Latest / Liberty + Leadership / Real-Life Applications to Navigating Economic Theory with Peter Boettke

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Real-Life Applications to Navigating Economic Theory with Peter Boettke · Liberty + Leadership

• 0:02
  Speaker 1: Welcome to the Liberty and Leadership Podcast, a conversation with T-Fast alumni, faculty and friends who are making an impact.
• 0:10
  Speaker 1: Today I'm your host, roger Rehm.
• 0:13
  Speaker 1: I'm honored to have a man of many distinctions joining me today, peter Betke, professor of Economics and Philosophy at George Mason University.
• 0:22
  Speaker 1: I've known Pete since about 1979 or 1980 when he was an undergraduate at Grove City College in Pennsylvania.
• 0:30
  Speaker 1: He is the author of several books, including FA Hayek Economics, political Economy and Social Philosophy, living Economics Yesterday, today and Tomorrow, the Political Economy of Soviet Socialism, the Formative Years 1918 to 1928, and why Perestroika Failed.
• 0:50
  Speaker 1: Pete is also co-author of the great economics textbook originated by Paul Hain, the Economic Way of Thinking.
• 0:58
  Speaker 1: Recently he authored a substantial portion of the Frazier Institute series called the Realities of Socialism.
• 1:05
  Speaker 1: Our high school division at T-Fast is turning that series into curricula for high schools in the US and Canada to use in the classroom, and we're training teachers to teach students about the realities of socialism.
• 1:19
  Speaker 1: Pete is the recipient of multiple academic awards, including the Golden Dozen Award for Excellence in Teaching, the Charles Koch Distinguished Alumnus Award from the Institute for Humane Studies and the Association of Private Enterprise, education's Adam Smith Award and Clark Kent-Anoff Award.
• 1:38
  Speaker 1: Pete serves as editor of the Review of Austrian Economics and the associate editor of the Journal of Economic Behavior and Organization.
• 1:46
  Speaker 1: And to round it out, peter was professor at T-Fast's academic program in Prague.
• 1:52
  Speaker 1: Pete, thanks so much for being with me today.
• 1:54
  Speaker 2: Thanks, Roger, for having me.
• 1:55
  Speaker 2: It's a thrill to be here with you.
• 1:57
  Speaker 1: Pete, you're a highly acclaimed economist who's taught hundreds or thousands of young people in your career.
• 2:03
  Speaker 1: Who was the spark that got you interested in the science of economics?
• 2:07
  Speaker 2: Well, I mean everything that I do in terms of my professional career starts at Grove City College with Hans Sennholz.
• 2:13
  Speaker 2: Hans Sennholz was a fantastic Principles of Economics teacher and also then a mentor, and developed and introduced me through both introducing me to books as well as then to a set of ideas that are in those books, and then to people.
• 2:29
  Speaker 2: So I got connected through Dr Sennholz to the Foundation for Economic Education, which is actually where I first met you, and through Bettina B N Graves, who became kind ofa mentor to me and the rest of the people, paul Perot, brian Summers.
• 2:45
  Speaker 2: Brian Summers was second in command at the Freeman when I was an undergraduate and he wanted to talk ideas.
• 2:52
  Speaker 2: I would send him things that I had in mind and he would help me.
• 2:55
  Speaker 2: So eventually I published in the Freeman and that was like the biggest thrill of my life as a young person to be in the Freeman.
• 3:02
  Speaker 2: And then, through my involvement actually with Bettina, I eventually then also got sent from Sennholz and Bettina to Walter Grinder, who's also a Grove City graduate, and Walter was at the Institute for Humane Studies and then the Institute for Humane Studies also had Leonard Ligio, and so as a very young person I was sort of brought into that community and steered for my graduate work to George Mason University where I worked with Don LaVoy very closely and he further developed me and mentored me and pushed me along the ways.
• 3:34
  Speaker 2: And then at George Mason, as you know as well, we just had an amazing array of economists.
• 3:40
  Speaker 2: So I was exposed to Jim Buchanan and Kenneth Bolding and Gordon Tulloch and Bob Tullison, but then of course in the Center for Study and Market Process, don LaVoy, jack High, rich Fink, tom DiLorenzo, karen Vaughan.
• 3:54
  Speaker 2: These were all very informative and very valuable inputs into helping me become an economist.
• 3:59
  Speaker 1: Well, speaking of great teachers, you began by talking about Hans Sennholz at Grove City College, and he really was remarkable in terms of the students who he influenced into pursuing either academic careers in economics or careers in trying to promote liberty in other ways.
• 4:18
  Speaker 1: And what was it about Hans Sennholz?
• 4:20
  Speaker 1: You think that inspired so many people to pursue that career direction?
• 4:25
  Speaker 2: So let me just start by giving a fact about Sennholz.
• 4:29
  Speaker 2: Sennholz retired after teaching at Grove City for 30 years and they decided to have a retirement party and honor him with people writing papers to contribute into a festrift to give to him.
• 4:40
  Speaker 2: And Grove City is in a remote area of Pennsylvania the closest airport is Pittsburgh and they had this conference at Grove City in late winter, early spring, which is not the most hospitable time to be at Grove City and 300 former students, 300 former students, paid their own way to go to his retirement dinner.
• 5:05
  Speaker 2: I just want that to sink into everyone.
• 5:07
  Speaker 2: That's an average of 10 students a year.
