The Jordan B. Peterson Podcast

00:00:00.940 Hey everyone, real quick before you skip, I want to talk to you about something serious and important.

00:00:06.480 Dr. Jordan Peterson has created a new series that could be a lifeline for those battling depression and anxiety.

00:00:12.740 We know how isolating and overwhelming these conditions can be, and we wanted to take a moment to reach out to those listening who may be struggling.

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00:00:51.040 This is Season 4, Episode 43 of the Jordan B. Peterson Podcast. I'm Michaela Peterson.

00:00:59.840 This episode was recorded on May 19, 2021.

00:01:04.080 Jordan and Dr. Robert Murphy discuss Austrian economics.

00:01:08.000 They discuss free trade, private property, the business cycle, and more.

00:01:12.340 This is nothing that they teach in schools and probably necessary for everyone to hear, regardless of age.

00:01:18.040 Dr. Murphy also discusses his books, Choice, and Lessons to a Young Economist, which are super helpful for those looking to grow their knowledge in economics.

00:01:29.500 Dad's feeling better, by the way.

00:01:31.900 It was a severe autoimmune flare-up, and now that he's back on our ridiculous all-beef-and-lamb lion diet, the reaction is dying down.

00:01:40.620 No idea how to explain it. It defies logic.

00:01:42.580 It seems to work for us, though.

00:01:44.620 So, he's feeling better.

00:01:46.740 Thank God.

00:01:47.660 And that's what's important.

00:01:49.380 New podcasts out soon.

00:01:51.180 I hope you enjoy this episode and have an excellent week.

00:01:53.660 Hello, everyone.

00:02:13.300 I'm pleased to have with me today Dr. Robert P. Murphy.

00:02:16.780 Dr. Murphy has a PhD in economics from New York University.

00:02:19.960 He's a research fellow with the Independent Institute and a senior fellow with the Mises Institute.

00:02:26.320 He's held academic positions at Hillsdale College and Texas Tech University.

00:02:31.080 He is the author of Choice, Cooperation, Enterprise, and Human Action, which is a modern distillation of Ludwig von Mises' important treatise on the Austrian School of Economics.

00:02:43.700 He's the author of several other economics books for the layperson as well, including Lessons for the Young Economist and the Politically Incorrect Guide to Capitalism.

00:02:53.500 In addition to his scholarly work, he hosts the popular podcast The Bob Murphy Show, concentrating on economic and political issues.

00:03:02.960 Thanks very much for agreeing to talk to me today, Dr. Murphy.

00:03:05.940 How are you doing?

00:03:07.360 Oh, I'm doing great, and thanks so much for having me on the show, Dr. Peterson.

00:03:09.960 My pleasure. A lot of my listeners have mentioned their belief that my work is somehow reminiscent of work done in the Austrian School of Economics.

00:03:23.180 And after reading, I didn't really know anything about the Austrian School of Economics.

00:03:27.120 After reading the bulk of Choice, Cooperation, Enterprise, and Human Action, I understand why.

00:03:32.940 There's an emphasis on value, I suppose.

00:03:35.600 A lot of my work is predicated on the idea that, it's not my idea, but on the idea that human beings are goal-directed actors,

00:03:43.080 and that much of our motivation, much of our behavior can be understood in that light, profitably understood in that light, so to speak.

00:03:50.320 And Mises insisted upon the primacy of human action really as a starting point.

00:03:57.000 Why did you write Choice, Cooperation, Enterprise, and Human Action?

00:04:02.860 And maybe we'll walk through it.

00:04:05.600 I wanted to talk to you because I wanted a two-hour lesson in Austrian economics,

00:04:11.560 and I suppose I felt that this was the fastest way to do it,

00:04:14.360 and I could share my intellectual endeavor with all of my audience,

00:04:20.320 and so I'm hoping we can manage that today.

00:04:22.560 So let's go to the book.

00:04:23.660 Okay, sure thing, and I'm happy to do it.

00:04:26.760 Let me just mention, though, before I forget, that I have listened to a bunch of your lectures as well,

00:04:31.600 and there was one besides what you mentioned, the affinity with value and that connection.

00:04:36.640 You often talk about how people get feedback from social cues of others,

00:04:40.820 and that helps people regulate their behavior,

00:04:43.220 and that's a very, let's say, Hayekian perspective.

00:04:47.020 When I heard that, I thought, oh, that's sort of like how the price system gives producers feedback

00:04:52.160 as to whether they're using resources profitably in a socially advantageous manner.

00:04:57.740 So anyway, I saw that.

00:04:58.740 Well, I did have an economic argument in mind or an economic analogy in mind when I formulated that argument,

00:05:05.660 I would say, you know, it's very difficult for us to compute our way through life

00:05:11.220 because life is so complex and so uncertain and so multifactorial,

00:05:15.880 and all the factors continually change.

00:05:19.020 And so, yeah, in Beyond Order, in my second book in particular,

00:05:22.800 I stressed the role of responsiveness to feedback as a means of opening the individual to the corrective feedback

00:05:32.340 from a distributed computational device, essentially.

00:05:36.140 I mean, each of us are calculating madly in an attempt to minimize catastrophe

00:05:43.280 and pursue some degree of satisfaction and hopefully pleasure.

00:05:49.500 And we're all doing that independently and cumulatively.

00:05:54.660 That makes for an incredibly complex computational system.

00:05:58.460 It only makes sense to avail yourself of the outputs of that system

00:06:02.240 if you want to orient yourself properly in life.

00:06:05.040 And so I made the case that, well, one of the things you want to do with children, for example,

00:06:10.360 is to make them socially receptive because that way they can avail themselves

00:06:15.160 of the computational resources of the society around them

00:06:19.360 and keep themselves in sync with other people and hopefully to some degree with the natural world.

00:06:23.800 I didn't think of that relationship.

00:06:25.760 So, okay, so let's move into the economics field.

00:06:29.620 Sure. So, yes, you had asked, why did I write the book?

00:06:32.100 So, what it is attempting to do is to take, so Ludwig von Mises is a giant in the Austrian School of Economics

00:06:39.700 and his magnum opus is called Human Action and it's a masterpiece.

00:06:46.380 And that's really, in terms of modern Austrian economics, people can read that.

00:06:50.220 But unfortunately, it's something like 900 pages long.

00:06:53.420 Even though he wrote it in English, it's a very Germanic formal style.

00:06:58.020 The vocabulary is difficult.

00:06:59.400 And he assumes the reader is like a Renaissance man or woman and knows lots in various fields.

00:07:06.200 And Mises just makes offhand remarks as if the reader already knows all these things.

00:07:09.920 So, what I tried to do with my book, Choice, was to take the essentials of human action

00:07:15.100 and make it about 300 pages or so.

00:07:18.480 And the Independent Institute, the publisher, they told me,

00:07:22.040 make it so that it could be assigned plausibly to an undergraduate class.

00:07:25.880 And so, that's what we tried to do.

00:07:28.180 And the thing in particular I wanted to make sure the reader got out of it was knowing

00:07:31.540 the Austrian theory of what causes the business cycle.

00:07:35.620 Because to me, in our times, that's the essential scientific finding of the Austrians

00:07:40.760 that even other free market schools are missing.

00:07:44.000 Well, let's start with the basics.

00:07:47.260 So, how did Mises, and in your book, how do you construe the basics of the economic system?

00:07:52.180 How do you define it, define the individual actors within it?

00:07:56.600 Okay.

00:07:56.880 So, the way Mises proceeds is he says that historically there was the classical economists,

00:08:05.680 people like Adam Smith, you know, and he wrote The Wealth of Nations.

00:08:08.640 And just the title of that shows that what the classical school was focusing on was the

00:08:14.200 production of wealth, of, you know, physical things that people value.

00:08:18.380 And that's what they were focused on.

00:08:20.600 And then there was the so-called marginal revolution when the Austrian school was born.

00:08:24.540 And that happened in 1871.

00:08:26.400 Karl Menger was one of the three people credited with ushering in this, what's called the subjective

00:08:31.820 marginal revolution in economic thought.

00:08:34.180 And that gave us what's called modern value theory.

00:08:36.980 Right.

00:08:37.180 And so, you could, you could, there's different theories about why something is worth something.

00:08:41.800 And one theory would be that something has a price, because it took a certain amount of

00:08:49.940 labor to produce it, it took a certain amount of goods to produce it, the price has to reflect

00:08:55.780 the labor and the goods.

00:08:58.540 I think it's no, it's not unreasonable to point out that that would be the fundamental presupposition

00:09:05.240 of Marxist economists.

00:09:08.100 And then, and then an alternative to that would be, well, actually, if you produce something that no one wants, it doesn't matter

00:09:16.660 how much work and how many resources went into it, its net price is essentially zero if there's no market demand.

00:09:23.940 And so, the economists that you talked about flipped that on its head and said, well, the price of something isn't

00:09:29.300 dependent on the nature of the resources that went into it.

00:09:32.240 But it's dependent instead on the demand of the population served for that particular good.

00:09:39.540 And then you talk about the marginal revolution, which transformed that theory, that pricing occurs at the margins.

00:09:45.880 And that would be something very much worth explaining.

00:09:49.580 Okay, yeah, sure.

