There are two and only two ways that an economy can be
organized. One is by freedom and voluntary
Choice, the way of the market. The other is by force and
dictation the way of the state. Welcome to Keith's night.
Don't try it on anyone. Today.
We will be talking with Professor, Steven Horowitz.
He's the author of this great book.
Austrian economics in introduction.
He is the distinguished. Professor of free enterprise in
the department of economics, in the Miller College.
Of business at Ball State University in Muncie, Indiana.
He's also an Affiliated senior scholar at the meketa center in
Arlington, Virginia and a senior fellow at the Fraser Institute
of Canada. Mr. Horowitz.
Thank you for your time today. My pleasure.
So before we critique anything,
let's make sure we're on the same page.
What is economics? All right, that's a brother has
brought place. So it's interesting, you ask
that question because I just wrote a piece for Mm dot org or
the encyclopedia libertarianism sort of General, peace and
economics. And the best way for me to sort
of think about economics is that any time that human beings have
to make choices anytime that we Face scarcity, we have to make
choices and those choices have cost.
And what economics does is try to understand how people when
faced in situations of scarcity, make those choices and what the
consequences of those choices are.
And importantly, how social institutions like the market
enable us to coordinate our activities.
Nonetheless, I mean, we're all choosing individually in the
face of our own perceptions of costs and benefits, but how does
all that sort of come together and and and work for the benefit
of everyone, that's what institutions of the market to.
So one way to think about economics as we study, how human
beings engage in exchange under alternative institutions,
alternative sets of rules. That's so helpful to hear,
considering I thought economics was just the Dow Jones and the
World Bank and had nothing to do with me.
That's why I was completely uninterested for my entire life
until I got the foundational Austrian explanation.
It seems like the Austrian school stands out so much in a
lot of aspects. I'm curious?
What makes the Austrian School of Economics unique among the
Chicago schools marks of schools.
What makes it unique. Well, I think the big thing that
austrians are sort of two things that austrians are interested in
one is really taking seriously, the idea that it's people's
choices and it's are subjective assessments of the world that
drive those choices. Is that the sort of foundation
of Economics that people don't know everything and that that we
were acting on partial knowledge in the face of uncertainty and
we're trying to sort of stumble our way through the world and do
the best, do the best that we can.
I think that's one of the most that piece is a is a key piece
and I think the other piece is the emphasis on processes.
We're not interested in equilibrium stories.
We're not interested in sort of solving for those those defined
equilibria. Yeah, what we're interested in
is sort of explaining how processes take place and how
markets adjust and how people learn through the marketplace.
Okay, I'm curious who just like I had said, previously a lot of
Economics that I always thought was.
Well, what's the GDP once I get GDP?
I know all there is to know, I'm curious.
What is an accurate way of measuring wealth in a given
Society. Well, that's an interesting
question. Right?
I mean, we think of sort of the usual statistics we talked
about. I mean, it's got a lot of
imperfections, but sort of GDP per capita is useful in, The
sense that we know what that is, we can compare it across
societies and we know that the problems of this with it are the
same and every society. So certainly we think about sort
of standard measures but I think you know, rather than talk about
wealth. Maybe we can talk about progress
and make them talk about for me, one of the indicators of just
how how well an economy's doing is how well it does by the least
well-off in that Society. So, if we have measures of what
say poor people are able to consume what they have in their
households. If we think about things like
literacy and life expectancy, and all those kind of things are
all real indicators of just how wealthy and how well a societies
doing wealth, notice that wealth.
There isn't just material wealth.
It's it's, it's, you know, can think of wealth is all the
things that we value. And so.
And I think progress journey is as good a word as any to talk
about what, what, I think we're getting at when we say, how do
we measure wealth and how do we, how do we compare Societies in
particular? Why do you think some countries
are wealthy and some countries are impoverished?
Well, that's about as I was suggesting before.
That's about the institutions were the rules of the game.
Right? I think one of the most
important insights and economics is that people are people,
right? What, what, what?
Sometimes been turned, analytical egalitarianism.
That we, that this goes back to Adam, Smith that people are
people. What, what explains the
diversity among people is sort of the way in which were brought
up in the Sort of world that we live in and so on and what
explains those differences across countries is what are the
institutions under which people operate societies, that protect
private property that have the rule of law that have sound
money and awesome. All the things we associate with
with the sort of liberal institutions are going to be
societies that do better than ones in which, which the private
property is absent or or interfered with a great deal.
So, when we want to make those comparisons, we want to look at
those institutions, those practices those rules of the
games including I would add Sort of people sort of philosophical
standpoint or their ethical beliefs.
You can have a society with the right institutions.
But if people think making it profits, a bad thing, that those
societies are going to work very well.
And you also need this sort of ethical belief that it's okay to
make a profit. It's okay to pursue your
self-interest. Those sorts of things too.
So another words, the reason that we see sort of this hockey
stick of human progress of, you know, very little progress for
like let's say well, let's just go with a house thousands and
thousands of years. Premieres to be fair and then
it's like 1802 the year 2000 and that 200-year period.
Totally goes up. So you're saying much like the
Deirdre McCloskey is of the world that is not only economic
freedom. But it's also social honor.
And the general recognition that investing innovating is a good
thing and trading and exchanges not exploitation to be looked
down upon but a virtue to be admired and that's right.
Right. That's right.
And it's McCloskey goes at those are the Bourgeois virtues,
right? Those are those those sort of
belief the belief in that ethical system, but also, you
know, the institutions matter to, I mean, I think, you know,
McCluskey's work. She has tried very hard to
emphasize the ethical. Peace because the focus is so
heavily been on institutions, but I think you got to have
both, right? You got to have both to work and
what we see is you suggest, right?
Is Humanity's sort of, you know, riding along and misery for
thousands of years. And then when we finally got the
institutions, right and we finally got that.
A cool beliefs, right? 250 years ago.
