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Austrian Economics and the Case Against Central Planning · Liberty + Leadership

• 0:00
  SPEAKER_00: Welcome to the Liberty and Leadership Podcast, a conversation with TFAS alumni, faculty, and friends who are making an impact today.
• 0:10
  SPEAKER_00: I'm your host, Roger Reim.
• 0:13
  SPEAKER_00: I'm excited to welcome Dr.
• 0:14
  SPEAKER_00: Christopher Coyne to Liberty and Leadership Podcast.
• 0:18
  SPEAKER_00: Dr.
• 0:19
  SPEAKER_00: Coin is an economics professor at George Mason University as well as a member of our faculty at TFAS, teaching a course on economic problems and public policy.
• 0:29
  SPEAKER_00: Dr.
• 0:30
  SPEAKER_00: Coyne also serves as Associate Director of the F.A.
• 0:33
  SPEAKER_00: Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center.
• 0:40
  SPEAKER_00: His ongoing research encompasses international political economy, grand strategy, and U.S.
• 0:46
  SPEAKER_00: militarism, and he has presented his findings through books, articles, interviews, and podcast appearances.
• 0:54
  SPEAKER_00: Chris is a senior fellow at the Independent Institute, a non-resident fellow at the Quincy Institute, and the co-editor of both the Review of Austrian Economics and the Independent Review.
• 1:07
  SPEAKER_00: Today we will be discussing his new book, Austrian Economics and Introduction, which he co-authored with Abigail Hall, as well as his work in the TFES classroom.
• 1:18
  SPEAKER_00: Welcome to the Liberty and Leadership Podcast.
• 1:21
  SPEAKER_00: It's great to be here.
• 1:22
  SPEAKER_00: Thank you for speaking with me.
• 1:23
  SPEAKER_00: Well, congratulations on this latest book.
• 1:26
  SPEAKER_00: I think it offers a wonderful survey of the very important school in economics.
• 1:30
  SPEAKER_00: Perhaps I could begin by asking you to offer a brief description of the Austrian School of Economics, because I think some people think it refers to the country of Austria as their, you know, their economic system.
• 1:41
  SPEAKER_01: Yes.
• 1:42
  SPEAKER_01: And of course, the opening line of the book is let me start by telling you what Austrian economics is not the economics of Austria.
• 1:48
  SPEAKER_01: Right.
• 1:48
  SPEAKER_01: Austrian economics refers to a tradition of economic thinking that traces back to a group of thinkers that starting in the in the late 1800s, so around 1870 in Vienna.
• 2:02
  SPEAKER_01: And they were crucial in what's called the marginal revolution, which was foundational to the evolution of economics of the discipline and what became contemporary economics.
• 2:12
  SPEAKER_01: And that's what the name refers to, that tradition going back to Carl Menger in the late 1800s, and then those that followed in his footsteps after.
• 2:21
  SPEAKER_00: If you were to draw a family tree of, say, the Austrian school, would you put Menger at the top or would you put, say, Adam Smith at the top?
• 2:29
  SPEAKER_01: I would put Menger at the top.
• 2:31
  SPEAKER_01: Mainly he was located in Austria and was the one of the co-revolutionaries, if you will, of the marginal revolution.
• 2:38
  SPEAKER_01: And so when we think of something distinct called the Austrian school, it starts with Menger.
• 2:42
  SPEAKER_00: And his main contribution now is has to do both about the subjectivity of value.
• 2:48
  SPEAKER_01: Yes.
• 2:49
  SPEAKER_01: So the marginal revolution generally, and this is important to understand without going into too much detail, was a paradigm shift in economics, a shift from the labor theory of value to the marginal theory of value.
• 3:01
  SPEAKER_01: And one of Menger's key contributions to that was this emphasis on subjectivism, that value is nothing inherent in a good or service, but it is in the mind of the actor.
• 3:13
  SPEAKER_01: It is how much you or I or who whomever else value something.
• 3:16
  SPEAKER_01: And that's really important.
• 3:18
  SPEAKER_01: And if you just think about it in terms of the labor theory of value in a very simple form, the value of something is dependent on the amount of labor that went into producing it.
• 3:26
  SPEAKER_01: And the subjectivist theory of marginal value would say no, because you can invest an enormous amount of time and resources in producing something.
• 3:34
  SPEAKER_01: But if consumers don't ultimately value it, that's the subjective point, then it doesn't matter how much labor or effort goes into producing it.
• 3:42
  SPEAKER_01: So value is ultimately determined by the actor.
• 3:45
  SPEAKER_01: And then the value of all the things that go into it are derived from their contribution to that final output.
• 3:51
  SPEAKER_00: It seems so obvious when you describe it, because obviously, if I were to make an apple pie and you were to spend the same amount of labor making a mud pie, clearly the apple pie would have more value in the marketplace, probably, I think among most people.
• 4:07
  SPEAKER_00: Yes.
• 4:07
  SPEAKER_00: Yet for a century or so, the labor theory of value dominated the thinking, right?
• 4:11
  SPEAKER_00: And Karl Marx used it.
• 4:13
  SPEAKER_00: And even Adam Smith.
• 4:14
  SPEAKER_01: Yeah, there's elements of it in Smith.
• 4:16
  SPEAKER_01: Yeah.