• 5:10
  Speaker 1: I was there and while I wasn't a formal student at Grove City, I consider myself a student of his from all the seminars I attended at Fee, but I remember that event you're talking about.
• 5:20
  Speaker 1: Yeah, it was amazing.
• 5:21
  Speaker 2: It's amazing that he was able to do that.
• 5:23
  Speaker 2: Now you asked the question so normally when you would have a teacher of that kind of impact you would think of, like Robin Williams in the dead poet society, a teacher who gets up on the chair and inspires everyone around, like that, sennholz wasn't really like that.
• 5:37
  Speaker 2: He wasn't warm and fuzzy, he wasn't that kind of teacher.
• 5:41
  Speaker 2: He just was such a powerful advocate for the market and the way he communicated the power of the market and the tyranny of political control in his speeches.
• 5:55
  Speaker 2: Now I say speeches because, as you know, sennholz traveled around the country a lot doing public lectures and so his teaching wasn't like the normal teaching.
• 6:06
  Speaker 2: It was his public lectures that he was giving, but he would have readings that would go with it.
• 6:11
  Speaker 2: So you would read, you start with Bettina's basic free market reader, and that would have various different aspects I didn't mention earlier.
• 6:20
  Speaker 2: But Leonard Reed played this huge role in my life because when I went to FI I met him and he was very elderly at the time this is in the early 80s but he sent me a copy of the path of duty, which was one of his last collection of his essays, and he sent it to me and he told me that because his main theme was always self-education, as you know, self-education.
• 6:43
  Speaker 2: But he actually the inscription in that tells me that the world needs educators like you.
• 6:48
  Speaker 2: He wrote that to me and I knew that his main thing was, you know, the only education is self education in some sense.
• 6:55
  Speaker 2: But he wanted to encourage me in that and I remember, you know, I was like so excited.
• 6:59
  Speaker 2: I think I might have sent a $25 contribution.
• 7:02
  Speaker 2: You know, that's all I had to fee at the time or whatever, but all those people played such an important role in pushing me in this direction.
• 7:11
  Speaker 2: And Sennholds, when I went to fee the very first time, I was still an undergraduate.
• 7:15
  Speaker 2: When I came back, bettina I think must have talked to him because Sennholds pulled me aside and then I was the only undergraduate that was part of his graduate seminar.
• 7:24
  Speaker 2: That included people like Alex Chafflin and Alfredo Ereb I'm going to get the names wrong Eduardo Zimmerman, steve Thompson you know these were all people that were from Argentina, that had come over and studied with him through the International College, and so as a junior, he put me involved in all of them, but he recognized something in you as an undergrad.
• 7:48
  Speaker 2: He took me under his wing and sort of said like here, like, learn what it's like.
• 7:52
  Speaker 2: But again, he wasn't warm and fuzzy.
• 7:54
  Speaker 2: Sennholds retired from Grove City.
• 7:56
  Speaker 2: He took the job at fee as president.
• 7:58
  Speaker 2: I was at NYU at the time and so I got to interact with him a lot then.
• 8:02
  Speaker 2: I always referred to him as Dr Sennholds, Never called him Hans or you know, he was always.
• 8:08
  Speaker 2: I always held him with reverence and I owe so much to him.
• 8:12
  Speaker 2: And I think that teachers that can excite the imaginations of an 18 or 19 year old are sorely needed in the world.
• 8:22
  Speaker 1: So, and he was one of them- Could you explain for listeners what distinguishes the Austrian school of economics from other schools?
• 8:29
  Speaker 1: You know what is Austrian economics all about.
• 8:33
  Speaker 2: Right.
• 8:33
  Speaker 2: So, like with most scientific labels, the Austrian school got given to these set of economists because they taught at the University of Vienna in Austria, and they were in opposition to both classical economics of the British classical and also the German historical school.
• 8:53
  Speaker 2: And it was the Germans who said oh, those are the Austrians, and sort of pupudum, and the Austrians, especially you know Karl Manger and Bambavrik and Wieser.
• 9:03
  Speaker 2: They were the founding fathers, karl Manger being the main one at the University of Vienna, and they were developers of early neoclassical economics, which neoclassical economics is most famous because it repaired a problem in the value theory of classical economists.
• 9:21
  Speaker 2: So there is an old paradox called the diamond water paradox, which is that if water is so precious for human life, how come diamonds are more valuable than water?
• 9:32
  Speaker 2: And one of the main things about the neoclassical revolution was the focus that individuals choose not all the water in the world versus all the diamonds in the world, but the next unit, or on what's called technically on the margin, so the next unit of decision.
• 9:47
  Speaker 2: So, since water is relatively abundant, the next unit of water is actually price very high, whereas the next unit of a diamond, which is relatively scarce, is going to be more valuable.
• 10:00
  Speaker 2: And so if the choice is on the margin, then the individuals, rather than choosing between the whole class.
• 10:06
  Speaker 2: If it was choosing between the whole class of all the water in the world or all the diamonds in the world, clearly water would be essential for human survival.
• 10:13
  Speaker 2: It would be more valuable, but it's not precisely because we make choices not on the oils or nothings, but instead on the margins.
• 10:20
  Speaker 2: The other thing that the Austrians really emphasized was that that valuation that individuals have is in the individuals subjective assessment of the goods and services.
• 10:33
  Speaker 2: And so the way to think about that is if I drew for you a picture with paint on canvas, it would have the same physical characteristics that Picasso did right, and I could draw that, and I maybe would take me the same amount of time, that Picasso did it or whatever.