00:09:50.820 So, let me just, so everything you said is perfectly correct.

00:09:53.620 But let me just, some people might have the misconception that the labor theory of value is a specifically Marxist

00:10:01.240 invention, which makes sense because, you know, Marx cares about the working class and thinks that the capitalists skim off the workers.

00:10:08.240 But the classical economists also, like Adam Smith, you know, the heroes of the free market tradition, also adhered to what we would call a labor theory or a cost theory of value.

00:10:18.700 And it goes back, I think even to like Aristotle.

00:10:21.640 So, the old conception was, if a stagecoach trades for so many chickens in the marketplace, there must be some quantity that's equal in both of them.

00:10:32.240 You know, like there's a, like the market prices are a measuring rod of something that's in the objects.

00:10:36.560 And what is that?

00:10:37.540 And so Marx thought, oh, it must be congealed labor power or something like that.

00:10:40.880 And so, the marginal subjectivist revolution of 1871 realized that, no, when a stagecoach trades for a gold coin, no, but there's, it's not saying a stagecoach equals a gold coin.

00:10:55.860 It's saying the person who gave up the stagecoach valued the gold coin more than the stagecoach.

00:11:00.800 That's why that person agreed to the trade.

00:11:02.700 And for the buyer, it was the other way around.

00:11:04.780 They valued the stagecoach more than the gold coin.

00:11:06.920 And that's why they did it.

00:11:07.660 So, there's no equality going on.

00:11:09.440 And it's a difference in subjective measurements on the margin.

00:11:13.940 So, there's inequality from both parties that just is lining up differently.

00:11:18.140 And why on the margin?

00:11:20.300 Okay.

00:11:20.600 So, the deal with calling and saying margin is, so, you know, there's the subjective element, which is, like I said, it's just what's in people's heads.

00:11:29.140 And then the marginal, the reason it's called the marginal revolution is that they realize that any given exchange is just particular units.

00:11:38.060 So, the word margin meaning like on the edge, like the margin on a piece of paper.

00:11:41.940 So, the famous way to motivate this is to say, you know, why is it that diamonds have a higher market value per unit than water does?

00:11:51.160 Because water is essential for life.

00:11:52.600 So, you would think water should have a higher price.

00:11:55.140 But the reason is, in any particular exchange, you're not trading all the water in the world for all the diamonds.

00:12:00.820 If you were, then the water would be more valuable.

00:12:02.940 It's just like that gallon of water versus that diamond.

00:12:06.500 And so, on the margin, that one diamond can satisfy a lot more of your needs than that particular gallon of water because most people already have enough water to satisfy thirst.

00:12:16.080 So, it means in that particular circumstance or under those particular conditions, rather than making some claim about universal value.

00:12:24.320 Yeah, and to give it a very trivial but I think illustrative example too of just applying this, when people go to the grocery store, you know, to say, oh, whatever, cans of Coke are on sale, let me buy some, that's a good deal.

00:12:38.920 You don't empty out your bank account and back the truck up and get every last can of Coke in this.

00:12:44.740 You only buy a certain amount and then at some point you stop.

00:12:47.120 And so, as simple as this is, to explain that, you have to reason on the margin.

00:12:52.380 You have to say, oh, the first can of Coke is worth more to me than my last quarter.

00:12:57.080 And the second can of Coke is worth more to me than my second last quarter, if the price is a quarter per can.

00:13:01.860 But at some point, after you've got 16 cans in your cart, you say, no, no, the 17th can of Coke is not worth more than my 18th last quarter.

00:13:10.620 So, at some point you stop.

00:13:12.900 And so, then you're showing you that you're making decisions on the margin.

00:13:15.440 You're not saying, is Coke worth more than a quarter a can?

00:13:19.160 That question doesn't mean anything.

00:13:20.820 You mean, how many cans of Coke do I have right now?

00:13:23.500 Is the next one worth more than my last quarter?

00:13:26.940 So, that's how the thinking is on the margin.

00:13:30.460 Okay.

00:13:31.920 What role, I mean, the labor theory of value seems to be, all of these theories of value in some sense seem to be intuitively obvious, although they're different.

00:13:40.820 And so, that's strange that they can all be intuitively obvious.

00:13:43.740 I mean, it seems that when you decide to do something, before you've been able to price it, you perhaps do something like an internal calculation to determine whether your labor is worth it.

00:13:57.780 Before you can ascribe a monetary value to it, you might think, well, this seems to be worth doing.

00:14:03.200 And maybe you sort out the pricing later.

00:14:05.300 Maybe that accounts for some of the attractiveness of the labor theory.

00:14:08.600 And there does seem to be some association between the amount of work done and the value of the output.

00:14:15.000 Right.

00:14:15.460 So, the classical economists, you know, they weren't stupid.

00:14:19.000 There was a reason that they thought that was a good explanation.

00:14:22.420 And if you go and read their writings, it's not even that what they're saying is wrong.

00:14:26.140 It's just there's only so much you can do with it.

00:14:28.240 So, it's true in a market where there's a good that's easily reproduced and, you know, we have access to all the inputs or whatever.

00:14:36.920 It's true that if it were selling above the cost of production, then more people would produce more of it and that would push down the price and it would raise the prices of the inputs until, you know, that huge margin was wiped away.

00:14:52.040 So, it is true that for easily reproducible goods where all the inputs are available, in the long run, the selling price has to be very close to the price of the inputs.

00:15:01.340 And going the other way around, if people just stopped buying it because they didn't like it anymore, then people would stop making it.

00:15:07.900 And the only reason they would resume making it is if the price fell so that now it was affordable to me.

00:15:12.340 So, there is that element.

00:15:14.260 But then, but there's all sorts of counterexamples like you mentioned.

00:15:17.880 If just because I put a lot of effort into something or if we're making a car and we all tie our left hand behind our backs so it takes longer to make it, we can't charge more for the same product because it took more hours.

00:15:29.320 Like that, you know, the consumer doesn't care how much time went into it.

00:15:33.160 And then things like, you know, a Rembrandt painting or something like there's, there's no way to apply that logic to explain the market price of a work of art where the, you know, where the artist is now dead.

00:15:43.920 So, there's all sorts of things like that.

00:15:45.960 Or if we're just walking in the woods and we come across some object that's useful to us and then we want to go sell it to others, we have no idea how many labor hours went into it because we just found this thing.

00:15:56.460 We're not going to have a problem selling it.

00:15:58.380 So, part of the problem with the labor theory of value isn't that it's outright wrong.

00:16:03.660 It's that there are all sorts of exceptions to its general applicability.

00:16:09.580 And so, it can't serve as a universal theory of price.

00:16:13.460 And is that also true?

00:16:14.660 So, yeah.

00:16:14.820 So, that's what like Menger and William Stan Jummings and Leon Walross, the founders of the marginal revolution, that's what they did.

00:16:22.300 They showed, here's the exact thing that explains all market prices.

00:16:27.460 And then the stuff that the patterns that the classical economists discovered for certain scenarios, we can also handle in this new framework.

00:16:36.200 But this new framework explains everything.

00:16:38.200 Is it reasonable then to suggest that the marginal utility theory of value is the uppermost bucket in some sense, and then inside that there's the theory of utility, and inside that there's the theory of labor?

00:16:55.200 Those apply only under certain preconditions, whereas the marginal utility theory applies generally.

00:17:04.020 It's more comprehensive.

00:17:07.180 Right.

00:17:07.580 Yes.

00:17:08.280 That, first and foremost, to explain a market price, you can use marginal utility theory, period.

00:17:15.320 And then if you want to say more about particular circumstances, like, why is it that the marginal utility would tend to be such and such under these conditions?

00:17:23.580 You can invoke the sorts of things that the classical economists would have used to explain, you know, the price of eggs or something.

00:17:29.280 Okay.

00:17:29.620 So, it's something like a classic Piagetian revolution in thought.

00:17:35.340 I mean, when Piaget looked at stage theories, he believed that children develop their cognitive apprehension of the world in stages, and that each stage would account for everything the previous stage accounted for, plus a little bit more.

00:17:51.700 And the same reasoning has been assigned to scientific revolutions, that, I mean, Einsteinian physics explains everything that Newtonian physics explained, plus a little bit more.

00:18:03.360 So, that's what makes it a better theory.

00:18:05.080 And so, the same thing might be said about the marginal, the theory of marginal utility.

00:18:09.900 It has more explanatory power.

00:18:12.520 Right.

00:18:12.780 Yeah.

00:18:12.900 And I think the analogy with relativity compared to Newtonian mechanics is correct, that, yes, the classical school, they could explain a small subset of market phenomena, whereas the marginal utility approach explains everything.

00:18:26.600 And it doesn't, anything the classical economists could explain, we can explain in a new framework, but we can also explain a whole bunch of things that, you know, the classical economists would just say, well, yeah, that's just scarcity.

00:18:38.220 And they'd throw up their hands and say, that's a different thing.

00:18:40.440 We, you know, we're not talking about that.

00:18:41.680 Okay, so, I guess one of the thoughts that kept going through my mind, and this is not a critique, but it's, I think, more the consequence of being ignorant about the field, is that I kept thinking, well, why should, why is it that people should care about this?

