 Okay, welcome to the faculty panel and here's where you get to ask questions that you weren't able to ask because we all ran over time in our lectures. But we'll start with the number of questions. Well, if you have questions, you can raise your hand, but I'll start with a few of questions that were written before and submitted. So the first question we have here is, I understand how prices are not determined by input costs, but do input costs create a price floor? I guess meaning a floor below which prices cannot fall for some reason, not a government price floor. Does anyone want to take a shot at that? I'm not basically a micro-economist, but I'll try to answer that question. That the floor would be, what are they worth in some other area? If it's an input, it could be an input to several different things. And if it's also going to some other production process, then that would put a floor on it for some given production process. I would also say that when you have consumer goods that are already produced, there is no floor. If the seller cannot use a good, then the price can fall to zero. We all know that with leftover automobiles, that is automobiles that would depreciate because the model year has ended, that dealers will sell them for much below a sticker price and sometimes actually below the cost of production. GM was forced to do this in the late 80s and then again during the financial crisis. That's how you lose money. In other words, past input costs that were sunk into producing this good that's available today have absolutely no bearing on what price is set today. One thing that would add to this is that we need to separate out kind of equilibrium style reasoning with an evenly rotating economy from what Dr. Slender was just talking about, because it's certainly true I might overproduce one year, not have any use for it at the end of the model year and be willing to give it away for pennies, but at the same time this would not be something we would expect year after year after year in an evenly rotating economy. In some sense, in an evenly rotating economy, the answer gets closer to yes, in the sense that then we're just bound by the value and other uses. Why is government spending considered waste? In Rothbard's writings, bureaucrat's wages are waste and quote, investment is waste. I get that some of it, I understand that some of it's waste, but some of it probably needed to be done if lower on value scales. Also, I never got the, and Rothbard does say this, I remember, if at least 50% is wasted, government waste 50% of the tax monies that it takes in, why must all be written off as a total waste? So what I think would, and the last part I'll answer, Rothbard means there is that government adds no net value. So if it takes $2,000 that would have been used to produce goods and services in the private sector and waste a thousand of that and produce something for a thousand, the net benefit from the government is zero. But anyone have an answer to the first part about Rothbard's bureaucratic wages or waste? It's not just Rothbard that says that, I know David Friedman has that in his book, that on average all government spending is waste, but that takes into account the parts of government spending to do a whole lot of harm. It would be negative value, big time, and that averages in with some of these things that are worth about 50% of what they had to be paid for. Also, with government investment, I mean sure, some of it can be integrated into the structure of production, some of it surely is. I mean obviously, shippers use railroads and they use roads that are built, but their value, their capital value such as it is far below what is invested into those resources. So Rothbard, somewhere he kind of fudges and says, well, we can't know what the actual value is, some of it is useful. And it's not because, I think the writer puts here that some of it needed to be done, that doesn't matter, that some of it needed to be done, the question is how valuable is what is done compared to the resources, what the resources could have produced of other things that needed to be done. I wanted to add that I think these kinds of statements can be misleading or easily misinterpreted because there's a difference between what might be a praxeological definition of waste and a common sense definition of waste. I mean what Rothbard means in that context is not just useless stuff that's sitting around garbage, flies swarming around it or trash or whatever. I mean something could be, you could have a good or service that had it been produced on the market and were it integrated into the structure production, were it produced in accordance with consumer wishes and so forth would add value. I mean that same physical object would be waste in an economic sense if it comes into existence outside of the market mechanism and is not integrated into the structure of the market and so on. Okay, here's a theoretical question. Could you talk about the issue of expectations for Austrian economics and also about the relationship with time preference theory? So the question is about expectations and then its relationship with time preference theory. Right, yeah, expectations. I think the reason that it's so nebulous in the Austrian view is that we understand that realistically that expectations are in fact basically nebulous and that they're all subjective and the way that I form expectations is very personal to me and since we're not really that interested in a lot of mathematical modeling we don't have to be more precise most of the time. Whereas in the more mainstream view you have to define exactly how expectations are going to be formed in some mathematically useful way if then they're going to have any impact inside