Guess what? Here, we are things things take
off. When I look at some major issues
in America, I think of homelessness and lack of
healthcare for a large segment of the population.
I'm curious. So if my general desire is or my
question is, how can we increase access to those in lower income
brackets over time while increasing quality like we do
with cell phones? Computers tablets cars, Etc.
Is that possible and all sectors.
Is this something fundamental to how human beings?
Or there's some sectors where the state needs to be involved.
Regardless of whatever fanciful ideas, economists.
Have I think you can do it in all those and in any sector,
right? It's certainly in those two, for
sure. If we think about housing and,
and Healthcare, and they're interesting examples because
their markets or Industries in which markets are are intervened
in quite a bit by the state and that sometimes makes things
worse than they would be otherwise, but that said right.
I mean, it's I think it's important when we think about
sort of Health Care, for example, to distinguish among
health insurance, which not everybody has and Healthcare
which most people manage to get one one way or the other.
And and it's even given all the interventions that we might
think about the advances in health care are over the last
pick your number of years have been amazing, right?
And people live longer lives and diseases are concurred in all
kinds of ways and stuff. It's actually cheaper.
One of the reasons we spend so much in the aggregate on Health
Care is that we have it to spend because some of the Fizz way
cheaper than it used to be and we can afford to spend on new or
different treatment. So I think it's important to
keep that in mind that said with Healthcare.
I think two things that we could do sort of as policy things that
would help a great deal. One is to decouple health
insurance from employment, right?
The fact that you get your health insurance through your
employer is a relic of government wage and price
controls and World War 2. And if we could break that link
and it's fairly easy to do, think we'd see a whole bunch of
new kinds of options come in. So that's one.
But also on the supply side, we need to do.
Regulate as well. We need to give doctors and
nurses more freedom to do certain kinds of things.
Especially nurses, who want to say prescribed, things like
that. We want to occupational
licensure laws and make that more difficult.
We want to open up Interstate competition in the provision of
insurance and other things. So there's all kinds of things
we can do there to make those markets better and similarly
with housing, right? I mean, the the story of the US
housing market is a fascinating one.
Your listeners might want to look for Roth the book by Austin
called the color of law, which traces through the history of
how of the sort of racist, intense and consequences of US
government housing policy. One explain.
Why it? There's big difference to say in
black white housing ownership. This is the book to read to
understand. If we want to expand home
ownership to more people getting rid of a lot of those
regulations would help and similarly, a lot of things, a
lot of things like zoning. And so on in cities, that keep
Brent's high are another reason. Why housing is so expensive and
That explains to some degree what we see in terms of hormones
homelessness and so on. Yeah, that is something I even
read. Paul Krugman admit, in arguing
with zombies, that zoning drastically increases the price
of housing. You also have people like Elvis
summers in California, who made houses for the homeless at about
fifteen hundred dollars each. They were very nice.
They were more or less boxes, but drastic improvement of of
course the city shut it down even though it was private
property. Not Because they, but they said
it's okay because they're going to go through with a poverty
bill that they have in Washington, d.c.
A guy named Jay, Austin did the same thing.
They shut him down, right? According to whatever
regulation, even though. It's a drastic improvement.
It's still not good enough. They'd rather shut it down and
claim to be the heroes tell you from now, right?
And those Innovations are great, great examples of how how
entrepreneurship and markets work to sort of provide those
things that that are otherwise missing.
Yeah, and then On health care, doctor, Mary, J ruark wrote a
great book called Death by regulation, and it's just
fascinating that we could have so much Innovation.
It's not because there's too much freedom and voluntary
Exchange in these sectors. It's the introduction of
coercion as always. You mention in a great chapter
in Austrian economics and introduction about 1974.
I believe it was where Friedrich Hayek, a member of the Austrian
School of thought won the Price for effect, getting a
foundational understanding of the business cycle or why we
experience recessions. Why do we experience recessions?
Well, at least with the austrians would hike argued was
that the recessions are the inevitable result of excessive
money creation and credit expansion.
So you have inflation inflation distorts prices.
It distorts in particular the interest rate that makes it
look, it makes the interest rate lower than it really.
Is? It makes it look like people are
more future. Oriented than they really are
and entrepreneurs start building longer process of production,
investing more, and in research and development.
And those sorts of things anticipating that, eventually
the demand will be there. Turns out it's not going to be
there. People's preferences haven't
really changed. And so you get first, you get
the boom, as sort of everyone responds to those lower interest
rates by building up production, eventually, the truth becomes
revealed and then you turn into the and you have the down turn
into the recession and what recessions are are correcting.
Mistakes of the boom. And I think that's really
important to understand the mistakes get made during that
inflationary period in recessions or the way in which
we correct that what we call malinvestment and try to get
resources, allocated back to where they will be more
productive. So, if you want to understand
why recessions, at least most recessions, what we're seeing
with covid to different story for a bunch of reasons, why
won't my most recessions happen? One place to look is to see
what's happening with inflation and that's in our own era.
That means looking at the fed and other central banks and and
and it's their poor policies that are that are driving that
process a general argument against free market.
Economics. Is that some regulation if not,
a large amount of Regulation needs to be introduced, where we
would normally have this chaotic state of nature man-on-man
exploitation. No one really getting a fair
shot, people constantly getting screwed, but then the state
ushers in a regulatory regime under which people are able to
engage in You know, but generally accepted Commerce, why
are the Austrian? Why are the austrians?
So hesitant or outright opposing to State regulation?
Well, I think there's two sides of the story, right?
One is an understanding of how markets work and why people have
have have reasons to cooperate with each other and an
understanding that in fact, much of the law that governs Market
transactions. Commercial law emerged out of
these same sort of voluntary emergent.
Yes, order processes that markets do right.
Nobody invented, contract law. Nobody invented, all that
commercial law. Those are, those are emergent
orders and they grew out of the needs of actual Traders.