• 4:16
  SPEAKER_01: And it was so it was a dominant view, which is why the marginal revolution was such an important paradigm shift.
• 4:20
  SPEAKER_01: It really changed the way that economists viewed their subject of study and really the people within the system.
• 4:26
  SPEAKER_01: And then that flows through to where value comes from and all that flows from that.
• 4:30
  SPEAKER_00: That Austrian school did stay physically in Austria for a while, in Vienna, most notably.
• 4:37
  SPEAKER_00: And you had uh Bombawick and then Ludwig von Mises and Hayek all centered around Vienna.
• 4:44
  SPEAKER_01: Yes.
• 4:44
  SPEAKER_01: As you mentioned, you're Dreugen von Bavric, Fredrik Wieser, they were kind of the next generation after Menger.
• 4:50
  SPEAKER_01: Then Mises and Hayek come after that.
• 4:52
  SPEAKER_01: And uh there was others in that circle, Joseph Schumpeter, for instance, who of course many people know is the creative destruction guy.
• 4:59
  SPEAKER_01: Entrepreneurship, so that's another theme that we can talk about, which is you see really early in these thinkers is really an emphasis on entrepreneurship and the agent of change in the in economic activity.
• 5:09
  SPEAKER_01: And then eventually it migrated outward from Austria into other parts of the the world.
• 5:14
  SPEAKER_00: Talk a little about Ludwig van Mises and his contributions.
• 5:17
  SPEAKER_01: And he was a student of the Trevor Burrus, he was a student of William von Baverick's, and uh who, of course, as we mentioned, was directly influenced by Menger.
• 5:24
  SPEAKER_01: So there's a direct connection there.
• 5:25
  SPEAKER_01: And Mises made numerous contributions, but I'll just focus on the one that you noted, the calculation debate.
• 5:32
  SPEAKER_01: And in the broadest sense, the economic calculation debate, which we're thinking here early 1900s broadly, was about the best way of organizing economic activity.
• 5:40
  SPEAKER_01: And on the one hand, you had a group of people who called themselves socialists.
• 5:44
  SPEAKER_01: Now, of course, the term socialists oftentimes gets thrown around.
• 5:48
  SPEAKER_01: The original socialists were advocates for abolishing all private property and money.
• 5:54
  SPEAKER_01: Their argument was that market production was chaotic and that by replacing private property rights over the means of production, by replacing money, you could have a small group of planners slash experts who rationalize production.
• 6:09
  SPEAKER_01: You could, in their own words, you could produce the same or more than the capitalist system could, but overcome all the ills of capitalism, think unemployment, think inequality, think business cycles and other types of flaws.
• 6:25
  SPEAKER_01: And what Mises pointed out was wait a second, that sounds nice, but people need some way to make determinations about how to allocate scarce resources.
• 6:34
  SPEAKER_01: So how are the planners, the experts, going to make those decisions?
• 6:38
  SPEAKER_01: And Mises walked through the logic of the role of property.
• 6:42
  SPEAKER_01: Property allows for exchange, exchange allows for market prices, which are captured in money, in monetary prices.
• 6:48
  SPEAKER_01: And it's those prices that allow economic actors to engage in what he called economic calculation, which is gauging the best use of scarce resources among an array of uses which are all possible or feasible.
• 7:02
  SPEAKER_01: And Mises' argument was when you attenuated property rights by removing property and money, you removed economic calculation.
• 7:10
  SPEAKER_01: And basically planners would be lost in a sea of darkness, as he put it.
• 7:15
  SPEAKER_01: And to be a little more concrete, so I'm not just purely being academic, think about it like this.
• 7:20
  SPEAKER_01: How do we know not to use platinum to make railroad tracks?
• 7:25
  SPEAKER_01: The metal, you could use it, it's technologically feasible, but the reason it's not used is because it's expensive.
• 7:31
  SPEAKER_01: Well, how do we know it's expensive?
• 7:32
  SPEAKER_01: Because there's a price on it.
• 7:34
  SPEAKER_01: And what is that price telling us?
• 7:35
  SPEAKER_01: It's telling us that there are alternative uses for those scarce resources, in this case platinum, which are more valuable than railroad tracks.
• 7:42
  SPEAKER_01: And now you start thinking about that across numerous resources, numerous combinations of the use of those resources, and you see why monetary prices that are derived through market competition, through voluntary exchange, are so crucial.
• 7:56
  SPEAKER_01: They serve as a guide in a world of enormous complexity.
• 8:00
  SPEAKER_01: And they don't solve any kind of problem because it's not a problem to be solved.
• 8:04
  SPEAKER_01: They are guides that aid economic actors in navigating that world.
• 8:09
  SPEAKER_00: Do you think the emergence in recent years of AI lends any argument to those who say you can centrally plan economy because now we can gather all this information and a better plan for things?
• 8:23
  SPEAKER_01: Aaron Powell So this falls under the purview of what some people call techno-socialism.
• 8:27
  SPEAKER_01: And so this is an argument you hear more and more.
• 8:30
  SPEAKER_01: And I would say that it does not resolve the calculation argument, the one that Mises was engaged in.
• 8:35
  SPEAKER_01: And you capture it nicely in the way you framed it, which is there's a difference between capturing information that exists.
