 Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I'm Trevor Burrus, a research fellow at the Cato Institute Center for Constitutional Studies. I'm Aaron Ross Powell, editor of Libertarianism.org and a research fellow here at the Cato Institute. Joining us is Peter Betke. He's the university professor of economics and philosophy at George Mason University, the BB&T professor for the study of capitalism, and vice president for research and director of the FA Hayek program for advanced study in philosophy, politics and economics at the Mercatus Center at George Mason University. Welcome to Free Thoughts, Professor Betke. Oh, thanks for having me. The topic today is Austrian econ, which some people might think is econ done by Austrians, which is partially true, but it has more that just distinguishes it than just that. So, as the first question, what is the main things that distinguish Austrian econ from so-called, I guess we call it mainstream economics, or maybe just classical economic theory? What are the main differences there? Let me start by saying something about labels. You know, labels are usually given to people by their opponents, not by themselves, right? So there's a few cases where the Chicago School and the Virginia School kind of were challenged by opponents and said that that's what the people in Chicago, that's what the people in Virginia believe, and then the people sort of rallied around that and adopted it as a kind of a rallying call of their difference and their desire to be there to be different in the scientific community. And a similar kind of thing happened with Austrian economics. Karl Manger, the founder of the Austrian School, was simply trying to contribute to the German language tradition in economics and trying to defend the idea of theory as an important component to doing economics rather than just history or the collection of facts. So the older historical school, which grew out of classical economics in the German language community, they wanted to fill in a lot of institutional details and whatnot guided by the theories, and the younger version of the historical school argued that the problem with classical economics was that theory was driving everything rather than empirics or facts. And so they thought that if we could just collect all the facts, then that would be a better science, a less ideological science and whatnot. And Manger, in the transition period between the older and the newer German school, wrote a book about the economic theory in which he defended marginalism and subjectivism. So it's one of the founding works of neoclassical economics, but primarily he was also defending the role of theory in doing empirical work, that what your economic theory is like is your set of eyeglasses. And without your eyeglasses, you can't read the empirical world correctly. You can maybe gather up facts, but you can't interpret them or even arrange them in a certain priority without some guiding theory, and economics can provide that guiding theory. And so the younger members of the German historical school wanted to reject Manger's message and they referred to him as that's that Austrian school, right? That's the people we don't have to pay attention to. It's the Austrians over there. In the years subsequent to that, the two main developers of the Manger's theories were von Bavrik and then Wieser. And they developed into a school of thought around the University of Vienna. The students of that school of thought were Joseph Schumpeter and Ludwig von Mises and Hans Meyer. And then the students of their students included people like F.A. Hayek and Fritz Machlup and Oscar Morgenstern and Gottfried Hobbler. And then 1930s came and the school was dispersed. Because of the Nazi, I assume, yes. Yeah, because of Hitler. And so you have Hayek moving to London. You have Schumpeter moving to the United States. You have Mises moving to Switzerland. And then as the war evolves and then ends, people like Morgenstern, Machlup, Hobbler, all of them had moved to the United States. And so the center of intellectual gravity in the economic science community had moved from Europe to the United States by the 1940s and early 50s. And so eventually what happens is Mises also leaves Europe in 1940 to come to the United States. And he takes up shop in New York. And so you have Machlup first teaching at Buffalo, then Johns Hopkins, and then finally Princeton. And then you have Morgenstern teaching at Princeton. You have Hobbler teaching at Harvard. Schumpeter obviously teaching at Harvard. And so the Austrian school had migrated to London where Hayek was teaching and then also to the United States. And at the same time you have this sort of Keynesian revolution going on in economics. And people like Morgenstern and Machlup and Hobbler are kind of trying to just fit into the economics profession circa 1950 in the United States. And so the representatives of the Austrian school, modern Austrian school in the United States become Mises. And then Hayek moves from the London School of Economics to Chicago and the Committee of Social Thought in 1950. And then between 1950 and 1960 he was teaching at Chicago and he writes The Constitution of Liberty. But he also publishes several other books, one a major methodological work called The Counterrevolution of Science. He also publishes a work on theoretical psychology called The Century Order. And he also published a book called The Capitalism and the Historians which is about the history of the Industrial Revolution and the counter to the economic history methodology about the miseration of the working class under capitalism as opposed to the liberation of the working class under capitalism. But so Mises and Hayek are then singled out and they're singled out by many different representatives of the opposing or emerging sort of orthodoxy within economics after Keynesianism comes to dominate. Is that pretty much just the Samuelson kind of orthodoxy? Right, so Samuelson and also Albert Hirschman in his book The Passions and the Interests but also John Kenneth Galbraith in his book The Affluent Society. All of those three books sort of take and target Mises and Hayek as representatives of what they call the extreme laissez faire school which they associate with the Austrian school. So the Austrian school