So, so, so understanding, first of all, that, that law that
rules. And in that sense of the word
regulation, right? You can have a regulated market
in the sense of having one that abides by rules and laws without
the state having to step in to do, it is really important.
So, on one side auctions would say, We'll look, there's ways
for people Solve those problems and develop those Rules by
themselves to ensure that no one's getting screwed.
And that people are engaging in Fair Commerce, on the other
hand, right? When you give the state the
power to do these things. You have two issues, one will
politicians and political actors know what rules to adopt and
what are the right solutions to these problems.
The wisdom of crowds is better than the wisdom of a handful of
people in Washington. And the other part, of course,
is that that do they have the incentive to do it, right?
And and once you create those institutions of power, why?
Should we be so confident that the power will be used the way
we think it should be as opposed to what's in the interest of
those who possess it and certainly the Trump
Administration has given us, plenty of reason to believe
that. That when you create
institutions of power, and you put the right or wrong person in
it. They're going to be used in
misusing. That's not a, that's not a
critique. That's not to say that the
problem is bad people, right? Problem is you have these levers
of power. And those levers of power will
attract people who have an interest and a skill at using
them in particular use. Them in problematic ways.
So, Tom Hartman basically says, there is one argument that
really takes down both Chicago school and Austrian School of
economics. And it is that because they are
foundationally unsound theories, that assumed human beings have
perfect knowledge. Now, I've heard this criticism a
number of times. I've never heard any Austrian or
Chicago and say I know people have perfect information.
However, this is the criticism. How do you Respond to the
mindset. That what makes this a naive
unrealistic worldview? Is it assumes perfect
information, amongst consumers and employers and people across
states and countries as a description of the Austrian
School. It's just flat out wrong.
That's that. That's the only there's, there's
absolutely no substantive evidence to support that.
That's what austrians believe, it's a little trickier with
Chicago, right? But austrians from the very
start, including Carl Menger who, you know, whose work
founded the school, the the description of human.
Have been as I suggested earlier of people who are imperfect, who
don't know, everything, who face uncertainty, who are engaged in
Market transactions, as a way to learn and discover, that's fact,
that's the core of the school and that's the core of the whole
certainly for the austrians. Right?
The core of the way we understand ourselves is to say
that human beings don't have perfect knowledge.
And and in fact that's part, of interestingly, part of the
reason why we're skeptical, skeptical about government,
impose Solutions, Because political actors don't have
perfect knowledge either. Right.
And it's not that we're saying they have perfect now, they
don't have perfect knowledge but Market participants.
Do, neither one does. The question is under what sorts
of rules and what sorts of Institutions will imperfect
partially knowing human actors. Be better.
Able to coordinate their behavior and produce progress.
That's the question. Yeah.
That is a great article. I came across by Don Boudreaux
where he says, dumb individuals brilliant voters where people
are so dumb that they can't be trusted with freedom.
Wait, we need to vote. If you don't get active and
participate, then you're the reason democracy isn't
succeeding. It's like, well, if you can
trust them with their own judgment or the Judgment that
they delegate to an expert in the field.
How can you trust them to vote for what the head of the FBI
agent? Right basis?
Yeah, mrs. Makes this point to yeah,
absolutely. So another claim is that in this
ideal framework of no coercive State intervention.
You might have one much like you have one playground on the
bully, one wise, you know crack in the class in a larger
context. You would have a single
monopolist and an industry. They would find some way to
undercut the competition by them up because the competitions in a
vulnerable situation, leave consumers and employees with
very few choices. Once they're in that position,
drastically raise the prices and leave the extremely vulnerable
populous on Able to have many Alternatives and being
exploitative being exploited. Rather.
Do you think the possible existence of monopolies is a
weakness of the Austrian School? Well, that's an area.
You layout is what Economist call, predatory pricing, right?
And there's there's a number of questions.
One can raise it by, I'll raise the sort of narrow one first,
which is where, wait a second, if predatory pricing Behavior.
Like that is how firms become monopolies.
How did they get in the first place?
How do they get the sort of? Profits to be able to afford to
unto quote undercut, the competition for so long and take
losses. Right?
That must have come from somewhere else.
So it can't be an explanation of how firms become monopolies.
And even if I recall the way you described it, suppose you have a
monopoly, right? And then does he sink?
Well, wait a second suppose what where'd that come from?
And, and, and plus, if it's not if there's competition it's not
really a monopoly. I'm a true.
Monopoly means one, right? And we often see people today.
Use the term Monopoly to describe large firms.
It doesn't mean large firm. It means Mono one, right?
One and only one. So the bigger question though.
I think is this I often challenged students with this
question, which is give me a historical example of a company
that acquired a Monopoly without any help from the state that
through the market, became the sole seller of a good and when
it became the sole seller raised prices and restricted output,
because that's what theory says it should do.
And I submit there's no such example, at least in American
history, the examples that we sometimes think of it.
As monopolies either were not pleased that were granted by the
state example. Would be AT&T.
In its early years was given a state Monopoly.
Over the telephone US, Postal Service Monopoly over
first-class mail. Okay.
So those are examples of State granted monopolies and and any
other Market ones and there's a few that are pretty close where
firms were nearly single sellers right?
For a while, Microsoft was in certain markets.
But again, it's not, they raise their prices in restricted,
output to the contrary, right? They gave yourself away for
free. And lots of people use it.
So, so the question is show me, an example of a market created
Monopoly, that behaved poorly in the way.
That models, say the real problem with Monopoly is when
States Grant privilege to particular producers and prevent
an inch and insulate them that privilege insulates them from
competition. That's the real problem.
That's when they're able to raise prices and restrict output
and so forth. Could we possibly maybe
experienced something like what's referred to as pooling?
Where? There is a general meeting of
the minds amongst competitors, that it's a virtual.
That it's a mutually beneficial if they all artificially price
high in order. So not one of them wins over the
other but they engage in what? I'm sorry.