00:18:59.120 Now, you make a case for that in the book, and so did Mises, he, he believed that it was absolutely necessary for people to be informed about economic matters and about economic theory, but the reason for that isn't self-evident, so perhaps you could do us the favor of explaining why we should care about this, and what, what does it buy us as individuals and as a society to have our, to have an economic theory, and more importantly, to have this particular economic theory, let's say.

00:19:27.300 Okay, great.

00:19:57.300 If the, and they're, either they don't help, or the bad things that are allegedly being solved by these policies are actually being caused or exacerbated by those same policies.

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00:24:54.120 Okay, so you cite Keynes, John Maynard Keynes in the book,

00:25:00.020 and you say that the quotation goes something like,

00:25:04.300 those who care nothing for economics are generally the slaves of some defunct economic theory.

00:25:10.580 And so the proposition is,

00:25:12.200 we make decisions based on our economic theories, whether we know it or not,

00:25:17.000 and it's better to have the theories laid out explicitly and appropriately so that we make our decisions consciously,

00:25:24.820 rationally, and with as little error as possible.

00:25:27.460 That's basically the rationale for developing some expertise in this area.

00:25:31.960 Right, exactly.

00:25:34.660 And also, so, for example, like something like quantum physics,

00:25:39.860 the general public doesn't need to know that or even believe in that in order for your computer to work.

00:25:45.400 You know what I mean?

00:25:45.640 They can just go buy the computer, it works, or it doesn't.

00:25:47.980 But with economics, it is important, I would argue, and Mises would argue,

00:25:51.940 for the public to at least know the basics because, like something like minimum wage laws,

00:25:57.860 if Mises is right, then that actually makes it harder for teenagers with no job skills to get hired.

00:26:04.240 And so if the public is supporting a hike in the minimum wage to $15 an hour in the U.S.,

00:26:08.240 thinking this is going to help young people, well, no, that's actually hurting a lot of them.

00:26:12.800 So things like that where...

00:26:14.120 Well, let's walk through that just as a practical example before we go back to the general outline.

00:26:20.220 So, yeah, the Democrats have been pushing, at least on the edges, let's say,

00:26:27.260 they've been pushing for a $15 an hour minimum wage,

00:26:32.080 and people object to that for various reasons.

00:26:36.260 Now, on the face of it, it seems like it would be a nice thing if people who were fated to toil away

00:26:45.000 in minimum wage positions had a living wage of, let's say, $15 an hour,

00:26:49.760 which is hardly the income of a tycoon.

00:26:54.840 And you can understand that people who have some sympathy for those who are relatively dispossessed

00:27:00.720 would just as soon see them thriving economically.

00:27:04.640 And then you can also see that it seems mean-spirited on the surface of it to object to such a thing

00:27:10.800 because it's easy to say, well, what is it?

00:27:13.240 You don't want poor people to have a living wage,

00:27:16.020 which is the instant black-and-white objection that emerges when any such discussion takes place.

00:27:22.720 Now, would it be a proposition of the Austrian school

00:27:26.540 that instituting a minimum wage of that sort would be an error,

00:27:32.180 and even for the people it purports to serve?

00:27:35.120 And if so, why and how confident can you be in that criticism?

00:27:41.500 Okay, so great question.

00:27:44.140 So strictly speaking, I should be clear, the Austrian school as such is value-free.

00:27:49.660 You know, so it's an objective, positive statement of, you know, facts about reality.

00:27:56.440 So it can't, the Austrian economics per se can't say the minimum wage hike is good or bad.

00:28:02.020 It can just say if the government hikes them, then this is what happens.

00:28:06.360 Okay.

00:28:06.580 So what we can certainly say is workers, if their productivity is below $15 an hour,

00:28:21.640 if, you know, by the employer hiring them, if they're not increasing revenue to the firm,

00:28:27.040 if we've put aside the issue of how much they get paid for the moment,

00:28:29.640 if they're boosting the firm's revenue by less than $15 an hour,

00:28:32.780 then if there's a loss and you have to pay this worker at least $15 an hour,

00:28:37.900 well, then the firm's necessarily losing money if they hire that person.

00:28:41.220 So to the extent that you think employers are profit-seeking

00:28:45.420 and aren't hiring workers out of charity,

00:28:47.680 but are doing it because it makes a smart business move,

00:28:51.020 then by artificially making...

00:28:51.860 Well, we could also say that because it makes them able to do it.

00:28:55.360 I mean, if I'm making $40,000 a year,

00:28:57.760 I can't afford to pay someone $50,000 a year, whether I want to or not.

00:29:01.560 It's just not within my power.

00:29:04.040 And so is the proposition that there's a relationship between supply of jobs like that

00:29:11.860 and their wage such that if you increase the minimum wage to $15 an hour,

00:29:18.580 you necessarily delimit the number of jobs that are going to be produced

00:29:23.340 because of the problems that you're describing?

00:29:26.080 Well, certainly you can say if you put on the caveat, other things equal, right?

00:29:32.980 And that's how all these things go.

00:29:35.720 So it could be in chronological time that it just so happened there was a technological innovation

00:29:41.760 that somebody invented some new tool.

00:29:44.680 And now even when you hire a 17-year-old with no job experience,

00:29:47.820 you put this tool in their hands and they're creating so much product.

00:29:50.680 Like you're making an extra $30 an hour by hiring them.

00:29:54.840 So if that just so happened to be invented right when the minimum wage hike happened,

00:29:58.380 the data would not show a drop in employment, right?

00:30:02.440 But the idea is that's because there was some exogenous shock.

00:30:06.080 But the claim is other things equal, yes,

00:30:09.420 if you make it artificially more expensive to hire some factor input,

00:30:14.520 firms will tend to hire less of it, right?

00:30:17.060 Okay, so let me throw objections to that your way and tell me what you think

00:30:22.080 because this is a pretty crucially important issue.

00:30:25.360 So maybe I could say, well, wouldn't firms merely reduce the amount they're paying their other employees,

00:30:35.720 the more highly paid employees, by a fractional amount

00:30:39.260 to increase the wages pushed down to the bottom and thereby compensate

00:30:44.300 by what would essentially be something like an internal tax?

00:30:49.560 I mean, these systems are so complex that there's a theory that we outlined the theory

00:30:55.300 in the Austrian school about, at least to some degree,

00:30:57.880 about why producing a minimum wage hike would delimit jobs.

00:31:02.260 But there's a big difference between how a system works in reality and how it works in theory.

00:31:07.240 And so do you think that the propositions put forward by the Austrian school

00:31:13.540 are of sufficient integrity that predictions about the consequence of something like

00:31:18.480 a minimum wage hike can actually be made with some degree of accuracy

00:31:21.400 rather than merely being theoretically consistent?

00:31:25.880 Right. Okay, so great question.

00:31:27.900 Let me first just use a quick analogy, or not analogy, but another example.

00:31:32.720 For example, when progressives want businesses to emit less carbon dioxide,

00:31:39.020 one of the go-to policy measures is a carbon tax.

00:31:42.620 So in that realm, most people on the left, they want other measures too.

00:31:49.020 But when you say, hey, if we put a $100 a ton tax on carbon,

00:31:53.680 they don't just start making up all these reasons why firms don't want to save money.

00:31:57.700 And no, no, they'll still use just as much carbon as before.

00:31:59.980 They'll just pay less to other things to come up with the money.

00:32:03.700 It's all straightforward.

00:32:05.140 Oh, yeah.

00:32:05.460 Or if you want to get people to not smoke as much, what do you do?

00:32:08.520 Let's put a really big tax on cigarettes.

00:32:10.780 That will make people smoke less.

00:32:11.880 So in all these other areas, people respond to incentives.

00:32:14.980 But for some reason with labor, the same firms that are money grubbing

00:32:18.540 and all they care about is jobs, and they'll outsource factories to Indonesia

00:32:22.300 to save two cents on labor.

00:32:24.020 However, if you make teenagers in the U.S. twice as expensive

00:32:27.440 by more than doubling the minimum wage, no, it's a right-wing lie

00:32:30.900 that they'll hire fewer workers.

00:32:32.240 So I'm just noting the inconsequence.

00:32:33.540 Okay, so your proposition is that the same people who formulate these theories

00:32:39.420 make an exception in the case of those exceptions they want to see,

00:32:44.440 but they abide by the general principles that the Austrian school holds

00:32:49.780 or that the theory of marginal utility proposes in other situations.

00:32:56.360 Use carbon tax as an example.

00:32:58.220 Right, right.

00:32:58.980 So the basic proposition is if you make something more expensive,

00:33:03.020 firms will be incentivized to use less of it.

00:33:05.420 Right, and even in the context of just labor, again, to say,

00:33:08.540 oh, if it turned out that they ran the numbers

00:33:11.640 and they could shut down the factory in the U.S.,

00:33:13.480 lay off all those people and open the factory in Indonesia

00:33:16.700 and save a buck an hour,

00:33:20.760 most people in the left would say,

00:33:21.880 oh, of course the money-grubbing capitalists would do that.

00:33:25.240 But yet, when you double the price of U.S. teenage labor,

00:33:28.460 all of a sudden, no, they don't care about money, the employers.

