so this is again the Austrian
17:39
school the only school that points this
17:41
out but if it’s the only school that
17:42
believes the recessions are the
17:43
inevitable consequence of boom periods
17:46
of inflationary booms everybody else is
17:48
trying to adjust it somehow Satcon are
17:49
and everything out one way or the other
17:51
but government should step in and iron
17:53
out recessions and inflation even those
17:56
even those economists who were skeptical
18:00
about government intervention they still
18:01
think that free-market left will itself
18:03
of course recessions and oppressions ok
18:08
I’m the honest micro forecasting point
18:11
my colleague Roger garrison as a regular
18:13
means I see an economist likes to think
18:15
of either as a special tactic tourism or
18:18
whatever aren’t present as an aesthetic
18:21
joint itself he likes to think of the
18:23
Austrian school since we’re always like
18:24
always attacking being extremists you
18:26
like to think of us as middle of the
18:27
rotors in between other extremes and
18:29
their ways you can look at it that way I
18:31
think it’s a useful and many ways to do
18:33
that for example one group on the 4/k on
18:37
a macro forecasting question one group
18:41
believes various groups believe what we
18:44
call mechanistic precise forecasting
18:46
mark is already alluded to this but some
18:48
have my various charts or equations or
18:50
cyclones or whatever it is you can
18:52
predict exactly what’s going to happen
18:53
you know in the remember 1992 this is
18:55
the popper prices will fall by 3.2
18:57
percent that sort of thing I’ve heard
18:59
I’ve I’ve been the seminars on sat there
19:02
and watch people save this and as a sort
19:07
of thing which means I was totally in
19:09
total nonsense in first place we have
19:12
every individual has free will every
19:14
individual has values and preferences
19:16
and what their what they let as mark
19:19
says the learning experience and learn
19:20
in different ways at different rates of
19:22
time
19:22
for context and how they learn and what
19:24
that how they conclude what’s what how
19:27
they think about what’s going on what’s
19:28
going to happen deeply influences the
19:30
actual facts of the market no way to
19:32
make these quantitative predictions
19:33
precise predictions I’ve heard somebody
19:36
saying I know I know one investment
19:38
analyst this is a few years I’ve never
19:41
heard him say this and there will be
19:42
nuclear war and in August 2012 he’s
19:47
learned this from a cycle researchers
19:48
well I mean forces very difficult to
19:50
test this first of all those of us many
19:52
of us not going to be around in August
19:54
2012 so we’re not going to know and
19:56
those are so all around probably have
19:57
forgotten this crazy forecast that’s so
20:00
it’s difficult to pin somebody down
20:01
that’s sort of the sort of the accuracy
20:04
of the forecast
20:05
well the various wings of the of this of
20:08
this extreme extremism in the sense of
20:10
mechanistic precise forecasting one wing
20:14
is the already mentioned econ
20:16
econometrician GNP forecasters and where
20:18
you pointed out they’re coming a cropper
20:20
the bigger this a big depression in
20:22
econometric forecasting another way of
20:25
the monetarist the Friedman i’ts or
20:26
Chicago School people believe that by
20:28
you could chart the money supply and by
20:30
Mike’s precise correlations what leads
20:34
and lags that source that sort of thing
20:36
you can predict when the recession is
20:38
going to come on how deep it’s going to
20:39
be well they started making a whole
20:41
bunch of prediction testing ly enough
20:44
the Chicago School believes and science
20:46
is prediction science never doesn’t
20:48
explain anything it’s not coherent all
20:49
it does is predict and they state their
20:52
whole life on prediction well he who
20:54
lives by prediction dies by prediction
20:55
so haven’t they made a series of
20:57
terrible predictions the last six years
20:59
all of which are then blatantly
21:01
incorrect and there’s all the spreading
21:03
spreading of them within the reaganomics
21:06
feel as reaganomics is a physical people
21:09
he contested feel about four or five
21:10
conflicting groups of economists all
21:12
whom hate each other’s guts of course
21:14
and then you’re either in or out every
21:15
six months and the monetarist were in
21:18
the money field 1981-1982 they started
21:22
making terrible predictions out then
21:24
they of course they were out they’re
21:25
