[[[This transcript still needs one more pass, to check it against the audio and to clean it up. This will happen in a day or so.]]]
[[About this transcription: The speaker, finding this transcript, should be able to say "Yes, this is a faithful recording of what I said, and the links are clearly intended to aid the reader's comprehension of what I said." Triple-question-marks (???) mark parts that I could not make out. Please contribute those parts if you understand them.]]
The Quest for a Property-Based, Misesian Economics
Thank you the organizers for having me, thank you Lew Rockwell for being a great inspiration for me.
Let me start by a little piece of geography. As you heard I come from Prague, the Czech Republic, which is for many of you I guess a similar exotic place as is Iowa for me. [Laughter]
So, Prague, at least geographically, is more western than Vienna -- and by the way those two great cities are not that far away from each other, some 200 miles. So our at least geographic proximity to the Austrian school and the origin of the Austrian school is useful in our today's effort to revive the school, because we can claim that we used to be part of it and we are part of it again. This morning, Robert Higgs mentioned that one of his books is coming up in Czech language and some of you laughed a little. [Laughter] I don't know exactly why. But I hope I will, and I will do my best to show you that the Czech Republic is actually a very miraculous country.
Well, I'll start with something that always makes your students interested in it: in my country, beer is cheaper than water. [Laughter, Applause] I don't know how, because you know you start out with water, you put some stuff in it, and it gets cheaper. [Laughter] So, as you can see, there is not only room for research program in anarchy as Edward Stringham mentioned [mp3], but this calls for an explanation too. And from this you can derive the whole body of economics, because if beer is cheaper than water, and you use the first sentence of every economics textbook saying that people respond to incentives, you can nicely show that it is not coincidence that Czech people are #1 drinkers of beer measured on per capita basis. Better than Germans and you know, other countries -- we are always happier to be better than they. [Laughter]
But this is still not all, not only economics is alive in my country, now also the Austrian school is a respected school of thought, a respected way of approaching economic phenomena. And this is so because of this institution, the Ludwig von Mises Institute. It is exactly 10 years, this year, when I came here as a student at that time, attending the summer university. And that that experience, that event, completely changed my life. As I learned here how to fight for ideal, and how and why to care about ideas. And since then, step by step, this investment of Ludwig von Mises Institute into myself and couple of my colleagues, can be called responsible for the Austrian School revival in Prague and all central Europe and perhaps Europe. I'll give you a couple of examples which my country is very special and in which Austrian School made it to where it is in these days. As Jeff mentioned, I translated Murray Rothbard's Power and Market , this is the Czech version, under the name Economics of State Interventionism, together with Rothbard's paper on Utility and Welfare Economics [pdf].
And this book now is our textbook for a master course of Economy and State Intervention, which I teach. It is an undergraduate course, and hundreds of students have to read the book. Just this semester the spring 2006 I had in my class 230 students, and all of them had to read Murray Rothbard. Which I guess doesn't make sure that there will be 230 Austrians in the summer, however, at least some of them will -- or all of them will learn about the ideas and many of them will become followers of or sympathizers with the Austrian school. We also, last year, published the Czech version of Man, Economy, and State, the Czech version called Principles of Economics to make it real alternative to the other principles books, and it is again, widely read by students, and we have now after one year had a second print of that book. This year, in two month, Human Action will appear in Czech. And we'll have in Prague Ron Paul, helping us to book-launch Human Action, and again it will not just be a new book published; the book will be widely read by students, because we do not only work in a think tank, the Liberální Institut, but we also control part of the ??? economics, which is the biggest economics school in the economy, with some 3000 students entering the school every year. We control one-fifth of it, so some 600 students are under our direct control [laughter].
