 This is Jeff Deist and you're listening to the Human Action Podcast. Ladies and gentlemen, welcome back once again to the Human Action Podcast. We are continuing our foray through Mises' Magnum Opus Human Action. It's been quite a really interesting ride so far with a lot of great guests. And I know that a lot of you have been listening along, reading along and trying. Perhaps you have some extra time at home during this pandemic crisis to spend a little time with Mises and maybe dig into a book that you've thought about reading but haven't quite made yourself get around to reading because it is a bit daunting. And that's really one of the reasons we started this podcast is to get people interested and also give them a little help and understanding as they went through it. So I am here to serve as sort of the conduit between the lay reader and our various guests who are all economists. Last week we went through part five of the book which was kind of a reset. It was a very short section and it's where Mises walks through the idea of an imaginary construct of a full socialist society where we literally would not have a market or prices and that everything would be planned centrally and bureaucratically and what that might look like. And of course since this is in a sense it's a treatise but it's also a textbook of sorts. Just like the evenly rotating economy or the Robinson Crusoe model there is some benefit to be had in understanding even imaginary constructs which are not reflected in the real world so that we sort of have a footing upon which to compare. And that footing laid out in part five is where we get into part six which is about the hampered market economy which is the actual world in which we all live. And what we're going through today again because this part of the book like a lot of them is just too lengthy to get through in one podcast session we'll just be going through the first four chapters that's 27 through 30 and that corresponds, if you've got the scholars edition at home that corresponds to pages 712 to 773. So really some great stuff here, some interesting stuff, a little more ideological and political stuff in this section as well. And Peter, I guess since we've had so many guests we haven't had you yet in this new series. Let me start by asking do you recall when you first became aware of this book or heard about it? Yeah, my story is actually fairly, I had an experience it's fairly common to people who are Gen Xers like myself or maybe even boomers of first being exposed to free market ideas and libertarian thought and even Austrian economics from reading Ayn Rand, a friend of mine back in high school gave me a copy of Ayn Rand's book The Fountainhead and encouraged me to read it and I did, I enjoyed it, I went on and read one of Ayn Rand's nonfiction books called Capitalism, The Unknown Ideal which is partly famous for having a chapter by Alan Greenspan of all people in favor of the gold standard. And in that book she had a sort of an appendix in the back with a list of recommended readings that included several books by Mises, Henry Hasloth's Economics in One Lesson, I was a high school kid and I can't remember now if these were sorted by degree of difficulty but I know that I tried economics in one lesson first and then Mises' anti-capitalist mentality. Later when I got on to college and started to study economics at the college level I remember tipping my toe into Mises' human action not finding it a super easy read but nonetheless being excited just by the ideas in the book. So you gave it a go anyway, maybe in your undergraduate years. I did, yeah, so I was fortunate in being, I was taking economics classes from my professors. My professors were not Misesians or Austrian economists who are really even familiar with Austrian economics in any way but I had these kind of, I had my secret books that I was reading at home on the side and I would come into class and ask these weird questions and the professors would look at me with an expression of bewilderment why is a kid asking us about this? And of course it was because I was cribbing ideas that I had picked up from me. Well as we get into this part in chapter 27 called Government and the Market he starts out with this discussion of a third way and we still labor under this today. There's different terms for it, neoliberalism, market liberalism. We don't seem to use the term mixed economy as much anymore. That's a term that I recall from the 80s and 90s being more prevalent maybe in that Reagan-Thatcher era of a mixed economy and then he gives us sort of his two definitions at page 713 of what he would call bureaucratic socialism, the Soviet style and then more of the German style which is, which maybe you and I might refer to as fascism but he's talking more in terms of a historical context there. So I thought Peter was interesting that he doesn't use the terms communism and fascism there. He just divides socialism up into the bureaucratic variety and into the nominally private variety. Isn't that interesting because for Mises point of view Soviet style communism and Nazi or Italian style fascism are really two variants of the same kind of system. So I like the way Mises talks about socialism of the Russian kind versus socialism of the German kind to remind us that those non-market systems are variations on a theme. Not the way it's commonly portrayed in textbooks today and the mass media and so forth that you've got this kind of linear scale and the extreme of progressivism is communism and the extreme of libertarianism is fascism and also of course is silly because we regard communism and fascism as being different versions of statism and both at the sort of opposite pole from the kind of free market system that we think is interesting. By the way Jeff, there's, you know, as I was looking at the table of contents and preparing to have this conversation I found it really fascinating that, you know, part six begins on what is it, page 712. There are already 700 pages into this really systematic step-by-step elaboration of how a market economy works before we get to the chapters on interventionism, you know, price controls and production quotas and trade restrictions and monetary credit expansion and so forth. And, you know, back when I was in college and maybe the same for you, Jeff, even the sort of conventional textbooks they typically spent most of the time explaining how the market system works the same way that Mises does and then they added on a piece at the end about government intervention, taxation and antitrust and so forth and they might give greater or lesser weight to those things and they would have sort of a different spin on them. But one thing that's really fascinating in the last 10 years or so sort of mainstream economics has taken what looks to me like a pretty decisive turn away from an interest in sort of understanding how markets work either in the Austrian sense or the traditional neoclassical sense to viewing economics as the sort of a theoretical experimental discipline of solving interesting little social dilemmas and puzzles using a lot of statistics and maybe the occasional mathematical formula but with very little interest in sort of understanding economics as a unified whole. One example of this was something that I remember a couple of years ago it was a big deal that this Harvard professor Greg Mankiew was a very respected mainstream sort of center right figure. He was chair of George W. Bush's Council of Economic Advisers, famous Harvard professor, textbook writer. He taught the big intro Harvard