• 8:42
  SPEAKER_01: That's an exercise in gathering information, and the generation of economic knowledge itself.
• 8:48
  SPEAKER_01: And Mises's point is there is, and Hayek, who followed Mises and was also part of the calculation debate, we'll get to a Tayek in a few moments.
• 8:56
  SPEAKER_01: Their argument was that there's no economic problem the way there's a math problem, that you just go collect enough information that's out there, and then you just plug and play.
• 9:06
  SPEAKER_01: You solve it, and then you're good to go.
• 9:08
  SPEAKER_01: And that's how the socialists were treating it, like it was an engineering or operations management type problem.
• 9:14
  SPEAKER_01: The issue is the actual generation of economic knowledge, which comes out of the interactions of people.
• 9:20
  SPEAKER_01: So it's the interactions of people who are experiencing the actual world.
• 9:24
  SPEAKER_01: This goes back to where we started.
• 9:25
  SPEAKER_01: They are operating based on their subjective evaluations of things, which of course can change through time.
• 9:31
  SPEAKER_01: And it is those interactions that generate the economic knowledge, which is captured in prices at a point in time, partially, but then which also changes as people use those scarce resources to do other things, as global conditions change, as people change.
• 9:47
  SPEAKER_01: And so you what you get is this enormous, complex network of open-endedness and change.
• 9:53
  SPEAKER_01: And prices serve as guides as people make their way through that really messy world.
• 9:59
  SPEAKER_00: We never reach this equilibrium point.
• 10:01
  SPEAKER_00: It's constantly everything's in flux.
• 10:03
  SPEAKER_00: That's right.
• 10:04
  SPEAKER_00: People buy and sell.
• 10:06
  SPEAKER_00: Exactly.
• 10:06
  SPEAKER_01: And that's why you'll hear people in the Austrian tradition often refer to economics as a coordination problem rather than an allocation problem.
• 10:13
  SPEAKER_01: You're not allocating things as if the end is known and it's just a matter of, well, should I allocate a little more over here or over there?
• 10:20
  SPEAKER_01: It's people who have diverse wants, who are diverse in their preferences, but also constantly changing.
• 10:27
  SPEAKER_01: And then, of course, there's global conditions outside of their control which are changing, and they need to figure out how to coordinate and cooperate.
• 10:33
  SPEAKER_01: And then when conditions change, things that perhaps were coordinating in the past are no longer coordinating, then they need to be reallocated.
• 10:40
  SPEAKER_01: And that is part of that broader process.
• 10:43
  SPEAKER_00: I do remember from my freshman economics course textbook by Paul Samuelson that the real questions in economics, the third one was, and how to distribute it.
• 10:52
  SPEAKER_01: Yes.
• 10:53
  SPEAKER_01: And then of course, which is important, you need to distribute scarce resources, but you know, who's going to do it?
• 10:58
  SPEAKER_01: Right.
• 10:58
  SPEAKER_01: And that that's really the crux of the issue.
• 11:01
  SPEAKER_01: Is there an enlightened person or group of people that can do it, which many people act as if there is?
• 11:06
  SPEAKER_01: Yeah.
• 11:06
  SPEAKER_01: We'll come to this a little later when we move to kind of contemporary government policy, which is why this still matters today, versus kind of a bottom-up emergent order that comes out of the interactions of people, where there's no planner, no group of elites that are controlling things, but you still get order and you still get cooperation.
• 11:24
  SPEAKER_00: And then somewhat contemporaneous with Mises was F.A.
• 11:28
  SPEAKER_00: Hayek, a student/slash colleague of Mises in Vienna, who made a quite a few contributions across disciplines.
• 11:36
  SPEAKER_00: Talk a little bit about Hayek's role in the Austrian school.
• 11:39
  SPEAKER_01: So Hayek was never, to my knowledge, a direct student of Mises in a classroom setting, but he did consider him a teacher and that he learned a great deal from him.
• 11:46
  SPEAKER_01: Hayek came out of the same Austrian tradition study with Vieser, who we mentioned earlier with Bombavric in conjunction with Bomb Bavarick.
• 11:53
  SPEAKER_01: And then he worked with Mises at a business cycle institute in Austria that it would be the equivalent of like a research institute or I don't know if we call it a think tank.
• 12:01
  SPEAKER_01: In any case, Hayek is amazing because in Hayek's career, he was engaged in two of the largest debates in the profession, one on the microeconomic side and one on the macroeconomic side.
• 12:13
  SPEAKER_01: And now in the economics discipline, people tend to be very specialized.
• 12:16
  SPEAKER_01: So Hayek follows up with Mises on the calculation debate, and we can talk more about that.
• 12:21
  SPEAKER_01: So Mises is like wave one of the calculation debate in my head, the way I think of it.
• 12:25
  SPEAKER_01: And then Hayek comes in on wave two.
• 12:28
  SPEAKER_01: And then he's also engaged in a debate on macroeconomics with John Maynard Keynes about business cycles, about the stability of the economy more broadly.
• 12:38
  SPEAKER_01: So from that standpoint, Hayek is one of the most famous economists in the world at this time.
• 12:43
  SPEAKER_01: People knew him, both in the profession, but also outside the profession because of it.
• 12:48
  SPEAKER_01: And so we can touch more upon Hayek, but that's what he's known for.