00:33:32.480 Okay, so let me ask you a personal question.

00:33:35.100 Yeah.

00:33:35.280 And let's jump outside the realm of theory for a minute.

00:33:40.100 Do you, I mean, I understand the attraction of coherent

00:33:44.740 and powerful explanatory theories, you know,

00:33:47.860 but I always balance that against the terrible complexity of the real world, right?

00:33:52.180 And so do you believe that then that instituting a minimum wage hike

00:33:58.640 would in fact be detrimental to the poor?

00:34:01.840 Or do you think the system would be flexible enough to adjust to that

00:34:06.500 and that the net benefit would be positive?

00:34:08.220 I understand the theoretical prediction,

00:34:11.280 but there's always margin of error, right?

00:34:13.080 Right, right.

00:34:13.880 And I also understand the objections you laid to it.

00:34:16.580 You're absolutely right that people assume,

00:34:18.620 well, the corporations will maximize their profit-seeking behavior,

00:34:21.560 and why wouldn't they do that in the case of the minimum wage?

00:34:24.520 But still, you know, the ethical argument for cranking up

00:34:29.300 the amount of money that poor people are paid for doing minimum wage jobs,

00:34:32.860 it's really quite compelling emotionally.

00:34:35.800 And so you have to be pretty damn certain of your first principles to say,

00:34:40.020 well, hold on there, you're actually going to do people more harm than good.

00:34:43.520 And so are you confident enough in the way that these theories lay themselves out?

00:34:48.380 So you do believe that that would be bad policy,

00:34:50.580 even for the very people that it purports to serve?

00:34:53.320 Okay, so ethically, I'm against it because I believe in property rights,

00:34:58.760 and I don't think the government has the authority to tell people,

00:35:04.460 you know, oh, if you're going to hire someone, you have to pay them this amount.

00:35:06.920 Like, as long as they're voluntary contracts, you know,

00:35:09.360 and it's not a six-year-old who doesn't know what they're agreeing to,

00:35:12.300 you know, so I don't think the government has the right to do this.

00:35:14.800 So for that reason, I would never be in four.

00:35:16.940 But in terms of just the economic impacts, I think for a modest minimum wage,

00:35:23.100 so I think everybody agrees, if they set the minimum wage at $300 an hour,

00:35:27.440 that would be devastating, right?

00:35:29.880 That that would be when the economy, right?

00:35:30.940 So everybody agrees, if you did it too much,

00:35:34.080 all the stuff the Austrians and the Chicago school types are warning about would be true.

00:35:38.680 So all we're quibbling about is, could you do it a little bit,

00:35:41.980 such that the net benefits?

00:35:43.400 Right, exactly, exactly.

00:35:44.840 So I do agree.

00:35:47.500 I mean, they have raised the minimum wage in the past,

00:35:49.340 and it's not that all of a sudden, you know, no teenager can get a job anywhere.

00:35:52.980 But it is true empirically that unemployment rates among, you know,

00:35:58.760 young people are much higher than the general population.

00:36:01.600 Right.

00:36:01.780 And so this, you know, is partly to explain why that would be.

00:36:05.300 And so I think you're right.

00:36:06.720 In practice, there are other considerations that come into play.

00:36:10.680 And that's, I mean, it could all ultimately work through the issue of productivity,

00:36:14.560 that for, you know, a small minimum wage hike, the firm, like a McDonald's franchise is probably

00:36:20.480 not just going to lay off everybody because that would be bad for morale.

00:36:24.620 But I think what is true is knowing minimum wage hikes are on the horizon.

00:36:29.420 They have revamped their operations to have more kiosks, to have, you know.

00:36:34.240 Right.

00:36:34.500 So now, instead of having eight teenagers on each shift, they've got one 35-year-old manager who's got,

00:36:40.300 you know, the thing taking orders from drive-thru.

00:36:42.440 They got the machines that are optimal.

00:36:43.720 They just put the drink there and hit the sides, and the machine fills it up.

00:36:47.120 They're running, you know.

00:36:47.660 Okay.

00:36:48.400 So I think that's all true.

00:36:49.720 All right.

00:36:50.300 So we could say with some certainty then that there's a price to be paid for increasing

00:36:55.120 the minimum wage.

00:36:56.420 And the price is that minimum wage workers are more expensive and will therefore, and

00:37:02.400 therefore that will incentivize the search to replace them in some manner.

00:37:08.420 Right.

00:37:09.260 And also how much they're replaced, well, that's not easy to calculate, but the incentives

00:37:13.820 then push in that direction.

00:37:15.960 Yeah.

00:37:16.180 And I would also mention, too, that there's winners and losers, I would say.

00:37:19.860 So it's, I can't make a blanket statement and say, oh, this is necessarily bad.

00:37:23.300 So yeah, if they raise the minimum wage, when the dust settles, there will be workers who

00:37:28.000 are earning $15 an hour who, in the alternate timeline, would have only been earning $8.50

00:37:33.220 an hour, let's say.

00:37:35.260 But there's also a lot of workers that never had a job in the first place that maybe would

00:37:40.580 have gotten a chance to get hired and never get in.

00:37:43.080 Okay.

00:37:43.240 So that, okay, so that's interesting, because that means that in some sense, there's a hidden

00:37:47.860 moral hazard there, which drives that sort of behavior.

00:37:51.760 Because you can imagine this scenario, it's like every single person who has a job that's

00:37:56.860 a minimum wage job, who gets a boost to $15 an hour, is going to be very happy about

00:38:01.920 it.

00:38:02.260 And all those people who don't have jobs won't know that that's the reason why.

00:38:07.660 Right.

00:38:08.660 Right.

00:38:08.960 They might, you know, attribute it to racism.

00:38:12.620 Well, they could attribute it to 10 things, right?

00:38:14.760 To 15, they're not necessarily going to point to that decision and say, well, it's that specific

00:38:19.760 decision that means that I don't have a job at all.

00:38:22.580 Right.

00:38:22.800 And I should also mention, too, I actually know the Canadian data better because I've done

00:38:27.820 some work for the Fraser and suit up there, but it's called a low income cutoff threshold

00:38:33.800 is like the Canadian government's measure of poverty, you know, like households that

00:38:38.620 are above or below poverty.

00:38:40.180 And these aren't the exact numbers, but it's in the 80s percent where 80% of the people who

00:38:45.380 make minimum wage in Canada are in households above that poverty threshold.

00:38:51.180 And vice versa, 80% of the people who are in households that are below the poverty threshold

00:38:56.180 make more than the minimum wage.

00:38:57.840 So it's not correct to think of minimum wage earners as like single mothers who are struggling

00:39:02.760 with kids at home.

00:39:03.700 It's like suburban teenagers who are home from college for the summer who are going and working

00:39:09.020 at McDonald's for a summer job.

00:39:10.680 Like that's, you know, the more prototypical minimum wage worker.

00:39:14.480 It's not some, you know, blue collar person who, another thing too, just to mention most

00:39:20.600 people earn more than the minimum wage.

00:39:22.240 So the very crude notion of power bargaining and the employer has all the bargaining power

00:39:27.340 and that's why we have to raise, if that worldview were true, just about everyone would earn

00:39:31.220 the minimum wage and yet most people earn more.

00:39:33.960 And so once you say, well, why is that?

00:39:35.880 Well, it's because of competition and the people's skills are $20 an hour.

00:39:39.000 They're going to get paid more than $7.25.

00:39:41.180 You realize.

00:39:42.100 Okay.

00:39:42.260 So it's really important actually to figure out who is it that's only qualified for a

00:39:46.860 minimum wage job, because that also drives the narrative of the utility of raising the

00:39:52.380 minimum wage.

00:39:53.320 Right.

00:39:53.580 And your claim is that it's mostly people from households that are above the poverty line.

00:39:59.100 They're not people, they aren't, the minimum wage earners aren't the people upon whom multiple

00:40:03.880 children are dependent typically.

00:40:05.940 Right.

00:40:06.220 And so that's why, like just to give you an example, it could, it could be a perverse thing

00:40:10.820 to significantly raise the minimum wage thinking you're helping poor people could end up largely

00:40:17.780 raising wage rates of middle-class workers, but making fast food more expensive for a lot

00:40:27.180 of poor households that that's just, you know, the mom's coming home from work and she runs

00:40:30.860 to McDonald's to get something for the kids.

00:40:32.360 And now some of the price, you know, some of the minimum wage hike got passed through to

00:40:37.200 make that food more expensive.

00:40:38.700 Whereas she already was earning more than the minimum wage.

00:40:41.060 Right.

00:40:41.260 That reminds me of some of the controversy that surrounded Walmart because Walmart pays its

00:40:45.720 employees a relatively low wage, but they also provide food at below what the market was,

00:40:52.960 was charging for, for groceries, basic groceries at that point.

00:40:57.420 And so you could make the case that they were a net benefit to people who were in poverty

00:41:02.100 because they drastically, they lowered, they materially lowered the cost of groceries.

00:41:08.220 So it depends on whether you look at the wages they paid or, well, and they also provided

00:41:11.720 jobs for that matter.

00:41:12.800 And I'm not necessarily trying to, you know, provide a defense for Walmart.