• 10:52
  Speaker 2: But what it isn't is.
• 10:53
  Speaker 2: It's a Picasso is different than a P, right?
• 10:56
  Speaker 2: So if I draw on that, the value of that is less than a penny.
• 11:00
  Speaker 2: Picasso draws randomly on something.
• 11:03
  Speaker 2: It's worth millions, right, and that's because people have a subjective evaluation of the value of a Picasso.
• 11:09
  Speaker 2: And so what we worry about is then, as economic science we're going to advance our ideas, the more we focus on this issue of choice on the margin against the constraints so it's choice against constraints and the choice on the margin and that the valuations that guide those choices are based in the subjective evaluations of individuals.
• 11:31
  Speaker 2: And so, again, that forces us to think about individual decision making rather than collective decision making, like the society as a whole chooses.
• 11:39
  Speaker 2: Instead, it's individuals that make up the society, and so that's the first level.
• 11:45
  Speaker 1: The subjective value theory was something that really discredits what Marxists believe is the labor theory of value.
• 11:52
  Speaker 1: That it's why Apple pies are priced more than mud pies, even though they are Picasso's, more than betkeys and things like that.
• 11:59
  Speaker 1: So now in mainstream economics, aside from the Austrian school, they accept, of course, the marginal theory of value.
• 12:07
  Speaker 1: Do they fully accept this idea of subjective value?
• 12:11
  Speaker 2: No, that that's the thing that has been sort of displaced, and the reason for that is because the very idea of choice on the margin sort of in many ways lends itself to what's called marginal analysis, lends itself to formalism.
• 12:26
  Speaker 2: Right, because think about the relationship between average test scores and marginal test scores.
• 12:31
  Speaker 2: As the average test scores are falling, the marginal test scores have to fall faster.
• 12:37
  Speaker 2: When the average test score starts to rise higher, the marginal test score, the next test score you take, has to be rising faster.
• 12:43
  Speaker 2: And so that's true whether or not you're talking about students taking tests in Virginia or taking tests in Korea, right, and Seoul, south Korea.
• 12:52
  Speaker 2: It's also true whether or not I'm talking about students in Oxford in 1850 or students in Oxford in 2000 and 50.
• 13:00
  Speaker 2: So the idea was is that we could baptize these relationships, and when these relationships are in equilibrium, that is where all the gains from trade have been exhausted.
• 13:10
  Speaker 2: The objective and the subjective are one and the same right.
• 13:15
  Speaker 2: They would line up and think about that in terms of costs or whatever right.
• 13:19
  Speaker 2: The subjective evaluation, the cost and the objective establishment of the cost would be identical.
• 13:24
  Speaker 2: And so if I'm working in this equilibrium mindset, I'm not going to think about the subjectivity aspects as much and so it gets drained.
• 13:34
  Speaker 2: But that was a huge mistake that Mises and Hayek really spent.
• 13:38
  Speaker 2: Those are the next great Austrians.
• 13:40
  Speaker 2: So Bombavric, manger Bombavric and Visor, and then the next great Austrians the Shumpators in there as well.
• 13:47
  Speaker 2: But then the next great Austrians would be Ludovic Mises and Friedrich Hayek, and they were the major developers of what we now call modern Austrian economics and they became increasingly frustrated with the way neoclassical economics had evolved.
• 14:03
  Speaker 2: So they were in the neoclassical framework but they were frustrated with the way it had evolved.
• 14:08
  Speaker 2: And that's where you get the stronger opposition in Mises and Hayek to the methodological thrusts of mainstream economics and the analytical thrusts of mainstream economics.
• 14:19
  Speaker 2: And if you follow their methodological issues and their analytical issues, that also has social, philosophical aspects that are involved.
• 14:28
  Speaker 2: So a lot of what happened in neoclassical economics was it drained economic life out of our study of the economy, and what the Austrians in the hands of Mises and Hayek, but also even Shumpator, wanted to do was breathe life back in.
• 14:43
  Speaker 2: That's why Shumpator and the creative destruction of the entrepreneur the entrepreneur had been lost in economics, because in equilibrium there's no need for an entrepreneur.
• 14:52
  Speaker 1: It's only out of equilibrium that you get the entrepreneur really doing things Then in the next generation, after Hayek and Mises and Shumpator.
• 14:59
  Speaker 1: It brings you to the great teacher Israel Kursner, who put that stress on the discovery process of the entrepreneur and entrepreneurship, and he was a colleague of yours at NYU, right.
• 15:10
  Speaker 2: Yeah, I had the great fortune, after I finished my PhD with Don LaVoy, to then go and be an assistant professor with Israel Kursner at NYU and I did that for eight years and it was just a wonderful experience.
• 15:22
  Speaker 2: I don't know if I've ever told you this.
• 15:24
  Speaker 2: This goes back to your point about teachers.
• 15:26
  Speaker 2: Israel Kursner had been teaching a course, basically an advanced course, to undergraduates on capitalism for years, for years, and when he came into the office to teach that course, he would put up a sign outside of his door that said Professor Kursner is preparing for class.
• 15:46
  Speaker 2: Please, you know, do not disturb.
• 15:48
  Speaker 2: And you would hear him working away in there.
• 15:52
  Speaker 2: I'm perfecting the notes that he had been doing for all those years.