class, they call it thousands of students I guess every year take this big intro course using Mankiew's textbook. A couple years ago Mankiew retired from teaching that course and they brought in this new guy, a young guy named Raj Chetty, also a Harvard economics professor and kind of a rising star type who has a completely different approach to economics than Mankiew. Chetty thinks that economics really is not the systematic analysis of markets and prices and so forth which you could then later use to study government policy rather in sort of the Chetty view of the world. Economics is all about, economics is just the study of government and market failure and you know social, different kinds of socialism and so forth. So it was a big deal that the Chetty version of the course threw out all the old sort of Mankiew style textbook approach and said well on day one the very first day of the freshman intro level econ course for people who've never studied economics before we need to start, we should be talking about inequality, climate change, universal basic income and that economics is just sort of a useful set of tools that we can use to study these various kind of social experiments and government policies. You don't need to know supply and demand, you don't need to know about prices and marginal utility and all that stuff. Economics is not done the way Mises does it where you understand the market first and you use that to explain public policy. No economics is just a disconnected set of little vignettes and cute stories about government intervention and why we need more of it. Yeah well that's why these guys write textbooks but they don't write treatises. I mean the treatise is dead and buried today it seems. You know the good news here is you don't have to send your kid to Harvard just spend $19.99 and get human action from our website and your kid will be well ahead of those poor kids hearing about inequality at Harvard. You know what's curious is there's a lot of talk about an ill-defined term like neoliberalism and what you and I probably think of it is a little different than what Greg Manchee might think of it or someone like Bono and I think Mises alludes to this on 714 when he's talking about what they really want the benefits of a market economy but it wants to achieve them by command or by prohibition or by some sort of central decree and I think that's in a sense what neoliberalism seeks, right? The idea that we can have our cake and eat it too hasn't gone away since Mises was writing this in the 40s. Yeah, I think you're right, Jeff. You would have to have been living under a rock for the last 50 years not to be aware that full Soviet style socialism socialist central planning has been a complete another catastrophe and is the wrong way to run an economy even from a pure perspective of sort of efficiently producing goods and services forget about all the political issues and secret police and so forth so nobody on the left, even you know Bernie Sanders or Casio Cortez none of these people can with a straight face say no we need the state to be the formal owner of 100% of the means of production I mean it's just it's not credible to make that kind of a case so even those people on the left recognize that we have to have at least to some extent private ownership of resources we have to have firms and we have to have you know entrepreneurs who are seeking profits and so forth in order to get goods and services produced and you know to keep people above a substance level but of course a free market system a system that fully embraces those features goes against their instincts, right? Their anti-individualism their belief in you know the ability of the elites like themselves the desire to control people's lives and so forth so you're right they want their cake and eat it too they want a kind of a mostly capitalist system that will give them lots of stuff that will give them iPhones and give them Netflix and give them nice cars and so forth but they want to maintain enough control that they can shape and push and squeeze and direct and redistribute and make things a little bit more in the direction of their sort of utopian vision yeah what's interesting is he gives us a very nice little definition of what he means by laissez-faire and that there's this false dichotomy between sort of the invisible hand or natural forces of the market that are automatic and then conscious centralized planning he says no no no that's not the dichotomy in front of us and at 726 he actually gives us a definition of what he means by laissez-faire it's freedom versus government omnipotence and you know one thing I noticed Peter he doesn't use italics a lot so when he does I figure I better be underlining that part of the book you're right he really means it when he uses those when he uses those italics it's a great point and Mises is right that you know everybody plans right there's planning under any kind of social system the question is not do we have planning or some kind of completely unplanned random you know anarchic in the bad sense way of doing things no the question is just who's going to do the planning is the state going to do it for everybody or are individuals you know families entrepreneurs and so forth going to do the planning within their sphere I've really been thinking about this exact distinction that Mises makes a lot in light of the COVID-19 crisis right so there's this idea among kind of the progressive community and I guess most of the mainstream politicians of any stripe right that you know whatever is the appropriate and correct scientific understanding of the virus and how it spreads and even that even now we know very little about that what kinds of protective measures ought to be in place you know either you have the US president or the exact chief executive of the country or maybe if you have a little bit of a federalist system the governor of the state or some other government official is making the decisions about what people should do or we have no protection from the virus at all you know as if individuals and families and business owners are not able to make their own decisions about how many people should be in the store at one time what kind of cleaning or preventive measures they ought to have what hours they should be open how they should engage their employees and so forth I mean the idea that we can't do any kind of systematic planning without someone from the state doing it for us is of course crazy as Mises is pointing out in this passage that you mentioned. And it's really sort of an introductory chapter to this section of the book so I don't think we need to belabor it too much it's very interesting in short I really recommend people to read it if they want a sense of how Mises saw the various potential interventionist systems but I want to point out a couple of things before we move on and first is that Mises is obviously a classical liberal small d-democrat but at 715 there's a very nice paragraph about government interference always means either violent action or the threat of such action and the whole paragraph is worth reading so people out there who are maybe a little more hardcore in their ANCAP views or philosophy will find some support here for the idea that Mises understood the state in a way that resonates with a lot of us he didn't have any illusions on that score I'd also like to point out at 716 and he does this at various part points in the book and he does this in other books as well he takes a little jab at the concept of natural law because he says there's no perennial