 Well, I was asked by, first of all, I really appreciate the invitation to be here and I'd like to thank the organizers for inviting me. Just before I got up to come up, Karen Vaughn said, Jerry, please tell some jokes. It is getting to be the afternoon and you've got to keep people going. And I said, well, this is a tough thing to ask an economist to do to tell jokes, especially after he's thrown his best lines at his former colleague, you know, the yin-yang of equilibrium. So instead I thought I could tell untold stories about Austrian economists from past conferences that this would be very juicy. And of course, the one that came to mind was the incredible scandal at the 1974 South Royalton Conference involving Karen Vaughn and Israel Kursner. But then I realized they had told me not that I only had a certain amount of time and it's quite a story. And so what I'd suggest you do is the students should ask Karen afterwards about this. This of course gives her time to come up with her version of what happened. I want to compliment the organizers of this conference. First of all, it's very well run and I think this is a great turnout. I haven't, you know, I'm very pleased that conferences like this on which people have to take their Saturday afternoons, which of course is far more important than the $30. And you have turnout like this. It's very impressive. And I particularly want to endorse their goals, especially that of widening the scope of research into modern Austrian economics. That's I think the number one task. And if I've had a concern about Austrian economics over the last decade, decade and a half, it's been the concern about whether they will continue to be a modern Austrian economics tradition. And let me elaborate for a few moments on this idea that is on the vitality of Austrian economics. It seems to me there are two extremes to which Austrian economics might move. Each of which brings its own dangers. First in an attempt to confront neoclassical economics on its own terms, Austrian economists could risk absorption into the broader paradigm. And this is the kind of thing that Mario was talking about in when he mentioned the metaphor of the sponginess of neoclassical economics. And this is certainly not a hypothetical risk because it was the fate already once in the century and it ought not to be repeated. I think one can say that the overwhelming majority of Austrians are well aware of the danger of moving to that extreme and are successfully avoiding that corresponding danger. Now the other extreme and the other danger that maybe shows up from time to time is moving in the following direction. And that is to so emphasize doctrinal differences with the mainstream majority that Austrians retreat into dogmatism or what appears to be dogmatism. The danger here then is in the vernacular making a religion out of science. I know that to a great extent since I mentioned religion I'm in the situation of the preacher who gets up in church on Sunday and complains about the number of parishioners who don't attend mass or services. Obviously he's talking to the wrong set but they're the only ones there so he has to venus spleen somehow. Now I think truth to tell that we have seen some of our colleagues and friends move all too close to this other extreme certainly from time to time. Now from the beginning we've been confronted or experienced the perception that Austrian economists are a doctrinally contentious lot. The late and greatly missed Neil McLeod of Liberty Fund once warned of the sacri-dotal aspects of Austrianism and I assure you that Neil was a friend and tireless supporter of what we were doing. If your best friend misunderstands you perhaps you were merely sending the wrong signals but you may also be doing the wrong things. I think the best way to avoid the perception of religiosity is to avoid endless doctrinal and methodological disputations. This movement has had as many schisms as anyone can afford. Now I wouldn't be really raising this because the whole tenor of this conference as I need to emphasize my preacher metaphor has been quite different. But my last experience with Austrian economics and Austrian economic sessions was at the southern economic meetings at which Karen von was responsible for including five or six sessions on the program which were quite successful overall. I think people went away very happy, excited and they gave provided an opportunity for a number of younger economists to make presentations at well regarded professional meetings. I participated on a panel looking at the questions needing answers. I think it was Austrian economics, what are the questions? That panel discussion was lively and well attended including by people that you just wouldn't ever have said were identified with being Austrian economists. I was horrified to discover that in some quarters the breadth of interest in Austrian economics was deplored, the actual expressions that too bad all these people showed up. The presence of non-believers was complained about. Now a movement beset by these concerns need not worry about absorption into the mainstream. It's only worry is survival. As I said, this is not the attitude I see here and I'm delighted by it. This issue though actually in a funny sort of way relates to the first substantive part of my talk which I have this little subtitle tradition. That is the issue of well what is it that defines a school or a tradition or movement if you want the word, sometimes that has bad connotations, but what's permanent or relatively so in the broadest science and hence by implication within a tradition or sub part of that science. Is there a core theory, is it that there's a core theory that persists over time as opposed to just a collection of hypotheses that change with some degree of rapidity? Now before answering that question, it seems to me I just want to remind you of the modern version of Cillar and Charybdis that we face. Too ready an assertion of dogmatic permanency as the answer leads us down to an enclave status at best in economics. That is you're going to say what determines a tradition or a school, what identifies Austrian economics as this permanent body of their theory, then I think it's a slippery slope down