00:41:16.860 I'm just pointing out that there are multiple factors that need to be taken into account when

00:41:21.860 you're analyzing the consequences of such decisions.

00:41:24.280 So, so I was thinking too, about your book philosophically, again, trying to solve the problem of why

00:41:32.280 this is important.

00:41:33.080 And, you know, there is a philosophy that goes along with each economic school and the philosophies

00:41:40.440 in many ways, um, have a pronounced effect on the nature of the public debate.

00:41:46.160 I mean, right now we, we seem to be falling prey to a pretty intense ideological battle between

00:41:53.940 those who claim that our social institutions are functionally, functionally predicated on

00:42:00.220 the expression of arbitrary power, which is, in my view, some, in some manner related to

00:42:06.860 the labor theory of value and the notion that capitalists skim off the extra value, which

00:42:12.580 is something we should return to.

00:42:14.100 And there's an entire critique of the structure of society that goes along with that.

00:42:19.120 Now, Mises predicated his ideas, and that this is partly why these works are philosophically

00:42:24.620 important and ethically important.

00:42:26.540 Mises predicated his work on different a priori principles.

00:42:30.500 So he believed that people were capable of, um, free action.

00:42:35.880 That was our determining characteristic and that we banded together cooperatively to maximize

00:42:43.140 the, what would you say?

00:42:45.600 To, to maximize the consequence of our free action.

00:42:48.480 And it's not a, it's not a theory that's predicated on the expression of arbitrary power.

00:42:55.580 Well, yeah.

00:42:56.880 So, uh, and this even kind of ties back to what we were just talking about, the minimum wage

00:43:01.080 debate that I think the fundamental divide between people like me who are warning about

00:43:05.960 the negative consequences and people who are saying, no, no, the firms will just, if

00:43:09.720 you force them at gunpoint to pay more, they will, because they got buckets of money.

00:43:13.740 And why I was saying, well, that's why it's, if that's the person's worldview where they

00:43:17.500 think it's all just a matter of the, the, you know, the employers have all the power.

00:43:21.680 If you're a starving worker, you got to just accept whatever they give you.

00:43:25.120 If that were really the full story or most of the story, everybody should be earning the

00:43:29.780 minimum wage and yet most people are earning more.

00:43:32.060 And so that, so that shows, no, it's really not just about bargaining power.

00:43:36.280 It's if, if your labor time produces $20 an hour of stuff for your employer in a market

00:43:43.400 economy, you, you might not get paid 20, but you're not going to get paid 725 because somebody

00:43:48.820 else could come along and offer you 10 and you would take that offer.

00:43:51.980 And they're still, you know, they're making the gap.

00:43:53.780 Right. So, so yes, like, likewise here, the, the Marxist conception, I mean, there was lots

00:44:00.780 of things wrong with it, but, but yeah, Mises thought, no, if you study economics and just

00:44:04.520 see how is it like, why, when you study, why would it, why would an employer hire workers

00:44:09.260 in the first place?

00:44:10.520 And it's not out of generosity.

00:44:11.880 It's because the worker by adding to the operation, the firm makes more money, but then

00:44:17.560 once you realize, okay, that's why.

00:44:18.960 So if a worker can boost your revenue by a certain amount, well, other firms want that

00:44:24.620 too.

00:44:25.000 And that's, as long as there's competition that, you know, that worker is going to get

00:44:28.660 paid accordingly.

00:44:30.160 Right.

00:44:30.680 And so hypothetically, what happens is as that sorts itself out is that the managers and the

00:44:35.640 executives and the entrepreneurial types who are providing employment get paid for their

00:44:40.500 managerial, administrative and entrepreneurial ability in organizing the firms and the workers.

00:44:47.020 I mean, not that there's a clear distinction, which is something else you point out.

00:44:50.220 There's not a clear distinction between worker and manager, worker and entrepreneur.

00:44:55.980 But in any case, the workers pay the entrepreneurs and the managers for providing the structure

00:45:03.460 within which they labor essentially, rather than the managers and entrepreneurs skimming off

00:45:10.120 the excess labor of the, of the worker.

00:45:13.000 And, you know, and that distinction between worker and manager, the fact that that distinction

00:45:17.300 is not so clear is also of paramount importance, I think, because it's very difficult to categorize

00:45:23.540 the world into oppressors and oppressed if the categories of oppressor and oppressed aren't

00:45:27.660 so clear to begin with.

00:45:30.060 Right.

00:45:30.540 Yeah.

00:45:30.700 So you, you hit on a bunch of things there.

00:45:32.280 So yeah, Mises was, I think one of the better economists in stressing that, yes, we have

00:45:38.260 these, I think he called them catalactic functions, meaning like, yeah, you got your entrepreneur,

00:45:43.480 your, your worker, your landowner, your capitalist, and those are sort of ideal types that we can,

00:45:48.720 but he was saying, yes, in the real world, every action is entrepreneurial.

00:45:52.400 So even a worker who takes a job with this firm and you would say, oh, that's not entrepreneurial.

00:45:57.480 Well, no, it was because the worker had to forecast the future and say, do I want to be with

00:46:03.060 this firm or maybe I can go with this startup over here who maybe is offering me stock options.

00:46:07.720 Right.

00:46:08.020 So they're taking, they're taking a risk.

00:46:09.360 Right.

00:46:09.720 Because in some sense they're purchasing a career.

00:46:12.900 Mm-hmm.

00:46:13.660 And so they have to analyze the general marketplace and decide, well, first of all, where they're

00:46:18.160 going to get best value for their money, but they have to look into the future and say,

00:46:21.280 well, is there a future with this firm?

00:46:23.220 Right.

00:46:23.820 And so it's micro-entrepreneurial in some sense because it only determines the course of their

00:46:29.320 career and maybe their family's well-being moving forward.

00:46:33.060 So it's a difference of scale rather than type.

00:46:35.720 Right.

00:46:35.980 So just like, you know, some brash startup person going to, you know, outside funders to

00:46:42.260 say, hey, can you put money into my new software firm?

00:46:45.860 And, you know, the capitalists are wondering, gee, do we want to risk and invest in this?

00:46:49.500 Everyone knows that's an entrepreneurial decision.

00:46:51.700 But by the same token, yeah, if they go and get a bunch of programmers and say, come work

00:46:54.900 with us, don't go work for Google or whatever, work for us because we'll give you stock options

00:46:59.140 and, you know, we can't pay you anything right now.

00:47:00.920 And again, so it's like you were saying, everybody has to be entrepreneurial in a sense, and Mises

00:47:06.440 talked about that.

00:47:07.340 To go back to what you're saying, you were right, too, about the notion that, oh, it's

00:47:11.920 the capitalists skimming off the workers because there is a certain plausibility to that, that

00:47:17.080 there's a sense in which, well, gee, who makes the cars?

00:47:20.120 Well, the workers go into the factories and they're using their hands.

00:47:23.160 And whereas, you know, the fat cats are just sitting, getting their dividend checks, looking

00:47:27.900 at the stock price.

00:47:28.780 They're not making the cars.

00:47:30.320 So there is this sense that it's the workers who are making everything.

00:47:35.200 And so why don't they get to keep the fruits of their labor?

00:47:37.840 But this goes back to Bumbover, who is like a second generation Austrian.

00:47:41.680 He pointed out that it's the time element, that in a sense, really, the workers, when they

00:47:46.360 get paid their wages, are getting an advance on what their labor is ultimately going to bring

00:47:51.640 down the road.

00:47:52.920 And so he was saying, you know, workers, if they wanted to, they could just form together

00:47:57.340 and they could build everything and sell it down.

00:47:59.260 No one's stopping them from doing that, but they want to get paid up front.

00:48:02.440 Well, they may, well, they may also be stopped from doing that because they don't know how

00:48:06.200 to do it.

00:48:06.720 I mean, again, there's an intuitively obvious phenomenon at stake there that you described,

00:48:12.900 which is that, you know, where the rubber hits the road is the motion of hands.

00:48:18.560 And when you build something, well, that's the sort of point at which the thing manifests

00:48:24.660 itself is the operation of hands.

00:48:26.360 But to say that what hands do, what manual labor does, is the only form of labor, is to

00:48:33.020 completely eliminate the notion that abstraction is useful and also laborious.

00:48:41.120 And that would mean that thought itself is of no utility and that abstraction itself is

00:48:45.880 of no consequence.

00:48:48.160 And that seems, I mean, that's an extraordinarily primitive theory of labor, to think that thought

00:48:55.200 itself isn't labor, given that we know, I mean, we have to decide if we would accept

00:49:00.600 this proposition.

00:49:01.920 Thought is a labor multiplier.

00:49:04.020 Otherwise, why bother with it?

00:49:05.780 Right.

00:49:06.500 Right.

00:49:06.800 So if you're good at thinking, you think up a more efficient way of doing something.

00:49:12.220 And maybe that's your managerial, what would you say, contribution.

00:49:17.460 And that's not a matter of exploitation.

00:49:19.540 That's a matter of providing a structure in which manual labor can be done in a manner

00:49:24.660 that's more competitive.

00:49:26.300 And so that enables people to hire other people.

00:49:29.140 And it's absolutely ridiculous not to give people at all levels of the abstraction hierarchy

00:49:35.880 their due with regard to labor.