• 12:51
  SPEAKER_01: And of course, he won the Nobel Prize, which is a recognition of how famous he was.
• 12:55
  SPEAKER_00: And of course, he became a very popular and well known when he wrote The Road to Serfdom, which was condensed in Reader's Digest in this country and bestseller and even that was the mid-40s.
• 13:07
  SPEAKER_01: That was The Road to Serfdom was published.
• 13:09
  SPEAKER_01: Yep.
• 13:10
  SPEAKER_01: And so I thank you for raising that.
• 13:11
  SPEAKER_01: Yeah, there's that aspect too.
• 13:12
  SPEAKER_01: In addition to his purely academic work, he also took on this role of public intellectual, which really wasn't by design so much, but kind of came out of the road to serfdom, and of course, the broader cultural trends in the world, which were these issues were hotbeds for discussion and debate.
• 13:27
  SPEAKER_00: And I guess one theme of the road to serfdom was that if you engage in socialism or interventionism, it could very well lead to tyranny and authoritarianism.
• 13:39
  SPEAKER_01: The road to serfdom is Hayek's attempt to say, okay, what actually is going to happen when you try to implement planning in the actual world?
• 13:46
  SPEAKER_01: So then you move into this realm of kind of what we might call political economy.
• 13:49
  SPEAKER_01: What's the interaction going to be between politics and planning?
• 13:53
  SPEAKER_01: And as you point out, some people interpret Hayek as almost making an absolutist or deterministic argument about slippery slopes.
• 14:00
  SPEAKER_01: I don't view him as making that strong of an argument, but he does say a couple important things.
• 14:05
  SPEAKER_01: One of them along these lines is well, look, if you're going to have planning, if you're going to implement this, you can't have the rule of law because the rule of law requires you to tie the hands of those who have discretionary power.
• 14:19
  SPEAKER_01: You are limiting what they can do ex ante.
• 14:21
  SPEAKER_01: That is what the rule of law says.
• 14:23
  SPEAKER_01: Certain things are off the table.
• 14:24
  SPEAKER_01: But he says, wait a second.
• 14:26
  SPEAKER_01: Remember, we're operating here in an open-ended, complex system.
• 14:29
  SPEAKER_01: We can't perfectly foresee what's going to happen in the future.
• 14:32
  SPEAKER_01: So you need to grant planners some scope for discretionary decision making.
• 14:36
  SPEAKER_01: But the minute you do that, it means you can't tie their hands.
• 14:40
  SPEAKER_01: You have to grant them some discretionary power.
• 14:42
  SPEAKER_01: And you might say, well, that's good.
• 14:44
  SPEAKER_01: And Hayek says, well, wait a second.
• 14:47
  SPEAKER_01: It might be good, but it also might be really bad depending on who's running the show, if you will.
• 14:52
  SPEAKER_01: And so then we need to think about selection mechanisms.
• 14:55
  SPEAKER_01: Who's going to rise to the top?
• 14:56
  SPEAKER_01: Who's going to wield the levers of power?
• 14:59
  SPEAKER_01: And that's why he gets into things about the selection effects.
• 15:03
  SPEAKER_01: He has that chapter on why the worst get on top, because he says it's not a foregone guarantee, but there's reason to believe that less than desirable people are going to seize the reins of power.
• 15:13
  SPEAKER_01: Again, this isn't him just speculating.
• 15:16
  SPEAKER_01: He's looking at the actual selection mechanisms.
• 15:18
  SPEAKER_01: What type of people are comfortable telling other people what to do?
• 15:22
  SPEAKER_01: Well, if you're not comfortable imposing your vision on other people, you kind of step aside.
• 15:27
  SPEAKER_01: I don't like telling people how many blue jackets they should have.
• 15:30
  SPEAKER_01: That's not my preference.
• 15:31
  SPEAKER_01: So they're out.
• 15:32
  SPEAKER_01: So you're going to have people left who are comfortable telling other people what to do.
• 15:35
  SPEAKER_01: But then Hayek says, what are you going to do when you have your nicely written out plan and people say, no, thanks.
• 15:42
  SPEAKER_01: I rather not follow that plan.
• 15:43
  SPEAKER_01: Well, you have two options at that point.
• 15:45
  SPEAKER_01: You can back off, but then you're not a very good policymaker, or you can backstop your plan by force.
• 15:52
  SPEAKER_01: And then the question becomes, what people are comfortable using coercive force to impose their preferences on other people.
• 15:58
  SPEAKER_01: And so Hayek says, we're going to get nice people who are going to plan and give us all these goodies.
• 16:03
  SPEAKER_01: But Hayek's argument is that can very easily lead to tyranny, even though the motivation behind it is one of liberation, one of helping the less fortunate, one of advancing equality and so on.
• 16:15
  SPEAKER_01: You actually might end up getting the very opposite of those things in practice.
• 16:19
  SPEAKER_00: And this was when we saw a lot of terrible things happening in the world during the 30s and 40s.
• 16:24
  SPEAKER_00: And in fact, as you point out in here, Mises left Europe for the United States in 1940 when he saw what was happening to Jews in Germany and in Europe.
• 16:35
  SPEAKER_00: Haik had gone to London, but eventually was also in the U.S.