into a situation we don't want to find ourselves in. Now one way of defining a tradition is identifying a characteristic approach to answering economic questions. Here I think of subjectivism and a thoroughgoing methodological individualism. Another possibility of distinguishing a school is by its distinctive method of analyzing key questions. So for a time as an example, Austrians emphasized the intertemporal aspect of monetary analysis. Now here I think you would have to say in what would be described as a notable intellectual triumph, today no serious monetary economist ignores intertemporal issues. Finally there is the possibility of distinguishing schools by the questions posed which was the approach that Mary and I advocated in our 1985 book. In this latter case it is the distinctiveness of the questions, not their immutability that sets a school apart. The questions change, but for whatever reasons maybe relating to the first two ways of thinking about a school, those questions tend to be distinctively different at least in part, even if they intersect from time to time as in my monetary analysis example. In each case then what is relatively, in other words all three of these I think and they may even be complementary are reasonable ways of distinguishing disciplines that I don't think get us into trouble. And in each case what is relatively fixed is then not a set of principles or propositions but an approach or method of analysis. That is not dogma but a mindset exhibiting a degree of permanency. Now just as economies evolve, so too economic theory is subject to evolutionary forces. The genetic makeup of that theory changes and mutates over time. If the questions change, obviously the answers must change. I guess they might not but it would be very peculiar if you had the same answer no matter what the question was. And here this is, you'll now see why I was really taken with Richard Ebeling's approach in his talk this morning. Economic writers in the 18th or 19th century did not ask questions about central banking as we know it today because modern central banking did not exist 100 years ago. Likewise it would be anachronistic to ask about the classical theory of flexible exchange rates in world of fiat currencies. Of course the origin of such a theory emerged from the analysis of periodic wartime breakdowns in the commodity money system. But the fundamental and correct for the time theory of money in international finance was embodied in the price-species flow analysis. That is the circumstances of the time, the institutions that exist, the problems of the day have got to interact with the economics to in part determine what it is that economists ask and what questions they're giving. Now we are led by my partially visible hand to the central topic of the talk which is order in organizations and society. Now of course the truth of this matter is when I was called up and asked what my topic was I said I'll get back to you in a few days and I had to think of a topic that no matter what I said it would have to fit in. And now for an Austrian what better than order in organization in society? I'm going to talk about society and it's either order or organization so it's okay. Now the relationship between organic and design structures is as I've just suggested rather a recurring theme. It's already come up today. Notice I wrote this before Richard Ebelink's talk but I thought it was safe to predict that the topic would already have come up by noon. And as I understand it it's going to be the focus of Richard Languas presentation. So I just want not to get into this too deeply because I don't want to start trading over what Richard's going to say in too much detail. But I do want to suggest here that the difference between order, organic structure, and organization or design structure. That difference I think relates in an interesting way to the issue of permanence and change in society and hence permanence and change in economic theory. Now first a caveat and again I think essentially this point has been made. In distinguishing between organic and design structures we are contrasting ideal types. Few real world organizations or institutions are wholly undesigned or completely the outcome of conscious planning. Indeed what I'm about to say I think reinforces that insight. And again I think this is something Richard's going to get into. So I'm just going to defend myself again some criticism by saying I'm talking about ideal types here but keep in mind the real world reality. All designed organizations are created for purpose or narrow set of purposes. Three examples, manufacturing buggy whips, financing a new industry or conquering a disease. The narrower the purpose the more likely that agreements can be achieved among a large enough number of participants to achieve the organizational goal. Now that very characteristic that accounts for a design structure's success or at least potential success namely you keep the things on which people have to agree narrow tends however to place limits on its scope that is the institutional organization's scope and persistence in time and place. For instance to take my three homely examples. If the invention of a new product renders buggy whips obsolete the industry or the industry being financed matures or is eclipsed and hence the demand for finance declines or the disease in question is conquered then the strength of the structure the rigidity of the linkage to its goal becomes the organization's greatest weakness and its survival becomes more difficult. So it seems to me that in so far as structures are design structures then there is a tendency for them to be ephemeral relative to what? Relative to organic structures. Organic structures by their nature have no specified purpose but exist to serve a multiplicity of goals the multiplicity of goals and have indefinitely large number of disparate individuals. In principle so long as the individuals exist with goals an organic structure can be adapted to those goals. And of course here the very traditional examples in Austrian economics immediately come to mind. Language, law, money, morals are all quintessential organic structures or orders which don't depend on the exact content of the wants