And you know we realize that this is a real asset. So for example those 600 people in first year of their undergraduate studies they have to read Henry Hazlitt's Economics in One Lesson. And then it goes on and on, through Mises to Rothbard and other Austrians. Not only us are responsible for teaching Austrian ideas but I invite everybody from the Austrian circles from around the world to come to Prague as a visiting professor to teach a course on Austrian economics -- both theory or applications. we had people such as Samuel Bostaph [mp3], we had Guido Hülsmann [mp3], we had Richard Ebeling [mp3], we will have Robert Higgs in a month to be with us in Prague for two weeks delivering the whole course for hundreds of students. A few more things I wanted to mention before presenting my paper Mises and Economics. One of the events of the year in Austrian Economics is our annual conference called Prague Conference on Political Economy, organized for the first time last year, and in a month there will be the 2006 conference with three named lectures, two after people from the Austrian school whose lives were connected to Prague. Namely, Friedrich von Wieser taught in Prague before leaving to Vienna to take over Carl Menger's chair. And the other man with Austrian School connection is Franz Čuhel [pdf]. Franz Čuhel, to whom Mises makes references in Human Action and other works, Franz Čuhel who wrote a book on ordinal utility, and actually Mises took it from him, and then the whole of mainstream economics took it from Mises. Franz Čuhel, being of Czech origin, is completely forgotten in my country, and this is our attempt to tell to the world that not only beer can be drank in Prague but also we have some spiritual values to adhere to. And this year, Robert Higgs is giving one of the lectures. The second is given by Huerta de Soto, whose book [pdf] on banking and business cycle just appeared in English. So, great people and hundreds of students of Austrian school, not only from Czech Republic but mostly from central Europe or Europe in general, with numerous American attendees as well.
Through this conference I tried to do what the Mises Institute did for me. Bring the ideas, have events to which people can come and meet the heroes of the school and start working in a tradition. For some of our central eastern European friends it is a little too costly to come to Auburn so if I can substitute what the Mises Institute is doing here, do the same thing or at least try to do the same thing in heart of Europe, I guess, we can all only benefit from it.
We also have an Austrian English ??? Journal called New Perspectives in Political Economy, to which some of you already contributed. And our biggest project that is about to materialize, within a month, will be a ???ian publishing house, focusing on Austrian Economics, called Bohemian Academic Press. So I guess it's a way how we can give a platform for ???ian Austrian scholars to publish their works through. Nothing of the abovementioned would not be possible, and would not have happened, without the effort of people from the Mises Institute. And without, of course, Mises's great contribution to Economic science and his inspiring work. However, not only my personal life and professional career change, there are other changes as a result of Misesean scholarship as well. After the collapse of socialism one-half decades ago, a general belief prevailed that socialism did not deliver. And no one better that Ludwig von Mises explained that it could not deliver prosperity comparable to western standards. Socialist planners simply were not able to do their homework, and were not able to hide this blatant failure from the eyes of the masses anymore. Some sort of transition towards capitalism was of course suggested and implemented in many countries, such as my own, the Czech Republic. Some prices were set free, some sectors privatized. After many years of socialist economic chaos, economic structure was given a chance to become meaningful, to get real. In the field of economic theory, we could witness an analogical development. It was hardly possible anymore to claim that Russia would soon outperform the United States, with some celebrated 'leading economists' outrageously have claimed for many years. The complete economic disaster of socialist planning and millions of people in poverty sent the signal that there might be something wrong with their morals and the whole way they approach economic phenomena. Hence, with the collapse of socialism, economists saw the challenge -- and wanted to get real, too. To provide a scientific argument for possible real-world transition strategies towards capitalism -- or more importantly, different visions of the endstates, different capitalisms. New schools emerged and felt confident to provide answers to the problem of the day.
They do not solve the problem of whether capitalism is better than socialism or not. They propose activism from the ???. That is, in the name of capitalism, for capitalism. Rising from the ashes of the original comparative economics, which loses its sense with the end of the collapse of socialist experiment -- there is nothing to compare to capitalism -- we can read of the new comparative economics coming from Harvard, whose aim is to choose the best capitalism, an optimal mix of disorder and dictatorship for the people. At the University of Chicago, we can witness how the new Chicago School "identifies alternatives as additional tools for a more effective activism. The hope is that the state can do more. The government must weight the costs against the benefits and select the more ??? that regulates most effectively." Or if people make systematically bad decisions, "then we should be less willing to grant wide freedom to adults to make unaided decisions involving the comparison of current benefit and future costs." This is how a scheme of state-forced saving system which they call "debiasing people's behavior through governmental action" within a capitalist framework is justified by an increasing popular behavioral law and economics. Shortly, economists do not want to be merely amateur theoreticians. In Steve ??? words, someone who knows a thousand ways to make cloth, but doesn't know where it goes. To continue this analogy, with the collapse of socialism, the Russian ??? (socialism), does not pretend anymore to be more beautiful than a girl (capitalism), and economists do not pretend anymore to know how to generate its beauty. Economist now focused exclusively on girls (capitalism), though they often do not have lost their inhibitions to impose their beauty standards. They still want to plan, fine tune the economy, or mimic the market. Their argument for state activism still exists, and to fight them is the major task of those who cherish free markets.