by the 1950s is no longer viewed as just a scientific body of thought but instead linked closely with the laissez faire argument. And there's a lot of reasons for that that are tied sociologically to the fact that the Austrians in the 1930s and 40s in particular again Mises and Hayek are embroiled in two major debates. You know one of those debates is with the market socialists and the other debates is with Keynes and the interventionist of the Keynesian school. And so the Austrian school gets identified that way and that sort of has stuck. In my own writing I have a book that came out a couple years ago called Living Economics and in that book I make an argument that you need to distinguish between what I call mainline economics and mainstream economics. And mainline economics is the economics that traces its roots all the way from Adam Smith all the way up through so Smith and Yume all the way into the French school which is Bastiat and also Jean-Baptiste Sey into the sort of non-Rikardian British exchange school which would include Philip Wixty, the Austrians of Mises and Hayek, Manger and Mises Hayek. And then modern, more modern thinkers like people like Kos and Buchanan and Armin Alchin and Harold Demsets and whatnot. And the real point that goes all the way to Vernon Smith. From Adam Smith to Vernon Smith there's this mainline tradition of economics and what that is is the substantive proposition that you square the rational choice postulate with the invisible hand theorem via institutional analysis. What does that mean? So what that means is rather than the behavioral assumptions doing all the work for you, what does the work for you is the institutional environments of private property, freedom of contract, transference of property by consent. So this is rather than having self-interest or rational choice models being the core of your theory, you look at things like private property and other things. Right, but it's not the case that they're not rational choice. They're rational choices if the choices are made by humans. So what you don't have is you have humanly rational choice which means that man is forever caught between alluring hopes and haunting fears. They're not lightning calculators of pleasure and pain. If the argument for laissez-faire conditions was a consequence of behavioral assumptions of super heroic behavioral assumptions like you are a fully informed and perfectly rational chooser that exists in a frictionalist environment, which is how a lot of people think the argument goes, then all I need to do is undermine the rationality of agents and also the function of the price system as being a perfect guide, so the perfectly competitive model. But from Adam Smith all the way up to Vernon Smith, that's never the way that they couch their argument for a relatively free economy versus an interventionist economy. They always couch it in terms of comparative institutional analysis. And if you look at Adam Smith and the various different examples that he gives, it's never the case that he relies on a perfectly informed actor operating in a perfectly competitive market yields an argument for laissez-faire. But that's how people that were critics of Smith from the very early period to today believe that they have to couch it. So my view is that mainline economics is this tradition of economics in which all of these various schools, the Scottish Enlightenment, the French liberal school, the Austrian school, the Virginia school are all part of, and they don't have to have any school of thought. It's just that's what it meant to do good economics. So it's an old Milton Friedman line that all there is is good economics and bad economics. It's just that good economics in this case is defined by this squaring rational choice with the invisible hand theorem through institutions. So the focus, the analytical focus is on comparative institutions. How does this tie into, I guess, the characteristic of the Austrian school that people tend to hear about if you don't know much else, and maybe this comes from kind of the prominence of Mises' human action among libertarians is the, I guess, the a priori nature of it that it's, so the kind of outside view of it is that an Austrian economist approaches it more like a armchair philosopher. You think about first principles and then you kind of derive conclusions from them and you don't really care about data or looking at the world. That's what logically follows from these axioms. So there's an unsophisticated way to present these arguments, and that's what dominates on the internet and among libertarian groups. No way, are you kidding me? And then there's this very sophisticated way to present the argument and that's what exists in the academy. All right, and that's what goes on in journal articles and research. Human action is an unusual book in the sense that it is, in my mind, probably one of the greatest achievements in the history of economics. It was published by Yale University Press. I think it's important to remember that Mises, until the mid-1950s, was publishing all of his papers in the journals and in the top university presses. We have a mythology about Mises as this martyr that sacrificed for the cause. That was perpetuated in the 1960s and 70s and has been a very damaging view, I think, actually. Mises, in reality, was an extremely recognized scientist in his time. He won the Distinguished Fellow Award from the American Economic Association. I dare anyone in your listening crowd to go through and look at the list of people who have won the Distinguished Fellow of the American Economic Association. Nobody wins that award if they're a quack. You might disagree with them, right? Disagreement is different than dismissal or ignoring someone. In 1969, Mises is picked as the Distinguished Fellow of the American Economic Association. Earlier in that decade, he had won the award from his home country of Austria for the greatest scientific achievement, the highest honor you can win as a scientist in the country of Austria. Mises was awarded that. Paul Samuelson himself, in an article that he wrote on who would have won the Nobel Prize, had the Nobel Prize been established when the Nobel Prize and other sciences were established, has rendered that Mises would have been one of the winners of the Nobel