• 15:55
  Speaker 2: I mean, what a amazing, you know scholar and teacher he was and we had our seminars every Monday and he would come in and that paper that was for the seminar would have read the first page all the way through with his comments and criticisms and everything.
• 16:14
  Speaker 2: He's just, he's a role model.
• 16:16
  Speaker 2: I ended up by editing his collected works for Liberty Fund and I hope some of your listeners go and look at the collected works because they're just amazing what Israel Kersner did.
• 16:27
  Speaker 1: It's a shame that he has not been awarded a Nobel Prize in economics for the work he did.
• 16:31
  Speaker 2: Yeah, I agree with that a hundred percent.
• 16:33
  Speaker 2: The other person that was huge in that generation, of course, is Murray Rothbard, and Murray Rothbard, you know, man, economy in state is a monumental achievement in economics it would it still pays for students to read, you know that book.
• 16:49
  Speaker 2: After that he wrote a book on America's Great Depression, which is also very good, and it gives you a sort of a thumbnail sketch of the Austrian interpretation versus the monetarist, versus the Keynesian.
• 17:01
  Speaker 2: So they're back to your parent parent contrast.
• 17:04
  Speaker 2: He did a great job in that.
• 17:05
  Speaker 2: After that he sort of devoted a lot of his efforts to things outside of economics, including scholarly interest in ethics and other things, but mainly in more popularizing of libertarian philosophy.
• 17:20
  Speaker 2: And a very, you know, important book for my Development was his book for New Liberty.
• 17:26
  Speaker 2: It persuaded me of the kind of version of libertarianism that I wanted to pursue as a young person, and, and so I still think very, very highly of that book, and so he was the other towering figure of that 1950s, 60s, 70s generation.
• 17:42
  Speaker 1: You wrote this piece for this journal on the family tree of the Austrian tradition.
• 17:47
  Speaker 1: I thought it was a great piece because you went through the first generation of Manger and Bonbarwak and Veser, and then Hayek and Mises and Schumpeter and then Kersner Rothbard Sennholz Really was part of that, I think and because he got his PhD under Mises, if I'm not mistaken, under Mises and then from there it was Don Levoix, also at NYU, and Jack High and Richard Fink and maybe some others.
• 18:14
  Speaker 1: But then then came Pete Betke and the students of Don Levoix.
• 18:19
  Speaker 1: And what's remarkable, pete, is the influence you've had, and and some of the others of your generation, on Two more generations really of because and Bradley, our academic director, was part of that, getting her PhD at George Mason, and Adam Martin and Ed Stringham and Then Paul, who've taught for T-Fass and somewhere in Prague with Don and you teaching our students and as teaching assistants, and now they're teaching courses for us.
• 18:48
  Speaker 1: So I applaud you for that, what you've done at George Mason, you and your colleagues there, to continue to develop economists who study theory, who are great teachers, instead of just mathematicians.
• 19:04
  Speaker 2: There's a really great article that was published a year ago by Brian author and it's called economics and nouns and economics and verbs, and, and his argument is he's a he's a guy at the Santa Fe Institute and His argument is that neoclassical economics is economics and nouns, which is just, it's the economics of a state of affairs, right, but economics in verbs is about activity, about life, and this is what I mean by breathing life back into economics.
• 19:34
  Speaker 2: I think if you're a young student, what you really care about is that you have to teach economics as a tool for the curious.
• 19:42
  Speaker 2: So, you know, your girls go off to college and they're learning.
• 19:46
  Speaker 2: You know what's the main thing that they're curious?
• 19:48
  Speaker 2: They're naturally curious, they're natural learners.
• 19:50
  Speaker 2: We, as educators, are the ones that squash down their natural curiosity.
• 19:54
  Speaker 2: Think about a little kid you know why is the sky blue?
• 19:56
  Speaker 2: Right, they're always going to be asking questions, and so we have to see economics as a tool for the curious.
• 20:01
  Speaker 2: But the questions that the curious are asking are about, like life and blood things, not like just, you know, static states.
• 20:09
  Speaker 2: And so to me, I think the real defining characteristic of why it is that we've been able to get really good teachers, who have then become, you know, inspired other to want to be teachers is precisely because they're teaching economics as a subject that's alive, that's relevant.
• 20:30
  Speaker 2: Relevance is a virtue, not a vice, so I can use these sets of eyeglasses from economics to understand things in the world, and this, of course, has played out tremendously in the great opportunity that you give people over in Prague, right, because you know, back in the day there was a roughly around 120 students from all the different, you know, former communist countries or whatever, that you're now getting a chance to talk to them about basic economics in the most beautiful of environments right In Prague, and you're there with them for two, three weeks or whatever, and you know spending, you know, four days or five days a week in deep conversation with them, talking about this stuff.
• 21:09
  Speaker 2: It's just a great, great program, and I'm so thrilled that now Adam Martin, you know, is involved in it and he was my student, and so put a bow on what you were talking about.
• 21:18
  Speaker 2: One of the things that's most fascinating to me is that I'm now old enough that I have not only students of students, okay, but I'm now getting students of students, of students, right, and it sort of freaks me out a little bit because I'm like man, I can't be that old right.
• 21:37
  Speaker 2: I had Pete Leeson, for example.
• 21:39
  Speaker 2: He, you know, worked with Claudia Williamson at WVU.