standard of what's right and wrong from what deity do we derive morality when there's more than one deity and that sort of thing so if you're a Judge Napolitanoite natural law person you're going to understand better here his utilitarian perspective and worldview on economics so Peter he gets into then starts walking us through some of these chapters about wage and price controls and other types of interventions in the market and that's what this whole part is about I'll say for myself anyway that the next chapter 28 Interference by Taxation I'm going to say maybe it was a little underwhelming and maybe that's just because taxes weren't as much in the fore in his mind in the 1940s what do you think of this chapter? Yeah I mean you're right I think it's insightful but it's not particularly detailed if you look for example by comparison at Rothbard's treatment in Power and Market where Rothbard offers his very original taxonomy no pun intended for classifying different kinds of tax systems and Mises doesn't go into that level of detail I think you're right in fact you might argue that Mises' analysis of taxation in this chapter is I mean it's fairly conventional in the sense that it squares with what I think many economists it's the same kind of treatment that many economists would have given in contrast to Mises' overall approach to interventionism which I think is a little bit more unique this idea hinted to in the previous chapter hinted at in the previous chapter that interventionism is kind of a distinct economic system it's not just like a version of capitalism or quasi-socialism you know it is in itself a kind of as I say a distinct economic system but one that has a lot of internal contradictions and Mises is famous for this idea that was expressed in the title of one of his shorter essays Middle of the Road Policy Leads to Socialism whereas Mises didn't think that the interventionist economy was stable that there would be these inevitable pressures for it to move in one direction or the other and typically in the direction of more and more government control where you would sort of move away from the middle ground so I think Mises does have an innovative approach to thinking about interventionism per se but in terms of taxes his point about the impossibility of taxes being neutral so a lot of mainstream economists say well the ideal tax is one that raises a lot of revenue for the government but doesn't really change how people act doesn't change what entrepreneurs do doesn't really distort the economy and Mises points out quite rightly that there really is no such thing as a neutral tax any means by the government to raise revenue through taxation is going to have some impact on production on the allocation of resources on the capital structure on consumption patterns and so forth I'd have to go back and look I don't remember what the mainstream thinking on the neutral tax was at that time Rothbard in man economy and state talks a lot about this as well and by the 1960s 50s and 60s when Rothbard was working on his treatise it seems like a lot more mainstream economists did believe that a neutral tax was possible and it's interesting on page 731 he brings up the ability to pay principal and talks about the as a postulate of social justice so a term that we're still struggling with today I was thinking about how interesting that is obviously that is the thinking behind a progressive tax system with gradually higher rates as your income goes up but also Peter there are examples now in some European jurisdictions for example where even something like a speeding ticket the cost of that ticket can be based on your income so that sounds crazy to us when we think lady liberty where is a blindfold justice is supposed to be blind but I don't think a lot of folks on the left agree with that with respect to taxation I remember reading about some billionaire tech entrepreneur in Norway or Sweden maybe it was Denmark I forgot now who got arrested for speeding in his Tesla Model S and ended up having a million dollar speeding ticket because it was a proportion of his income you're right Jeff and on the point you made a few moments ago about natural law versus utilitarianism it is super interesting that Mises does approach things from a different perspective than Judge Knapp or even than Murray Rothbard who was more in the natural law tradition I ran I guess would be classified as a kind of natural law or at least Aristotelian person if we had to put her thinking onto this map but a couple points on that in my mind the fact that despite these differences in philosophical origin thinkers like Mises and Rothbard come to largely the same conclusions in their positive analysis of how an economy works that's a point in favor of the Austrian tradition and the Austrian system the kinds of analyses that we do and the conclusions that we reach are really robust to the choice of philosophical foundation and the other point worth noting is utilitarianism for good reason has kind of a bad has a lot of negative connotations for those of us who think about naive benthamite utilitarianism where we're just sort of adding up people's utilities and choosing policies to give the greatest value to the greatest number of people and so forth Mises as David Gordon points out was a much more sophisticated utilitarian than the utilitarianism that you read about in elementary philosophy book some people have used to have made a distinction between what they call act utilitarianism and rule utilitarianism the former being the view that every single act that a person takes every single decision made in a society should be evaluated on a case by case basis as to whether it promotes the greatest good for the greatest number whereas Mises sort of rule utilitarianism says no we want to look at a system of policies procedures institutions kind of a system and we want to ask does this system produce a greater amount of social benefit than some other system and of course Mises thought that a capitalist system was less a fair in the sense that we described it a few minutes ago was the system that produced the greatest amount of benefit for society at large so Mises was that kind of a utilitarian but he wasn't this kind of crass oh I need to evaluate each action moment by moment to make sure it conforms to some utilitarian goal he wasn't that kind of a thinker right and listeners to the podcast might remember we went through the ultimate foundations of economic science we had a discussion on this as well and Henry Haslett actually helped shape Mises's thinking in this regard probably vice versa but to wrap up the section of taxes I mean the key point here I think in our day is what's the point of taxes and this is really now important since the government and the fed seem to just be creating money and credit willy nilly what's the point of taxes is the point of taxes to raise revenue or is it to reward and punish behavior yeah it's a great point and I think in today's environment it's much more the latter right because people believe that we can use monetary policy to achieve you know macroeconomic objectives that the tax code should really be written you know to accomplish these paternalistic nudges where we penalize behavior that we dislike and we incentivize behavior that we like so the tax code has really become more a mechanism for social engineering than a mechanism for raising revenue you know for so-called necessary state functions since we live in a world where you know we basically just print metaphorically print the money that we need and you know tax