 This weekend we're joined by Patrick Barron, the great Austrian economist who knows more about the European Union and the Euro than many continental academics. He's also an expert on money and banking and has spoken before the European Parliament in Brussels. He was a professor of economics at the University of Iowa and a professor in the Graduate School of Banking at the University of Wisconsin. He'll really enjoy this interview. Patrick explains what's going on in the EU, how Germany in particular suffers from being yoked to the other Eurozone nations, and what the comeback of the Deutsche Mark might mean for Europe and for America. Could Germans reclaim their sovereign currency and challenge the US dollar? If you want to know how the ECB has wildly exceeded the bounds of its authority under the Master's Treaty, why the European Union and the Euro are doomed, and how Germany with its Bundesbank might provide a way out of the current mess, stay tuned. Ladies and gentlemen, welcome once again to Mises Weekends. I'm your host, Jeff Deist, and we're so happy to be speaking today with the great Austrian economist, Patrick Barron. Patrick, welcome to the show. Hello, Jeff. Glad to be on your show. Well, Patrick, we were just speaking off-mic about something very interesting and unusual from my perspective. You actually teach an introductory course in Austrian economics per se at the University of Iowa. Can you tell us a little bit about this? For instance, what are some of the readings you assign? Well, all the readings that I sign are all online. One of the great things about the Mises Institute is that you have access to PDF versions of all the great Austrian books. And so what I do is I don't require my students to buy any book. I have a list of probably 20 of them, and the website on your website where they can go to download the PDF version. And I will just assign them to read maybe a chapter, sometimes not even a chapter. Maybe sometimes it's just the introduction or a conclusion to one of the great books that you have on your website. And that way we can have access to all the great Austrian thinkers, and I can focus in on just particular topics of a book that may cover many, many Austrian topics. And that way we have access to just what all kinds of authors have to say about this. So that's how I teach the course. And I start out with teaching what probably is the hardest thing for students to wrap their mind around is that economic science is not a natural science, but it's a social science, and does not require the verification by empirical means. In fact, there's no way that empiricism can validate economic law. Economic law is based upon pure deduction. And if your maxims are correct and your deductive logic is correct, then your conclusions are correct. So then from there we go on to just all the great topics. What is the very nature of money? How does it arise in society? To the Austrian business cycle theory and prices, capital theory. You know, I hit all these in one semester. The other thing that I do at the university is I supervise a, I think they call it directed reading. I think that's what's called a directed reading in which students can sign up with me. And we do all this just through email. They read human action in its entirety in one semester. And I've broken human action into, I think it's into 20 sections, which corresponds to, I think it comes out to 15 pages each every third day or something like that. And if you do that, if you do that seven days a week for a semester, we will get through the entire book. And I have questions that I ask them and they respond by email and I correct their question, their answers. And it's just a great way for them to have a structured way of reading human action. Now, this is only for students who have actually taken my course. I wouldn't have anyone who hasn't. Even if you're an economics major, I don't have them jump right into human action. Well, Patrick, this sounds like a phenomenal course, your introductory course. Is this open to all undergrads or these econ majors necessarily? They're open to all undergrads. There is a prerequisite that they have to have taken a couple of the basic economic courses. I argued against this because in my opinion, anybody that said in college can take my course because I don't really require them to really understand anything about economics. In fact, sometimes I think it's better if they don't understand anything because your minds have not been washed by what's really the rest of just about the rest of the whole economic curriculum is Keynesian based. The actually the head of the economics department is Robert Solo's son, John Solo. And Robert Solo was one of the nation's most well-known Keynesian economists, Nobel Laureate. So it's all Keynesian based, but they have my introductory course. And you know, I get a lot of great students in there. And I tell you, I think this is key for young people is for everyone listening to this program who is leaning toward the Austrian school and all of our tenants is that if you start to introduce young people to Austrian economics early, then they really become immune to this brainwashing that is all the Keynesian brainwashing that they get through every other source. So I get these young people, I've had I've had seniors who are economic majors come up to me in sort of after the first couple of weeks of class or sometime in mid semester