Now how. Rather than following the spirit of the day, and jump on the bandwagon to introduce, once again, new economics, a brand new modern school of thought with a new suggestion how to tackle new burning social problems, I would rather suggest to go back to the wisdom of those who were not surprised by the tragic failure of communism or Keynesianism, or interventionism for that matter. Who spent their lives trying to integrate economic science into a coherent body of knowledge rather than divide it into hyperspecialized, disconnected pieces. Who have kept emphasizing that sciences of law and economics are connected through the concept of property, without which social order becomes meaningless. Namely, through the ideas of the giants of the Austrian School, with Ludwig von Mises as its dean. By the way, Austrian law and economics is together with exploration of anarchy, another neglected research program which has to be developed in detail. Ludwig von Mises was a man who famously gave us in his Liberalism a one-word summary of what is the only workable system of human cooperation in a society based on the division of labor. Such a single word would have to be: property.
Socialism was ultimately based on the negation of property, abolition of the private property of the means of production. Once socialism as a doctrine was fortunately dead, all countries they want to return to capitalism, have to start respecting property rights. Unfortunately it is not what is happening in those countries. And again, my country, the Czech Republic, can be mentioned as one example of such a situation. The reason is that both practical economic policies of so-called capitalist countries, and more importantly most of so-called free market economists could be called capitalist or free market only when compared to the reality of ??? socialism and Marxian economics. However, when judged against the benchmark of property, that Mises so clearly set forth, we would have to call those policies and their intellectual bodyguards, socialists or interventionists at best.
Take first a few examples of how generally accepted strongest intellectual proponents of free markets treat property. Law and Economics school, and Public Choice school. Richard Posner, who is believed together with Ronald Coase, to bring property back to economics, came up with "the most ambitious theoretical aspect of the economic approach to law, the proposal of a unified economic theory of law in which law's function is understood to be to faciliate the operation of free markets." Hence, it is necessary, allegedly, in the name of markets, to manipulate the limits of property rights, in order to get an optimal, efficient level of economic output.
Once again, as Posner says, the issue rarely property rights or no property rights, but rather limited property rights or unlimited property rights, with the limitation designed to induce the correct "not an insufficient or excessive level of investment". It sounds like another attempt to develop a General Theory by a man who is not believed to be any great free marketeer. This suspicion is reinforced when we learn of Posner's macro view of economics, as he points out, "economics is concerned with explaining and predicting tendencies and aggregates, rather than the behavior of each individual person" [jstor].
Shall this be an antidote to our socialist and collectivist approaches of the past? And all this especially when we saw how Posner's ambitious Law and Economics projects ended up with Posner, after decades of studies, suggesting that soundness of theoretical arguments is not to be any more decisive, because "the ultimate criterion should be pragmatic. We should not worry whether cost-benefit analysis is well-grounded in any theory of value. We should ask how well it serves whatever goals we have."
Well, this concept of 'we' and 'whatever goals', seem to be quite frightening in the post-socialist reality, and do not seem by no means to give us a clear direction how to move from socialism toward capitalism. Public Choice is a school that came to revolutionize the perception of the state and attempted to demystify it, however it doesn't seem to be of much help either. With its parallel between economic and political relations that allegedly both "represent cooperation on the part of two or more individuals, and hence at base they are much the same." But means mutually advantagous, it is hard to find a principled argument against socialist or semi-socialist policies and governmental activities. Morever, if as Buchanan says, the status quo always represents an existing implicit social contract [econlib], and in the name of efficiency it might be justifiable to confiscate inheritance, you are left with nothing to protect property, as a keystone of viable social fabric. It is even more disturbing when we realize that both Law and Economics and Public Choice are supposed to be, unlike many other pseudo-economic schools, the friends of property and capitalism.