What is it? I think it's Cartel Cartel is a
possible existence of Market cartels, a weakness of the
Austrian School. So the question you have to ask
here is is that is Such a cartel again without support from the
state in the interest of the participants, right?
You can each of them might say well, sure.
Yeah, if we get together and we agree on a to restrict output
and raise price, we can all benefit from it.
But notice that each of the members of the cartel has an
incentive to break that agreement.
Right? What they want to be able to do
is have everyone else charge the high price while they actually
find a way to increase production and often the good at
a lower price, that's in their incentive to do that.
And if each of those cartel members has that same incentive,
right? The cartel, just just falls
apart. So, one of the Tom's you faced
with cartels, is how do you ensure that the agreement holds?
How do you get people to act in ways that that are clearly
against their self-interest? And that's why they're too.
I think there's very few examples if any of truly
market-driven cartels lasting for any, any real period of
time, it's amazing that all these creative criticisms.
They find under the Deep microscope.
They never apply to the state. It's like, okay.
How about the government's trillion dollar a year military?
That makes us less safe creates enemies.
And funds jihadis to fight Assad and fight Qaddafi.
How about the 22 trillion-dollar?
Welfare state that hasn't solved poverty, even though they
promise it's going to Medicare Medicaid.
Have not solved. The problem of healthcare every
time, you know, there's a bill they have to make 10 more bills
to make up for the last one. They screwed up.
They never apply this principle consistently, which the
austrians uniquely do. And that's another real
strength. I think the austrians have.
Yeah. I'm yeah, I think just as a
general point. We you know, critics talk about
market failure, all the time that markets don't live up to
what the model says they should do.
But we also have to talk about government failure.
Right? And and does got has does
government do what we say, it should do?
And solve the problems that as you said, problems it claims it
solid. Yeah, and at least with the
market, you can opt out. It's like every criticism of the
market applies tenfold to the state because you can always opt
out of funding. Whoever it is in the
marketplace. Speaking of funding only who you
want to, you open the book, talking about subjective value.
Y is subjective value an important concept.
Well, we have to understand that that's if we want to understand
behavior in the marketplace. We have to understand how
individuals choose and the choices that they make and so on
and that the start of as back to McCloskey, as she says
economics, would happens between your ears right in that.
It's people's perceptions of the world that drive.
Actions, and so economic value. And we think about economic
value is, do people think something is useful to them.
Do they think that this particular good will satisfy a
particular want that they have? That's where economic value
comes from, from our perceptions of it and how each person's
perceptions of value interact with with each other.
And with people who want to sell Goods determines Market
outcomes, subjective theory of value was was a was the correct
response to previous theories of value like labor theory of value
or other when we call cost of production, theories of value,
which Which could not explain observed phenomena in the real
world, but the subjective theory of value could now, while you
mentioned the labor theory of value.
I have one General response that I could see coming from the
labor theory of value. Advocates from you know, Adam
Smith to Richard wolf today that not all labor is value.
For example, I dig a hole, fill it back up eight hours a day.
That's not value. But all Value is labor.
Another words. This very book only has value to
me because someone put the labor you plus the manufacturer, put
the labor into it to make it for me.
So I could enjoy it there for the labor.
Theory of value was accurate because all value comes from
labor. Your what you're walking you're
thirsty and you're walking along the street and you see a
unstarted bottle of water sitting right there or Better
yet. Here's a better reaction times.
Do better example, you're walking, you're walking through
forest and you're thirsty and there's a stream running through
the forest and you decide to take some of the stream water
and drink it, right? You value.
That's there's no question that stream water has value for you
right yet. It's not clear.
There was any labor that went into producing, right?
How do you part of the problem with one problem and not the
biggest problem, but one problem to labor theory of value is, how
do you explain things like that? How do you explain Goods that
sort of the goods of nature? That no labor went into that.
Nonetheless. Clearly have value to us.
Sure. And the fact that I value, you
know, paying for this book and spending time to read it.
Whereas, you know, I know other people who hate libertarianism
in the Austrian School, who wouldn't spend a penny on it and
wouldn't read it. Well, luckily for them.
They could download it for free at Cato.
So, you know, they don't have to spend they don't have to spend
anything but their time oh terrific, but very nice, so I
want to get into Chapter 3, a little bit more spontaneous
order. The what is the principle and
practical difference between a corporation engaging?
In centrally planning. For example, Doug McMullen or
Jeff Bezos the CEOs, sort of lie, centrally planning and then
delegating and delegating. Until they have, you know, the
average person in Chandler Arizona.
What is the principal difference between Nat Central planning and
government Central planning? That is a great question.
And I think well, I think one that That wish people would ask
more so a couple of things. First of all, those
organizations firms corporations would ever exist in an
environment that has two features to it.
And that is first, it is an environment of competition.
There are other firms doing this engage in the same thing.
Amazon does have competition, other firms have competition.
So so they always have to pay attention to that and people
have choices about whether or not they want to patronize those
firms, but more important, they Operate in an environment that
has prices and profits and markets and so on that enable
them to plan within their organizations.
So Amazon kankan formulate, a budget can see profits and
losses and figure out whether it did things, right?
And determine whether within their organization, what path
forward they want to take. So, ironically what enables
firms to plan is the plan, listen, asst of the market
environment, in which they operate, right?
You can't engage in that planning within a firm.
Unless you have markets outside of the If we think about the
state trying to plan everything, there's no outside for it to
use. There's no prices.
There's no profits. There's no market for it to rely
on to engage in that planning. That was the sort of the, the
original marxian Vision. So you can't, you know, you
can't plan everything. But the fact that you can plan
in those smaller organizations is made possible by the plan.
Listen, asst of the broader environment in which it
operates, and it's important to remember that, you know, when we
talk about things, like, spontaneous order that the
actions that the Visual people and firms and households are
taking our sort of rational planned actions.
It's not you know, some my students want to translate
spontaneous order as shit happens, but that's not right.
Okay. It people make very conscious
intentional decisions, the outcome of the back and forth of
those decisions is no one's plan.