of the mathematical model. And so I think there's a reason that they're nebulous but at the same time we do see Austrians speculating about how expectations may work. So maybe people are looking and you see this very clearly in say the regression theorem. How do I form expectations about money is going to be worth in the future while I look at what money was worth in the past. And there is underlying this a theory of expectations. So we do see it in there but for the most part you're right that it is very nebulous but I think it's because it's realistic. Let me add to that that if you read Mises' account of hyperinflation and the run up to hyperinflation you find that there's a number of theories of expectations embedded in there and they're not praxeological it's really... What is the word I'm looking for? Yeah, thymological. That is it's based on human psychology. So initially during World War I people had long experience with the gold standard so that when prices rose during World War I people's expectations were completely inelastic. They believed that after the war was over, after this emergency those prices were going to go back to their normal level before the war. So expectations were sort of static. They didn't believe that what was currently happening had any bearing on what was going to happen in the future. And then the second step was when they became adaptive when after the war ended and prices continued to rise people began to realize that look prices are going to continue to rise into the future so they expected this rise in prices and that's when people began to shift out of cash and began to look for inflation hedges and so on. And then during the hyperinflationary period is when we had what might be called rational expectations but not in a strict sense but simply that people began to expect when they saw the government increasing the money supply prices to rise more in the future than they're currently rising. And so at that point it was a scarcity of cash. Literally people had prices up so high of goods it wasn't enough cash to pay for those goods. So there was an evolution of expectations and different people at the same time had different expectations. So speculators on foreign exchange markets had rational expectations long before industrial workers and especially farmers. Then industrial workers had them and then farmers were still selling things for current prices and not expecting a great heat up in inflation and they were sort of the last group of what Marx called the rural idiots. Marx once said that capitalism saved the population from a life of rural idiocy. I think that was the coolest statement he made. He did say that. One thing, time preference is the rate at which you prefer a good in the present to the future and expectations or beliefs people have about the future. So I don't see logically there's any relation between those. Now that leaves open even there's no logical relation between beliefs about the future and the rate at which you prefer good in the present to good in the future. That leaves over the possibility there's some relation between the theory you have about expectations and the theory about time preference. But if there is such a relation I don't know what it is. One of the solutions Rothbard has for the problem of air pollution is suing road owners. Yet Rothbard also rejects vicarious liability. When a principal is responsible for the actions of his or her agent or agents. Aren't these incommensurate positions? David? I'm not clear what the logical problem is supposed to be. Who is supposed to be the vicarious agent in the case of the road owner? Seems there's a step, at least one step if not more missing in the argument underlying that. If the person who wrote the question is here and wants to push that a little bit, go ahead. Thank you. In this article Rothbard narrates an air pollution. He rejects vicarious liability where the employer would be responsible illegally for the actions of his employees. But one of the solutions for air pollution under private road ownership is to allow people to sue the road owner who would therefore be responsible for the actions of his customers. It seems to me like that's also an instance of vicarious liability. It's not the people committing the action who are being responsible for it. But you see the problem there is, when you talk about vicarious agency, there's someone else who's doing the tort, who's intervening and it doesn't appear there is any in this case. Who is the one sort of between the road owner who's really doing the committing the tort? It isn't clear there is any such person. So I don't think the cases are at all parallel. Also I don't know if Rothbard would say that he's against the liability of the employer. When the employee is acting, is carrying out the policy of the company itself, maybe he rejects any sort of criminal liability that, you know, the guy, the rug cleaner, guy murders the household or hired him, something like that. He would reject that certainly. But I'm not sure of that but I think that's what he means. Okay. Is there a use for the methods of neoclassical economics outside of praxeology? Is the conflict between Austrians and other schools purely on how they define economics, economic law versus economic tendency or economic law slash economic tendency, excuse me? I'm not sure if this is exactly what the questioner has in mind but, you know, within the Austrian school there exists a range of views, for example, on how to use quantitative methods and doing economic history, you know, as part of theimology. Is it useful to run a linear regression if you're trying to explain, you know, what was the precise influence of, you know, agricultural commodity prices on migration