receipts are not any kind of a constraint on government spending and for people who aren't as engaged with the tax world as I used to be I mean these small changes in the 2018 tax bill affected how you could use old operating losses in a corporate setting when you purchased a company and now this CARES Act that just passed a couple weeks ago the new stimulus bill actually changed the rule on that to once again allow some of those losses to be carried back five years so what that is having the effect of doing is having a bunch of people reopen merger and acquisitions deals and renegotiate the prices in some cases just because they're getting a tax benefit that they hadn't bargained for at the time so the idea that we have this uber complex tax code and that there's any coherence behind it or any direction or any theory or any goal is just absolute nonsense it's an arbitrary ad hoc agglomeration of little tidbits and special interests over the years so it is an absolute mess and not getting better anytime soon I fear so that said we get into chapter 29 restrictions on production you know this is pretty broad because he gets into not just tariffs from what we think of as regulations or protectionism but he gets into even labor legislation the mobility of labor and capital I mean this is a pretty broad topic and he handles it here in a relatively few pages yeah it really is and I think it reflects the emphasis within the Austrian understanding of markets and prices on production per se right production is not sort of automatic it's not simple it involves this intricate lattice work of capital goods that have different places in what Austrians call the time structure of production and government interferences with how resources are allocated to produce final goods and services are a big deal you can't surgically change this little part of the labor market or this little part of the import-export sector or use antitrust or so-called competition policy to change what firms can do and how firms can be organized and think oh yeah I'm just going to fix some little problem a so-called market failure as they would say and that will lead to these great sort of improvements no you just sort of mess up the whole interconnected system you know Jeff I was thinking like a lot of people about the toilet paper shortage and as regular visitors to Mises.org know from a number of articles including one by the smart Dr. Klein which is my spouse the price controls and anti-price gouging laws and so forth have played a large role in explaining why store shelves are empty but there's another part of the story too right that you might wonder why people are at home more than they were before because of shelter and place requirements and so the demand for toilet paper to be consumed at home has gone up even if there were no sort of you know hoarding even if people weren't stocking up they just need more toilet paper at the home because everybody is at home kids are at home and working many of the working parents are at home too but people have asked well why isn't why isn't there a compensating decrease in use of toilet paper at schools and offices right why don't we just take all the toilet paper that is designed for sort of institutional use and just put it in people's houses and solve the problem and the answer is because there are two completely different supply chains that are involved in producing toilet paper for the home toilet paper for the office they're made from different kinds of pulp they're made in different factories they're packaged in different ways they're distributed through different systems and you can't just immediately flip a switch and you know just sort of move all of the production from office toilet paper to home toilet paper that's just one small illustration of how in a complicated modern industrial advanced economy with this intricate structure of production the government can't just go in and mandate some kind of changes in usage or production and have it you know sort of instantly work out without any kind of complications or side effects so that's why restricting production whether it's in the labor market or in the financial markets or in the market for industrial goods or whatever can have huge impacts on the economy so it's right that Mises you know gives a very general treatment of this problem in the short chapter so his language I think is interesting he uses the term the prize of restriction and restrictions as a privilege because I think sometimes we get so caught up in this idea of economic efficiency in the overall economy and of course that was Henry Hazard's great point is that we have to look at the effects of an economic policy on everyone in the long term but as Mises points out here there are winners I mean people do benefit from all kinds of regulations and tariffs and restrictions on the economy they're absolute political winners yeah I love the term restriction in this sense not only for the reason that you mentioned but also because it reminds us that these edicts that come from the regulators you know there are restrictions in what people can do they're outlawing certain kinds of choices that otherwise might be made on the market you know when politicians talk about the minimal wage law and how this is a great enabler adding to people's wealth helping people to get out of poverty and so forth I think no the right way to think about the minimum wage law is it says that if a worker is willing and able to work for an employer say a teenager or maybe an entry level worker without many marketable skills who's willing to accept work at a wage below a price that the government has decreed that transaction is illegal it is forbidden so minimum wage laws and other forms of price controls wage controls they restrict the market to such that only certain kinds of voluntary transactions are allowed just as a tariff restricts imports of particular kinds of goods or services or some other intervention restricts what people are allowed to do on the market the famous Harvard philosopher Robert Nozick good friend of David Gordon had this cute remark in his book anarchy state in utopia about the modern progressive or liberal I guess he said writing in the 70s is in favor of things that that all kinds of voluntary behavior should be allowed with the exception of capitalistic acts between consenting adults in other words to a left liberal the government should stay out of the bedroom and should stay out of a woman's body and should allow you to take drugs or drink alcohol or whatever but we should not allow consenting adults to engage in economic relationships without the government's approval it's so fascinating what I had not really remembered from this chapter is at the end he talks about viewing restrictions and again that's a broad term here that can apply to regulations to tariffs to wage and price controls just restrictions that's the so he's not using some of the lingo that we use today in that broader sense but when we think of restrictions we should be thinking of them as measures that belong in the sphere of consumption at what he means is that we're in effect spending the increased about a value or efficiency we would rest from the economy if if whatever good or service was provided on hampered and he he says you know think of a national park if we the federal government cordons that off and uses that only for tourism so that people can go see mother nature we've in effect spent the money of all the perhaps economically better and higher uses to which we could have put that national park so am I getting