• 21:42
  Speaker 2: Claudia Williamson now has her students, you know, we get her students to come back and want to study with us, so it's amazing.
• 21:49
  Speaker 1: You touched on something that Anne Bradley in the Cautious who teaches for us and in other talks she gives I always quotes you and I won't have the quote exactly.
• 21:57
  Speaker 1: But what economics does is it gives us a toolbox that we can use for analyzing things, not just public policy but other things.
• 22:05
  Speaker 1: So you're now the co-author of Paul Haines' great textbook, the Economic Way of Thinking, and Dave Prichitko, I know, is involved in that too, and others.
• 22:15
  Speaker 1: That book is widely used.
• 22:17
  Speaker 1: It's been, I know, one of the most popular textbooks the last 30 years.
• 22:20
  Speaker 1: In the economics we often refer to the economic way of thinking in our high school programs.
• 22:27
  Speaker 1: Paul Haines was a big influence in developing the Foundation for Teaching Economics programs that we run.
• 22:32
  Speaker 1: Now.
• 22:32
  Speaker 1: How would you describe what is the economic way of thinking?
• 22:35
  Speaker 1: Is this toolbox that economics gives us something we can use in everyday life, or is it narrowly confined to when we go to the grocery store, the department store?
• 22:44
  Speaker 1: Talk a little bit about that topic, if you would.
• 22:48
  Speaker 2: When people ask me about the book which was a great honor to you know, continue to keep it alive.
• 22:53
  Speaker 2: Paul Haines was a fantastic teacher of economics, like Senalt's.
• 22:58
  Speaker 2: One of the things that he always stressed was teach the first class of economics like it's the last class a student will ever take and it will be the first of many.
• 23:06
  Speaker 2: If you try to teach it as a watered down PhD class, it will be the last class that they take.
• 23:11
  Speaker 2: So you teach them.
• 23:13
  Speaker 2: You know the sort of the basics.
• 23:14
  Speaker 2: So I had been teaching Paul's book for many years and I knew Paul and unfortunately, when he was diagnosed with an illness terminal illness he called me and asked me if we would keep the book alive.
• 23:27
  Speaker 2: And of course, you know that's a great honor to be asked to do that.
• 23:31
  Speaker 2: So it was like yes, yes.
• 23:32
  Speaker 2: And then, you know, nature took its course.
• 23:34
  Speaker 2: He passed away about six months later.
• 23:36
  Speaker 2: Prentice Hall, you know, dumps his book in front of me and says revise it.
• 23:40
  Speaker 2: And I and it was one of the hardest things I ever did because I was like, oh my God, I'm going to paint a mustache on the Mona Lisa.
• 23:45
  Speaker 2: How do I do this?
• 23:46
  Speaker 2: So my main thing that I always want to stress is that this is Paul's book.
• 23:50
  Speaker 2: Dave and I have tried to be as faithful in the revisions of that book as we could be to Paul and try to stick to his main, you know lessons, which is that the economic way of thinking is all about recognizing the trade offs that we face.
• 24:08
  Speaker 2: Right, it's that life is full of trade offs.
• 24:11
  Speaker 2: And again back to the margin idea, trade offs on the margin.
• 24:14
  Speaker 2: And then the question you know we live in a world of scarcity.
• 24:18
  Speaker 2: Scarcity implies trade offs.
• 24:22
  Speaker 2: Trade offs need to be negotiated by us.
• 24:23
  Speaker 2: Within a commercial society, the way we negotiate trade offs is that we rely on property prices and profit loss.
• 24:33
  Speaker 2: Outside of the commercial society, say in political society, we have to find some substitute for property prices and profit loss, and that could be the vote motive.
• 24:45
  Speaker 2: And so what we do is we systematically study the trade offs or the ability of individuals to engage in an accurate accounting of the trade offs in various different institutional context.
• 24:56
  Speaker 2: And that was Paul's great Strength making economics relevant not only to, as you said, the grocery store, but also thinking about, you know, the macro economy, the nature of the market and competition within the market, rivalry, pricing of Movie tickets, right, and Paul I gives examples of all of that, and so you know we tried to do that.
• 25:20
  Speaker 2: I want to mention one thing which I don't know if you'll remember, but I remember very, very fondly, is that I was at the Central European University in Prague in the early 1990s and you happen to be.
• 25:32
  Speaker 2: It was in January, it was over the winter break, and you happen to be in Prague for the foundation of teaching economics because you guys were developing teaching program and so Tom Hazelit was going to be teaching Paul Hain, I think either the book, or he was going to be teaching there and you introduced me to Jersey Schwartz at the Liberal Institute or whatever, and I remember we went to this fantastic restaurant and off of Old Town Square, there, off of Vence, the Square.
• 25:59
  Speaker 1: I have this recollection of us deciding to rendezvous under the statue of Jan Hus in the Old Town Square in Prague.
• 26:07
  Speaker 2: Yep, exactly.
• 26:08
  Speaker 2: But what amazed me at that time was how important that was for Paul Hain's work to start spreading in these newly developing market societies.
• 26:19
  Speaker 2: And so, as you know, ed Dolan and other people were involved in Russia at the time and they translated Paul Hain.
• 26:27
  Speaker 2: So, when I was a visitor at the Academy of Sciences, one of the things that was most fascinating to me is to go through bus stops and they would sell books in the bus stops and you would see, you know the economic way of thinking translated into Russian, and it's like wow, like right there.