and say, you know what, I think everything that I've learned about economics up till now has been much nonsense. You know, I'll say, well, you know, it's not quite all nonsense, you know, but in effect, I'm thinking, yeah, you know, it is nonsense and they see the light, you know, and I still get emails from my students saying, hey, did you see this and what do you think of this? And isn't this ridiculous what they're doing at the Fed? And, you know, they once your mind is open to this, then I think you become inoculated to this, to what I consider to be the great, you know, the great evil of economics, which is Keynesian economics, but it's definitely swept the world. Well, Patrick, I think we need to recruit you down here to Mises to teach a course for us in the very near future, because it sounds like a fantastic introduction. And I think that those young people are getting a great start, that they're not likely to find elsewhere. But when you talk about Keynesianism sweeping the world, of course, as we mentioned in the introduction, you are or have been an advisor to members of the European Parliament. I just wonder, when you're in Europe, when you're in Brussels, and you're talking with MEPs, do they seem to have any sense of understanding of what they're doing with the euro or Keynesianism versus Austrianism versus monetarism versus neoclassical? Is there any sense that the people you're dealing with over there really have an understanding, even of basic economics? Well, there are a few. If the European Parliament is a very large organization, I think there's well over 700 actually members to the European Parliament, and then all those members have pretty good-sized staff, and then there are staffs that work just directly for the European Parliament, not for any MEP. So there are a few, there aren't very many, but they're growing. The influence of Austrian economics among those who are getting elected to the members of the Parliament is growing because one of the interesting things that's happened over there is I've been a supporter or an advisor to members of the European Parliament who are members of the United Kingdom Independence Party, and they are calling for the United Kingdom to leave the EU. And there are anti-EU parties that are springing up and gaining ground all over Europe. I've predicted for many years now that the European Union is doomed, that it's a flawed organization, that it's anti-democratic, that it goes against everything that Western Europe has been working toward for hundreds of years, which is ruled by the consensus of the people and now they're reverting back to rule by an unelected bureaucratic elite, and the people just aren't standing for it. But so these people are finding that although it's difficult for them to get elected in their national parliament, they can get elected to the European Parliament because the national parties are sort of ignoring the European Parliament. It doesn't have a lot of power. The European Parliament doesn't have a lot of power, it's more of a consultative body, but it's a way for these parties to get their message out and to get their name in front of the public. So what's happening, for example, in England now is England, in England the United Kingdom Independence Party, the UKIP, has now gained a great number of seats in the European Parliament and now Nigel Farage, who is their leader, pretty much looks like he's going to get elected to the British Parliament. And this will be a great step forward for this movement in that now they're becoming more acceptable, you might say, they're becoming more mainstream. The concern that a lot of the more hardcore libertarians like myself have about becoming more mainstream, which is essential, is that you have to maintain your principles when you become more mainstream because the power, the demands that you adapt to the current welfare warfare state in the UK is going to be very, very powerful. So I just hope that Nigel and those others who start to get elected to the British Parliament can maintain their principles and start reforming the United Kingdom's political organization and and get their welfare state rolled back. This is the key, this to me, this is the key to all everything that's been happening in Europe. Collectivism has been rampant in Europe now for it's been gaining ground for 100 years. And I think finally the people are seeing that this coming to an end, the welfare state is unsustainable. In fact, the European Union itself, a lot of the attraction to belong to the European Union comes from these failed states who are perpetually indefinite because of their welfare payments. And they realize they can't, they really can't afford their own internal welfare payments. So they think, well, we'll join the European Union and the European, other nations in Europe will help us pay for our own welfare state or the European Central Bank will monetize our welfare payments for us. And, you know, okay, this papers over welfareism for a while, the collectivism for a while, but then it runs, it's the gamut, it's done. And I think that that's what we're seeing right now is the European Union is just becoming just a gigantic socialist organization which everybody wants to live at the expense of everybody else. And the people are sensing that this isn't, this just is not sustainable. In fact, economic law is showing that this just is not sustainable. So I see