or goals of the individuals who use the language or govern by the law employ the money or behave according to the moral code. The kind of homely example actually I think it originated in Altschien but I used to use it when I taught starting UCLA and I really think it was Altschien but it obviously borrowed from the Austrians was how does a path or a road come into existence? Well obviously the modern variant is some wacko in the state highway department who has friends that own land along some route that no one lives and no one wants to go through decides they're going to cut a squaw through and build a road. Actually that's not the origin of very many roads. And the example is, you know, they used to use as the Oregon Trail. How did the Oregon Trail come into use? Well the first people who tried to find the path of least resistance moved along on their way to Oregon and some other people followed it's much easier to follow, you know, when somebody's broken a path you follow them and pretty soon you've beaten down a path and it looks like somebody's done this by design. Now it's an organic institution or structure because it doesn't depend on why anybody wanted to get to Oregon. You could have any reason you'd be going to Oregon, it allows you to utilize this institution. Now obviously this is not a fully constructed argument but that's the wonderful virtues of giving a lunch and speech. You can throw out ideas and think about things but I think the lesson here is that persistent structures probably possess a tolerable degree of flexibility and adaptability to new goals. Consequently structures that endure are probably not wholly the product of human design but to some extent have evolved in an unplanned way. Let me cite two examples that actually relate to my homely examples. I can't think of, I don't think there were any buggy whip manufacturers who survived the process of the automobile being invented. I might be wrong but actually in a sense there are. There is. Or a mess. Started out making saddles and gear for horses, including riding crops. And now they, that's a great example in fact. Now they make scarves. Yeah, but you can go into, they still sell this stuff. But the examples I had, the first one related to my conquering of a disease example and I'm borrowing here, probably many of you will recognize some Tom Sol, which is the March of Dimes. This organization had one and only one goal, which was the elimination of polio. Well polio was for all intents and purposes eradicated and yet the March of Dimes lives on because it was an adaptable structure. I'm not saying this is good or bad but I mean if it had really stayed rigidly connected to its original goal it would have had to have disappeared. And the second example of financing a new industry actually is the origins of the Chase Manhattan Bank which started as a water company as I understand it. There's a tendency, I mean it's a fascinating story in the history of finance that entirely new products and industries almost always have trouble getting finance because they don't do anything recognizable to people who provide finance. There's no history, there's no track record and no one understands it and so very often what they do is they become the sources of their own finance and this is often the origin of financial institutions. Someone in that business or industry begins to specialize or first of all becomes adept at finding finance for themselves. So adept that they start providing finance for their competitors and then very often they just break off that finance unit and that in the case of Chase Manhattan and others, chemical banks an example. Now those two, it's interesting, those two both have a similar origin and now chemical has bought Chase but calls itself Chase. So in the history of Chase Manhattan Bank and you just go from the beginning up until whatever, however long it lasts and you write that history. If nothing else you're writing the history about an organization that can adapt to changing circumstances and alter what it does completely. And if it's some future time, Chase Manhattan Bank abandons its bank charter and becomes a brokerage firm and then begins supplying finance to an industry and decides to go into an industry instead. Now, what is that? Is that the same organization? What were its goals? Why was it founded? In what sense it survived, it really has to do with the adaptability of people to changing circumstances. Now, I think this suggests a different way to explain the rise and fall of firms. The kind of Marchelian way which is to think of firms biologically says that firms start out young, they're vigorous, they grow fast, then they reach some level that size, I should say, that's correlated with their age and then they stop growing rapidly and they become mature businesses, probably mature industries and then they die a natural death and it's sort of like a story about the artillery sclerosis of firms. Now, it's consistent with, but I think there's a different story here if you think about this instead in terms of organic flexibility. That is, maybe those firms that have survived exhibit all along a degree of flexibility that enables them to continually adapt to changing markets so that they in fact survive by changing even what they do, not just how they produce it, they're not just adept at adopting the latest technology for producing the widgets or buggy whips that they've been producing before, but somehow they get into other areas and if their original product dies out, they are able to transmogrify. And it seemed to me this at least relates in some way to Dick Langua's socialist spontaneity. There surely was spontaneousness in a socialist economy, but I think that there, one would say their institutions are certainly on average proved more brittle than institutions on average proved to be in a market economy. I think other applications of this, which of course people like Mario Rizzo have done a lot, but I think there's a lot more work to be done. And by the way, what I'm doing now is throwing out research ideas, which gets me back to my Southern Economic Association talk, but let me first throw out a few ideas. I think that if you think about this debate that goes on about the