 Welcome back once again to Mises Weekends. I'm your host Jeff Deist and this weekend our show features part two of a very interesting interview with Dr. Joe Salerno who is the vice president of academic affairs here at the Mises Institute and also a longtime professor of econ at PACE University in Manhattan. We are in the middle of a very interesting discussion about Austrian economics as a movement. Joe discusses just how bad and how cronyist modern academia really is and why it's so important to have organizations like the Mises Institute to in effect do an end run around academia and bring our message of libertarianism and Austrian economics directly to the intelligent lay person. So if you're interested in libertarianism generally and Austrian economics as a movement I'm sure you will enjoy part two of our interview with Joe Salerno. Stay tuned. Should we really apply the term mainstream to sort of the modern mishmash of Keynesian neoclassical synthesis? This is the sort of the Krugman and Bernacke model or are we implicitly giving them too much credit when we term them mainstream? Yeah I think that that's a good question and my answer to that would be that there is a mainstream that controls the or that dominates let's put it that way the top research universities. However as I said there's a growing dissatisfaction with this very narrow view of how economics should be done and you see people in lower tier schools and not necessarily Austrian by any means and not necessarily pro free market by any means chafing at the bit just wanting to begin to change things. So I think across the spectrum you have a dissatisfaction with what I might call mathematical formalism. Well so you mentioned your work in de-homogenizing the Austrian school. Let's talk about that for a moment. Let's talk about factions in the world of Austrian economics. Are factions just part and parcel of any academic movement? Are they helpful? Are they harmful? I mean we have Mises corrects or disputes manger on money way back when Rothbard disputes Mises on utilitarianism. You have the Lachmanite splitting from the Rothbardians especially on strategy. I guess you the aforementioned you know Hayek versus Mises on purity. You have fierce disagreements about fractional reserve, political activism, working inside the butt way, criticizing the Fed versus calling for its abolition. I mean there seems like this is a movement that's riddled with factions and I wonder if that is a strength or a weakness. Well see yeah there's different ways you can use the term factions. Diversity I think is a good word. You want a diversity of thought in the sense that you want the newer generations to build on what the older generations have done. You want the newer generations standing on their shoulders and advancing the science. Economics is not a closed science despite what many people say. They're for example the financial crisis. Every time there's an event in the real world which which we haven't exactly seen in the past you have to adapt economic theory to that. You have to develop it more and apply it. So that's all to the good and there's going to be disputes during that process. Now the problem with factions is when they're concealed and they were concealed by this term Austrian economics for a long time and for example there people call themselves Austrians. Some of them believe that the market actually does move towards an equilibrium that there's some perfect state out there that the market actually pushes you towards where all prices are equal to costs and so on and Israel occurs as sort of the leader of that. He believes that the market actually equilibrates over time but people like Mises and Rothbard believe well this equilibrium this idea of this economy that never changes. This is just a mental construct of the economist to help us distinguish between profits and interests which interests will always exist even where there's no uncertainty. So if we imagine a world where there's no uncertainty and we see that profits disappear if everyone knows future prices then all costs of production bid up and all profits disappear. That's a different view. We don't believe that the market actually moves in that direction or that it would be good if it did. We just believe at every moment of time the best entrepreneurs are the ones that produce what consumers most urgently want and do it most efficiently and they're the ones that are earning profits. So profits actually always exist in the real world because there's continual change in the real world. So Mises and Rothbard don't lose sight of that. I think to some extent those people who follow Kursner and Kursner takes some inspiration from Hayek on this really believe that somehow there's this market process that grinds down profits to zero. Yes it's always working in that direction but no we never get to that perfect state where nothing changes. So factions aren't always just interpersonal factions can get to core theory and core practice. Yes those factions I mean that's good you need that sort of debate for movement to to progress. The problem is when it becomes personal and also I think there's some problems when there are different strategies being followed though I like a diversity of strategies. So for example Mises and Rothbard never understood this until I wrote my article on Mises as social rationalists. Mises used to say when he was at FI that they and they planned to start as a graduate school that every faculty member at the graduate school should always be giving popular lectures to media leaders to business decision makers and so on and Rothbard never really understood that. But then what Mises point was look before we can change the economy before we can change you know the broad politics of our country of any country you first need to change individual people's minds. You have to you have to make these ideas some of which are very pretty abstract. You have to make them palatable and comprehensible to the broad public and I think this is one of the missions of the Mises Institute. We want to nurture these very high level young scholars and and have them do a path breaking theoretical work but at the same time we want to be able to package these ideas and get them to the public directly. The other view is that somehow this view is said to come from Hayek but I don't think it really