No one's intention is emergent in that sense, but the but the
actual decisions of the individual actors and firms and
so on very much rational and plan and they can do that
because they're operating Within that broader Market context,
sure you wrote a paper some time ago called competitive
currencies, legal, restrictions and origins of the FED, some
evidence from the Panic of 1907 third, 30 years ago.
That's a long time ago. I'm curious when we look at
something like competitive currencies.
Is it possible that spontaneous order?
So, I'm sorry. I'm sorry to ask this in a
roundabout way when we think of Money, it's generally 1913 fed
is granted, a monopoly on the currency, the state.
Therefore provides a monopoly on the currency as a generous favor
to us in order. So that we all have a common
currency that we can easily trade with much like the
European Union does with the Euro when it comes to something,
like currency. Why should we look to
spontaneous order and not the Federal Reserve Bank?
Well, again, sort of same, I think.
Strategy to the response. One, is we have historical
evidence of how currency money produced by the marketplace
works just fine, the period. I mean, the best example, this,
by the way, is Canada. Canada had Market generated
currencies competitive currencies for most of the 19th.
And into the 20th century. It was remarkably free of the
sorts of problems that we with with that, the United States and
other countries had. So we know, it's not just
Theory. We also know that in Great
Britain for Long stretch of time competitive currency work.
So so we have the historical evidence that shows that it's
working. At the same time.
We have also historical evidence of the failures of central
bank's right. The instability in the US
economy in the 20th century has been much greater than it was
previously. We never saw the inflation that
we've seen. We certainly didn't have a great
depression or a Great Recession right in the in the 19th
century. So so why think that spontaneous
ordering processes can do better by money, we there's you know,
we have theories. That suggests, you know, same
sort of Stories, We Tell about competition in markets, but we
also plenty of history that indicates that that markets work
in money that competition Works in money and that government of
engine fails. I should add that most of the,
that one can tell a story about the failures in the United
States in the 19th century, the panics.
And so on the story one can tell, there is clearly one in
which the federal government's intervention, was the primary
cause for those for those problems.
Yes, now it's kind of the same question.
But this is still a really important aspect.
Because when we think of law legality, what the law and
legislation is, we often think of well law is that, which is
discussed in society, deliberated in Congress at and
then passed in DC and then distributed amongst the States,
you wrote a paper spontaneity and design in the evolution of
Institutions, the similarities of money and Do we have any
reasonable justification or historical justification for
saying why law and legal rules in the society?
Could actually evolve spontaneously as a port, as
opposed to being written down by Congressman as a room talking
about earlier. The entirety of commercial law
and so forth. Common law all emerge.
Nobody. Nobody designed it.
Any more than any someone designed the English language or
anything else? Common law commercial law,
emerged out of a centuries-long. Process of Judges deciding cases
and setting precedent. And then new cases come up and
decisions are made and new precedents are set and what we
call the common law, the commercial laws, the
accumulation of all that wisdom over time.
So we already live in that world, right?
It's not a crease, not even a question.
We already live in a world in which, which much law.
Not all. As you say, there's a sport
difference between that and sort of administrative law
legislation. But where much of the law, the
commercial laws, the best example of this is the law that
governs commercial transactions was not invented by anybody.
It wasn't In To Us by the state and emerged out of out of what
we call Judge driven processes. So while we have a general idea
of spontaneous order and ideal cooperation, we do have, you
know, things like pandemics or hurricanes and you wrote a paper
called Walmart to the rescue private Enterprises response to
Hurricane Katrina. I'm curious maybe you could
have, when everything's going fine, we could have freedom but
when something bad happens, obviously we need to usher in a
totalitarian state. It seems like it the last few
months now. Live in Australia.
Yeah, really does. The existence of pandemics
terrible. Things justify the existence of
a coercively, interventionist State not in and of themselves.
I will make a couple things right?
These kinds of examples large-scale natural disasters or
pandemic, right? Certainly a public health things
like a pandemic are probably about the best argument.
You're going to get for some role for the state.
But whatever that role is, right?
But it doesn't, you know, it's certainly not all encompassing
and it certainly doesn't have to be.
I mean, the lockdowns, for example, I think we, you know,
people were critical at the time and I think we certainly know
after the fact we're probably not necessary.
They were other paths for we could have taken without, you
know, driving a stake through the economy.
So there's no reason to think that that sort of any kind of,
you know, broad over broad scale, large scale, government
intervention is necessary. I mean, you know, given that
government has the role of Plays in the societies.
We exist in, right? You can, you can talk about
certain things. Government might do to ensure
public health and to keep pandemic under control things
like testing and so on like that.
Okay, fine, but, but that's a whole different story than
saying, you know, we then sort of turning into de Blasio, or
Andrew Como, or the, which is Andrews.
I think, is his name in Australia.
So any, right, that's a whole different, a whole different
thing. One Trend that I see among
austrians uniquely especially is what you could refer to as I
believe on top of calls it a priori reasoning or bottle along
with mises. I believe in I'm sorry.
I'm blanking on the book, but they engage in a lot of a priori
reasoning to engage in to get an understanding of more complex
ideology. Starting with of course, in
Human Action humans act. Then they Engage in ranking,
Cardinal, ordinates of, you know, how they value certain
things. Why is there such a focus on a
priori reasoning as opposed to empirical evidence or data from
the Federal Reserve? Well, first of all, a couple of
things I think, think two things I think that mises has been
misunderstood on this question. This notion of a priori
reasoning doesn't mean you sit in your armchair at home and
invent economics and And suddenly, you know everything,
what mises was saying was, there are a few things that we know
about human beings because they're fundamental to the way
the human mind works that humans act and that we rank order
things and there's a core right? That we just we know and we he
said we know through introspection.
That's how human beings work. And how dad by the way?