that right am I saying that correctly you know I think you're right you know who's who are the consumers of this new arrangement of factors and so forth or rather whose preferences are satisfied by this new consumption pattern well it's the bureaucratic decision makers it's the sort of state elites I remember Jeff when I was a PhD student I had a class in which the professor gave the students an exercise to come up with some interesting data series and do some analysis of it and I remember I used the system the revised system of national and product accounts these macroeconomic data series there were suggested by Murray Rothbard where he argued that so-called investment by government you know government spending or rather government spending should be classified not as a not as a form of investment you know roads and bridges and infrastructure but rather as a form of consumption on the part of government officials right that when when tax dollars are used to build a dam somewhere or there otherwise wouldn't be a dam where private investors would not have chosen to put a dam rather than view that as adding to the economy's capital structure we should view that as the government bureaucrats are satisfying their desire to have a dam and so you get a different pattern of consumption spending when you include these goods and services we get through government action as a kind of consumption rather than investment as I recall I did not get a very good grade on that assignment but you're exactly right to point out to remind us that Mises points out that all of these interferences right they result in a different set of goods and services being produced than the ones that otherwise would have been produced and that's satisfying the desires of government officials in their capacity as consumers they get the stuff that they think is cool and that they want you know Barack Obama thought we ought to have more electric cars and fewer gasoline powered cars okay and if he enacts policies to subsidize electric batteries and electric car manufacturers Elon Musk and so forth well then Barack Obama and his pals get to consume what they want a world with more electrics and fewer gas powered cars it's just not the consumption pattern that the market would have chosen you know folks this is just one of those examples when Mises says we ought to think of restrictions not as a system of production but rather as a system of quasi consumption it just you have to think about it a little bit you might have to read it twice and you just benefit you know for a lay reader like myself this is nothing like an econ textbook it's nothing like you remember from undergraduate and that's why I enjoy I mean I consider it a privilege to have the time for my job to be able to work through this book and bring it to you because you get to spend some time inside the mind of such a brilliant man and you know one thing he gets at in this chapter Peter is that a lot of this restrictionism in whatever form is based on this absurd concern about balance of payments and trade deficits and all these fallacies involved of which he disabuses us towards the end of the chapter by saying look all those dollars eventually have to come back into the United States economy unless those Japanese and German folks are just giving them away or burying them in the ground somewhere so he does give us a little treatment of the this fallacy that is still so stubborn today this balance of payment and trade deficits oh yeah yeah you're exactly right and I think partly through the influence of Mises and other writers in the Austrian tradition and other free market economists I think there's a little bit more sensitivity on this point among professional economists right that you know hear people say well I don't have a my household doesn't have a you know I have a trade deficit with Amazon and Walmart and that seems perfectly reasonable and I think people understand that well there's no reason for a city or a state or a nation to have sort of balanced trade with another nation but politicians of course don't see it that way or rather they're able to exploit public confusion on this point to you know when they want to protect domestic manufacturers and restrict imports and so forth but I also like the idea that Mises expresses towards the end of the chapter 2 and this I think it's the last section section 4 this chapter that again just as he describes interventionism as a kind of discrete system that's distinct from a pure laissez-faire system and a socialist system it has this idea that a world in which you have lots of these little piecemeal restrictions becomes a form of intervention in itself interventionism in itself that you can think of restriction as an economic system rather than looking at just one restriction here or there because you have these spillovers right a restriction in one area of the economy calls forth restrictions in other parts of the economy to compensate for what government officials or the public perceive as being harms from the initial restriction Yeah it never ends does it but it's certainly a mindset that restriction begets restriction because we have to plan one thing the spillover effects you know and I think we're going to see that with this COVID shutdown I think we're going to see unintended consequences are very very very large so Peter in this final chapter of today's show chapter 30 he titles it interference with the structure of prices so for our audience why doesn't he just say interference with prices there's a difference I think Yeah that's a good point because you know this idea of a structure of prices I think relates to the Austrian notion of the structure of production right that prices are connected to each other just as capital goods used in production are connected to each other also Austrians unlike their mainstream counterparts are not interested so much in average prices you know the price level or the price of some representative market basket right but rather the detailed structure of actual prices themselves right so prices prices is a plural noun right what we're concerned about is government intervention that has an impact on a whole set of prices that otherwise would have obtained in the market we're not just interested in average prices or something like the price level Yeah and he points out early on here that when we're talking about interference with prices we call that price fixing whatever he's talking about prices that we think of as consumer prices wholesale prices whatever but also wage rates and also interest rates and of course as Joe Salerno points out and as Mises takes pains to explain you know it's a little slippery to think of interest rates as prices they are sort of ratios about time preference and their signals but nonetheless he does bring in interest rates here in the scope of what he's talking about in terms of interference I mean look at root prices are ways of expressing exchange ratios right prices reflect the terms of trade or the terms of exchange in a monetary economy rather than using a whole bunch of different ratios expressed in barter terms right we can we can express all of these exchange ratios in terms of one single commodity the money commodity but but you're right I mean in a sense you can think of interest rates you know the interest rate is the price that I pay for exchanging some of my future consumption for some present consumption right I don't have a dollar today but I want it so you and I work at a deal you give me a dollar that I can spend today and I agree to give you a dollar and