00:49:38.260 I don't understand why Marx was able to get away with that.

00:49:42.060 Like, is it just the fact that it's so obvious where the rubber hits the road?

00:49:48.460 It's so obvious that when you're working with your hands that that's work, that that

00:49:52.720 obviousness just overrides other more abstract considerations, more detailed considerations?

00:49:57.620 Um, I'm not sure if I might just emphasize though, because you made a great point there

00:50:04.900 and just to make drive it home for people.

00:50:06.300 Right.

00:50:06.760 So it's the fact that the, that that factory is sitting there, someone had to make that

00:50:12.120 decision.

00:50:12.520 And that's something that Mies is, you know, focused on with the socialist calculation

00:50:15.800 debate that I'm sure we'll get into later in this discussion, but people just take

00:50:20.660 it for granted.

00:50:21.100 The factory is just sitting there and the workers, you're right, show up and they have all

00:50:23.560 these tools that somebody, you know, Henry Ford or whoever, like came up with the

00:50:27.140 idea of the assembly line approach to mass producing things like that.

00:50:32.020 Someone had to invent that and that, you know, and so you're right.

00:50:34.820 Right.

00:50:34.960 And so you might think Henry Ford thought that up in 15 seconds.

00:50:38.020 And so the labor theory of value falls apart pretty damn hard there because that's such

00:50:42.420 a stunning, um, technological advancement that the segregation of labor into its constituent

00:50:48.160 elements.

00:50:49.100 Um, and it also enabled Ford to pay his workers much more than workers had been paid previously.

00:50:53.940 And he was on board with that for all his other flaws.

00:50:57.440 Um, he wanted to pay his workers enough so they could buy what they were producing.

00:51:01.360 So, and you could call that an enhanced form of selfishness, I suppose, but it worked out

00:51:06.940 quite well for the workers.

00:51:07.960 And so you do get these situations where revolutions in thought produce something of almost incalculable

00:51:13.560 value and, and no labor theory.

00:51:16.360 Well, any labor theory, any theory of economic value that can't take that into account is

00:51:20.800 severely flawed, but it still doesn't account for why it's so damn, um, attractive.

00:51:26.380 Yeah.

00:51:26.540 And I do want to come to that, but it, but just another thing too, to consider it also explain

00:51:30.080 or to just merely explain everything by, oh, it's the workers produce everything and everyone

00:51:33.960 else skims off the top.

00:51:34.980 Uh, but why is it though, that so many people around the world are desperately trying to get

00:51:41.120 into, you know, advanced countries, like, you know, first world economies, let's call

00:51:44.760 them.

00:51:45.200 It's because an average hour of labor in Bangladesh is not worth as much as it is in the United

00:51:50.960 States.

00:51:51.820 And so there is something about the fact that the infrastructure in the U S or Canada or,

00:51:56.580 you know, in Europe, labor is more productive there than it is in other places on the globe.

00:52:01.240 So it's, you know, there clearly is more to the story than just, oh, the cat.

00:52:05.740 Well, and then, you know, that also raises a question too, is just exactly what constitutes

00:52:10.660 that productive infrastructure.

00:52:12.520 And a lot of that is actually conceptual, right?

00:52:15.800 Because we don't know, for example, how much the idea that each individual is of sovereign

00:52:21.420 value is worth economically, but it looks like it's worth a lot because cultures that

00:52:26.200 are predicated on that presupposition tend to be incredibly productive economically.

00:52:31.240 And cultures that aren't don't.

00:52:33.640 And so we can see that abstractions of the sort that make up the philosophical basis for

00:52:39.600 economic theorizing actually determine the economic course of the country and all the

00:52:44.100 individuals within it.

00:52:45.720 So, so let's go back to first principles again.

00:52:48.700 What I'd like to do, if we can manage it, is to contrast, say, a radical leftist view of

00:52:54.960 economic function and individual psychology with the Austrian school of economics.

00:53:00.420 So this is going to be difficult, but maybe we can manage it.

00:53:03.620 So we kind of delved into the labor theory of value versus the marginal utility theory

00:53:10.500 of value.

00:53:10.940 And then we took a bit of a foray into the idea that, well, you can't easily subdivide people

00:53:17.980 into manual laborers.

00:53:19.920 And those would be the oppressed class and those who skim off the top because, well, we should

00:53:25.080 also point out that even manual labor takes a certain amount of abstraction and intelligence.

00:53:30.580 And I'm saying that in no means whatsoever to be denigrating.

00:53:34.760 We don't have robots that can bus tables, for example, because bussing tables actually turns

00:53:39.460 out to be an incredibly complex cognitive task and requires a fair bit of organizational ability

00:53:44.560 to do efficiently, especially under a high load.

00:53:46.920 And so, OK, so we've talked about we've talked about the theory of marginal utility and the

00:53:54.500 idea that where labor resides is not so obvious.

00:53:58.080 And the notion that those higher in the hierarchy are just skimming is an unsustainable proposition.

00:54:03.860 But there's other fundamental differences between, let's say, the Marxist viewpoint and

00:54:09.280 the viewpoint of other economists, including the Austrian school.

00:54:13.500 So let's delve into those notion of the person, for example.

00:54:18.320 So Marx presumed that our consciousness was determined by our society, right, that we were

00:54:24.280 downstream from society in some sense.

00:54:26.400 And that's not a proposition that Mises was particularly fond of.

00:54:33.220 Right.

00:54:33.960 So I think I can, you know, at some point I'm going to reach the limits of my knowledge of

00:54:41.100 the Marxist worldview, but I think I can safely say that Marx thought the material forces of

00:54:46.940 production were the the prime mover in history.

00:54:50.720 And so, you know, you had slavery in ancient times and then that gave rise to feudalism and

00:54:56.720 then that gave rise to capitalism or mercantilism, let's say, and then capitalism.

00:55:01.760 And then the next stage would be socialism and communism.

00:55:03.940 And that he said each stage, you know, had to develop to its fullest potential and then

00:55:09.320 it would burst asunder the next one.

00:55:10.780 And that at each stage, the intelligentsia would come in and give an ideological superstructure

00:55:16.540 to justify the current system.

00:55:19.980 But it was, you know, the the productive forces were the driving thing.

00:55:23.740 And then the idea people came in to just, you know, make up a story to explain.

00:55:28.520 And the story was to justify the exploitation that was part and parcel of skimming off the

00:55:35.040 excess labor.

00:55:36.180 Right.

00:55:36.700 Right.

00:55:37.000 But that isn't how Mises looked at it is that people didn't band together to exploit each

00:55:41.700 other.

00:55:42.800 Right.

00:55:43.080 This is crucially important.

00:55:44.400 Right.

00:55:44.800 Because you're the criticism that's directed at patriarchal structures, let's say, is predicated

00:55:51.260 on the idea that they're fundamentally exploitative and that the relationship between people is

00:55:56.280 one of power and the implication of that, especially if it's arbitrary power, the implication is

00:56:01.660 that anybody who occupies anything but the lowest tiers in a given organization is, in

00:56:05.960 consequence, an oppressor.

00:56:08.580 But that Mises insisted that people banded together for purposes of cooperation and multiplication

00:56:16.160 of effort.

00:56:17.000 And that's a completely different view.

00:56:18.520 So can you can you provide some justification for that?

00:56:22.560 Sure.

00:56:22.880 So the starkest contrast, though, with Mises responding to that Marxist worldview is he

00:56:29.680 thought that, no, ideas are the primary motivation, that, you know, human action starts always with

00:56:36.180 a thought.

00:56:36.880 You know, people have a goal and they use their reason to, you know, choose a means to try

00:56:41.620 to attain it.

00:56:42.100 They might fail, but that's what purposes behavior is.

00:56:44.860 That's what he meant by human action.

00:56:45.500 So we're rational, sovereign actors.

00:56:47.600 Right.

00:56:47.980 And we're trying to chart our own course.

00:56:50.360 Right.

00:56:50.520 And so for him to explain, for example, you know, why is it that it went from feudalism

00:56:55.760 to the industrial capitalist age?

00:56:58.940 Mises would say it's because ideas of individual sovereignty and, you know, people have rights

00:57:04.680 for various historical reasons in Western Europe that emerged, whether it was because of Christianity

00:57:09.540 or just the squabbling in the terrain.

00:57:11.080 But the idea that, you know, the king can't come into your house, you're the castle, you know,

00:57:18.560 your house is your castle.

00:57:19.700 Like notions like that, Mises argued, came out of Western Europe earlier than other places.

00:57:25.780 And that's why they, you know, took over the world, basically.

00:57:30.660 Like that, that was the reason.

00:57:32.040 And so then scientifically or empirically, what, why, you know, why did, why was that

00:57:36.920 idea so potent or powerful?

00:57:38.620 It's because of what you're saying that Mises thought it just so happens to be the case

00:57:42.600 that human labor, when you work cooperatively, gets magnified manyfold.

00:57:48.660 That if we special, instead of everyone growing their own food, making their own clothes and

00:57:52.640 everything, being their own doctor.

00:57:53.680 So there's an attractive, there's an attractive quasi-religious notion as well.

00:57:58.580 Okay, so here's what we do.