Now we know enough about how brains work and evolution to
sort of say, you know, there's there's it's not just
introspection. We have some evidence suggests
that human beings have commonalities for Old physical
reasons. But there's a limited number of
things, right? Economics is to take those
things and say, alright, what's the real world?
We're operating in? What are the actual institutions
we face? What are the what are the people
like in that world and sort of applying it there?
And and I think that this notion that austrians reject empirical
evidence and so on is just it's just factually wrong.
I mean Syria. Money and Credit First big book,
right? Was all kinds of historical
evidence about the roles of money.
And so on and I think other Austrian certainly modern
austrians, myself and people who are sort of doing this work
today, don't reject data and empirical evidence.
We don't even reject econometrics necessarily as long
as it's used to sort of support and supplement the argument
rather than being the focal point.
I did, what I wrote a piece as part of a Cato and bound back in
2012 on, I think the search Horwitz Cato praxeology, still
feel find it. That sort of lays out this this
point, right? I think austrians did and
continue some to do themselves. No good.
By sort of been sitting on this sort of a priori nonsense.
It's just it's just not how we do things in and and importantly
mises never even with when he talked about praxeology.
Never said, I'm sort of inventing, something new and
something out of my, you know, my my mind he was describing
what he believed. Good Economist had always done
and just trying to put a name to it and systematize it in certain
sorts of ways. So, so I think this is a really
misunderstood thing, and it's important, because what we don't
want to be austrians, don't want to be perceived as a sort of
thing. Well, we know, all the answers
to all these policy questions, because we just sat around and
man, acts and we deduced from there.
That's not how it works. Or, what would you say are the
best real world examples of free markets?
Increasing the amount of wealth of the least well off in a given
Society. Well, I think a couple of things
you can look at the Census, Bureau tracks data on And what
percentage of households own certain basic appliances and so
on. And you can, you can look at
that and sort of see that poor Americans below the poverty line
today, live, as well as the average American did in the
1970s, right? So that's, that's one way to
measure it. I think, in general consumption
is a good way to measure these things because that's what we
care about. Be care about what other people
able to buy with the with the money that they earn.
And so looking at something like that.
I've done this work. That sort of looks at the number
of hours, people have to work to buy sir.
In kinds of things and you can you can you can look at that and
sort of see that people are able to obtain things today, with
much less work than they were years ago.
You can look at the percentage of people's income.
They spend on food shelter and clothing used to be about 75
percent. 100 years ago. It's about half that today.
So there's all these different kinds of ways.
I and I get as I suggested earlier.
I think you can look at these things like life, expectancy,
and literacy and all those sorts of things to Cheep Cheep, Anna.
Products are available people in ways that they didn't used to
be. That's, that's an a dramatic
Improvement in the lives of the least.
Well off the fact that that you know, this is one of my favorite
stories that three-quarters of poor American households have at
least one car, right? Which is that's amazing.
And the story I like to tell is I think I got this from
McCloskey also can talk about her a bunch today.
But but back in the 1940s, the Soviets decided to show the film
version of The Grapes of Wrath as anti capitalist propaganda,
if you know the story, right? Just family of Okies is driven
out by the Dust Bowl. They get in their old car.
They drive to California, terrible, things happen to them.
So on its and it was an anti-capitalist, sort of
polemics, too strong of a word but certainly anti-capitalist.
And so they showed the film as propaganda, and they had to stop
after a week. Why?
Because the Russian audience is were watching, but whoa, wait a
second poor Americans have cars, right?
This is you know, 1940. So again that those kind of
measures I think are really important but along with again,
See an access to medicine and life expectancies and so forth.
One of the major critiques that I have come across about the
Austrian School is that it focuses too much on wealth For
Heaven's Sake. It's not just about money and
consumption but we also need to focus on is living a fulfilled
life. We need to have a society with a
high amount of social trust where people also feel fulfilled
with dignity. The market doesn't do that.
The state as my representative has the ability to do that.
At therefore. This is a major hole in the
Austrian School. How do you respond?
Well, couple of things. First of all, the evidence that
the state's able to do that. I'm not sure where that is and
why it's interesting isn't it that many of the same people who
might make that kind of argument are now out marching in the
streets, all upset, because the state's locking up people in
jail for doing nothing wrong, right?
That's the state, right? And if you know, what, why is it
you trust the same people who you think will do all who you're
so upset about having all these powers to do all this arm.
Please turn around and be able to do good.
That's, you know, that's part of it.
But I also think there's a fun more fundamental flaw in that
argument, which is austrians Libertarians, even, but
certainly austrians, don't believe that wealth is about
material Goods. It's about all the things.
Your wealth is all the things that you value, so, you know,
and that's subjective value. Right?
So if you value peace and quiet, that's, you know, the having a
peaceful quiet environment is part of your wealth, if you if
you think the world is impossible to imagine without
Music, having music is part of the music to you is a form of
wealth. That's, you know, we and we
teach that we should be teaching any way they want or to an econ
101. That's that's, you know, from
the start. It's as we were saying before.
It's not about financial and material stuff.
At least not about that alone. So, I think sort of the charge
that somehow we're not concerned with those other things is just
wrong. And at the end of the day, the
way you are able to live a life of dignity and able to sort of
live a life of comfort. And all the things that I'm
talking about is you have to have the material resources to
do it and nothing has provided. Those material resources better
for the least, well off for the last several hundred years than
markets have. And that's, I think that's for
me. That's the response.
There is an interesting book. I think it's called wages
unemployment and recessions by mises, where he has like a
chapter. That's a two paragraphs long on
why wages rise, I think is the title of it.
I'm curious. How would you summarize why
wages rise? Thanks.
First of all, what? Matters for well, what matters
for wages are the productivity of Labour, right?
How productive we are as workers and the productivity of the
capital that we work with. So one of the, why have wages
risen one reason is is that we have better, Capital work with
Machinery, technology, and so, on has made the average even if
Producer, productivity doesn't change if labor productivity
doesn't change, right? We're working with better
equipment than we used to, we can produce more than we used
to, but it's also the case human beings are have more education,
more training, more knowledge than they used to.