Prize. Mises' stature as a scientist is often poo-pooed at some level by the Libertarian crowd because they want to build up a mythology that there's these unrecognized geniuses in the Libertarian crowd. There is no such thing as unrecognized geniuses. That's BS. It's self-serving for people that want to buy into this. Mises was disagreed with. But again, as I said before, Samuelson holds him out for ridicule. Galbraith tries to ridicule him, and Hirschman tries to ridicule him. You're not a subject of ridicule unless you're worthy of being ridiculed, right? Which means that you have to be recognized as something... You don't pick out Joe Blow on the street to do this. It's kind of like in philosophy, a lot of people said that Robert Nozick ended up becoming the target of everyone in their philosophy classes. Right. Robert Nozick did. Because Robert Nozick was worthy target to try to go after. Well, that's kind of like with Mises. But we're getting a little bit off of the substance and too much into the sociology, I think. So what would be the... Well, hold on a second. I do think that the issue is that when the main line of economics, when the mainstream of economics, which is really a sociological concept, it's whatever people think is fashionable at the moment. When the mainstream deviates from the core teachings of the main line, schools of thought emerge to become extremely important. And let me just give you two examples. David Yeum taught us in the Treaties of Human Nature that the foundation of society is property, contract, and consent. Those are his three terms. He identified those in the Treaties on Human Nature. Armin Alchin is recognized as the founder of what was called property rights economics, in which he had to reintroduce to the economics profession the important role that property rights play in the determination of economic performance. Why would Armin Alchin have to reinvent property rights when at the core of the founding of the discipline in the Scottish Enlightenment, property rights were at the core? It's because the mainstream had deviated so far from the teachings of the main line that Alchin had to bring them back in. Another classic case of this is Gordon Tullick and Renzi. Think of the greatest satire in the history of economics. It's recognized by everyone, left, right, or center. It's not, again, some unknown work. It was Bastiat's petition by the candlestick makers for unfair competition by the sun. That is a rent-seeking story, right? I want to concentrate the benefits on myself and disperse the costs on everyone else in society, the candlestick makers. Yeah, but he just didn't come up with the term, so that sometimes is a half of the problem, right? Well, but he's explaining the idea of seeking privileges, which is what rent-seeking was all about. Gordon Tullick had to reinvent the idea that in political decision-making, we have to watch out for the fact that people try to use the state to protect themselves from competition, rather than the state actually providing the rules for competition. And so Tullick had to rediscover an idea, again, that had been lost in economics. And so schools of thought, the Virginia School, the UCLA Property Rights School, the Austrian Market Process School, they all become important precisely because the mainstream deviates from the main line. And in order to get the mainstream to come back to the main line, you have to have entrepreneurial academics who like to pull you back in. And that's where schools of thought become important. Well, I wanted to go back, though, to the question about Mises and the idea that this a priori idea of Austrian econ sitting in an armchair and deriving the economy to make a bad hash of the idea. But you said that there was a bad way of portraying that idea that is portrayed by libertarians on Facebook, and then there is a good way of doing it. So can you clarify what that idea is actually? Let's go back to what I was saying about with Manger before. So Manger is embroiled in a debate with the historicists. At some fundamental level, what Manger is telling the historicists is that in order for you to be able to do history well, you have to actually put on a pair of theoretical glasses that enables you to read the empirical record, even if you're going to like prioritize what facts matter. So think about social sciences being divided up into two questions. What questions and why questions? But what question is trivial? What happened? It's important. So don't get me wrong. You have to know what happened. You can't just invent stuff up. But the real question and the real thing that matters in social science is the why questions. Why what happened happened? And those why questions are theoretical questions. And those theoretical questions are not derived from your experience. They're derived through racionation. So what you have here is a testing issue. So the problem is that in economics since around 1940s, we started with this rhetoric that what we're going to do is use empirics to test our theories. And we're going to have sophisticated statistical analysis to test theories. Mises and Hayek, and I should point out both of them are on the same side on this, though Hayek's rhetoric is a little bit more consistent with modern language. And that's why he gets a break in some sense, where Mises is still fighting a battle from the 19th century language-wise. But what you're saying is okay, where is the testing coming in and are the tests unambiguous? So in some sense, the sophisticated way to see Mises' argument is to put it in light of the Duhem-Klein thesis with regard to testing even in the physical sciences. What is that thesis? Duhem-Klein, this is Willard Klein who was one of the greatest philosophers of the 20th century. And one of his points was that when you do a test of a hypothesis, you don't know whether or not what's the refuting idea is one of the network of statements that make up the hypothesis or whether or not it's the hypothesis itself that's being tested. And that's actually in physics where you can have controlled experiments as opposed to in the theory of complex phenomena where you can have controlled experiments. So there's a rhetoric and a reality of the way we do science. And a lot of the rhetoric that people hold is not consistent with