00:58:01.000 I'll tell you a little story about this.

00:58:04.780 I went and stayed at an Airbnb out on the coast of British Columbia one year, and it was this

00:58:10.300 nice little cabin perched on this, on the shore of this idyllic island.

00:58:15.540 It was a kind of a log cabin, quite primitive, but very, very beautiful in a beautiful locale.

00:58:21.500 And the people who owned the place were from Europe, and they were back to the land types.

00:58:28.920 So, you know, the 1990s equivalent of hippies, and they believed that everyone would be better

00:58:35.160 off if they were self-sufficient and, and that they would be more psychologically healthy if they

00:58:39.620 returned to the land.

00:58:40.840 And so they bought this place.

00:58:43.640 Well, they were trying to be self-sufficient and grow their own chickens and raise their own

00:58:49.220 chickens.

00:58:49.660 You don't really grow them.

00:58:51.500 But to raise their own chickens and plant their own vegetables and, and so forth.

00:58:56.200 And what they soon discovered was that that was unbelievably difficult life, that they were

00:59:03.600 struggling every second to stay afloat financially, and that being self-sufficient, especially on

00:59:10.720 an island, which is a place that poses its own complications, especially in a harsh climate,

00:59:15.180 that they were completely trapped.

00:59:16.880 And they couldn't sell their property for anything near the market value, the value that

00:59:21.580 they had purchased it for.

00:59:22.840 And so their move back to the land was a complete bloody catastrophe.

00:59:26.840 And so, well, I want to tell that story because we have these romantic notions, you know, that

00:59:33.000 we should all be self-sufficient and, and, and that everyone would be better off individually,

00:59:39.020 in their family, in their town, in their estates, if we were self-sufficient.

00:59:43.920 But there's a different idea, which is that we're better off trading with someone, generally

00:59:51.160 speaking, even if we're better at everything we do than they are at anything they do.

00:59:56.060 And so that's a really crucial point.

00:59:58.860 And so maybe I could get you to elaborate on that, like, we're rational people, we don't

01:00:04.300 band together to tyrannize each other, we band together to maximize our productivity, and

01:00:08.880 we do that to stave off the catastrophes of nature, let's say, so that we have enough to

01:00:13.820 eat and enough to drink, and we don't die from some bloody miserable disease.

01:00:18.360 That's where the tyranny is in our subjection to our vulnerability, we band together to maximize

01:00:23.040 our productivity.

01:00:23.760 Why does that work?

01:00:26.080 And why is that justifiable in terms of assessing the nature of our social institutions?

01:00:32.080 Okay, sure.

01:00:32.500 And again, just to drive home for Mises how critical this was, because for him, that was

01:00:36.260 the basis of civilization.

01:00:37.960 That's why we need to have property rights, we need to have, you know, rules of social order,

01:00:44.040 you can't go around killing people.

01:00:45.900 He would ultimately say, because civilization, you know, our standard of living rests on the

01:00:51.900 fact that we all specialize in what we do best, produce way more of our thing than we

01:00:57.320 need personally, and trade it with others.

01:00:59.660 And so if every, you know, if certain people specialize in our farmers, and they grow way

01:01:03.120 more food than they need, and sell the rest to others, and some people just make a bunch

01:01:07.220 of sweaters, way more than their family needs to wear, and they sell it.

01:01:10.300 Some people just make a bunch of cars, way more than they're going to drive, and they

01:01:12.980 sell it.

01:01:13.660 We all end up with more food, sweaters, and cars.

01:01:16.320 Because once you build one car, building the second one is a lot easier.

01:01:20.000 Right, yes.

01:01:20.640 It's a lot easier.

01:01:21.300 Right.

01:01:21.640 So yeah, there's a few reasons to try to understand why is it that specialization magnifies the

01:01:28.400 productivity of human effort.

01:01:29.280 Yeah, well, let's walk through that.

01:01:30.600 Okay, so there's a proposition.

01:01:32.420 Specialization maximizes productivity, and then trade is of benefit to all.

01:01:36.840 Sure.

01:01:37.060 Okay, so let's justify that from first principles.

01:01:39.460 I'll give you some obvious reasons.

01:01:41.180 So one is people have different abilities, and so some people are just like a big burly

01:01:47.980 guy is going to be better as a coal miner than some dainty woman, right?

01:01:52.560 And so things like that are obvious.

01:01:54.480 Okay, certain regions around the world just are more hospitable, right?

01:01:58.000 You're going to grow more oranges in Florida than you are in Alaska.

01:02:01.520 That's just so clearly the people in Florida should specialize in growing oranges than people

01:02:06.200 in Alaska.

01:02:06.440 So we can capitalize on the unequal distribution of productive resources by trading.

01:02:11.520 Right.

01:02:12.180 Instead of trying to eradicate the inequality, we can capitalize on the fact that it exists,

01:02:16.920 which is, in a sense, is something that eradicates it.

01:02:19.880 And, you know, what would you say?

01:02:22.180 Practically speaking.

01:02:23.620 And that's important to note, too, because, you know, we have this idea, and I think it's

01:02:27.460 deeper rooted in our moral intuitions, that everybody should be equal.

01:02:31.260 It's like, well, wait a second.

01:02:32.640 We trade on our inequality.

01:02:35.240 So that's kind of interesting.

01:02:36.520 You're better at something than I am at something, let's say.

01:02:40.160 And that's an inequality.

01:02:41.740 And you might even say, well, you became unjustly better at that than I did, you know, for historical

01:02:46.880 reasons.

01:02:47.300 But the fact of the matter is that inequality exists.

01:02:49.660 So let's try to address it.

01:02:51.160 Well, one way of addressing it would be for me to get as good as you are at that thing.

01:02:56.120 But the other way would be for me to do what I'm good at, and for you to do what you're

01:02:59.440 good at, and for us to trade.

01:03:00.740 And then if we have money, well, we can transform the value of our labor into something that's

01:03:07.660 universal, and that is an equalizing force in and of itself.

01:03:12.640 Right.

01:03:13.400 Yeah, that's all certainly true.

01:03:14.960 Just another quick one, though, is even if people had similar aptitudes up front, like

01:03:22.820 two people who are identical in all respects, if one of them went into studying brain surgery

01:03:28.440 and one of them went into studying chemistry, 30 years later, when you check in on them,

01:03:34.400 the one person is going to be way better at doing brain surgery than the other person

01:03:37.280 is going to be way better at, you know, identifying new chemical compounds.

01:03:40.160 Right.

01:03:40.600 So because we have finite resources, each of us, because we have finite time, that means

01:03:46.840 that we can't be as good as everyone can be at everything, ever.

01:03:51.040 And so we end up specializing in something so that we have a comparative advantage.

01:03:56.040 But that's, it's not, see, the language here, and you said Mises is very careful with his

01:04:00.880 language.

01:04:01.160 So let's be very careful with our language.

01:04:03.540 If I study for 30 years, it isn't exactly that I have a comparative advantage over you.

01:04:08.140 It's that I comparatively have something to offer you, right?

01:04:13.180 Because advantage implies that I've taken something from you in some sense, or now that

01:04:17.680 I can hold something over you, you know, because you say take an advantage of someone.

01:04:22.380 But it isn't that.

01:04:23.880 It's now that I'm bringing something to the table that you actually desire.

01:04:27.700 And so that's not an advantage I have.

01:04:30.120 It's something that I have to offer that's, and if I have any sense, I've picked something

01:04:34.500 that I have to offer that I know other people want.

01:04:36.740 And so there's a kind of altruism that's built into that specialization.

01:04:41.320 Now, okay, so I'm going to take it one step sideways here, too, from a Marxist perspective.

01:04:46.220 Now, Marx also said that we were alienated, that specialization alienates us from our labor.

01:04:54.620 And, you know, there's some truth in that, because, well, here's another example.

01:04:59.160 When I was a kid, 16 or 17, I worked at this lumber mill, plywood mill, and it was probably

01:05:06.620 built in the 40s.

01:05:07.820 So it was kind of a dark satanic mill, you know, to use the poetic phrase.

01:05:11.720 And it had a pretty hierarchical structure.

01:05:14.080 The foreman exerted power over the workers.

01:05:18.000 And, you know, we had 15-minute breaks, but it took 10 minutes to get to the break room

01:05:21.820 and back.

01:05:22.300 And so it was pretty regimented.

01:05:23.760 It was classic labor versus manager situation, for what it's worth.

01:05:28.760 It was definitely noisy in this place, so you had to wear headphones all the time.

01:05:33.140 And my job was to stand at the end of this platform facing a machine that was about two

01:05:39.560 blocks long that was basically a natural gas furnace.

01:05:42.240 And I flipped these pieces of plywood sheathing onto a conveyor belt and filled the conveyor

01:05:49.160 belt.

01:05:49.460 And then it would move into the furnace and go down the two-block journey through the

01:05:54.420 furnace and be dry.

01:05:55.640 And then my friend, who worked on the other end, would take these off.

01:05:59.040 And so it was really, it was alienating labor, right?

01:06:02.300 I would do that eight to 16 hours a day, depending on whether I was working overtime.

01:06:06.480 And all I was really doing was grabbing a piece of wood and flipping it, pushing it forward,

01:06:10.360 right?