• 26:41
  Speaker 1: We were contacted very recently by people in Slovakia because they want to bring back the FTE programs there after many years through the Hayek Institute.
• 26:51
  Speaker 1: They're hoping to do more teacher training and yeah, they're good people there.
• 26:55
  Speaker 2: I've been there at Peter Ganda and them.
• 26:57
  Speaker 2: I mean they're very good people.
• 26:58
  Speaker 1: yeah Came to mind was something I think Tom Sol has said, which is there are no solutions, they're only trade-offs.
• 27:04
  Speaker 2: Yes, sol is also in the same genre as Paul Hain.
• 27:08
  Speaker 2: You know the history of the Paul Hain book.
• 27:09
  Speaker 2: This is probably a little bit too insider baseball, but Armin Alchin and Bill Allen wrote this fantastic book called University Economics.
• 27:16
  Speaker 2: It was meant to be the first real challenger to Paul Samuelson's economics book, but the problem with that book is that it's very subtle and so it kind of missed the basic market because it was too advanced for most undergraduates to capture.
• 27:33
  Speaker 2: It became a cult classic among graduate students and faculty who just love the book, even to this day.
• 27:40
  Speaker 2: Liberty Fund just republished a version of it called Universal Economics.
• 27:44
  Speaker 1: I've got a copy.
• 27:45
  Speaker 2: yeah, so Paul wanted to try to fill in the missing market that Alchin and Allen had missed, and so he tried to instead, you know, make it all the way down to its basic elements, which he succeeded at doing.
• 27:58
  Speaker 2: But as a result many people thought it didn't teach enough models and things like that, and so it became kind of a very one semester introduction to economics book that was used in a lot of colleges or AP high school book, as opposed to the main micro macro principles book.
• 28:15
  Speaker 2: But I think that you could use that book in MBA classes, you could use it in any, any class you know, public policy classes where you have to learn sort of the basics of economic reasoning, and I think a similar thing with you know anything by Thomas Sowell.
• 28:31
  Speaker 2: My favorite book of Thomas Sowell's is Knowledge and Decisions, and Knowledge and Decisions a little bit more like Alchin and Allen it's.
• 28:39
  Speaker 2: It's a little bit more complicated than average people could do, but it is exactly as you just said.
• 28:44
  Speaker 2: It's all about the implications of the trade-offs that we face.
• 28:48
  Speaker 2: But I love the very last paragraph of that book and I think it's an important message and it ultimately is one of the major divisions that are dividing points between, say, someone like you and I and a lot of other people in our intellectual culture, and that is, is that, at the very end, what he stresses is that ordinary people, if given the freedom, can do extraordinary things, whereas in the progressive ideology, extraordinary people, if given extraordinary powers, can accomplish extraordinary things.
• 29:23
  Speaker 2: And I think it really does.
• 29:24
  Speaker 2: At the end of the day, as Sowell says, a conflict division.
• 29:26
  Speaker 2: I think it does come down to that at some level, which is do you believe that ordinary people can recognize the wonderful benefits of mutually agreeable exchanges and discover least cost technologies like unleash the Julian Simon in all of a society, right, the ultimate resource is the human imagination, and the creativity, cleverness and resourcefulness resides not in the economic theorists but in the people that the economic theorists has studied.
• 29:54
  Speaker 2: As opposed to that, it's only extraordinary people that must be put in charge, that, given extraordinary powers, that we can solve extraordinary problems.
• 30:04
  Speaker 1: And there you would then put it all on the economists let me ask you about some extraordinary people with extraordinary power who did horrible things to ordinary people and that is this realities of socialism project you're working on with the frazier institute.
• 30:20
  Speaker 1: We were hired by the frazier institute to partner with them on developing activities for high school students, high school teachers, really to use in high schools.
• 30:30
  Speaker 1: On that project we're training teachers now in the united states and canada to use the realities of socialism material.
• 30:38
  Speaker 1: Much of it I know you've done on poland, estonia.
• 30:42
  Speaker 1: There's a section on sweden, I think singapore is coming.
• 30:46
  Speaker 1: I just want to ask you about that project that the frazier institute is that you've been working on.
• 30:51
  Speaker 1: What have your contributions been to that project?
• 30:53
  Speaker 2: I think this is one of the more important, you know, educational initiatives that I've been involved in in recent years.
• 31:00
  Speaker 2: I think if you go to that website realities of socialism you'll see, when they did polls, that a lot of young people have actually changed their opinion on socialism.
• 31:11
  Speaker 2: You know, when we talk about the realities of socialism, it's like for them watching a charlie chaplin film, right, they don't have any touchstone to that reality of that existence.
• 31:20
  Speaker 2: And so, jason clements and others, you know, obviously in partnership with you and others, they decided to do this reality of socialism, which is to do these documents which dig deep into the history of the socialist experience.
• 31:34
  Speaker 2: I wrote two monographs with matt michel and koncentine zukoff.
• 31:39
  Speaker 2: One is on poland, that is called the road to socialism and back, and the other one is on estonia, uh, which is called the road to freedom.
• 31:48
  Speaker 2: The estonia one is more recent, just was published at the very end of the last year.
• 31:53
  Speaker 2: I'm very proud of both of these books.
• 31:55
  Speaker 2: They return me to a sort of genre of writing which is across disciplines, aimed at an interdisciplinary set of scholars that are teaching at the level that you're just talking about.