patterns in the western United States in the 1920s or something? You know, I don't think there's anything in Austrian methodology per se that would rule out, you know, running an OLS regression or some other kind of regression to try to analyze that question as a matter of economic history. Well, the regression might per se be inappropriate because it's the wrong kind of specification or whatever. It might not be properly done. The data might not be precisely collected. The analysis might not be correctly interpreted. So it could be badly done, but I don't think that there's any praxeological reason to say that such techniques would be per se illegitimate in trying to understand particular patterns in the data of the past. Is a person who has to question here, is that what you had in mind? Is that what you had in mind? Okay. Can you discuss Dr. Hulsman's critique of pure time preference theory? If a larger stock of a future good is preferred to a smaller stock of a present good, then that means we can consider stocks of goods existing in different time periods, in different periods of time, excuse me, as homogeneous. Hulsman would say a good in the present is a different good than the good in the future. I'm not sure. Sure. So we talked a little bit about this in a lecture on the time preference theory of interest. So that's a fairly accurate statement of Guido's view. And so he says, you know, his conclusion is that we can't then say that time preference operates to give us a logically certain premium of the present, because a present good is in this view a different good than the good in the future. Its intertemporal placement makes it a distinct good, just like its geographic placement would make it a distinct good. That's sort of the analogy that's used. The criticism that I bring against this point, I don't disagree with the argument he's making. I just think it is beside the point. And my argument relies on Frank Federer's insistence that when the interest rate is determined by exchange in markets, it's never an in-kind trade. We never trade goods in the present for goods in the future. We always trade money in the present for money in the future. And Federer goes on to claim that money in the present and money in the future, the units of money in the present and the units of money in the future are in fact homogeneous. They're not different goods. We have a homogeneous unit of economic calculation that we can use both intertemporally and across geographic regions and across all the goods that we trade for and so on. So I don't think Guido's argument is wrong. I just think it's sort of beside the point. And it's understandable that he brings this argument forward because in the writing of Mises and Rothbard, they seem to interchangeably define time preference first in terms of satisfaction. Satisfaction is preferred to the same satisfaction in the future and in terms of goods. I think it's just a semantic error to do that. And let me just add that Mises always said that the placement of money in space doesn't change its nature. They're not different goods. And that's why the purchasing power parity theorem holds. David Gordon, could you explain what the... Could you explain what the hermeneutical debate was all about and what was at stake? There was a group of Austrian economists, John LaVoy was one of the most known, who thought that hermeneutics, which is a particular kind of interpretation theory, especially developed by some of the German philosophers like Bill Helm Diltai and later Hans Gottemar, would be of use in Austrian economics. And hermeneutics, as those philosophers wrote about, was a method of interpreting texts. And so LaVoy thought that this was in a way similar to what the Austrian economists were doing in trying to understand particular human actions. We were kind of interpreting what people were doing. We tended, in Rothbard's view, to lead to a not giving adequate place to economic theory. It was rather reducing economic theory just to a specific understanding of Rischte and of particular events and then neglected the role of theory. Some people find... I mean, I think you can read Gottemar's work if you want. I never got all that much out of it, but that just no doubt reflects my own deficiencies. But I never thought that the people who favored that were ever able to come up with anything that they'd gotten from hermeneutics was supposed to be helpful to economic theory. It's an interesting claim, but one would like to see what is it they're supposed... What did they come up with using that that they would have been unable to come up with without it? That's a hermeneutical question that's yet unanswered. All right. You have been appointed as the new financial minister of Greece. How do you bring your country to prosperity and what policies and precedents will be enacted that will keep your country prosperous for the foreseeable future? Does anybody want to take a shot at that? Well, I would repudiate the debt, the sovereign debt. That is, I would not continue to burden the Greek people with the failed policies of the past, the borrowings from the past. And that would initially at least shut Greece out of the capital markets, the Greek government, which I think would be a good thing. Maybe their businesses for a while, which I think would be a good thing, because then they couldn't run deficits, which means that the next step would be to take a meat ax approach to cutting spending. In other words, President Reagan had a chance of doing this in the early 1980s when he was talking about cutting spending. Only talking about cutting it for social programs. But what he could, and he said we were coming out of a terrible recession at the time. Was it 82 when he was? No, 