• 16:38
  SPEAKER_00: at Chicago.
• 16:39
  SPEAKER_00: Mises ends up at NYU and is teaching there, running a seminar.
• 16:45
  SPEAKER_00: His student is uh Israel Kersner.
• 16:48
  SPEAKER_00: That's right.
• 16:48
  SPEAKER_00: Kersner develops a number of important contributions to Austrian economics.
• 16:53
  SPEAKER_00: The one I'm most familiar with is this concept of entrepreneurship, which is important in the Austrian school of economics.
• 16:59
  SPEAKER_00: Can you talk about entrepreneurship?
• 17:01
  SPEAKER_00: Because I think it's often misunderstood and it's used in other ways by other things.
• 17:06
  SPEAKER_01: Certainly.
• 17:06
  SPEAKER_01: So you're certainly right that entrepreneurship is really a central feature of the Austrian tradition.
• 17:11
  SPEAKER_01: As I mentioned earlier, Schumpeter came out of the same kind of tradition and he was over in Austria proper.
• 17:18
  SPEAKER_00: And then he left uh Europe for Harvard.
• 17:20
  SPEAKER_00: That's correct.
• 17:21
  SPEAKER_01: Yeah.
• 17:21
  SPEAKER_01: You can see if you just step back for a moment before you get to Kersner why this is so central.
• 17:26
  SPEAKER_01: If you're focused on discovery, if you're focused on coordination, if you're focused on change, rather than treating economic activity as a kind of operations management problem, then it pushes you to reflect on well, who is the agent or agents plural, perhaps is a better way to put it, that brings about change that coordinates.
• 17:47
  SPEAKER_01: How does that come about?
• 17:48
  SPEAKER_01: And the role of the entrepreneur, the function of the entrepreneur in the Austrian tradition is precisely to isolate that role.
• 17:58
  SPEAKER_01: And so for Kersner, who in, let's see, 1973 published a book called Competition Entrepreneurship, the challenge facing Kersner is that in kind of the neoclassical model of supply and demand and perfect competition, it's what we call a price taker model, which is that firms are assumed to take prices.
• 18:16
  SPEAKER_01: They don't have pricing power.
• 18:17
  SPEAKER_01: And Kersner's point is, well, wait a second.
• 18:19
  SPEAKER_01: If everyone's taking prices, then where do prices come from?
• 18:22
  SPEAKER_01: They don't just fall from on high and hit you on the head.
• 18:25
  SPEAKER_01: They have to emerge from somewhere.
• 18:26
  SPEAKER_01: And Kersner's point is they emerge from purposeful human action in the marketplace, and they emerge from people who are alert to opportunities.
• 18:35
  SPEAKER_01: So alertness is the defining feature of entrepreneurship for Kersner.
• 18:39
  SPEAKER_01: They are people, and in Kersner's story, anyone can be an entrepreneur.
• 18:43
  SPEAKER_01: We all have the propensity to be alert to profit opportunities, but it's that function of alertness to seeing something that you think can generate a profit on a market.
• 18:53
  SPEAKER_01: And I say think because it's not guaranteed to do so.
• 18:56
  SPEAKER_01: It's a conjecture of sorts.
• 18:59
  SPEAKER_01: And then that person says, well, I think if I move resources from here to here and perhaps combine them in this way, I think consumers will be satisfied and quite happy.
• 19:09
  SPEAKER_01: But of course, that's a conjecture.
• 19:11
  SPEAKER_01: It's not a guaranteed thing.
• 19:12
  SPEAKER_01: So then how do we know whether the entrepreneur's conjecture is right or not?
• 19:16
  SPEAKER_01: And we subject it to the market test, which is profit and loss.
• 19:20
  SPEAKER_01: And so you can see how all the different steps we've been thinking about fits together.
• 19:24
  SPEAKER_01: Property, that's the kind of first P.
• 19:27
  SPEAKER_01: That's what Mises and Hayek were talking about in the calculation debate.
• 19:30
  SPEAKER_01: Property leads to exchange, which generates market prices.
• 19:34
  SPEAKER_01: That's the second P.
• 19:35
  SPEAKER_01: Prices allow for economic calculation.
• 19:37
  SPEAKER_01: They serve as a guide.
• 19:39
  SPEAKER_01: So an entrepreneur can say, hey, I think I can produce a better jacket or better smartphone, but I need inputs.
• 19:46
  SPEAKER_01: I need to purchase those inputs.
• 19:47
  SPEAKER_01: So I look at market prices.
• 19:49
  SPEAKER_01: I think I can combine all this stuff together and sell it over here for a profit.
• 19:54
  SPEAKER_01: They pursue that conjecture.
• 19:56
  SPEAKER_01: They subject it to the market test.
• 19:58
  SPEAKER_01: And then we have our third P.
• 19:59
  SPEAKER_01: So we have property prices and then profit and loss.
• 20:01
  SPEAKER_01: Profit and loss provides feedback and that alerts entrepreneurs to whether they have satisfied consumer wants or if they should change course, either by changing their production process, perhaps, changing the inputs they use, or stopping production altogether.
• 20:16
  SPEAKER_01: And it's that interplay between all those different factors animated by entrepreneurs.
• 20:21
  SPEAKER_01: And notice that entrepreneurs are competing for inputs.