the reality. And this is even true of Karl Popper who, if you read Popper's logic of scientific discovery, he makes one type of argument. If you read his other works, let's say, on objective knowledge or later on, he understands that conjectures and refutations is a little bit different than the idea of the 3x5 card approach to methodology of philosophy of science. So you've got to put nieces in the context of his time and you've got to then update that context to the context that we live in today and then reconstruct nieces' argument about what he's trying to say. But to put it in a very, very easy way to do it, when you say that the theories are a priori, all you're saying is that theories are like a set of eyeglasses. You put your eyeglasses on before you can read. You don't put your eyeglasses on after you read. You put them on before and that enables you to read. And that's the whole point. And that's actually the way economics has done things from the beginning, which again makes sense of nieces' claim that he wasn't doing anything new. It was the way in which economics had proceeded from the beginning. So if Austrian economics is a priori though and the way that you just described and it is dependent on, so the theory it's developing is dependent on, you know, arguing forward from axioms, is it, I mean to go back to Popper, is it falsifiable? I mean, is there any way that it could be wrong that we might say, you know, this disproves it or this complicates it or whatever? There's two issues. Theories can be rejected on two grounds. One, their logical derivations are flawed. Okay? Or two, they are irrelevant for the questions that you want to ask. So take Austrian business cycle, for example. Does the Austrian business cycle theory, is it illogical? If you could show that, that's a question of theory. You're refuting theory with theory. Is it applicable to every oscillation against the trend line? Probably not. Not every oscillation against the trend line is actually due to the fact that you had a manipulation of money and credit. So if you try to use the Austrian theory of the cycle to explain what happens when you get hit with a hurricane or something, right? Or if you get hit with a tidal wave, that would be a bad use of the theory. And so what you worry about is applicability and inapplicability of the theory to various different empirical circumstances. But what you're not doing is the empirical circumstances are refuting the theory. The empirical circumstances are determining whether or not the theory is applicable or inapplicable. The logic of the theory determines whether or not it's a flawed theory or a good theory. Can I elaborate a little bit on this? I think it's a very, very important point that's a subtle point in philosophy. Because if you go to 19th century philosophy or just any philosophy 101 class and someone introduces you to the notion of critical reasoning, when you do critical reasoning you make a distinction between logically valid arguments and logically sound arguments. Logically sound arguments are not only logically derived correctly but they're actually true statements about the world. A logically valid argument is a correct derivation but it need not be about the world. So economists always worry about deriving logically sound arguments, not just logically valid arguments. And that was a constraint on the way in which economists reasoned from Adam Smith up through John Stuart Mill. The problem was it's really, really, really hard to ensure logical soundness and applicability. So in the 20th century what happened was economists made a pact with the intellectual devil in some sense. The first one was with formalism. The biggest ambiguities in social sciences emerge when we use the same words to mean different things or different words to mean the same thing. So if we could reduce all of our words to formulas, this is the Hilbertian project. And then what we could do is then through formalism, eliminate the ambiguities that exist in our language. We could derive our theories but then we're no longer deriving logically sound theories. We're only going to get logically valid theories. So we're going to get these logically valid theories and formalism ensures the steps in our logic. At the same time we were developing what we thought were sophisticated statistical techniques that could test the array of logically valid theories and weed out the ones that aren't relevant. So what we could do is we could use the sophisticated statistical techniques against all of the toy economies that we built and the only ones that would survive are actually the ones that would be empirically meaningful. So the belief was that you would get what soundness approximated by doing the formalism and empiricism and the outcome of that would give us what previously we puzzled over to get logical soundness. And it turns out that the empirical testing part was much more complicated. And so what we got stuck with was in fact an array of toy economies without an appropriate sorting mechanism to determine only those which are empirically meaningful. And so the project of joint project of formalism and empiricism in my mind is what crash and burn. And so what's coming up in the ashes of it is never been really formulated since the 1980s. I mean you think about the crashing and burning taking place around the time of McCloskey's the rhetoric of economics. That was when it was kind of well understood. What do you mean by the crashing and burning? No philosophical justification for what economists do. And what happened was economists before that you can look this up. It's a very empirical reality which is that economists used to write a lot of methodology papers. The leading economists wrote a lot of methodology papers like Samuelson or Friedman or Buchanan or you know any of these people that all took time out to try to write these papers to justify the enterprise scientific enterprise of what economists are doing. And since 1985 after McCloskey and then the growing recognition of the failure of this formalist empiricist project, what economists did in the step that no philosopher of science expected them to do was as they simply rejected continuing to find a new way to justify their project and just justify it on conventionalist grounds. Economists do