80. Okay. So we're in the midst of a terrible recession at the time. A double dip recession less until 82. What he could have done was to say, look, we're not just going to cut social programs. We're going to cut spending across the board, including the military. And there were plans out there that said things like this. So no one's going to have their ox gored while someone else is sort of living high off the hog. So everybody would take a huge 20% cut. So I think as the finance minister, you would just cut spending down to the level of taxes. Get rid of the deficit. You would have to get rid of the deficit. Nobody's going to buy your debt. And I think that's the first two steps. Raising taxes would be off the table. I wouldn't do that. And then possibly tying the Greek currency to the euro, but not formally. Maybe through a currency board or even maybe introducing the euro, which is called euroization or dollarization. But allowing banks, taking all regulations off banks and allowing them to fail so that you would have a tight reign on monetary expansion with a true free banking system. I think that's very difficult politically, probably impossible. But that's what I would push for. Anyone else have any other? If this fantasy does not, if there are no political constraints or whatever, aside from the things that Joe mentioned, you would have to restructure the Greek economy. Public sector workers have to be laid off. Industries that are nationalized have to be privatized. All of us probably in the room would agree on a set of things that the Greek government currently does in terms of economic policy that it should not be doing. It's no great mystery in the abstract how you would make economic performance better than it otherwise would. Although the way the question was written, what would guarantee prosperity? Nothing is guaranteed. It depends on what Greek entrepreneurs and consumers and capitalists want to do. But the issue with Greece is really just, it's a political institutional issue. What will people put up with? What kinds of decisions are politically feasible? Of course, the word austerity is just nonsensical how that word is tossed about. There's never been anything remotely resembling austerity in Greece or anywhere in Europe. What we would all presumably want is actual austerity. Actual spending cuts, as Joe mentioned, repudiating the debt, shrinking the extremely bloated public sector. What do you do with all these public sector pensions? Do you repudiate those right away? Do you phase them out? Do you convert them somehow into private assets? I mean, I don't know exactly. But I know that ideally, of course, you would want all of that to be in the private sector. The European Parliament or the European Central Bank just stopped in Greece because it seems like Greece has no incentive to fix anything because they keep getting bailouts. The parliament and the PCB keeps saying, no, we're not going to bail out. You can do this, but they don't do it. But they keep getting money. So what is going to take this to stop or never stop until the whole world bail out? The Greeks aren't being bailed out. It's the holders of the debt that are being bailed out, and that's the problem. So the Greeks are just kind of the intermediary. I saw this piece, I don't remember now where it was, Financial Times, where they showed the transition of the holders of the Greek debt since the crisis hit. And there's been a movement away from what we might consider the elite holders, the Goldman Sachs and the big banks and the power broker-moneyed interests, so to speak. And I think it's been moving, if I recall the graphic correctly, it's been moving into the hands of, well, I guess we'd call them public institutions. The ECB, the IMF, I think it increased its share and so on. So once the debt gets into their hands, then I think, repudiation doesn't hurt the political interests at that point. So I think that's something to think about. Any value with Austrian economics and is there an Austrian critique on using comparative statics? Well, I think comparative statics does have a use in Austrian economics. And when we teach money, for example, we talk about an increase in the money supply in a neutral way. That is, if the money supply doubles, what's the effect on the purchasing power of money when we introduce that topic? Well, all prices are pretty much double, the purchasing power of money is cut in half. But Austrians don't stop there. Austrians then introduce the step-by-step, what I mean is called the step-by-step analysis, by which you go from one state to the next. And in fact, the state that actually emerges in the real world, or even in a world in which you hold everything else constant, accept the change in the money supply and go step-by-step, is quite different from sort of the neutral money world of comparative statics. And that is that as new money is introduced into the economy, it's introduced at certain points. People have certain value scales that differ from one another. They begin to spend on certain goods and drive the price of certain goods up and other goods down. There's permanent redistributions of wealth and income, so that at the end of the whole process, if you could really hold everything constant, you'll find that there'll be what has it called a revolution in the price structure. So people who aren't fixed incomes will have lower real incomes and less real wealth, so that the prices of, let's say, condos in Florida will be permanently lower, but the prices of fancy Napa Valley wines will be higher, because these are the people that got the new money first, and so on. So comparative statics can be abused and has to be supplemented by what we sometimes call a period analysis, the Swedes