ten cents next year or I guess under the current regime it would be what a dollar and you know one hundredth of a cent a year from now that interest payment rights in a sense that's the price that I pay for being able to shift my consumption through time right by you know consuming now out of income that I expect to earn in the future so I mean you're right an interest rate it's not exactly a price in the same way that the price of the tomato is fifty cents but it is a price in that it reflects the rate at which people are willing to exchange particular goods and services so you know this is why Mises is transitioning in the next few chapters here to talk about monetary policy because monetary policy affects the price structure not just the prices of goods and services exchange for money but also of course the whole structure of interest rates which has a huge set of consequences for the economy. Well and as he points out that when you set prices you tend to shift production activities away from the goods that are being put especially when there's a price ceiling put on something you know just briefly talk about what I hope is not coming to America which is shortages during this covid crisis and what price floors and price ceilings might mean for us I mean we I hate to think about it but we might face the situation in the coming months where certain agricultural products are at a premium and you know all the things we like to get at target or CVS or just not so readily available you know yeah me too I mean I hope not as well but it is possible because you know there's still a basic misunderstanding I think among parts of the public which of course is encouraged by politicians and intellectuals and so forth to think of prices you know not as the result of voluntary interactions and bargaining among different participants in the market but rather prices is sort of being unilaterally set by people with power with economic power you know Sam Walton or you know Martin Zuckerberg or Jeff Bezos simply decides how much I'm going to have to give up to be able to consume the good or service that they provide right big companies landlords employers who pay wages they just unilaterally decide on consumer prices and wages and rents and so forth and they impose their will on the rest of us we poor hapless workers consumers borrowers renters and so forth and we have no choice but you know to suck it up and pay the prices that they demand I mean if you believe in a world like that if you believe that prices really just reflect the arbitrary will of the price setter and you think the price setters bad guy or bad gal or whatever yeah sure why not why not use the democratic process why not allow government officials bureaucrats and so forth to pick prices that are better that are more reasonable that are more fair but of course if you understand that prices especially for Amazon and Walmart firms like that are not set by the arbitrary will of one participant on one side of the market but rather reflect the complex interactions and voluntary decisions of buyers and sellers workers and employers and so forth rather than you realize you know arbitrarily using government decree to force the price to be higher or lower than the price that would have obtained in a free market system causes all kinds of problems distortions misallocation of resources we talked about toilet paper earlier right I mean because we do have a toilet paper shortage on the supply side relative to the amount that people now want to get for toilet paper to be used in the home for reasons that we talked about before we expect the market price of toilet paper to rise not to a million dollars a roll right but to something more than the price that would obtain in the absence of stay at home orders and lockdowns and if the government passes a law that says you may not raise the price of toilet paper more than 5% or 10% or maybe you're not allowed to raise it to increase that price at all well then you're going to see empty shelves right because at that low price people would just assume they're basements with toilet paper that's why you now see attempts to restrict consumption where prices can't rise but demands are increased sellers are required sometimes by law and sometimes by they simply choose to try to restrict consumption using some kind of rationing no more than you know six rolls per customer right if we allowed prices to rise and fall it wouldn't be necessary for stores to impose those kind of consumption restrictions you can allow people to choose how much they want to hold how much they want to add to their inventory how much they want to consume you know based on based on market forces based on based on supply and demand so if we you know things continue to get wonky on the production side and most municipalities and states as they do now continue to have some limits on how much prices can change yeah we could see distortions we could see really big shortages and really big surpluses nobody wants that well let's take a little bit more concrete example so let's say as a result of Smithfield farms shutting down some plants let's say some other meat producers go off line and meat prices spike what frightens me I guess is not just the notion that obviously producers respond to incentives but also that there is a lot of uncertainty about it about the arbitrariness of government action in the future and I think that uncertainty alone apart from incentives is a deterrent on production yeah this is a point that has famously been made by our friend Robert Higgs with what he calls regime uncertainty that's a concept that he developed originally to explain why the Great Depression lasted as long as it did that all of these efforts by FDR and his alphabet agencies you know to experiment with different forms of government intervention left entrepreneurs and investors in a position where they were not able to do any long term planning because the rules of the game were continually changing likewise under the current environment I think you're absolutely right we would expect a reduction in investment for longer term benefit partly because of the collapse of the supply side of the economy but also because nobody knows what the laws are going to be nobody knows what the rules about dealing with restrictions on movement and business closures and other sort of pandemic related policies nobody knows what these are and how long they're going to last so it makes people very reluctant to go back to business as usual but you know what people on the left would say they'd say well some goods and services are essential to people's well being and they need them food, shelter etc so if you take an S-class Mercedes nobody ever worries about a shortage of S-class Mercedes the things cost $120,000 or whatever they cost and none the less if they were very cheap there's lots of people in America who would love to have a big fancy S-class Mercedes so it's not a problem of demand it's not a problem but there's no shortages to my knowledge of S-class Mercedes out there right because supply and demand find their way and if you've got 120 grand and a hankering for one you can go buy one but when it comes to toilet paper people would say well this is different that's what they would say Peter yeah I think it's a reasonable point that you know we we sort of we recoil at the idea that people of limited means might be required to spend more of their income on certain kinds of necessities right but I think there are two problems with that reasonable intuition right one is that look of course there are