what economists do. That's it end of story. Why do what economists do? And that means I'm an economist and there's no justification for it. That's why the flare up over the last couple weeks with Paul Romer talking about the mathiness. I don't know if you guys have been following this, but Paul Romer who's probably going to win the Nobel Prize has been criticizing modern economics for obscuratism into mathiness which he thinks doesn't aid any of our ideas. That's why it's caused such a storm again because people are now, someone from inside the Citadel is challenging the existing message that's going on in economics. So let me, let me see if I can recapitulate here. When you're talking about this empirical project for the non-economists out there, you're talking about the statistical abstractions, the measuring of the economy with GDP and other sorts of econometric devices. Right. Model and measure. Model and measure and trying to say that you can get a picture of what the economy looks like through some sort of empirical testing that then shows that your theory is sound in the sense that it corresponds to reality. So what I'd like you to clarify in the, so the Austrian school here which I'd like to nail down your definition of it and the sort of sine qua non, the traits of the Austrian and that they resist due to, I'm not sure exactly the best way to describe it, they resist the quantification due to a belief in the over complexity perhaps as of one way of describing it and resist that that's a valid and worthwhile endeavor. Could that be an accurate characterization or could you expand on what actually makes the Austrian economists and then what makes them resist this quantification type of economics? Okay, so there's different words that you will use there that would be part of an explanation, but the explanation as a whole I think is not quite right. Okay. So I'll try to fill in. But the easiest catchphrase that would make sense is that the Austrian school is methodological individualists, but a lot of economists are methodological individualists. Yeah, I would assume so. That means is that the individual is the unit of analysis. Only individuals choose and they, right, and their choices are the centerpiece or the beginning of your analysis. That's what you have to trace all social phenomena back to the decisions, choices and decisions of individuals. Second, Austrians are subjectivists. They believe in the subjectivity, not only of value, but the subjectivity of cost. Costs are not objective. Costs are foregone, you know, a pass or whatever, the different utilities. So they're the reverse of the demand. So the reason why you pay a lot of money to go see your doctor is not because the doctor spent a lot of money to go to medical school. It's because when you go to the office, there's a lot of people sitting there also waiting to see the doctor. So costs are alternative demands in some sense. So it's not both blades of the scissors cut the paper. That's a line from Marshall. But both blades are made of the same stuff as a subjective utility of individuals. It's also the case that we have subjectivity of our expectations. You know, what we expect out of the future is also made up of our subjective assessments. And then the final component of Austrian economics is what's called market process or process orientation. And that's a very important key component which gets to your question that you were just asking. Because the difference Austrian economics, historically and even to today, is mischaracterized often as a heterodox school of economics. It's really not heterodox because Austrians believe in marginalism and they believe in subjectivism, which are two cornerstones of neoclassical price theory. Austrians were the original contributors to neoclassical price theory. Mangers, one of the founders of the neoclassical revolution, Bambavrak was considered, you know, one of the top one or two economists in the world in his lifetime, either Alfred Marshall or Bambavrak. And not just by Austrian economists, by everyone around. And so the Austrians are part of the neoclassical tradition, but their forefront of their analysis has always been from manger all the way to today, has been the process of exchange that gives rise to the equilibrium conditions. So the equilibrium conditions are the background and the process of exchange behavior is in the foreground of their analysis. Whereas in the vast majority of economics, it's the exact opposite. And the reason why it's the opposite is because of formal tractability. Can you, the background foreground thing is a little confusing to me. Okay, so how would two, like analyzing a question of, I don't know, I'm trying to think of just a basic economic question, the price of gas or why there's too much traffic on the road or something, how would we say what's the background? Imagine that you draw a supply and demand curve on the board. Okay, let me just use the law of one price to be an example. David Friedman uses this example a lot. So the law of one price basically says that in a market that individuals are going to engage in exchange until the exchange ratios equate. This is called the equal marginal conditions in economics. So one of the examples we give to illustrate this is you go to a supermarket, right? And you pick up your things, you put them in your basket, now you go to the checkout line. And you notice the one checkout line is like, you know, 10 people deep. And the other checkout line, which the light just went on, actually has only one person there. Which line are you going to get in? The one person. Right, you're going to go to the one with the one. Well, so will some of the people like maybe the 10th guy and this one will go. And so the natural equilibrium in that checkout line is for the lines to be equated. Yeah. Right, you follow me? Yeah. Right, so what's interesting about that story to a lot of economists, it's that, oh, the lines will in fact be equated. That's equal marginal principles. And we can write that down and we can prove that as a theorem, okay? To the Austrian, that is the end result of a process of people recognizing and previously unrecognized opportunity to move from the line with 10 people to the line with only one person. And so it's about recognizing and moving in that