• 32:06
  Speaker 2: That I did with my book called why peristrika failed, which is about russia and soviet russia and the and gorbachev's efforts there, and so I I you know very much appreciated working with matt and with koncentine to dig into that, the great opportunity.
• 32:20
  Speaker 2: But one of the things that frazier does is they also create this tremendous amount of infographics based on the information that we, you know, dug into, and so if you look, you can see tremendous statistical illustrations of precisely the points that we're trying to get across.
• 32:36
  Speaker 2: So in poland, for example, if you look at the trend line, life expectancy was declining, and so if we would have got to 1989 and continued to go, life expectancy would have been declining.
• 32:50
  Speaker 2: Instead, what happened was you had the Baltrowovitch reforms and life expectancy increased Similarly with per capita income.
• 32:59
  Speaker 2: Their per capita income in Poland would have been about $14,000 a year per capita now, and instead, after the reforms, we're now at over $30,000 per capita income.
• 33:11
  Speaker 2: In fact, poland, even though Poland has had some political upheavals in recent years, we end the book in 2019 for Poland.
• 33:20
  Speaker 2: Nevertheless, their per capita income is actually now knocking on the door of Great Britain.
• 33:26
  Speaker 2: That's how successful the Polish economy has been because of the Baltrowovitch reforms, I would argue, which were amazing.
• 33:34
  Speaker 2: The Estonia story is even a more amazing, inspiring story from Mart Laar, who I got to meet through a T-Fast program.
• 33:43
  Speaker 2: I mean, it was an amazing opportunity.
• 33:44
  Speaker 2: But Mart Laar was influenced by Milton Friedman.
• 33:48
  Speaker 2: He introduced this policies where they just did it.
• 33:52
  Speaker 2: As he put it, we're just going to do it and Estonia is now one of the freest economies in the world, but also one of the freest personal economies in the world.
• 34:00
  Speaker 2: If I could just sort of stress something to the readers here is that the reason why this history is so important for both Poland and Estonia is that these two countries were torn apart by the two biggest collectivist experiences of the 20th century Nazism and Communism and they were suffered horrible losses under the yokes of these two tyrannical regimes.
• 34:26
  Speaker 2: And it's important to realize, when people think about socialism, to understand the organizational logic of the dream, because nobody in 1915 thought to themselves let's have a socialist government and kill everyone.
• 34:45
  Speaker 2: They thought they were delivering mankind into the greatest of social harmony and burst of productivity.
• 34:53
  Speaker 2: That was the dream aspiration they were going to be beyond, you know, and the modifiers, for example, people nowadays say oh, I want socialism, but I want democratic socialism.
• 35:03
  Speaker 2: Well, in Russian the term Bolshevik is majority, the term Menshevik is minority.
• 35:09
  Speaker 2: Why?
• 35:10
  Speaker 2: Because they were a faction within the Social Democratic Party that was pushing through the Marxist-Leninist strategy.
• 35:16
  Speaker 2: That's the Bolsheviks.
• 35:17
  Speaker 2: So all of these governments thought that they were advancing human freedom.
• 35:24
  Speaker 2: But the tragedy this is why Hayek writes the Road to Serfdom like the tragedy is that the high ideals are smashed up against the hard rock of reality, because socialism cannot work.
• 35:34
  Speaker 2: And when socialism cannot work, the socialists don't abandon their power.
• 35:38
  Speaker 2: What they do is they rely on other assessment tools, and those assessment tools, as we talk about in the book, they rely on controlling your citizenry, and that's why that part of the core idea is you have a control problem, you have a knowledge problem, you have an incentive problem, and the control problem requires that your government, those in charge of planning, are going to have to force the citizens to conform to the notion of the plan, and that's where all of the system starts to unwind.
• 36:11
  Speaker 2: And that's why the tragedy occurs.
• 36:13
  Speaker 2: And both in Poland and in Estonia, it's a miracle they were able to throw off the yoke of that tyranny and breathe freedom.
• 36:22
  Speaker 2: It's a very inspiring story and I hope that young students read the whole history of these countries.
• 36:29
  Speaker 2: I'll say one last thing Estonia is very, very cool because of also the way that they became free.
• 36:37
  Speaker 2: So Estonia, like in all of these Soviet bloc countries, the Soviets tried to impose a unified culture.
• 36:45
  Speaker 2: The Estonians had a self-identity that was embedded in their dress, traditional dress, the songs that they sing, the traditions that they conveyed, and they were subject to Russification.
• 37:00
  Speaker 2: They were trying to suppress the Estonian culture and impose Russian culture on them, and in 1988, they decided that they were going to protest that, and at the Folk Festival that year they sang Estonian songs and challenged the regime and everything like that.
• 37:22
  Speaker 2: And so they refer to this as the singing revolution, and I would really recommend people to look in our book, the discussion of the singing revolution, but look broader, you know, look at a documentary on the singing revolution.
• 37:34
  Speaker 2: It's just an amazing act of defiance.
• 37:36
  Speaker 2: And then what they also did in response in 1989 to the illegality of the Stalin-Hitler pact from 1939 is they joined the Lithuanians, estonians and the Latvians actually joined hands to make a human chain across all the Baltic states in protest of Soviet occupation, and so it's a nonviolent, amazing act of political defiance.
• 38:04
  Speaker 1: I also recommend that documentary, the Singing Revolution.