slightly back in again because everybody
21:27
else has been out but anywhere else but
21:29
basically they’ve been out for a long
21:30
time essentially except that even there
21:32
even checked
21:33
even checking their own assumptions many
21:36
monitors now say they don’t know what’s
21:37
going on they can’t understand the money
21:40
feel anymore and again the problem is
21:44
that they’re trying to make these
21:44
predictions are basically these last
21:46
correlations and leaving out the the
21:48
subjective factor leaving out a
21:49
psychological factor of individuals and
21:51
how they expect what they expect to
21:53
happen the so-called a man for money
21:54
what if people expect that prices will
21:56
go up rapidly the next few months
21:59
they’re going to spend them fine
22:00
spend money faster they’re gonna demand
22:02
money is gonna fall and speed up their
22:03
purchases this is going to affect
22:05
inflation if they expect prices a fool
22:07
they will slow down their money purchase
22:09
they will hold on to the money and spend
22:11
the money later and you can’t feed that
22:13
into some kind of computer that’s a
22:15
question of figuring out what’s going on
22:17
with a public psyche the is an opposing
22:24
you’re supposedly opposing group before
22:26
I get to the Austrian middle-of-the-road
22:27
position here I already mentioned the
22:29
psycho theorists there’s another weird
22:31
group which is now dominant it is now
22:32
the orthodoxy in the finance field
22:35
professors of finance are now in the
22:38
simple rational expectations are
22:39
efficient and market movement this group
22:42
believes that all is sort of the other
22:45
position in the words they believe that
22:47
the markets are the market with a
22:49
capital M sort of like an organic
22:51
collective soul the market knows the is
22:54
omniscient not just as an efficient
22:56
mechanism for for transmitting signals
22:59
and for enter and for predicting things
23:01
but it knows everything the market knows
23:03
the future perfectly and therefore
23:05
everything is remember I mentioned about
23:06
this county before I have to watch out
23:07
that other people might have discounted
23:09
the new computer industry or whatever
23:11
well these guys believe it everything is
23:13
always discounted by definition
23:14
everything is perfectly discounted
23:16
therefore nobody ever make any profits
23:18
in the stock market or any other market
23:20
they can’t make any losses either
23:21
everything is perfect so if you feel
23:24
yourself making profits and losses how
23:26
do you explain that that’s just random
23:27
events they claim it’s all random saw
23:28
what in other words the market but with
23:31
capital M is perfect the individuals are
23:33
don’t have an individual they’re not
23:34
part of the market and somehow outside
23:36
of it and they’re just playing around
23:38
because they don’t
23:39
affect anything is simply making either
23:41
good luck or bad luck so oddly enough
23:44
even though these people tend to be
23:45
free-market economists there outgrowths
23:47
of the Chicago School sort of
23:48
mathematical version of Chicago School
23:51
they wind up as the Keynesian wind up in
23:53
other words the Keynesian Keynes
23:54
believed that they’ve stopped the market
23:56
and financial markets are like a
23:57
gambling casino have no impact on
23:59
economic system to just just win or lose
24:01
it’s like playing roulette no if so
24:04
let’s on asset markets render there’s no
24:07
no no economic function in the economy
24:10
it’s the pain of the neck well these
24:11
guys come up with same conclusions or
24:13
game like a see no because after all
24:14
individual profits and losses mean
24:16
nothing so notice the Austrian school
24:19
believes that individuals that markets
24:21
are efficient but nots not perfect
24:23
they’re not they’re not omniscient and
24:25
one of the reasons why they’re efficient
24:27
is because better for catches went out
24:28
over lousy forecasters and get more
24:30
assets and so the financial markets have
24:33
become extremely important as methods of
24:35
channeling assets ownership of assets
24:38
and most efficient most knowledgeable
24:39
owners stock owners bond donors or
24:42
whatever so they it’s only the Austrian
24:44
school really believes in financial
24:46
markets are important perform an
24:47
important economic functional all the
24:49
other guys time na nautical sort of it’s
24:51
what we gambling casino one sort or
24:52
another and therefore they really have
24:54