direction. Because in order for the optimality conditions to hold, there had to be all this activity prior to leading to the activity. And so this is what the focus is all on, is on that activity that brings about the optimality, not the optimality condition per se. So would this be, for example, okay, I think I'm getting this now. So the, for example, the knowledge that the people in the line would have to have to say, I see that that line is longer, have certain knowledge that directs their action. And that's the, those are the kind of inputs that are of interest to Austrians. Right. Why people made the decision. How do I acquire that knowledge? And then also what are the institutional impediments? So imagine that you saw a line where one had 10 and other one had one. And you would say, while you're in people moving over there, well, then you would look and you would notice that it has a sign up and says, only if you have five items or less, right? Or in the old days, it used to be cash only, no credit cards, right? Or something like that. And they'd say, oh, that explains why this line is longer and that line isn't. Well, now think about the economy, move away from this analogy. And, you know, think about like, why is it that certain, you know, you're on the border of West Virginia and Virginia. And then you want to know, why isn't there much economic activity going on in West Virginia? But on the other side of the border, there's a ton of economic activity. Well, hmm, wonder what it is. Well, the cost of doing business in West Virginia are much higher due to the regulations than the cost of doing business in Virginia. So businesses locate over in Virginia, not in West Virginia, even though it's only like two miles away, right? So to use another example, just to clarify, there's the classic economics, I guess almost joke about there are no $20 bills lying on the sidewalk, right? Right. Now, that, would it be a case that like in that sort of classical liberal, I guess, just basic pantomime view, the idealized view that they would say, in equilibrium, we're just going to say there are no $20 bills lying on the sidewalk. But the Austrians are interested in how people know about $20 bills, whether or not they're impediments to people picking up $20 bills, looking more at the actions of people of what's causing that $20 bill to be on the sidewalk, because clearly it's there. Yes. So here's the, so this is a great, great, well, it's not only is it there, but there's also $20 bills that have been previously unrecognized that are being picked up all the time. Those are called entrepreneurs. Right? So we know that the nirvana that there is no $20 bills because all that's been discovered has already been discovered, except we're not an accurate picture of capitalism. But what's happened is you got to think about it in a weird way in the debate. So if you notice what I said about the main line of economics, you'll see that there's certain people that are not on my main line of economics. Right? So I didn't mention Milton Friedman. What I mean by that is his scientific work. Milton Friedman or free to choose would be on there, but not Milton Friedman of, you know, say the quantity, theory and money or whatever. Even though Milton Friedman did tremendous things in science of economics that don't get me wrong, but he's not really part of his scientific work. George Stigler's scientific work really doesn't add to the main line tradition of economics. Gary Becker's work, what a brilliant economist and a very disciplined intellectual framework for us doesn't really add to that main line of economics tradition the same way that Armin Alchin does or Jim Buchanan or Ronald Kos does to that sort of tradition. I have a paper that is out on Alchin Buchanan and Kos versus, you know, Friedman Stigler and Becker as the heir of parents of the older Chicago tradition of Knight and Viner and Simon. So how does that relate to the $20 bill as you were saying? Because in Stigler's world, you squeezed out all the entrepreneurial innovations. And so what happens is in the debate over market failure theory, you have perfect markets. Think about what the debate says. The debate, the way it's couched is as follows. Perfect markets, perfect government. This is the first round of the debate. Let's give it to perfect markets. That's the belief that we've now set up the laissez-faire position. Then what you have is imperfect markets but perfect government. That's the Samuelsonian phase. And so then we give it to government. Then what you have is the public choice change which is imperfect governments, imperfect markets, and therefore you have this agnostic aspect which is the public choice point. Then what you do is you get to the entrepreneurial area. What the entrepreneurial approach says is markets fail, use the market to fix the failure. And so this is the Kosian kind of idea that you're going to look for where all the exchanges take place. So there's tensions in markets at all times. There's tensions in society at all times. How is it that we can reconcile these tensions? We do it through various exchanges. And so if the focus was just on after all the activity of exchange has ceased, then you don't understand how it is that you get to eliminate all the conflicts. But the way conflicts get eliminated is through a reconciliation process through the market. And so all of that is kind of ugly and bumpy and friction laden and all kinds of things like that. It's not smooth and continuous and twice differentiable. And so if we're going to treat the world as if it's smooth, continuous and twice differentiable, that can only take place when all the lines or all the activity of shifting lines has already been completed. And then you have the law of one price or the law of one time waiting on the line. But in the process of it moving, you're going to have all kinds of disjunctions. And those disjunctions blow up the ability for us to be able to engage in the mathematics of calculus, which was necessary for building the models that we built. And so you end up by having the theory of simple phenomena not dealing with the theory of complex phenomena. And that's when you get into high excretique of what the problem is in modern economics. Not that it hasn't been formalized. The problem is that the formalization