• 20:24
  SPEAKER_01: So if I use inputs into making my jacket, those inputs can't be used elsewhere.
• 20:29
  SPEAKER_01: But there's other people in the world that want those inputs for other things.
• 20:31
  SPEAKER_01: They too have plans and conjectures that they want to pursue.
• 20:35
  SPEAKER_01: And so it's prices that are, again, guiding us through all of this imperfectly, because we're imperfect people.
• 20:41
  SPEAKER_01: And it's through that ongoing process through which we get coordination and cooperation through time.
• 20:47
  SPEAKER_00: Let me mention one of their names since he, I know, was probably important to you, and he was important to as a friend to me and a member of our faculty.
• 20:54
  SPEAKER_00: And that's Don Lavoie, who was a student of Kurzner's at New York University.
• 20:58
  SPEAKER_00: Correct.
• 20:58
  SPEAKER_00: And then later a colleague at George Mason University, where you got your PhD.
• 21:04
  SPEAKER_00: He added contributions, I know, into this socialist calculation debate and the role of prices.
• 21:10
  SPEAKER_00: And could you touch on that on Don Lavoy's contributions?
• 21:14
  SPEAKER_01: Well, again, he has several, but I'll just stick to what we talked about for the sake of brevity.
• 21:18
  SPEAKER_01: So he contributed in terms of history, economic thought of the calculation debate itself.
• 21:22
  SPEAKER_01: So he has wonderful books on rivalry and central planning if if people are interested in pursuing that.
• 21:27
  SPEAKER_01: But he also has a wonderful, another wonderful book that he published in 1985 called National Economic Planning: What is Left.
• 21:34
  SPEAKER_01: And now we get into really interesting, kind of, if you want to think about it, between a transition between that original form of socialism that we talked about, the complete abolition of private property rights and money, and these kind of middle of the road, or the way Lavoie calls it is comprehensive planning and non comprehensive planning.
• 21:51
  SPEAKER_00: Industrial policy.
• 21:52
  SPEAKER_01: Exactly.
• 21:53
  SPEAKER_01: That's the perfect example.
• 21:54
  SPEAKER_01: And Lavoie talked about that in 1985, and that's relevant in 2026, of course.
• 22:00
  SPEAKER_01: Industrial policy, of course, is the idea in the simplest form that governments at the national level should design policy to protect and encourage certain industries for the national good, for the economic good of the nation.
• 22:15
  SPEAKER_01: And Lavoie says, okay, well, wait a second, in national economic planning.
• 22:19
  SPEAKER_01: Certainly, what he calls non-comprehensive planning is not the same as comprehensive planning.
• 22:24
  SPEAKER_01: You're not trying to plan the entire economy.
• 22:27
  SPEAKER_01: But the means are the same.
• 22:29
  SPEAKER_01: So these are matters of degree and not kind.
• 22:32
  SPEAKER_01: Government is trying to step outside the market system, a small group of planners, and say, we can design policy that we believe will generate economic welfare that is greater than what otherwise would exist if we left the market up to its own devices.
• 22:50
  SPEAKER_01: And what Don Lavoy said is, well, you're going to run into the same challenges that Mises and Hayek said.
• 22:56
  SPEAKER_01: On the one hand, you're going to have the knowledge problem, which is what he called it.
• 23:02
  SPEAKER_01: That's the calculation problem.
• 23:04
  SPEAKER_01: And he actually then weaved in what he called the power problem as well, which is the Hayek political problem that we talked about, which is he says you're going to give discretionary power to a small group of people.
• 23:13
  SPEAKER_01: So again, tread carefully.
• 23:15
  SPEAKER_01: All of a sudden, you're going to have people that want to be friends with the policymakers because all of a sudden they control what industries get the benefits and privileges.
• 23:23
  SPEAKER_01: You're going to have these interactions between corporations and government, which leads to some semblance of political capitalism.
• 23:30
  SPEAKER_01: You're going to have unions that are attempting to partner with government in order to get privileges for their members at the expense of others.
• 23:38
  SPEAKER_01: All this is important because there's direct consequences in the here and now when you pass these policies.
• 23:43
  SPEAKER_01: But one of the things that all of these thinkers point to is the other risk you run, which is oftentimes unseen, is that you can actually transform the economic system itself once you unleash these entanglements between government and private firms.
• 23:59
  SPEAKER_01: And many of the desirable features of markets, of the market process, are undermined when you lead to these entanglements.
• 24:07
  SPEAKER_01: And one of the reasons that matters, and I see this today interacting with many young students, they raise issues about what I'd call political capitalism, but they end up blaming markets.
• 24:19
  SPEAKER_01: And what that misses oftentimes is the interplay between markets and politics, which leads to the undesirable features of the world, which they're correctly identifying in terms of the issues that concern them.
• 24:33
  SPEAKER_00: And you have a chapter in in your book on interventionism, which touches on a lot of those themes that we blame the market for so much that is really caused by government and government intervention.
• 24:44
  SPEAKER_01: And the subsequent entanglements that result.
• 24:46
  SPEAKER_00: We had a virtual book discussion for many of our college students last summer after they had left our program so they could stay engaged in the fall with these ideas.
• 24:56
  SPEAKER_00: And uh one of the books we chose was your book in search of monsters to destroy.