• 38:07
  Speaker 1: And I do remember we had Mart Laher come speak to our programs the first prime minister there and I remember him saying once that when he was living under communism he'd learn there was such a thing as a banana.
• 38:20
  Speaker 1: But he never had one and he wanted to have a banana and that was kind of a motivation for him.
• 38:25
  Speaker 1: But then when he suddenly became prime minister he was an historian and he said he'd read free to choose and he just tried to implement everything that Milton Freeman recommended.
• 38:34
  Speaker 1: And boy what a it took off.
• 38:36
  Speaker 1: And thank you, pete, express my gratitude that in the dedication of the Road to Freedom I think it was you dedicated it to the work you did, the opportunity to teach in our programs in Prague and we were grateful for that recognition.
• 38:51
  Speaker 2: I can't thank you enough for those opportunities.
• 38:53
  Speaker 2: You know, if you think about the various different individuals that you brought in to speak, you know to the graduating students what an amazing set of men of political.
• 39:05
  Speaker 2: You know commitments and conviction right, and so even the guy from you know Serbia.
• 39:13
  Speaker 1: Yeah, Zoran Gengik.
• 39:13
  Speaker 2: Zoran Gengik, that actually later was, you know, assassinated.
• 39:18
  Speaker 2: I remember asking him about you know, the reforms and he said that he understood the risk.
• 39:24
  Speaker 2: You know that was involved and they were going to.
• 39:26
  Speaker 2: There was only one choice, right, there was only one choice.
• 39:30
  Speaker 2: You know, one of the things about economics is we tend to downplay individuals, I mean in our standard modeling.
• 39:35
  Speaker 2: But one of the things when you study political economy is you realize that there are pivotal people at pivotal times, that's your entrepreneurs.
• 39:44
  Speaker 2: But it's also in the policy, space policy, entrepreneurs In the world that you know about, like the Overton window kind of idea and the ability to see that opportunity and seize it.
• 39:54
  Speaker 2: And it usually is only for a very, very short period of time and if you don't grab it, it disappears.
• 39:59
  Speaker 2: And it turns out that, for example, balcherovitch was able to do that and Martin Lar was able to do that in his crew.
• 40:06
  Speaker 2: But, like in Russia, you know, they tried and missed, you know, and now we have the mess that we have in Russia, you know, kind of thing, and so it's a very, you know, tough thing pulling off these transitions.
• 40:18
  Speaker 1: Well, we've gone over time and I wish we could continue going because I've really enjoyed this and so grateful for you and all the work you're doing.
• 40:27
  Speaker 1: I know you have an opportunity cost if we keep talking of missing a class, probably, or writing your next book, but, thank you, we're going to do our best to make sure that the work you did on this realities of socialism project gets into classrooms at high schools here so we can reverse these poll numbers that show way too many young people thinking that socialism is superior to freedom and free enterprise and free markets.
• 40:53
  Speaker 2: If I could say one last thing, roger, one of the things that I think is important to get across to young people.
• 40:58
  Speaker 2: So I think economics is best as a tool for the curious and a discipline for the compassionate.
• 41:04
  Speaker 2: It doesn't mean that you shouldn't have that natural compassion that you do, but you have to have effective compassion.
• 41:10
  Speaker 2: And so the goals that a lot of young people have for a greater world or a repair or broken world, so that we have more liberty, equality and justice, is the same goals that classical liberal economists have as well.
• 41:26
  Speaker 2: It's just that our means are different.
• 41:29
  Speaker 2: It's not the case that economics is a tool for oppression.
• 41:34
  Speaker 2: It's a tool for liberation.
• 41:36
  Speaker 2: You know, when you open up an economy, you liberate people.
• 41:39
  Speaker 2: That's why it's called liberalism right.
• 41:41
  Speaker 2: When you give rights to individuals, you're liberating them from the yoke of the previous oppressors.
• 41:47
  Speaker 2: And I think that part of our message to young people has to be not that they are wrong to want and yearn for greater liberty, equality and justice, but that they've been taught the wrong means and we need to teach them the relationship between the means and ends.
• 42:03
  Speaker 2: There's where economic way of thinking comes in, and when we do it the correct way, we can actually unlock a lot of mysteries in the world for them, and I hope this series, in its own small way, is a first step in that educational project.
• 42:19
  Speaker 1: Yes, well, thank you.
• 42:20
  Speaker 1: That's a great way to end and you've touched on a lot of important themes here, especially at the close here, and you know our work at the Fund for American Studies and the work you at the university demonstrates that one person or a small group of people can truly make a difference, as we've seen throughout history.
• 42:37
  Speaker 1: We have the example of Jesus and 12 disciples, lenin and a few followers.
• 42:42
  Speaker 1: It's small groups, but it takes knowledge and courage and those two ingredients together you can really make a difference for good as well.
• 42:49
  Speaker 1: So, thank you, pete, pleasure to be with you today.
• 42:53
  Speaker 2: Thank you for joining me, it's great to see you, Roger, and thanks for this opportunity.
• 42:59
  Speaker 1: Thank you for listening to the Liberty and Leadership podcast.
• 43:02
  Speaker 1: If you have a comment or question, please drop us an email at podcast at tfasorg, and be sure to subscribe to the show on your favorite podcast app and leave a five star review.
• 43:15
  Speaker 1: Liberty and Leadership is produced at Podville Media.
• 43:19
  Speaker 1: I'm your host, roger Rehm, and until next time, show courage in things, large and small.