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. 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.