that the European Union, which started out with a very, I think a very laudable goal of just mainly being a free trade organization was quickly captured by what I call the Euro Federalists into being a political organization to expand the welfare state. And I see all this coming to an end now. Well, Pat, I had a discussion a couple of weeks ago with Andy Duncan, and we discussed the point that what the EU does in effect by yoking, let's say, Germany to Greece, it actually increases friction and nationalism between these countries and that decreases it. Oh, absolutely. And we know that free trade is one of the biggest things you can do for to promote peace and prosperity because you want to have the customers and you want people to supply you with the goods that they're making. And so you don't make war upon your supplier and you don't make war upon your customers. And this is the benefit of free trade. And my opinion has always been that there is absolutely nothing that the European Union can give a nation that the nation cannot itself obtain simply by declaring itself unilaterally to be a free trade nation. But with the European Union, we see that it's really a big transfer union as they call it over there, meaning you're transferring wealth from one country to another. Well, eventually people get sick of this, you know, the Germans mainly are the ones who are the people who are giving up their wealth. They don't really realize the mechanism how this is happening, but it is happening. So fortunately, you know, we have a country in Europe that is starting to stand up against these things, and that's Germany. So Germany says, you know, you Greeks, you have to get your budgets, you have to get your budget or control. We can't just keep bailing you out. Well, then the Greeks resent us. They resent it. They're welfare, you know, they're really a nation of welfare queens. I hate to say that, but it's substantially what it is. And they know, I'm not trying to impugn the Greek character, but this is what the wages of socialism is. Everybody wants to be on welfare down there. And so the Germans are saying, no, you've got to get back to work and you've got to get your budget under control. Well, they just resent this. So, you know, Angela Merkel last year made a trip to Greece trying to show her support for the Greek government, for the Greek people, and they were paying swastikas on things, you know, and rioting because, you know, the German Chancellor was coming, trying to tell the Greeks what to do. Of course, there's a big deal. There's a history there, of course, of the German occupation, but I just hope that Europe can get over this. You know, it seems like in my lifetime, everything has revolved around the evil Germans from World War II, but we've got to get past that. You know, Germany is now a fully law-abiding, democratic, hard-working, stable nation, and it has a lot of things that can teach the rest of the world. In fact, Germany is probably the one nation that should be leading Europe, because it has adopted time-testered principles of it values sound money and hard work. And the rest of the country, the rest of Europe seems to be going the other way. They value paper money that is debased till the cows come home and getting everybody on some kind of a subsidy, you know, so that they're living the expense of everyone else. And Germany is the only country that really has its budget in order, and it doesn't have a budget deficit, unbelievably enough. And I think it should be leading Europe, but I think it can only lead Europe if it just adopts free trade and actually gets out of the European Union, because the European Union is stacked against it. It's just a majority rule at the top level, and Germany gets one vote right along with, Greece gets a vote, Italy gets a vote, France, Luxembourg, Spain, all these countries that are in terrible shape have one vote, and they just keep out voting Germany, both at the European commission level and at the European central bank level. Well, Patrick, tell me this, how do Eurozone member states central banks work in the age of the Euro? In other words, what's the role of the Bundesbank today when you've got the European central bank controlling the Euro? Well, it's very interesting that, you know, there's a European central bank that then each nation still has its own national central bank that mainly is a conduit for holding either, they call it, start to credits or start to deficit, and start, S-T-A-R-T-2, I don't forget what it stands for, but it's an acronym which really means, this is how the Euros are settled from one country to another. So when the Greeks buys, let's say someone in Greece buys a BMW from Germany, it pays Euros, it pays it with a check, a Euro-denominated check on a Greek bank. Well, that check goes to BMW and BMW deposits it in, you know, whatever its local German bank is, the German bank deposits that check with the European central bank. Well, the European central bank will then just give the German bank a start to a credit, and it debits the Greek bank for that amount. But it never actually settles that transaction with anything of value. So Germany is holding huge start to credits. I haven't checked in the last couple of months, but at one time, I think it was past the Nazis in the European Monetary Union had start, had were holding in effect an overdraft account at the European central bank. A few had