other means for assisting people of limited income in their ability to get goods and services that are needed in the market that's you know we have the philanthropic sector and mutual aid and so forth to help people who are short of income that they could spend on whatever it might be but the second point is that there's a surprising amount of substitution on the margin even among those of us who are not in the market for an S-class Mercedes right I mean there are lots of different kinds of toilet paper there are other kinds of materials that perform a similar function as toilet paper some people like to keep a lot of toilet paper on hand other people don't there are many ways that we can adjust our consumption in response to price shocks without lowering our overall standard of living as much as we would think I mean right look at as you say with the meatpacking if we have to close down a bunch of meatpacking plants and we get shortages of beef and chicken on the shelves I mean that's terrible I like beef and chicken right but I recognize that there are other forms of protein that I can substitute on the margin right if the prices of those things go up there are other goods and services that I am currently consuming that are not totally essential which I could you know I could I could cut my Netflix subscription I could stop spending money on some other things if I really had to to be able to afford a certain amount of protein or to avoid toilet paper whatever there is another point as well that we have to keep in mind that the supplies of these things are not static either they are not fixed they depend on the incentives that entrepreneurs face in bringing more product to market so one of the problems in placing price controls on meat or price controls on toilet paper is that that weakens the incentives of entrepreneurs to bring more toilet paper and more meat to market or to invest in other kinds of products that could be substitutes for toilet paper and meat so price controls have a lot of negative effects both on the demand side and on the supply side yeah and imagine you are a toilet paper producer and all of a sudden there is this huge new demand and there is even some shortages reported I mean think about it is not just so easy in today's world to go out and hire a few hundred new people to run shifts 24 hours a day let's say at your facility I mean not only do you have the regulatory framework around hiring you have to find those people they have to exist they have to physically be near enough to arrive at your facility you have to have the machinery work 24 hours a day the machinery might wear out faster you might have more maintenance on that machinery you know I think sometimes we are expecting utopian answers from the market and that is not how the world works that's right or we depend on charity and goodwill to get resources to the places where we think they are most urgently needed now I am all in favor of charity and goodwill and we hear stories about textile manufacturers who are shifting their production to producing masks or industrial companies that are trying to start producing ventilators and so forth that's fine but wouldn't it be even better if we did not have to rely entirely on the goodwill of factory owners, entrepreneurs managers and so forth but we can also rely on the profit motive right even the nasty greedy textile manufacturer who really has no desire to produce masks because it's the right thing to do will be motivated to produce more masks if there's money to be made in doing so and artificially holding the prices of these kinds of goods and services below their market level it doesn't give that incentive so it sounds nasty to think I can't imagine this guy is going to get rich benefiting from a pandemic that sounds horrible that offends our moral sensibilities which is perfectly true but if our goal is to get more masks and more ventilators whatever it might be to increase the people's nutrition to get more important household products in people's pantries then we need to allow for a certain amount of greediness that gives us more of those things we're better off in society allowing people to profit from a natural disaster than forbidding any sort of profiting under those conditions yes and of course it's not just price controls there's also wage rates wages are controlled wages are a price of source he has a pretty robust section Peter towards the end of this chapter on wages I just want to bring up a couple of points and get your takes on both of them first I think that people are friends on the left and even a lot of probably market or people on the right market economists or people on the right would I think would howl at his assertion basically if you get government out of the equation and get unions out of the equation the only real unemployment you'll be left with is basically voluntary or catalactic so I think a lot of people would object to that statement and I also think a lot of people still don't get his point that what really causes higher wages over time is technological improvements in capital accumulation it's not legislation or fiat so give me your thoughts on his treatment of minimum wage laws yeah I think your summary is very good I mean Mises would not be opposed to from a sort of philosophical point of view it's not opposed to workers voluntarily taking the hard line and negotiating or bargaining with employers for higher wages but Mises doesn't think that is a useful strategy again from his utilitarian point of view if the workers and advocates for the so-called working classes if the goal is to improve real wages then Mises thinks that bargaining for higher wages through unions and certainly pro-union legislation is just not going to be effective at achieving that goal because in the long run what determines wages and Mises understanding is the marginal productivity of labor which is determined primarily by the amount of capital invested per worker so I mean to put it crudely you know labor unions and wage bargaining is about dividing up the pie and this idea that well the owners and the managers are getting this big piece of the pie and that's not fair and the workers need to get a bigger piece of that pie Mises would say yeah but over time what we really care about is making the pie bigger even if the workers get a small percentage of the value that's created on a given day what's in the workers best interest is to increase productivity so that there's a bigger pie to bargain over time and if union activity reduces productivity right if it means there's less less profit available for entrepreneurs to invest in developing new methods of production to come up with technological improvements and so forth if it reduces the capital structure and the value of the capital structure then the workers are shooting themselves in the foot they're getting a little bit of a higher wage now but it means that their wages won't rise in the future compared to how much their wages would rise if they would allow the market to work by the way this thing about voluntary unemployment yet it does sound funny to modern years but remember Mises has a different kind of a system different way of thinking about the economy than the way most kind of modern mainstream economists do Mises is not an equilibrium theorist when you hear this stuff about all unemployment being voluntary on the free market a lot of modern economists think oh well Mises must have thought that the economy was in perfect equilibrium and Mises didn't recognize that sometimes people just make a mistake and they're