How refreshing is to read Mises's works and see what a really comprehensive theoretical approach means. His praxeology naturally encompasses both law and political markets and gives us tools such as economic calculation to evaluate their connection with other parts of social reality. Now, look what the most market-oriented practical economic policy reforms proposals are suggested by 'free marketeers'. In countries such as my own, what people who want to move the country away from socialism come up with, is compulsory social security system and flat tax. The reason for the first one, social security, is that we'll have higher savings, hence higher investments, hence higher GDP -- that is, we'll become somehow more efficient. The reason for the second is not to lower taxes, but to have more efficient tax collection. Again, this strange concept of 'efficiency' is entering the scene. Efficiency is here to manipulate property rights. In the name of efficiency, politicians were told years ago by Milton Friedman to get rid of the gold standard, and later by Posner and Coase to destroy property and property rights and redefine them anew, by Buchanan to nationalize inheritance, and now, because of efficiency, to semi-nationalize savings and redesign the tax system with the objective to collect more taxes. It is completely absurd.
As Mises said in Human Action, there is no such thing as an appropriation of portions out of a stock of ownerless goods. The products come into existence as somebody's property. If one wants to distribute them, one must first confiscate them. It is certainly very easy for the government apparatus of compulsion and coercion to embark upon confiscation and expropriation, but it does not prove that a durable system of economic affairs can be built upon such confiscation and expropriation. The very basis of social order is rooted in the concept of property. Efficiency, if it means anything, cannot rest on expropriation and the use of force against peaceful people. It is a result of market operation, through which entrepreneurs discover better ways of conducting transactions. Efficiency stems from consent, it is a result of market operation, it is not something that must first be calculated by experts and then implanted onto the economy.
Mises's understanding of this kind of defense of market economy is apt, as he pointed out again in Human Action. "Even those specialists who do not openly side with a definite pressure group and who claim to maintain a lofty neutrality, unwittingly endorse the essential creeds of the interventionalist doctrine. Dealing exclusively with the enumerable variaties of government interference with business, they do not want to cling to what they call mere negativism. If they criticise the measures resorted to, they do it only in order to recommend their own brand of interventionism as a substitute for other people's interventionism. Without a qualm, they endorse the fundamental thesis of both interventionism and socialism".
We do not seem to be able, neither here in the US nor in Europe to, quoting Mises, "to bar such scoundrels from access to the universities, and their articles from being printed in the periodicals of associations of university teachers." That is already reality. We have to live in a world which is hostile to the concept of property, both on the theoretical front and in practical politics. However, I believe, we can use the sorrow experience with socialism to our benefit. We can show our students how crucial a role economic understanding plays. We can show them that there were scholars who understood what is wrong with socialism, and we can use the same colorful economic logic to expose socialist or interventionist policies of the day. Simply, we have Mises's property-based economics that can help us understand what is the way to go.
Rather than, as many other approaches, suggesting a better socialist experiment, it identifies a viable alternative to our socialist past. As Mises pointed out in Human Action, whoever neglects to examine to the best of his abilities, all the problems involved, voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters, blind reliance upon experts, and on critical acceptance of popular catchwords and prejudices, is tentamount to the abandonment of self-determination, and to yielding to other people's domination. As conditions are today, nothing can be more important to every intelligent man than economics. Property-based economics, indeed.
Thank you for your attention. [Applause]
[Unknown speaker:] Time for questions.
[Unknown speaker:] ... he said, what other schools of thought ...
OK. Well, we have the whole range of professors teaching other economic schools. We are still not the only department that teaches economics, so in teaching Austrian economics we might have one line, but the other faculty members teach it the old way, which is not Marxism anymore but the old Marxists switching to being Keynesians in theory and pro-European Union in applied policy. Which makes our task easier because, we do not need to use very subtle arguments to make students understand who is right and who is wrong. [Laughter]
Well, as in many other places in central and eastern Europe there was this wave of privatization in the beginning of 1990s. Part of it was they called it restitution [pdf], simply that stolen property -- stolen by communists -- was given back to the original owners. By the way what was stolen by democrats before 1948 which was generally big firms, coal industry, mining and these important sectors, they were not returned back because this is considered to be fine as some people voted on it. But now the situation is getting a little depressive with the EU centralization project. One example, it was quite easy to start up a new business at the beginning of 1990s, you just decided to do it and there was not much red tape to really start a business. Now you need all these certificates, they call it protections of consumers and health and safety regulations, but it has nothing to do with health or safety. [Pause as the speaker makes unknown gesture.] [Laughter]
So, I like to tell my students that we are somewhere where the United States were hundred something years ago when the Federal income tax was suggested and first declared unconstitutional, however when you try a couple of times you typically succeed in these ventures, so now in Europe we are in that stage, but something gets regulated centrally, something is only in the form of a draft, we already get European Central Bank in a similar way you got your central bank a hundred years ago, so all the problems stemming from political centralization, we can expect in Europe and I can claim that they will be bigger and centralization will proceed faster, because we do not have this tradition of individualism which you have. We have socialist Francs with socialist Germans being behind the centralization, so it might have some short-term benefits such as people in Czech Republic can go and work in Germany, France, or Spain, however new pressure groups are formed on the continent-wide level with now more than half of he new legislation coming from Brussels with no way to reverse it, so politics is now much more distant from people. Living in a small country has an advantage in at least some times you might meet your minister who does all the harm to you and tell it directly to him, but now if you do not even speak the same language as these gangsters in Brussels then [laughter], it's over. Still we are optimistic, cautious.