does it really comes from Walter Grinder and Richard Fink who were associated with with IHS for a while and and and um uh Mercatus now which I think is associated with Mercatus and so on but their view is that the intellectuals have to talk to one another and then some of what what they talk about not the intellectuals let's say the experts let's say the economists to the pure thinkers the ideas they come up with are then leaked down to the intellectuals the journalists the bloggers um even clergymen anyone who deals with ideas in any way and then they pick up these little morsels and they're the ones then who then write the articles that attract you know or or actually go out to the masses but Mises and Rothbard and and and the Mises Institute we don't believe that that's the way that that um you you reach out and and and have changed we believe change comes from the the people who are making up or coming up with these ideas the creators of these ideas themselves or or their colleagues just reaching directly to the public communicating with the public by any means possible well there's an argument Joe that academia is too far gone in other words academic economists are too beholden to the fed too beholden to their system of tenure etc and that the the the raison d'etre of an organization like Mises Institute should be to do an end run around the gatekeeper known as academia and speak directly to the intelligent layperson yeah I think that's that's exactly what Rothbard came to see as as uh later in his life that that's what we have to do and I think the Mises Institute is based on that vision that is the short circuit the um media elites okay the media elites will only listen to the Paul Krugman's of the world they'll spread his ideas for example but they won't take us seriously so we have we have to get around them we have to reach out to the public directly well but how do these gatekeepers come to be in other words talk about this system a little bit how does the Fed and how do major universities seduce so many bright young PhDs and to believe what we would characterize is a disastrously uncritical view of central banking for example I think this goes back to the 1960s uh and the people who were in the new left at that point embraced this view of I believe it was an Italian um sociologists uh Marxist sociologists at Gramsci and he talked about the long march through institutions what we need to do is to feed people into uh academic institutions in particular but other institutions that that a mold public opinion the newspapers and so on and they followed that advice and and they were incredibly successful and they're the ones now that are in in our universities and running our universities and they're the middle management that the so-called shadow universities that are placing all these free speech zones and and um harassing people for for um not being sensitive in their remarks at the classroom and so on so they're not just academics they're also um as I said administrators middle-level administrators in university and and it's it's stifling free thought I guess my fear is that we don't have time on our side incrementalism works one way but I'm not sure that we have decades and decades to try to reverse this by putting good people into academia that's right I don't I don't think you want to do that either though that's one strategy for example pushed by by other other libertarians that is to just patiently march through universities and try to take them back but they're they're public and and you're not going to be able to do the same same types of things that were done in the 60s and 70s they're very closed now I think the better strategy is that we don't have to wait a long time the crises are going to come harder and faster the crisis that the state is is is um generating both economic and political crises and so what we have to do I think is to take advantage of those crises never never waste the crisis the state acts that way but we have to act that way we have to jump on it explain it and show and attribute it to to the policies that have been been implemented uh you know in the past 40 years since World War II by the the welfare warfare state we have to blame it all on them and that and that's the way to change people's minds well when it comes to changing minds doing an end run as we discussed give me your thoughts about online non-traditional methods in other words can the education bubble with its debt loads for these poor undergrads can this really survive and I think we can be standing there in the breach uh it when it doesn't survive I'm thinking that it can survive and I'm certainly hoping that it doesn't survive and I think you see it breaking down I think parents are getting tired of shelling out all this money even after loans and so on well loans that have to be paid back and will never be paid back eventually um so that the people being are I think fed up or becoming fed up with the university system and they're just looking around for an attractive alternative and and and the market's supplying some of these alternatives but I think we have to to step into the breach and and push from our end the non-traditional ways of of acquiring knowledge now as an aside to a non-traditional perhaps tactic does Austrian econ belong more in business schools than econ departments given its emphasis on entrepreneurs and economic calculation I don't think it belongs there ideally but I think to take advantage of our opportunities yes we should exploit this opening in business schools they're much more open than economics departments to Austrian ideas and they embrace them they don't know the ideological battles that were fought in the past among between Austrian economists and and and Marxists and historicists and and even and some and mainstream economists and they don't care they're just interested in the ideas so in that sense I teach in a business school and I think business schools are ripe for penetration by Austrian ideas and and and they're considered part of the mainstream because we've written so much about entrepreneurship for example which was you know right which mainstream economists completely ignore in their textbooks on this topic of Austrian sociology you know the other area where you've spent a great deal of your careers on the topic of money here's my question for you is why is