no justification for private property
24:56
and assets and capital assets ah ok
25:07
let’s take a problem to get the deposit
25:09
of Austrian pointed out having
25:11
demolished the other two extreme so to
25:13
speak which turned out to be very
25:14
similar the extreme turn out the meat
25:16
here because the people who claim but
25:18
you can forecast perfectly tend to meet
25:20
with those you can’t forecast at all
25:22
just both sides have seen no role play
25:24
entrepreneur no role for any kind of no
25:27
real economic function for financial
25:29
markets for asset market let’s take a
25:33
typical Austrian statement how this how
25:36
it’s related to
25:37
forecasting of the investor or whatever
25:40
we know for with an absolute truth from
25:43
Wall Street Kannamma X we know that the
25:44
money supply increases and so the man
25:47
for money remains the same prices will
25:48
go up
25:52
now this is an absolute truth well
25:55
alright but we can’t so how come how
25:57
much really four can we know this is a
25:58
general principle well we don’t know
26:00
however one whether money will increase
26:02
or not like six months one of the money
26:05
increases or not depends on the central
26:07
bank and the Federal Reserve on their
26:09
who they are and what their what their
26:11
political connections are what their
26:13
ideology is what they read on the paper
26:15
the next day what financial elites and
26:17
pinched upon them all these things are
26:18
not something you can learning you learn
26:19
from equations or a computer something
26:22
have to sort of have a feel for
26:23
historical feel the current situation
26:26
and it’s very interesting is also the by
26:30
plays here and trying to forecast for
26:32
example my I would predict sticking my
26:34
neck at that if the if a Dukakis victory
26:37
becomes I would say goings generally
26:40
expected let’s say there probably be big
26:43
increase in inflation or interest rates
26:44
because people will think the Democratic
26:46
administration will be wild spending
26:47
administration as compared to Republic
26:49
it’s probably not true it’s probably not
26:50
almost no difference but people’s
26:52
perceptions are the Democrats are free
26:54
spenders and therefore if they people if
26:57
general public expects a democratic
27:00
victory
27:00
they’ll probably probably mean immediate
27:02
acceleration of inflation interest rates
27:04
in order to discount the expected future
27:07
so all these say that we can’t feed that
27:09
in any computer no equations will sum
27:11
this up you have that sort of feel for
27:12
the situation and follow the outlet
27:14
public feel for the situation follow
27:16
what the public is expecting okay and
27:20
then the question is once you try to
27:21
forecast this what’s going to happen the
27:23
supply of money what about the demand
27:24
for money well that depends as I already
27:27
mentioned and how what that people has
27:29
expectations are the future one of the
27:32
reasons why we famous so-called Reagan
27:34
no echo occurred for about five years
27:37
nineteen eighty to eighty six or
27:39
something like that money supply went up
27:43
increased a great deal prices only
27:45
increase a little bit they kept
27:47
increasing inflation has always been
27:48
here it just was less than before so why
27:52
is that well the various reasons you can
27:54
talk about what one reason certainly one
27:56
factor there was a public expected that
27:59
the inflation would be over that the
28:01
Reagan miracle would be a miracle at
28:03
some magic was being performed here
28:04
to astrology Allah forces and that
28:08
therefore inflation will decline people
28:10
people of expectation inflation
28:12
declining meant that inflation actually
28:13
did the client it’s not the it doesn’t
28:15
determine everything was a powerful
28:17
contributing factor the money supply
28:19
interacts with a demand for money with
28:21
the expectation of the future and then
28:25
for several years
28:26
other factors enter the first of all in
28:28
recovery from big depression 1981-82
28:31
repression the biggest since the 1930s
28:33
it’s not cool the recession by the way
28:35
for this to point out it has a certain
28:37
linguistic point here a science of
28:39
public relations has been invented over
28:41
the last few decades and they decided
28:44
you don’t call them anything depression
28:46
anymore cuz it’s too depressing
28:48
so they call recession it’s really the
28:51
same thing since before that by the way
28:54
before depression quite financial crises