Constitution in which people on some political persuasion say that the Constitution should be interpreted according to its original intent as opposed to inventing new constitutional rights. Certainly one doesn't like the latter, but the form is just unintelligible according to its original intent because it presumes that something like a body of law is nothing but the logical implication of an original set of principles that people have in which they have to go back and figure out what was in their mind and then we'll know what law should be. And I think it just evidences the misunderstanding of what law is. Now, if I go back to the Southern topic, one of the things that got me in trouble with some people on that panel, and I'm happy to say not the majority I think, but some people was that I thought that the expected marginal returns in Austrian economics to developing applications were far greater than to spending time on further extensions of familiar theoretical topics. And indeed, I suggested some ideas. I said there's a lot of applications out there, problems, things going on in the world, that neoclassical economists have not done a good job of explaining. If they explain it, they explain it with an ill-adapted theory and it's a strain for them or a reach for them to deal with it. And one of the issues that I remember talking about was the Japanese bubble. Just before I gave this talk down at the Southern, David Bowers of the Cato Institute sent me a little clip from the Washington Post by Jim Glassman on the Japanese bubble and it was a kind of Austrian analysis of the way they had gotten into a real estate bubble. And here you had a very important, very real world example. That just screamed for an Austrian analysis because obviously one sector or a couple of sectors of the economy had way over expanded relative to other sectors of the Japanese economy, especially to consumption. And it cried out for analysis. Well, in a sense, I'm gonna reiterate that because we got another chance. When I was talking about it, they were on the downside, the bubble had burst, they were on the downside of the previous cycle. They're now right at the beginning of what is probably going to be another bubble cycle because in order to cope with the undesirable, unintended consequences of the previous deflation, they've started increasing their money supply very rapidly and unless that stops very soon, I think you get a chance to study the Japanese economy in another cycle. And of course, the one that, when I first went down to Texas, they said, well, what is an Austrian economist doing in a central bank? Which was an interesting question. I didn't know what I was doing in a central bank either when I first got down there, but I very soon found out because a couple of years after I got down there, we had the beginnings of the famous Texas banking debacle of the mid 1980s. I don't think there was a cause and effect. And I found it very, I mean, just very intuitive to understand what was going on. That is that you had had a kind of classic within a region, Austrian business cycle operate with obviously lots of institutional details. And I sort of just gravitated toward becoming involved with the banking rather than the strictly monetary side of what was going on down there. I don't think that story still hasn't been written. It's like the story of the Japanese bubble. And indeed, there's a broader topic here of which these are subsets. And this is the topic of the problem of regional recessions. And if there's an Austrian growth theory, it's got to come out of this kind of analysis. As Roger Garrison pointed out a few years ago, and it was one of those kind of incidents like somebody turning on a light bulb. I said, of course, he's right. It's part of the problem we have communicated with the profession at large. In Austrian economics, there is no sharp distinction between what is cyclical and what is trend. And indeed, the way you tell the story in the Austrian business cycle theory, it's really about secular or sectoral expansions and contractions. Moreover, in Austrian economics, in fact a crucial part of that theory that explains the turning point and subsequent decline is that history matters. Misallocated capital means you've lost resources, you've lost real resources and real wealth. And you are unable to sustain the expansion for that very reason. This is the shortage of capital argument at the turning point. That is if you have too much capital, you end up being short of capital. Different kinds of capital, but that's the story. Well, it seemed to me that, oh, sorry, then, second point. A few years ago, there got to be a literature developing which I think has been kind of stillborn on so-called sectoral shocks, it was what they call, but it came out of labor theory. But what's so interesting about it is they were talking about human capital. The Austrians talk about physical capital, leaving that issue aside. A lot of what they had to say was very similar and certainly compatible. And the basic gist of the argument is that when you have expansions, regional expansions or sectoral expansions, it can be an industry or it can be a geographical region. The two actually normally go together for obvious reasons. They're geographical concentrations of industry. And you have an adjustment, in other words, you've overexpanded in this industry. When there's a turn down, there tends to be a permanent loss of output. You may resume the previous trend rate of growth, but you're at a lower level from which you're beginning that trend rate of growth and you never make up for it. And that was an implication of this sectoral shock analysis. Labor is definitely not my field, but when I heard about this, it was the most interesting thing and I wondered why Austrian economists weren't jumping on it because they had the theory. Again, this was being Jerry built on standard new classical theory and labor analysis. And I thought that that's a very, it seems to be a very natural way for developing. Now, I think I'll stop there and because this is a lunchtime speech and people's digestive systems are draining blood from their brain, including mine. And if there are any questions or comments, I'll take them now.