call the period analysis, or process analysis, where Mies is just called step-by-step analysis. Does anyone want to answer that? There's a question about the correlations and so on in econometrics. It gets abused a lot by the mainstream theorists in going directly from correlations to cause-and-effect relationships. There's an interesting interview by Dan Hammond of Wake Forest of Milton Friedman. Both of years ago, I can't think when... It's in the 80s. And at one critical point, Dan Hammond, who was actually a classmate of mine at the University of Virginia, asked Friedman, so your theory isn't a causal theory. That was the question. And Friedman essentially said, I don't understand the question. And then he went on to say that cause... This is a direct quote. He says, cause is a tricky word. And he says, I avoid using it. And instead, he'll say something like... Of course, I mean, correlation is about the best, the only thing you could say. But he'll say that A explains B, which really just means it correlates with B. And so it's still not clear which is explaining which. But it's an interesting interview because it kept going on and on with Friedman saying that he doesn't use the word cause. And then Hammond indicated some article that he'd written that he did use the word cause. Let me correct this. He said, when I write for the general public, I use the word cause, otherwise I might confuse them. But if I'm doing scientific writing, better not because it's just too tricky a concept. Well, of course, Austrian theory is very causal, causal genetic theory. And so they embrace that word. And if they can't say something in the realm of causality when they're trying to figure out what's going on in the world, then they just haven't done their job. I wanted to just say one thing about this topic that concerns a previous question about something about the relationship between the Austrian body of economics and mainstream. Both the mainstream and the Austrians do comparative analysis, as Joe was describing it. But it's very hard to do process sort of analysis within an equilibrium modeling approach. So there's one sense in which to think about this relationship between the two different approaches to economics, that the Austrian approach really takes what can be learned from the neoclassical approach and augments it with further developed procedures of analysis. It's really, in one sense, more robust than as an approach than the neoclassical. Okay. If a successful entrepreneur in fractional reserve banking accounts his expanded liabilities through a line of credit, which he is rarely forced to draw upon and pay interest, how may his business be legally assessed? Is his business model necessarily inflationary or fraudulent? So I guess what you're saying here is that he extends lines of credit that aren't always used. And so how would you account for this? Would you consider this? We're not going to address the issue of fraud. There's really a theory and a method and that's really ethics. But is it inflationary or lines of credit inflationary? To the extent that they use, they do introduce more money into the economy or money substitutes into the economy. They're drawn on by writing a check so they instantaneously come into existence at that point. Also by extending them, you would decrease the demand for money proper since people would have these lines of credit backing them up and that would affect the demand for money, would lower the demand for money and raise prices. But anyone else have any insights on that? Okay. That's the last written question that we have. Oh, this is interesting. This is a follow-up somewhat related. In all you can eat buffet in illegitimate contract. I think someone else asked me this. Assuming that there's a chance that they could run out of food while people have already paid and are there. So that's an interesting thing to think about. We have a line from The Simpsons where the attorney character, Lionel Hutz, says he's going to sue Disney or whatever for their film, The Never-Ending Story. You know... Literally an all you can eat contract which guarantees all you can eat for all customers at all times could not in fact be fulfilled, right? But I think it's a social convention. There's also the joke about the guy who goes to an all you can eat restaurant and he goes up to get a second plate and the proprietor says, nope, that's all you can eat. Okay, we'll open the floor for any questions. Can I throw your hand first? Just stand up so we can hear you. So I was the question about complexity theory. I think it can be asked pretty clearly without really understanding of it. If you think about my body is composed entirely of chemicals at a certain level, but you would have a very difficult time explaining my digestive processes through only chemical principles alone. In other words, in terms of valence electron shells, it would be very difficult to explain my physiology. So the idea here is that you have to once systems become sufficiently large move to a larger unit of analysis. So the idea here is that once an economy gets sufficiently large can phenomena emerge that are no longer explicable in terms of methodological individualism. And it wouldn't in any way invalidate praxeology any more than physiology invalidates chemistry, but the idea is that it opens the door for a new methodology for macro phenomenon. Well, it's an interesting question. I'm inclined to think it's certainly possible that new phenomena emerge at a certain level, but it's not guaranteed that they will. So I don't think that one could say that it could happen that there are new phenomena that emerge. But I'm just from the fact that one reaches a certain level of complexity. I don't think this would