You mean, when exposing them to Austrian economics. They like it, because they can understand it; it makes sense, this deductive method has the advantage that once they understand the basics, we don't need to force them to memorize the result, they will think themselves through it. And perhaps they are surprised at the beginning by what their brain is telling them, but after a while they get it. So we don't have complaints. And especially if you approach them with sort of a way in which they do not feel the pressure on them, you tell them well this is the argument and I'll be very happy if you write your semester paper refuting it or telling me what was wrong with it, but you have to use arguments. And then they do it, and they educate themselves, we just open the world for them and they do the studying. And use their logical capacities to think.
Well definitely the project does not seem to be successful as [laughter] Slovak used the first opportunity to leave and by the way Czechs were happy. So, fortunately it was the end of the nation of two brother-nationalities living under one roof, ended up peacefully, and I can tell that this split of the states actually improved their relations between those nations, which is what we would theoretically expect, but it's nice to see that it really works, that there is no animosities, nobody has this feeling that I pay taxes for the subsidies of somebody and somebody else somewhere else. When everybody pays his bill, it makes people friends.
Yeah we have this phenomena of having a Prime Minister who read Mises and Hayek, which is not very common [laughter], however it's not helpful either. I mean I would say that the only institutions that appreciate it are some of free market or libertarian think tanks in America such as the Cato Institute, because they believe that this is the way how you can change the world. They can show a living example of a successful free market economists, however I wrote an article [pdf] for the Journal of Libertarian Studies about this fable of laissez-faire reform in the Czech Republic. It's simply not trustworthy when you have all banks in state hands, you have socialist healthcare and school system, you redistribute 50% of GDP, and you have a prime minister who is celebrated as a great libertarian [laughter]. Who in addition to it approves draft, and attacks everybody who are against draft. At the same time, as I said, he has friends such as Milton Friedman that is helpful in these circles, but you know some absurdities appeared. For example, Heritage Foundation produces this index of economic freedom and it was done at the beginning of 1990s as a sort of questionaire for free market people such as Milton Friedman to rank countries according to economic freedom. And with all banking sector in state hands and all these things I mentioned, because of Klaus being friends with Friedman, Czech Republic ranked I guess fifth. It was like, Hong Kong, I guess New Zealand, and then the Czech Republic [laughter].
Of course you get all the problems of welfare state, unfortunately as people see it, the bad results are associated with your libertarian prime minister or presidents. So all the blame goes on libertarianism, free market, which is completely absurd. I would rather have a socialist as a prime minister, doing the same things [laughter], then you can at least blame correctly socialism as the failure.
[Q] You criticized Posner and Public Choice and so and so forth. It sounds like you're saying the former socialists have taken interventionist ideas from [coughing] free market thinkers, and not taken the free markets [inaudible], is that a fair description?
Well, what I'm saying is that if you do not really preach pure free market, then the interventionist in power will misuse this weakness and will claim by practicing semisocialist policy that even this school and that great free marketeer suggested this, so you simply, you create problems within the economy that are then blamed on wrong person. So, I understand that politics is based on compromise, so I'm not saying that you can change the country, but at least if you want to be called a libertarian, you should stick to some principles, such as non-confiscation of property [laughter], right. And then if the compromise arises you can say OK, that's a compromise, but if you start with something that is already semi-socialist then that is a disaster.
No, not, though there are some small parties that have libertarian edge in them, some of them after attending our summer programs were misunderstood what we are saying and so went to politics starting this venture however they will never make it to be anything else than just amusement for others, so [laughter]