We are even if Capital had remained the same, we ourselves
have more productive skill than we used to.
And the combination of those two things is what Drive wages.
So, when I say to my students, you know, you want to earn a
good living. What do you need to do one?
You need to have human capital. You need to have your own
skills, but to you got to find, you know, Find an industry to
work in where, where people value the output, and where the
capital that you're working with will make you productive.
Yeah, that was definitely laid bare to me one day when our
computer system, went down at work and we had to do like
everything over the phone and all I got a pen and paper and
you know, we did it. But we helped probably 1/50.
But customers, we otherwise would so we were 1/50 as
productive. No, wonder our wages are much
higher than they. Otherwise?
Right? Because that's right, right.
And that's it. That's a really good example,
right? That's sort of notice.
To in the old days. You would have had a lot more
workers. Right?
Your labor, Capital ratio would have been very different the way
you would try to serve those. Customers is by having lots of
people writing stuff down by hand.
Right. But and what and what technology
would Capital does is to make an ableist fall or number of
workers to produce the same or more output freeing that other
labor to produce other things that we want.
People talk about how supposedly American manufacturing is, you
know, not what it used to be because All the number of
manufacturing jobs has dropped. Well, that's true.
But manufacturing output still going up.
Your spray able to produce more with fewer people.
That's a good thing. Not a bad thing.
That's another great Insight of the austrians is that they don't
look at people, as well as a worker, you're getting screwed,
because you lose your job. They're able to see competitors
as potential options and they look at this individual as a
person who's also a consumer. So, while your job might be at
risk, when everyone's job as Constantly innovating.
Well, you have access to products and services way more
than you. Otherwise would because of this
competition. Yes, the cost, is it threatens
your job, but the benefit is all the access to products.
And so that's a really good way to look at it, which is to say
it's the same phenomena. The things that make your job
risky and and run the risk of losing it.
I like the exact same things that enable you to consume all
of those all that stuff and live a life of comfort.
That's that's exactly right now. In a lot of economic
discussions. It seems like you'll year The
Austrian or the chicagoan, say something about a general idea
of how to get prices lower and why regulation stifles
Innovation. And then you have someone else
who says, well instead of doing all this mess.
We should make things free now by free.
They mean, the state should coercively, collect the funds
and disperse them. How do you communicate to
someone who just has the mindset of things can be free?
If it wasn't for these idiot Libertarians, making us making
In it, so they charged us for things.
Just make them free, make college free, make canceled
debt, cancel rent, cancel mortgage, and make health care
for you as well. Well, what I wish I knew the
easy answer that question. I think I think you have to you
have to talk about the fact that resources are scarce, that there
is no such thing as free, right? Everything has a cost and it's
just a matter of who or what's going to bear that cost.
So you can, you know, free college.
It doesn't mean it's, it might be free to you, in the sense of
that. You're not paying dollars to get
there. But someone has to provide the
resources to provide that to you which means someone else doesn't
have the resources to do another thing.
So, the decisions we make about where to Locate resources.
Should we have provision of more College Services?
Should we have more food, more, medical care, whatever.
We need some way of sorting that out.
But that's what prices do. And that's something the chapter
in the book on the Socialist calculation debate at talks,
talks all about that. And so, I think, you know, one
of the questions you can ask people when they, when they make
that argument, or if something exists to remind them that
resources used for one thing, our resources taken away from
another. How are you going to decide?
How do you know, which things are more important than others?
And more importantly, how do you know, you know?
No, who's going to produce them and who's not?
And then you had to answer all kinds of questions.
Okay, free college. What kind of college liberal
arts college, right? Technical College, what right?
We're going to put you know, we're going to provide people
with free, you know, nails and hammers.
Okay. What size nails?
What size happen? How do we get medical?
Care is the best. Example, we provide you with
Free Medical Care by governments and well, okay, what kind of
medical care? How many doctors, how many
nurses, huh? What sorts of things, what sort
of drugs in all of those detailed questions without
markets to guide you without Witnesses called the aides to
the mind of prices and profits. You can't figure that out.
Right? You're, you're, you know, let's
put something like this in an article on this.
But, you know, people accuse Libertarians of having no heart,
but in fact, replacing the market with the state is more
like gouging out your eyes, right, that you can't see, you
can't figure out what you need, what you need to do.
And and and in order to care about the least, well off in
order to sort of expand opportunities, for more people,
you need to be able to use resources.
Effectively and you need to be able to see where people's
priorities are. And that's what markets help us
figure out. It's so incredible that the
state has just give us those objections.
Totally ignoring the pile of bodies.
That governments have murdered over the last century about
since the days of like ancient Egypt.
I'll be enslavement mass murder and they're like, oh, you guys
do your philosophy doesn't care about people.
What? Well, and notice to write that,
some of that argument. Is that, that What's interesting
about it to me? Is it, they are the ones that
are focused on the material, they can only see sort of costs
and wealth to go back to our other conversation right?
In terms of material stuff. And that's what they're so
they're accusing us of being focused only on that.
But to them that's what it is. I mean, in a way right there,
the ones who are saying saying that's that's what is, and we
have a I think much broader Vision austrians.
Have certainly much better vision of what constitutes
wealth, right? And and and when we talked
things about scared, we say things about scarcity and We're
not just thinking of physical material things.
We're recognizing that he would beings exist in a world where we
cannot get everything that we want.
And so we have to make choices. People often describe
competition as very dog-eat-dog, this primitive.
I'm going to get you. I'm going to undercut you.
I'm going to do anything I can so I could win when I win.
You lose. That's competing.
Like a basketball game. You describe a competition very
differently and Austrian economics and introduction,
where you say, it's much more. Of a process.
How is competition? Not like a dog-eat-dog win-lose
situation, but more of a process.
Well, I think I'm not sure that that process is the right.