require new laws on a specific one. You ask was could this show methodological individualism no longer applies? Well, remember, methodological individualism is principle only individual, only persons act. I can't see how just getting some complex system could make it the case that something other than an individual could act that I'm not really clear on the meaning of that. Maybe what you have in mind is more like something like this. When we move from household economy or tribal economies to advanced divisions of labor economies, and we want to do analysis of those economies, we do have to create constructs of analysis that we don't need for simple situations of acting. So we do like the stages of production. When Rothbard creates these stages of production for the complex economy and main economy and state, these are difficult abstractions that have properties to them that we have to think about the nuances of if we want to work out all the logic of the development of them that we wouldn't need when we're doing analysis of Caruso. We do have stages of production, but there it's micro. We can see exactly what Caruso is doing to make his net and catch his fish. Whereas here we're talking about extraction industries as a whole or one lower stage as a whole and so on. So it might be that I don't think it contradicts methodological individualism, but I do think it's kind of a new approach of theorizing or development. It's an augmentation of our body of theory that we wouldn't need for simple situations. Kind of what comes to mind, especially as you mentioned macroeconomics, is kind of the way that micro and macro were treated for a long time in the mainstream from about the 1930s to about the 70s where there was this big separation. We had the micro side and the macro side were treated totally differently, but then we found in the 1970s it really didn't work on the macro side and there was a huge revolution in the mainstream for exploring what we now call the micro foundations of macro. We need to reintroduce these microeconomic concepts and I think the analogy is a fairly good one between biology and chemistry. If we're trying to do something in biology and we just ignore the chemistry, we might still be okay, but if what we're doing is totally inconsistent with the underlying chemical movements that are happening, then we're going to be wrong headed. So might it be okay by a shorthand to adopt different methods perhaps, but those should in the end be consistent with whatever methodological individualism tells us. I think we found that in the mainstream and I think we'd agree that that's a good path. Also, I talked to a lot of sociologists and sort of organization theorists who come from a sociological perspective. A lot of them think that they reject methodological individualism in their work when they really don't. In other words, methodological individualism, as the name suggests, is a methodological statement, not an ontological statement. When we use praxeology in the senses that we're describing, we're not saying that higher level phenomena don't exist. We're just saying that we cannot explain these particular patterns that we're interested in without reference to the actions and the beliefs and the value scales and the actions of specific individuals. So a good example would be culture. If there is such a thing as American culture that might be distinct from Chinese culture or I think that the organizational routines at Apple are different in some way from the organizational routines at General Motors. But I don't think I can explain why Apple is more profitable than General Motors by saying, well, it has a better culture. It may be that there are different cultures, but that does not explain outcomes. I can't explain outcomes without reference to individuals from the point of view of praxeology. So we might agree with you that in a highly complex economy, there are some phenomena that are difficult to reduce to the actions of individuals, but we could not then use those phenomena to explain different causal processes or outcomes or relationships among different parts of the economy. Well, let me take another question. I threw your hand first. Yeah, so with the big increases in computing power, I feel like mainstream economics is going to more toward big accelerosheets, things like that, big databases. It seems to me that this could be a strategic in the Austrian school to kind of move toward now that we have this computing power moving away from aggregates into more heterogeneous studies like that. Is it not that simple? I can answer to your question, but it relates to it. Rothbard wrote a short article on complexity theory. I forget where it's been, which collection. It's chaos theory. It was chaos. I mean, this was back when, what was the book by James Gleick, I think, chaos was on the New York Times bestseller list, and everybody was talking about Mandelbrot sets and fractals and so on. And Rothbard was sort of intrigued by this. He said the development of this kind of mathematical analysis makes people more skeptical about the conventional kind of econometric approaches and that this might be a useful tool to show some of the defects in conventional mathematical economics. So by analogy, it may be that some of the techniques in sort of big data analysis are things that we could use to kind of demonstrate the flaws in other kinds of quantitative methods, to what extent Austrian economists doing thymology would want to use these very inductive techniques, I don't know, but maybe we would find them useful in economic history. Run out of time. You have a 15-minute break and then you can go downstairs and go to the theory and policy, or rather the, what is it, history and policy seminar.