very small either debits or credit accounts at the European central bank, and then Germany had a huge credit balance at the European central bank. So what was happening is this is a backdoor way for wealth to be transferred from Germany down to Greece, because the Greeks were not really giving up anything of value when they bought this BMW. Now you can see what happens in Germany. The export industries in Germany such as automobiles, heavy equipment, they all think they're the ones that are they're fully employed because as the European central bank just keeps expanding credit to these deficit countries, they're buying heavy equipment automobiles from Germany. So the German export industry thinks that this is a great deal, but it's causing inflation in Germany. German inflation is starting to creep up. It has been creeping up for a number of years. And if you're not really working for an export industry or some business that is very close to an export industry, you're not really doing that well in Germany. Some earlier this year, there was your report that the average Spaniard had quite a bit more assets of wealth than the average German. And yet Germany is working very hard. It's country is in very good shape. But from a wealth standpoint, the wealth is being drained out of Germany through this funny mechanism of how the European central bank settles its account. So it's kind of a convoluted system. You have to be, I think you have to be kind of steeped in bank and banking mechanics as I am to understand it. But just say here in America, if, you know, if I wrote a check to buy a car at a local dealership and my check is drawn on, let's say, the bank in Philadelphia, which is where my permanent home is. And of course, the local dealer deposits is here in an Iowa city bank, then the Iowa city bank takes that check, you know, through the Fed will wind up getting real assets back from the Philadelphia bank and it will get real money. This doesn't happen in Europe. Well, what happened in Europe is the Philadelphia bank would just run a big overdraft and the Fed would just credit the account for in dollars for the bank in Iowa city. And you can see this is inflationary. So the bank, at that point, the Fed would have created money out of thin air. And this is exactly what the European central bank is doing is creating money out of thin air when it fails to really settle these start to credit. So this is a back way that the European central bank is buy that one of the many back ways the European central bank is violating this charter, which the master's charter, which was which was adopted by in treaty form in the early 90s, which really established European central bank is very clear that the European central bank is not to do this. They are not to print money. They're not to buy sovereign debt. They're not to hold. They're not to hold any debt of any institution yet they're doing exactly that. So, you know, and Germany again keeps getting outvoted at the board, the European central bank for all these new high saluting names that the European central bank comes up with on how they're going to stimulate the European economy. But it's nothing more than printing money. Germany understands this and they vote against it, but they're outvoted. You know, they're outvoted. They'll be the loan, the loan may vote in the whole, in the whole European central bank board. And yet they're the only country that's really has its housing order. So, here's Germany. We've sort of gotten back, you know, on the issue of Germany, but here is Germany, which is really the only country over there, one of the few that it has its housing order that understands what's going on. It has its, it doesn't run a big budget deficit, has a very stable economy, and yet it has tied its economy to this terrible thing called the Euro, and we, and there are these other inflationists in the, in the, in the continent who are members of the European central bank who are inflating the Euro. The Germans would never do this. The Germans would never inflate the Deutsche Mark to this extent. So, I have been calling on, you know, writing articles saying that it's time for Germany to scrap the Euro and go back onto the Deutsche Mark. Well, Patrick, behind the scenes among individuals, do physical Deutsche Marks still circulate in Germany? I don't believe they do. I think, I think they've all been swapped up. I haven't, I haven't been over there in quite a while, but I don't, I don't believe that they, that they are circulating is possible, of course. But does Brussels really understand the impossibility of maintaining one currency among all the Eurozone members while they each have the ability to create sovereign debt on their own? It would be akin to all 50 U.S. states having a central bank, it seems to me. Right, you know, yeah, that's a good, that's a good analogy is, is that, you know, the state of Iowa had a central bank, and you could, instead of Iowa being forced to either balance its budget or keep its deficit in line so it can actually sell its debt, you can, you know, honestly in the market. If, if Iowa just had a bank that could monetize the, the state of Iowa's budget, well, if that happened, you know, you, all the states of the union would have horrible huge budget deficits because the pressure would be so much, so great to just monetize their debt. I, I think they know exactly what they're doing. I think they just