is not the appropriate formalization for the complex phenomena we're studying, which is why now some people will find hope in some of these complex adaptive systems modeling approaches. And that was my next question. This is why Austrians are averse to the kind of metrics, right? They don't that they measure really anything meaningful or anything very useful. They're just sort of... Well, I mean, look, it's not that Austrians are averse to econometrics. They're averse to the idea that econometrics are a decisive test of a theory. But Austrians use statistics in all kinds... I mean, Austrians that are academic Austrians use statistics as... They do statistical analysis that is either of a descriptive statistics form. So if you look at my own work, for example, my early work was in economic history of the Soviet Union. Okay? If you look... So I wrote three books on that. One of them is called The Political Economy of Soviet Socialism. Another one is called Why Paris Strik a Fail. And the third one is called Calculation and Coordination. So let me just... In the first two books, you'll see a lot of descriptive statistics being used and also descriptive statistics that are trying to be used to provide... Like helping the providing of a case, right? To be made as that this is why what happened happened versus you think this is the reason why it happened. Yeah. Right? To use evidence to Marshall to help bolster my case and whatnot. In the Calculation and Coordination book, if you look in the back, I do even appendices in there. I do rather simple kind of linear regression models to sort of look at the relationship between economic freedom and a variety of economic and social indicators of well-being and try to do that. What I don't believe that statistical correlations can do is give us causation. Causation is a function of our theories. Yeah. And so again, it's a language. This is what I meant by a sophisticated version versus an unsubstantiated version. The Austrians do not rejects empirics. In fact, if you look at Austrian economists, a lot of them have become very good economic historians. Right? They rely on economic history a lot to do their work. Larry White, for example, developed his free banking in Britain. That's an economic history book. My friend, Dave Percicco, did his original work on having to do with worker cooperatives. It's an empirical book. Steve Horowitz did stuff on the Panic of 1907, empirical. George Selgen, Kurt Shuler, go through a bunch of people, all of whom have had successful academic publishing careers or whatever. There are people, of course, who are theorists and Israel Kersner. He primarily works in the realm of theory. He doesn't do applied economics at all. But that's also true in the economics profession. There's people that don't do any empirical work that are theorists in economics as well. It's just that there's a small number of people. Murray Rockward, I should mention, wrote probably more economic history than anyone else. Yet he's clearly identified with someone that believes strongly in the a priori aspects. The claim that somehow history isn't what Austrians do. It's just a mythology. Is there a thing with the Austrians that I get this from some of my friends who maybe they're kind of the Facebook ones you were talking about, but this almost conspiratorial type of thing that the professional economics is not set up in such a way that Austrians can excel because it revolves around the Fed and a bunch of projections in macroeconomics, which Austrians aren't terribly fond of as far as I understand. Let me modify that question a bit because you mentioned Murray Rothbard, who's a hero to a lot of libertarians. And this relationship, which Trevor is getting at between Austrian economics and libertarianism, because it seems like I don't... First, I guess are there people who would identify as Austrian economists who would not also identify as libertarian in some way. And then I guess in the other direction too, like are... Is there some sort of necessary connection where if you embrace libertarianism, it either overwhelmingly does or ought to point you in the direction of embracing Austrian economics? It's a great question. There's a sociological aspect to this and then there's a scientific aspect or scholarly aspect. So let me do the sociological one first. So the notion of Austro-libertarianism is really a unique phenomena to Murray Rothbard. It didn't exist in Hayek or Mises. It's Rothbard. It doesn't exist in Kersner. It's Rothbard. And the reason is that Rothbard wanted to develop a axiomatic system in economics and an axiomatic system in political theory. And then the belief was that there was a coincidence between the two of these. So in that sense, the only other kind of systemic kind of approach to this would also be Objectivism or Randianism. And it has all the characteristics associated with that, both in terms of an originator who is very brilliant and has a kind of a flash of brilliance, but then followers that are not necessarily always as bright and also the school of thought can run into problems in terms of its flexibility and where it's going to go. On the other hand, so that's kind of what you're picking up on when you talk to people on the internet or whatever. It's this legacy of this Austro-libertarianism and I should point out something and be very clear about it because I'm a little bit derogatory towards it, but at the same time, you have to recognize that without what Murray Rothbard did, there really wouldn't be any modern, like any modern Austrian movement, so to speak. Kersner is so subtle a thinker that you have to be really into economics and in particular a kind of version of economics that would be open to what Kersner's contributions are, that the number of people that would have gotten excited about that would have been so small that you couldn't have had a groundswell of interest. But what Rothbard did was he excited the minds of young people. He filled them with a lot of courage and intellectual justification and then they were able to sustain themselves in the rigor of graduate school and in the gauntlet of the profession to try to make their own way to advance these ideas which they thought were not being appreciated enough and so Rothbard should get his due. He really did