28:57
were called panics they decided was to
28:59
panic a default panic they call the
29:01
depression and then they modify that for
29:05
a while of 50s and 60s I get rid of the
29:07
word recession also they try to call a
29:08
call a sideways movement or something
29:11
like that i couldnt get away with that
29:12
so that’s that euphemism is to break it
29:15
found it on that one reality hit a
29:17
little bit just any rate the biggest
29:22
depression since nineteen thirties and
29:23
therefore of course the man for
29:25
following dropped and all that sort of
29:27
thing and naturally prices inflation
29:31
rate fell but inflation rate did not was
29:32
not succeeded by deflation in other
29:34
words in the old days that means the old
29:36
days before the Federal Reserve took
29:38
pokes took total control of economic
29:40
system a monetary system the old days
29:44
when there was a recession or depression
29:45
prices foul I mean real priming it’s the
29:48
course of weather I don’t mean zinc
29:49
prices I mean of course the living index
29:51
or whatever you want to call it consumer
29:53
prices fell sharply during recessions it
29:56
was great because that meant Republic
29:58
even though many of the public are
29:59
unemployed all of a public enjoy the
30:01
lower cost of living cheaper food
30:03
cheaper clothing cheaper housing law
30:06
rest of it now after 50 years of
30:08
Keynesian neo-keynesian monetarist
30:11
whatever my
30:12
Galatian we’re now in a situation where
30:16
the prices are not allowed to falling
30:18
more because the Fed is always pumping
30:19
more money into the system because
30:20
there’s no gold standard there’s no
30:22
checking a limit on Fed inflation so Fed
30:25
is always pouring money into the system
30:26
so now they arrange the researchers are
30:28
still layer
30:28
they haven’t cured recession it simply
30:30
means a now other the recession instead
30:32
of course of living falling is a sugar
30:36
coating on a pillow the depression and
30:37
now across the living goes up even more
30:38
in the sense so they can have an
30:41
inflationary recession in other words so
30:43
now a person can be is both unemployed
30:46
bankrupt and suffer from a higher force
30:49
of living they did before as the
30:50
advantage of some consequences of 50
30:53
years of non-us tree economic
30:55
manipulation services so we’ve got to
31:00
figure out then if we apply the general
31:02
principle you know what’s going out
31:04
what’s going on in the economic system
31:05
you apply the general principle increase
31:07
the money supply causes and price
31:08
inflation so you have to apply it with
31:11
knowing all the other factors in other
31:12
words knowing or trying to for if you
31:14
trying to forecast it kind of figure out
31:16
figuring out what the Fed is going to do
31:18
very difficult to figure out
31:20
there’s always by interplays the cut of
31:22
course is a secret organization and its
31:24
deliberations are secret there’s no
31:26
there’s no popular pressure on the Fed
31:28
and design that way and then trying to
31:31
figure out what the pilot public zero is
31:32
going to react to it for example it took
31:34
the German public land hyperinflation in
31:36
early twenties it took a German public
31:38
about five years to wake up to the fact
31:40
that inflation is going to be permanent
31:41
and you’re not gonna go back at a
31:43
pre-war good old lays the pre-war
31:45
pre-world War one system it took the
31:48
America about 20 years to wake up with a
31:50
permanent inflation from a 1960 to 19 to
31:53
1970 1950 nineteen seventies
31:55
usually the inflation arrow starts
31:57
during a war I should I should backtrack
31:59
a little bit on that usually the reward
32:03
time of course is a situation on
32:04
government needs a lot of money fast
32:06
government always wants more money since
32:08
for the age of the early ages of
32:10
government of primitive government honor
32:11
you know
32:12
ancient Persia whatever they want more
32:14
money but their wartime a need money
32:16
very very rapidly how do you get more
32:18
money well one of the easy ways to do is
32:19
to print it and so big increases in
32:23
public
32:23
and printing money creating new money
32:25
during wartime well growing war times
32:27
this happening us in World War two and
32:29
happen in Germany World War one
32:32
the public of course doesn’t understand
32:34
money and banking at all on me zilch and
32:36
for good reason it’s very mystical sort
32:38
of thing now it’s all it’s all it’s all
32:40