can't stop it. I think once you, once you create an institution that can print money, it will print money. This is one of my maxims, you know, if the organization can print money, even if it's in violation of its charter, they'll figure out a way to say, well, no, what we're doing really isn't in violation of our charter, you know. Well, it is, but they're just rationalizing what they're doing. So I think they know what they're doing, but I think the political pressures to print money are so great that they're just going to keep doing it. I am very pessimistic that the European central bank can't reform itself. I don't believe it will ever reform itself. That's why I call on Germany to, to get out of this horrible European monetary and reinstate the Deutsche Mark. Now, my prediction is if they did this, there are a lot of, initially, there are some smaller countries that would then just become Deutsche Mark nations. They would just start using the Deutsche Mark, and this would be the end of the euro, because then you would just be left, the euro would be left with just a bunch of deficit countries. The euro would be quickly inflated to oblivion, and what could happen, which I think would be a good thing, would be that it'd be possible that all of Europe could become a Deutsche Mark region, because the Bundesbank is more responsible. The Bundesbank would not inflate the Deutsche Mark to the extent that the European central bank would inflate the euro, and I think that it'd be very likely that all of Europe, instead of becoming a European monetary union, we become a Deutsche Mark monetary union, and this would actually put pressure on our own Fed to stop inflating the dollar, because then the Deutsche Mark could actually become the premier world's reserve currency. It's really all up to Germany just to take, to do what it has a perfect right to do, which is to get out of this organization, reinstate their own currency, and run their currency the way they want to. It's a non-corrosive act. It's an act of rational self-interest, and I think the benefit to the world, it could take a long time, but the benefit to the world would be tremendous. Well, Patrick, I certainly hope that that could be accomplished without war, but we are running out of time. I want to ask you one final question before we let you go. One final post-mortem on the recent Scottish independence referendum was the result, at least in part, due to the failure of the Yes campaign to deal with the currency issue. Well, I think there's no doubt about that. Yeah. What I saw happening over there was there is an emotional level. Again, people understand that there's really no longer a big benefit to belonging to these super national organizations, whether it's the United Kingdom or whether it's the European Union. Things are not going well. They've lost control of their country. They've lost control of their borders. They've lost control of their money. They're squabbling constantly over who owns what resources in the North Sea, and so there was an emotional level that let's just become independent. We, Scots, we joined the United Kingdom in 1707 voluntarily. We'll leave the United Kingdom voluntarily. This is a good thing, so there was an emotional level. But then they really never talked about, okay, how will we govern ourselves? What will be our method of governance? I think they did that on purpose because when you start bringing those issues up, well, now the Yes members start to start to fragmentize about, well, some are saying, well, we should have our own Scottish currency. Others say, I don't know. We should join the European monetary union. There are a few libertarians who are saying, look, just scrap legal tender laws and allow the people to use whatever currency they want and we'll become a free banking organization like we were 200 years ago, which was the Scots really led the way on the benefits of free banking. So I think that and a lot of the other issues they never addressed would Scotland continue to be a member of NATO. What about the NATO bases that are in Scotland? Who would actually own the North Sea oil? What will we do if anything about the Scottish share of the United Kingdom's government debt? These are all tough questions, very tough questions. And they never, I think they purposely avoided those to say, well, let's just get independent first and then we'll think about these things. They just didn't do the hard work necessary to win over people that they really had a plan. And I think the closer the election got, a lot of people went to the polling booths and said, you know, I'm not really sure what's going to happen. Things aren't really well right now, but let's don't jump out of the frying pan and ride into the fire. Let's have a better plan for what we're going to do. And I think some of these other independent, I hope it has a beneficial effect on some of these other independence movements in the rest of Europe, such as in Catalonia, because I see the same thing happening in Catalonia. I was just there last year and there's a big independence movement there, but I don't see that they have a plan for what they're going to do once they're independent. And I think you really have to tell the people, you know, this is our plan. And they haven't really done that. Patrick Barron, thank you so much for your time and for a fascinating interview. Ladies and gentlemen, have a great weekend.