have this major impact in the generation of students in the 1970s and 1980s that enabled them to build careers and do all that kind of stuff. Including you? Including myself, yeah, sure. Definitely including myself, but I wasn't counting myself. I was counting people like Mario Rizzo and Jerry O'Driscoll and Larry White and all kinds of other people, Don LaVoy, my teacher. They all came out of being influenced greatly by Murray and then what happened was that in the 1980s as they were making their way in their professional career they recognized that scientifically a school of thought has to be a little bit more flexible, not as rigid, all kinds of things I got to make go on different research projects to ask questions that answering questions with an already established libertarian conclusion is not the same thing as ending up with a libertarian conclusion after your analysis. All right, so Rothbard could derive the answer to everything from the non-aggression axiom, right? And then it was just about the consistent and persistent application of the non-aggression axiom to the world of public affairs. That's different from the way that Mises and Hayek came to appreciate the role of private property, right? They come to appreciate the role of private property through consequentialist examination of how alternative institutions either promote or hinder peaceful cooperation and productive specialization. And so their argument is different than Rothbard's argument. And what happens is that as you develop in your career at least, some people at least in that, they recognize that the Mises and Hayek direction is much more of an open-ended research program. It's an invitation to inquiry, not a settled document. And so a school of thought is only as good as its invitations to inquiry are. If a school of thought offers all the questions to already be answered, it's gonna die as a research program because there's no research. What it is is it's a catechism. Whereas if you're a research thing, a school, what you're gonna do is have an open-ended invitation to inquiry. It's like a framework. If you look at the world through this set of lenses, look at how many questions are opened up. And the more the questions are opened up, the more you know you don't know, the more questions you can ask. Whereas if you have it as a catechism, it closes down your conversation and it doesn't progress. So the one way is towards a progressive research program. The other way is towards activism because you already know the answers, right? And that's where you're gonna go. And so those of us who are drawn into scholarship and what not tend to, not completely, but tend to go more in the consequentialist grounds and consequentialist-type arguments, which are analytical arguments and institutional arguments, rather than normative arguments, right, from first principles. So libertarianism is a byproduct of your analysis, not the beginning point of your analysis. And that makes you, is Austrian school, because of this open-ended research project, a growing, is it growing? You mean in the profession today? In the profession, yes. What's the future of the Austrian school? Okay, so there's a couple phenomena going on. On the one hand, as a social movement, the Austrian school benefited tremendously from the internet and it benefited from Ron Paul, but that's more of this Rothbardian version of the school, right? And that has actually exploded tremendously. I mean, you go around the world, there's these Rothbard institutes or Mises institutes that are set up everywhere. I was in Brazil. There's one amazing in Brazil. You go over to Romania. I've been in Romania. They have them in Romania, Poland, all these to Canada. They have all these different institutes and they're a combination of study groups and political movement kind of groups, right? And that's been amazing. You know, if you talk to students in SFL or something like that, there's a subset of them that are very excited about all this. But on the other hand, if you go and you talk to the sort of academics, you can also, you asked me a question earlier, which is, are there academics who don't identify as libertarians who are in fact, Austrians? Yes. There's actually, it's not a large number because of the sociological reasons about why people got into Austrian economics. But there are people that have come to Austrian economics from other ways. Paul, if you look at the review of Austrian economics, take a look at all the different people from the different countries around the world now that we have, you know, on the editorial board. It's a very large number and a good portion of them are people that are either very far removed from what we call libertarianism in America, maybe loose classical liberal, but even some not as classical liberal as others, right? And so, you know, they're more interested in things like subjectivism or process theory or complex phenomena theory. And that's what sort of draws them to that. But there is a kind of important reason why the Austrians have a link to classical liberalism. But that goes back to this, that's like saying that Adam Smith had a link to classical liberalism, right? And a large part of that is because of the institutional conditions under which the self-interested postulate can be squared with the invisible hand theorem. Those institutions that allow that to take place are the institutions that are most approximated with the history of classical liberal law. Private property, freedom of exchange, freedom of association, free trade, you know, sound money, fiscal prudence, these kind of issues, right? Or what you call at Kato, you know, the economic freedom index. Those institutions of economic freedom, right? Security of property, freedom of prices, right? Low regulations or whatever. You know, sound money, fiscal responsibility and free trade, right? And those institutions, and all that's involved as institutional infrastructure, that's what enables us in that environment to be able to square the pursuit of self-interest with the invisible hand. Thank you for listening. If you have any questions, you can find us on Twitter at Free Thoughts Pod. That's Free Thoughts P-O-D. Free Thoughts is produced by Evan Banks and Mark McDaniel. To learn more, find us on the web at www.libertarianism.org.