trying to find a job and they can't find one but they would like to be employed well that's not what Mises when Mises speaks of voluntary unemployment he doesn't mean people who are sitting at home saying yay I'm so glad I'm unemployed what Mises means is on the unhampered market economy there are always bargains that can be struck between workers and those who would wish to hire labor depending on the skills and interests and so forth of those workers and overall market conditions and so forth so Mises thinks that systematic unemployment is always the result of some government interference or restriction to use Mises' term on the labor market that it's not the natural outgrowth of a capitalist labor system and he always gives us history he makes some interesting remarks at page 765 about Marx he says look Marx might have viewed strikes and union measures as not an ad hoc basis worthy but really Marx's ultimate goal was the abolition of the wage system not higher wages and he even says you know consistent Marxians I'm quoting him consistent Marxians always opposed attempts to impose minimum wage rates as detrimental to the interests of the whole labor class so in his telling even Marxians would recognize that while certain protected groups might benefit let's say steel workers in a collective bargaining agreement might benefit those people in the town who might want to work at a steel plant and work part of the union there you know Marxians are supposed to care about them too and they're on the outside looking in yeah you're absolutely right and this touches on a point that we discussed earlier about kind of winners and losers or insiders and outsiders winners and losers from government policy completely true in terms of wage bargaining and I think there's this extremely clear illustration obviously those who are in on the bargain who are in the union and who are able to maintain their employment status at these higher wages are beneficiaries of the minimum wage policy but you know what we don't the losers are largely you know what haslet called the unseen right those who would have been willing to work at a lower wage but are not able to because that lower wage has been outlawed because it's easy to see with like a steel tariff domestic steel producers benefit and you know consumers of products with steel their harm because they pay higher prices and so forth but people don't always see it in terms of the labor market there's a famous example of this in the context of apartheid South Africa right that the most important political proponents of the apartheid system were the white labor unions right who didn't want to compete against low wage black labor so it wasn't somehow that these unions were representing the interests of the working classes quote unquote they were representing the special interest of some particular group of workers so Peter and you're thinking do we use Marxist to refer to people advocate Marx's broader let's say political program and we use Marx C.N. to refer to people who promote let's say his more economic program is that the distinction between Marxist and Marx C.N. Yeah I think that's probably right and that's what people sometimes mean when they say well Marx was no Marxist meaning that Marx the theoretician was not an explicit proponent of everything that we call sort of Marxist policy I like to use the term Marxist for both just to kind of needle people who believe that there's some sort of scientific Marxism okay Marx and doctrine I don't don't have a don't hold Marx and doctrine in very high regard so I think it's fine to call those people Marxist just because it gets under their skin well I want to wrap up this conversation with one last question for you you know in man economy and state in the power and market section of that book which was written at the same time it was sort of published separately because of publisher concerns at the time Rothbard brings up this rubric of autistic and binary and triangular interventions so he sets up a little bit different nomenclature do you think are do you think that Mises would have benefited from that do you think Mises is that that Rothbard elaborated successfully on this part of Mises' book I mean give us your thoughts about these sort of two versions. Yeah that's a good question and I alluded to this a little bit earlier this notion of a taxonomy I do think Rothbard's taxonomy is useful I do think it's consistent with Mises understanding I mean you know what Mises have embraced that exact terminology or that specific classification system I'm not sure but I think it is useful to talk separately about you know policies that restrict just me as an individual and actions that I want to take to treat that separately from interventions or restrictions that limit what you and I can do in our exchanges or restrictions that I impose that restrict what you can do in your interactions you know with a third party I mean obviously there are similarities right there's some common effects across these different kinds of intervention or different kinds of restrictions but yeah I think Rothbard's taxonomy is extremely useful it's very simple and clear like like all of Rothbard's writing and again as we mentioned at the beginning of the podcast Mises his treatment is very thorough but he doesn't go into all of these issues in a great amount of depth and I think Rothbard's treatment in power and market elaborates on and extends upon many of these Misesian insights you know with Rothbard's characteristically clear exposition and you know sparkling prose so I would certainly recommend anybody or wants to learn more about the issues treated in this section of human action to spend some time in those chapters in power and market well there you have it ladies gentlemen we are going to delve forward for the rest of part six of this great book next week again we encourage you if you've thought about reading this book if you want a copy of it you know we have a free html version at Mises.org simply type human action in the search bar and you'll come up with a beautiful html version clickable by section so you can find wherever we are in the book at absolutely zero cost to you we also have a beautiful hard cover version called the scholars edition of this book at our store which is only I think twenty dollars if you use the code HAPOD for human action podcast you get a discount on that we have a great little five dollar paperback if you've got good young eyes and you can read tiny tiny print you can read human action I think for five dollars in paperback and it's one of those things as I've stated before I really encourage you to wrestle with to take at least an attempt at because you're going to benefit it's like a workout at the gym you're going to feel better afterwards and really there's a lot of pleasurable writing and language in here where you'll just absolutely be blown away by Mises again writing in a second language not his original German and it's a book that's going to stick with you and frankly from my perspective a book you want to own physically you want to have it on your bookshelf and not just have a version but if you're if you want to get you know join the podcast and be reading along with this again we have the HTML version available so all that said Dr. Peter Klein I want to thank you so much for your time today. Oh yeah Jeff thank you I really enjoyed it. The Human Action Podcast is available on iTunes, SoundCloud Stitcher, Spotify, Google Play and on Mises.org Subscribe to get new episodes every week and find more content like this on Mises.org