up you skated deliberately obfuscated by
32:43
the establishment so the public doesn’t
32:45
understand it but they do see when
32:46
prices are going up they see when
32:47
they’re out of a job or not this is much
32:49
more evident and so the public sees is a
32:54
shortage of goods they see of the prices
32:56
going up during the during the war
32:58
whether they blame it on they blame of
33:00
course on the war of course the
33:01
government is right there pointing out
33:03
war the problem was a shortage of goods
33:06
Lucky Strike Green is going to war if
33:08
you’re old enough to remember that great
33:09
slogan of Lucky Strike cigarettes are
33:11
not here but if I walk to their office
33:13
of war fighting front so all material
33:17
all material whatever is any shortage or
33:20
any increase any increase in prices you
33:21
blame it on the war effort ok so the
33:24
public believes then after the war is
33:26
over prices will go back to the good old
33:28
days before the war
33:29
1940 or 1914 whichever you want to make
33:32
it and then they save their money the
33:34
big increase in saving hoarding the
33:36
money are holding on to the money and
33:37
waiting to make the purchases on a good
33:39
old lace common prices will be much
33:40
cheaper if you washing machines
33:42
automobiles and houses and that’s our
33:44
stuff of cheap prices as a result the
33:48
prices during the war go up much much
33:49
less than the money supply is a big gap
33:52
when the war is over of course the
33:54
government keeps printing more money
33:55
because now they found a great bit is in
33:57
their teeth especially after World War
33:58
two we fed now as absolute power the
34:01
more gold Santa’s printing money like
34:03
man and they love it and the public
34:05
begins to realize that even though the
34:08
war is over and there’s new goods are
34:10
coming on the market there’s washing
34:12
machines and cars and houses again
34:13
somehow prices going up instead of down
34:16
there’s no return of the good old days
34:18
of the eCourse lunchroom for 50 cents
34:20
but it takes a while for public to
34:22
realize them it’s a learning process as
34:24
mark says it takes a time there’s no way
34:26
to predict how long it’s going to take
34:27
but somehow it happened by 1970 the
34:31
public began to realize not 1 not only
34:32
there ain’t going to be no good old
34:34
Lay’s of a 25 cent lunch or 50 cent
34:36
lunch but
34:37
to prices keep going up permanently
34:40
everybody started knowing in that heart
34:42
and I got the next year prices would be
34:43
5% 10% whatever higher than this year
34:46
then they started much spending their
34:47
money faster to get the purchasing
34:49
before the price goes up and then you
34:50
walk to the races then you have a danger
34:52
of hyperinflation so all these things
34:55
again as I say these are psychological
34:58
expectations on the part of the public
34:59
learning experience it’s almost
35:01
impossible to predict by self any kind
35:03
of mathematical method how long it’s
35:05
going to take how fast that sort of
35:07
thing and again it depends on the memory
35:09
of the public public has a short memory
35:11
sometimes the memory is longer know what
35:14
I mean
35:14
I think one of the big reasons why real
35:16
the real interest rate remain high
35:18
during the Reagan administration even
35:19
though an inflation rate fell real
35:22
interest rate remain high I’ve convinced
35:23
the reason is that the public still have
35:25
this lingering thought a.m. maybe maybe
35:28
maybe if inflation will return again in
35:30
a big way and therefore we better keep
35:32
the interest rate keep the inflation
35:34
premium the interest rate so all these
35:37
things are an interpretation or analysis
35:39
of what’s going on the public’s mind is
35:41
very important to do that but it’s not
35:42
it’s not a mathematical equation type of
35:45
operation so this I think there’s an
35:50
example of the sort of positive analysis
35:52
of sort of stuff that Austrian to do is
35:55
compared to simpler more mechanistic
35:59
schools of thought which believe that
36:02
people do not do not have values and
36:04
preferences and act on that somehow
36:06
everything is part of a giant computer
36:08
or mechanism which orders round out by
36:10
some kind of mathematical laws and I
36:14
hope this is a been a lightning way of
36:17
covering the field of economics which is
36:21
a large one I hope you yeah investigate
36:24
explore other fields of it I guess
36:29
you

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