money such a blind spot for otherwise free market economists why do we have such a hard time demystifying central banking and commodity money in the Fed yeah I think economists themselves have gotten themselves confused the classical economists understood that money was simply another commodity a commodity that was that had a function that pervaded the whole economy but it was another commodity that had its own supply and demand values determined by the same forces that determined other value of other goods and services they had a bad value theory and that was replaced by the more utility theory of the Austrians at that point in time when neoclassical economics came into being the Austrians were part of that but what happened was neoclassical economists began to say well money is really just a veil it just oils the economy and it helps it to run better it really doesn't have a it's not its value is not determined in the same way as other goods and services so they use something called the quantity theory which is a big backoeconomic theory not based on human choices and it tries to explain the value of money in that way and that was probably the late 1800s that occurred in early 1900s but Mises seeing the way things were going wrote a great his first great treatise in 1911 on the theory of money and credit and there he took the classical insight and based it on a better value theory and showed that in fact the value of money is determined in the same way as any other the value of any other good and it's determined as a result of human choices value scales and actions so that's where the Austrians really began to diverge from the the new neoclassical movement and I think because they have been viewing money as something that's a part of the market economy for so long that they've confused themselves they've confused government policy makers and this is why we have the the crises and the problems that we have today with money but so I really see this divergence as our sweet spot in other words money and banking is the one area where no other school of thought no other organizations are saying the kind of things that we're saying no other schools of thought organizations have an answer to for instance the the bubbles and the crash of await and the crash that we believe is coming so I really see as a tactical matter as a wedge issue that we should sort of be leading with money and banking in the Fed. I think Murray Rothbard saw that early on and so he you know he was first and foremost really a monetary economist his dissertation was on the crisis of 1819 the panic of 1819 and he always in the forefront of his writing was always money and business cycles he saw that as a key wedge you know into the public consciousness for Austrian economists and I think we've kept that up and I think you know we we are the ones who have who who we didn't get the timing and you can't of course Austrians don't believe you can get the timing down of a crisis but but we saw the financial crisis coming many people who read Rothbardian Rothbard's works and who were explicit Rothbardians people like Peter Schiff our own Mark Thornton were calling what was going on a housing bubble as early as 2003 when mainstream economists were saying no no this is still part of the new economy we have increased productivity this is not a bubble in financial markets in the housing market and they held that right up until the in fact right before Milton Friedman passed away in 2006 he wrote an article that came out in the Wall Street Journal posthumously in which he was saying everything is going great with the economy and he also had an interview in in late 2005 on Charlie Rose which I recommend to everyone for everyone to listen to in which he praises Alan Greenspan and the Fed's monetary policy since the through the 19 from the 1990s onward to the to the high heavens he gives them tremendous praise so he didn't he had no inkling that we were in for such a big drop only really the Austrians were but isn't this incredible I mean Greenspan and Bernanke really believed or at least express that they had solved the problem of booms and busts and that they had created a new reality no that's absolutely true certainly true of Greenspan and and and Bernanke came a little bit later but but but but he believed that that monetary uh writing from about the 19 late 1980s onward it was responsible for what was called the great moderation and the great moderation was that the economy from the mid 80s to 2005 or so the economy had reduced the the intensity of booms and busts and the inflation rate remained low so they thought they had solved the problem basically of of of business cycles but that was the same thing that economists believe in the 1920s when when prices were stable even though the Fed was pumping money into the system like crazy creating financial bubbles real estate bubbles and commodity bubbles so you know it's there's nothing new under the sun with these people well we should definitely have you on another time to talk at length about money about capital and interest theory about so many things but I want to leave you today with a question we all get this quite a bit I know you've given it some thought but it goes to the role of the Institute the Mises Institute itself in your view should the Institute exist primarily to promote Austrian economics or should we be devoted to a larger broader libertarian mission well I see our our specific mission as as promoting Austrian economics but also deriving the implications for for you know all other aspects of of society and and and politics so I don't think we should shy away from the uh policy conclusions that flow from Austrian economics with some ethical judgments of course you can't just get policy conclusions without making your own ethical judgments but so so I guess you know it's something that to think about but but I like the focus on Austrian economics as because it's economics that's really different than than any other economics and it takes it starts from the individual individual choice and values and I think that's key and that's key to defending a free society so given that this is a scientific basis for a free society I think we should retain it Joe I couldn't agree more thank you so much for a fascinating and I will say wide-ranging interview ladies and gentlemen have a great weekend