Sort of comparison of doggy dog, but I certainly think one of the
things we think about economic competition, the way it differs
from other forms of competition is that it's positive, some
right. The competition among, would you
think about, you know, someone has to win and someone has to
lose a baseball game? Okay, there's a winner and a
loser. If we think about, you know,
competition biological competition, right, you know.
You survived your, don't put in a cannot physically survive, but
economic competition, the competition among firms.
It might be that one firm wins out the competition and from
losses, but we all win as consumers to go back to your
point from earlier, right? We all went as consumers because
that's the process, right? It's through that process, that
prices are driven down that Goods become more affordable and
so on. So, so sort of, you know, the
notion of, I mean, is good competition should be
dog-eat-dog. Should Intense and rivalrous,
but the point is that one we've moved from a world for most of
human history where competition was literally life or death.
Now, it's not literally life or death.
It's does your firm Survivor not into it.
Produces benefits produces benefits for other people and
let me make another Point here too.
I think that that Libertarians need to talk more about the ways
in which markets are about cooperation.
As much as they are about competition.
What happens in marketplaces is that we cooperate with each
other, right? Producers.
Deuces and consumers, cooperate. When you go into the store to
look for that can of Coke. It's there waiting for you,
right? When you want something from
Amazon, you get it. Okay, and that's that love that
cooperation, the fact that we are able to engage with each
other in these peaceful productive positive.
Some ways is an amazing thing under that is the competition,
right? That were just talking about.
But what that does is create this world of social cooperation
and I think that's a we don't talk about it.
Often those terms. Exactly.
Yeah, it's like you do see Olive Garden competing with Red Robin
competing with TGI Fridays. But if you just go into the
Olive Garden, everything that's there.
Took hundreds of people to cooperate.
Just there, you know, getting into the eye pencil phenomenon
of, you know, there's not going alone, took a million people to
mad. And and if they, and if they
drive Red Robin out of business, nobody dies, right?
The resources that were used to be for Red Robin now can be used
for something else. Right, and that's that's the
difference between sort of what people think about his
biological competition or or even athletic competition or
military competition, right? Which are - best 0, but - some
games. What do you think that great
intellectual contribution of Eugene, Bamba verdict was to the
Austrian School and Society at large.
Well, I think most economists would know him from his stuff
and capital and interest and I think that's probably the right
answer and he really formulated the first Systematic
explanations of capital and interest After the marginalist
Revolution. And after So, within the
Austrian tradition and almost anyone who writes in that has to
do with it. I mean there were just there
were errors in it, you know, we've improved upon it over
time, but certainly, that was his fundamental contribution to
economics. So if I seek out employment for
an employer and the employer makes $50 an hour off my labor,
but only pays me $20 an hour. Is this a form of unjustified?
Action, if you're really producing 50 dollars, worth of
value for that employer, but your, she's only paying you 20.
Okay, two things are true. There is another employer
somewhere else who is making $50 off, $50 total off you who could
profit by paying you 25 or 30, right.
And still make right, still make the difference, make $20,
whatever, as a difference. So so why wouldn't that other
employers step in and offer you the better deal?
And secondly, why wouldn't you go searching for it?
If you, if you were, you know, you tried it.
You should be able to say to that other employers.
Look, I'll come work for you, right?
I, you know, I can produce 50 dollars worth of value.
They're only paying me 20, what, you know, what will you pay me?
And it should be in theory, worth them to pay up to 4999.
They're still making it up, you know, penny a profit off of what
you're doing. So so why firms would
consistently pay workers less than the value that they
produce. It's not clear in a competitive
market. It sure.
And I just want to get to the heart of your your discussion on
entrepreneurship. I've just got about a couple
more minutes. Oh, yes.
Okay, look last question just to fuck when talking about
entrepreneurship. Is it inherently exploitative?
The fact that I use you to make more money, even if I have 50
competitors and you can get maybe get a better deal
elsewhere. Are we still dealing with a mean
using you to make money off of you?
So You can make money for me, the Fat Cat.
What, what, what's the using there?
And what's the making money off me?
If you if it's a mutually beneficial transaction, right?
You're paying me for my labor. Right?
And I'm providing value to you. You're in the position, go back
to our earlier conversation. You as the owns, the owner are
in a position of having Capital, that makes my labor more
valuable than it would be. Otherwise.
Remember, as a worker. I need Capital as a capitalist.
You need workers, right? And so so, you know, are there
differences in bargaining power? Sure.
But the fact that that workers in a competitive market, economy
can exit and find other options is important.
And if they don't think they're being paid fairly, there are
other options out there and and you know, well all the firm's
got together and keep wages down.
Well, we went through that with our discussion of cartels,
right? The incentive for any individual
to break that agreement is still is still pretty high.
So there's nothing mean to claim that it's inherently
exploitative. I think in the end start from a
marketing perspective is going to have to rest on something
like the labor theory of value which we know is False, of
course. And sometimes it's the other way
around, when the business might go under, well, then a lot of
the employees have more leverage at that time.
When I as a consumer, go into a place.
I'm not looking to meet the employees and fulfill their
lives. I'm doing it.
Because I want a product. I want a service.
It's like they do when they come into my store.
Nothing wrong with this voluntary.
Commercial interaction. I noticed parties benefit,
right? And notice that the focus, There
is almost always on entrepreneurs who profit, right?
What up? Yeah, I mean, what, how do you,
how do you? How do you talk about that?
Excellent, Steven Horowitz? Thank you so much for your time.
I really appreciate it. The book is economics and
introduction. Something.
I absolutely recommend. As I said, you can, you can find
a downloadable version at libertarianism.org and the Cato
Institute website. You can also find their there
are seven video lectures at a company at that sort of
correspond to the various chapters.
So that's another thing. If you're interested, you can go
take a look at those as well. Terrific.
You will find all those links in the Description below, mr.
Horowitz. Thank you so much for your time.
My pleasure. Happy to be here.
Keith. Thanks for having me.