• 25:01
  SPEAKER_00: Could you just kind of talk about briefly about the theme of that book?
• 25:04
  SPEAKER_01: I was trained in the Austrian tradition, along with the public choice tradition, and it's inspired not just my thinking, but much of my work.
• 25:11
  SPEAKER_01: And so it might seem odd on the face of it, okay, why is an economist talking about the American government's foreign policy, empire, all these things?
• 25:19
  SPEAKER_01: And my inroads into this was Austrian public choice ideas, which is that when government intervenes abroad, just like when it intervenes domestically, there's certain tacit presuppositions, unspoken or assumed assumptions that are being made.
• 25:34
  SPEAKER_01: One of them is that they have the knowledge to intervene around the world and accomplish the ends they want to accomplish.
• 25:40
  SPEAKER_01: Another is that they have the incentive to do that.
• 25:42
  SPEAKER_01: And so what does that sound like?
• 25:46
  SPEAKER_01: But you know, this is exactly what you and I were just talking about with planning.
• 25:49
  SPEAKER_01: There's knowledge issues and there's incentive issues.
• 25:52
  SPEAKER_01: And so what I try to do in that book is to really bring these issues to the forefront.
• 25:57
  SPEAKER_01: But also, you know, one of the things that has caught my attention is there's a tendency, and this isn't just among economists, among political scientists, policymakers, politicians, to highlight the benefits or desirable features of the American government intervening abroad.
• 26:13
  SPEAKER_01: And certainly there can be benefits.
• 26:15
  SPEAKER_01: I don't deny that.
• 26:16
  SPEAKER_01: But there also can be enormous costs.
• 26:19
  SPEAKER_01: And some of those costs are monetary costs, some of them are in terms of human life, some of them are more long and variable in terms of things like constitutional erosion, in terms of expanded government power at home, uh, which only becomes evident sometimes years later after interventions take place.
• 26:40
  SPEAKER_01: And so in that book, I try to point out some of these overlooked costs and bads in order to ask the reader to reflect on those in and of themselves, but also to perhaps offer a more balanced discussion of potential goods and bads so that readers, in this case, students, can think about them for themselves and decide where they fall down on it.
• 27:01
  SPEAKER_00: At one of our programs at the closing ceremony, a student got up to give a testimonial and she said she just went on the attack against her alma mater, where she'd graduated from a year before, and she said, I'm just bitter at them because I graduated from this college without ever hearing the name Hayek.
• 27:20
  SPEAKER_00: And I thought it's a crime that liberal arts students, economic students even, can graduate without having heard of Hayek or being exposed to the ideas of the Austrian school.
• 27:30
  SPEAKER_00: So we started this seminar last fall and was very successful.
• 27:34
  SPEAKER_00: If I were to go off to talk to a donor about the need to fund this program, what kind of case would you make as to why we should be teaching Austrian economics to young professionals today?
• 27:45
  SPEAKER_01: The relevance of Austrian economics today is that it illuminates the operation of the world.
• 27:52
  SPEAKER_01: And it doesn't just illuminate the operation of the world in some kind of ivory tower way.
• 27:57
  SPEAKER_01: This is at the core, the foundation of human well-being.
• 28:00
  SPEAKER_01: Because ultimately, when we think about human well-being, what we're thinking about is development.
• 28:05
  SPEAKER_01: Development, not just in some narrow economic sense of per capita income, although that's quite important as well, but also in terms of individual human flourishing.
• 28:14
  SPEAKER_01: So the way I always think about development and the way I talk about it to our students is that development is grounded in the individual, and it's the ability of the individual to actualize, to realize their goals and pursue their goals.
• 28:27
  SPEAKER_01: And that requires certain things: human freedom, a respect for human dignity, a respect for individuals to act creatively and entrepreneurially.
• 28:37
  SPEAKER_01: Okay, so what institutional arrangements allow people to do that?
• 28:40
  SPEAKER_01: Private property rights over your person, the ability to associate with people you want to associate with.
• 28:46
  SPEAKER_01: Where does that lead to?
• 28:47
  SPEAKER_01: What we were just talking about with the calculation debate.
• 28:50
  SPEAKER_01: So there's a alignment and integration of individual freedom, individual flourishing, and broader economic development.
• 28:58
  SPEAKER_01: They're inseparable.
• 28:59
  SPEAKER_01: We oftentimes talk about development like this, it's this abstract thing that you either have it or you don't.
• 29:04
  SPEAKER_01: So why is that important?
• 29:06
  SPEAKER_01: Well, it's important in the world today because we're in the world today, as we were just talking about, where policies like industrial development, policies like government control, great skepticism about markets, about entrepreneurship.
• 29:18
  SPEAKER_01: Students have concerns about things like wealth concentration and so on.
• 29:21
  SPEAKER_01: And some of those concerns are legitimate.
• 29:23
  SPEAKER_01: So in no way, shape, or form am I trying to downplay them.
• 29:26
  SPEAKER_01: What I am trying to emphasize is that in order to understand those things, you need to understand where wealth comes from.
• 29:32
  SPEAKER_01: You need to understand how markets operate, you need to understand things like political capitalism and the pernicious effects of interventionism.
• 29:40
  SPEAKER_01: And that all comes out of the Austrian school.
• 29:42
  SPEAKER_01: The Austrian school provides you with a framework, but also a set of extensions and applications that illuminate all these things.
• 29:51
  SPEAKER_01: And to my way of thinking, those ideas are just as important today as they were in the late 1800s, middle of the 1900s, and so on.
• 30:00
  SPEAKER_01: And so if we don't want to lose individual freedom, if we don't want to lose human flourishing and we want more of it as compared to less, I would submit that understanding these ideas is of great import today.
• 30:12
  SPEAKER_01: The final thing I'll say is this in a world where so much in education has moved to online, asynchronous, AI, and I'm not opposed to any of those things.
• 30:22
  SPEAKER_01: I think they have value.
• 30:23
  SPEAKER_01: There is a craving and a desire among students of all ages, but especially young students, for in-person interaction, for in-person Socratic discussion, for face-to-face networking and critical scrutiny and discussion of ideas.
• 30:41
  SPEAKER_01: And that is the reason I think you are observing the kind of response you are to the seminar, because there's been such a shift, part of it because of technological advances, part of it because of the COVID response, to online learning and platforms that students are just hungry for this.
• 30:57
  SPEAKER_01: And it's really the best way to learn ideas is to sit down, read them, critically evaluate them, discuss them with colleagues in a constructive and civil manner, and to interrogate them.
• 31:07
  SPEAKER_01: And then you understand the nuances, but also you learn what other people think, how they think, and that sharpens your own intellect as well.
• 31:15
  SPEAKER_00: You know, as I read your book, it brought to mind a journal article by Peter Betke about the Austrian school family tree.
• 31:23
  SPEAKER_00: Yes.
• 31:23
  SPEAKER_00: And he traced it to Mises and having students like Kersner and Senholtz and others, and then the next generation was Lavoie and Jack High, and then the next generation was Pete and some of his peers and see Forwitz, Emily Chamley, right?
• 31:40
  SPEAKER_01: That's right.
• 31:41
  SPEAKER_00: Yeah, yeah.
• 31:42
  SPEAKER_00: And then your generation is the tree still spreading?
• 31:45
  SPEAKER_00: Is Austrian economics still a school of economics that's educating new disciples, new PhDs, others that can teach these concepts we've talked about today?
• 31:54
  SPEAKER_01: In the concluding chapter of the book, we focus on on a variety of contemporary topics, but that requires people to work on those topics, which is your point.
• 32:02
  SPEAKER_01: George Mason alone through the Hayek program, of course, we are the premier place to study these ideas and we're quite active.
• 32:08
  SPEAKER_01: You know, I yeah, right now I think I'm chairing, I think, five or six dissertations for students who are working on these issues.
• 32:14
  SPEAKER_01: Pete Betke, who you mentioned, is uh really the intellectual leader of the present-day Austrian school and just a force of nature, as you know, intellectually program building.
• 32:25
  SPEAKER_01: I mean, he was my teacher as an undergrad.
• 32:26
  SPEAKER_01: He's the reason I'm here.
• 32:28
  SPEAKER_01: So I it's a it's an honor and privilege to get to work with him, my colleague Virgil Storr, Don Boudreau.
• 32:33
  SPEAKER_01: These people are just wonderful teachers and scholars.
• 32:36
  SPEAKER_01: And so from that standpoint, it's alive and well.
• 32:38
  SPEAKER_01: And you know, the other kind of indicator of this, I think, which is not so much direct training, but you wouldn't be surprised if you open an economics journal today or if you talked to even mainstream leading economists and you heard them talk about entrepreneurship, the importance of property rights and constraints on government.
• 32:56
  SPEAKER_01: And they might phrase it differently, but these things are kind of integrated now into the thinking in the economics discipline, not with every single economist, but they're not these topics that are at the margins anymore.
• 33:08
  SPEAKER_01: And I think the Austrian school has a great deal to do with that.
• 33:11
  SPEAKER_01: It's constant emphasis on these things, but also its kind of rigorous development of these ideas that other economists eventually realized are quite crucial to economics, not just as an intellectual discipline, but also in terms of policy and applied work as well.
• 33:27
  SPEAKER_00: Thank you so much for writing this book, Austrian Economics and Introduction.
• 33:31
  SPEAKER_00: It's it's highly readable, it gives a great overview of these topics, and it does also end with an optimistic note.
• 33:40
  SPEAKER_00: So appreciate you doing that.
• 33:41
  SPEAKER_00: And your work with TFAS is very much valued by us and I know by the students in the classroom.
• 33:46
  SPEAKER_01: Well, it's mutual.
• 33:47
  SPEAKER_01: I'm always honored to be a part of the program, and thank you for speaking with me today.
• 33:50
  SPEAKER_00: Pleasure.
• 33:52
  SPEAKER_00: Thank you for listening to the Liberty and Leadership Podcast.
• 33:55
  SPEAKER_00: If you have a comment or question, please drop us an email at podcast at tfas.org.
• 34:01
  SPEAKER_00: And be sure to subscribe to the show on your favorite podcast app and leave a five star review.
• 34:08
  SPEAKER_00: Liberty and Leadership is produced at Podville Media.
• 34:12
  SPEAKER_00: I'm your host, Roger Reim, and until next time, show courage in things large and small.