01:06:11.220 And so it was hot and dusty and all of those things.

01:06:14.080 And now and then the machine would jam and burst into flames, and the whole plant would

01:06:19.080 fill up with smoke and steam, and then we could climb on top of the plywood stacks and have

01:06:22.600 a nap.

01:06:23.060 And so that was sort of like the holiday.

01:06:24.740 But in any case, it did give me some sense of what it meant to be alienated from my labor.

01:06:30.260 There had been guys there who had been there for like 20 years doing this job, and I thought,

01:06:34.580 well, that would just drive me stark raving mad.

01:06:36.660 And so that alienation theory, I mean, how do we deal with that?

01:06:42.380 Because the problem with specialization is that, well, you have to sacrifice all the other

01:06:48.960 things you might be to do this one narrow thing.

01:06:51.600 Now, I know that opens doors.

01:06:53.100 Like if you become an expert at something, you go through a narrowing process while you're

01:06:57.960 being an expert, and then the world opens back up.

01:07:00.380 But I mean, is it, how do you deal with the, or does the Austrian school of thought deal

01:07:08.120 with the fact that specialization requires a particular sacrifice?

01:07:11.580 Is the proposition just that it's worth it compared to the alternatives?

01:07:16.800 Yeah.

01:07:17.260 Before I forget, let me just mention, you hit the nail on the head when you said comparative

01:07:20.300 advantage a few minutes ago, and you said that even if one person, or historically it was

01:07:25.960 done in terms of nations trading, even if one country was better at producing everything,

01:07:30.980 its people would still have a higher standard of living if it's specialized in what it was

01:07:34.420 really good at, and then traded with some other nation.

01:07:38.040 And so David Ricardo was credited with that.

01:07:39.920 So that's, so you're right.

01:07:41.120 And why is that?

01:07:42.280 Because that's subtle and not easy to understand.

01:07:45.020 A way to, a more colloquial illustration would be, um, like a doctor who can do a better

01:07:54.520 job taking people's blood pressure and weighing them and writing down on a piece of paper what

01:07:58.680 their blood pressure is and weighing them and asking them, what brings you in today?

01:08:02.600 It would be a waste of the doctor.

01:08:03.940 The doctor shouldn't do that.

01:08:05.000 The doctor should hire other people, you know, nurses or whatever, to, to do that basic

01:08:09.440 information so the doctor can just focus the time on what the doctor can do.

01:08:13.580 So he should concentrate, he should concentrate on whatever it is that he's, that other people

01:08:20.780 are least likely to be able to do.

01:08:22.740 Right, right.

01:08:23.320 Or, so that, that's kind of a general rule.

01:08:25.440 So you should concentrate on what's of general value, but what other people are least likely

01:08:30.280 to do.

01:08:30.880 Or, you know, other examples.

01:08:32.440 Or able to do.

01:08:33.260 Michael Jordan is very athletic.

01:08:35.160 He could probably cut his lawn faster than the neighborhood kid, but Michael Jordan shouldn't

01:08:39.860 be cutting, you know, he should hire someone else that he goes and practices basketball

01:08:42.860 or a lawyer who's a really fast typist should still hire a secretary to deal with, you know,

01:08:50.580 the paperwork so the lawyer can focus on talking to the client.

01:08:53.560 And so there's all kinds of examples where just because you can do a task better than

01:08:59.120 someone else, it still might make sense for you to outsource that and hire that person

01:09:02.800 to do it to free your time up to focus on where you're really good compared to the other

01:09:07.420 person.

01:09:08.800 And so I guess the, I guess the alienation issue is dealt with to some degree.

01:09:12.900 I read Jung's Psychological Types a long time ago, and one of the propositions he put

01:09:17.580 forward was that when slavery was eradicated in the West, we each became our own slaves.

01:09:25.640 That was the price we paid for it.

01:09:27.160 And so we slaved away for some portion of the day.

01:09:30.240 But the consequence of that was that we had some time where we could be free citizens

01:09:35.180 pursuing our leisure at will.

01:09:37.800 And I think that's kind of an interesting way of thinking about it, too, is that the

01:09:41.660 advantages of specialization are such that it's worth harnessing yourself to the sled for

01:09:50.180 a certain amount of time per week so that you can be relatively free in everything else you

01:09:57.020 do.

01:09:57.580 And the reason that that's acceptable and beneficial is because there isn't a better

01:10:01.460 alternative.

01:10:03.480 Right.

01:10:04.080 And so, yeah, I think the way Mises would handle the alienation issue is a few things.

01:10:08.900 He would say, kind of like what you were saying earlier about this idyllic notion of, and by

01:10:14.980 the way, my wife and I want to get some chickens, too.

01:10:17.260 And so I'm not knocking that we want to do that, too, partly because we're afraid of what's

01:10:21.380 coming.

01:10:21.620 And but Mises points out that a graph of history in like per capita living standards

01:10:27.760 is like this, like this, like this throughout the century.

01:10:29.840 And then it goes like that starting in 17, late 1700s or so.

01:10:33.880 That most important chart in the world.

01:10:35.760 Right.

01:10:36.480 And so and also population explodes.

01:10:38.580 It's not merely that it's the same population and just their living standard.

01:10:41.500 It's like all of a sudden, you know, the Earth's population starts growing very rapidly.

01:10:46.680 And so Mises point was the only way that could happen is the cities all of a sudden started

01:10:51.840 growing, you know, factories.

01:10:52.880 So peasants left the farms and went to the cities where the jobs were, to speak colloquially.

01:10:58.660 Well, yes.

01:10:59.160 And they left the farms and went to the cities despite the existence of the dark satanic mills

01:11:03.960 because all things considered, it was better in the dark satanic mills than it was on the

01:11:07.840 bloody farm.

01:11:08.700 Right.

01:11:08.880 Now, in fairness, it wasn't just all laissez faire and property, like there's people on

01:11:15.860 the left will argue that there was what's called the enclosure movement and that like

01:11:20.660 some of the land that the peasants used to just live on.

01:11:23.560 And it was considered there's these rich people in cahoots with the authorities came in and

01:11:28.900 fenced it off and kicked them off.

01:11:31.000 And so they had no choice but to go to the cities because they were dispossessed.

01:11:34.180 Right.

01:11:34.280 But that doesn't stop, that doesn't mitigate the fact that everywhere in the world, people

01:11:39.220 are moving from rural areas to the city.

01:11:41.100 Right.

01:11:41.500 Everywhere.

01:11:42.260 Right.

01:11:42.400 And faster and faster and faster.

01:11:44.180 And so there's a general trend there despite, I mean, it's very important to separate out

01:11:50.540 the general trends from the aberrations, right?

01:11:53.500 And you can point to, and this is why I want to emphasize this issue of power, because we're

01:11:58.180 talking about first principles here.

01:11:59.820 And it's really important to get your first principles about the nature of your society

01:12:04.520 correct.

01:12:05.200 And so, you know, one theory is that value is produced by labor and then the exploiters

01:12:10.000 skim off the excess labor.

01:12:12.700 And another theory is that, no, we band together as free individuals.

01:12:17.660 We sacrifice ourselves to become specialists.

01:12:20.240 But the net consequence of that is everyone's gain, including our own.

01:12:24.800 And we do that as free agents.

01:12:26.480 And that's not a fundamentally exploitative system.

01:12:30.300 The fundamental exploitation is our subjugation to the demands of our biological vulnerability,

01:12:37.820 not the tyranny of the social institutions that actually ameliorate that.

01:12:42.320 Now, and then we could say, well, yes, but there are aberrations.

01:12:45.480 And sometimes social institutions degenerate in the direction of arbitrary power.

01:12:52.640 And sometimes they're not merely a consequence of cooperative action.

01:12:59.340 But that's not the main trend.

01:13:00.940 And that's not the central tendency.

01:13:04.080 Right.

01:13:04.800 And also, too, just going along the lines of the alienation.

01:13:08.660 So you're right, there is a trade-off, I guess, that you can, once that industrial revolution

01:13:16.320 occurred and people, and this is a point Mises would stress, too, that when you think about,

01:13:20.920 oh, the factory and that's just the fat cats.

01:13:22.700 No, what are they doing at the factory, especially if they're mass producing?

01:13:25.700 That's mass production for the masses.

01:13:28.000 It was in the Middle Ages where there were, you know, boutique items made just for the rich.

01:13:32.900 But the rise of modern capitalism, where people are going to factories and just cranking stuff out

01:13:38.560 and, oh, this is so monotonous, that's because it's mass production.

01:13:41.860 So that's showing that's what the consumers are getting.

01:13:44.020 You're not, a factory doesn't have a bunch of workers there sitting day in and day out

01:13:48.260 doing mindless tasks just for a baron, that they'd be too much output.

01:13:52.820 It's for the masses.

01:13:53.920 So there is that trade-off that you as the consumer, if you want all of this cornucopia

01:13:58.480 of goods available that wouldn't have been available in the year 1500, that's because of this new way of producing.

01:14:05.540 Right, so the price you pay for that is that you have to serve to some degree as a cog in the machine,

01:14:11.320 but you get to decide which cog in which machine.

01:14:14.880 Ideally, yes.

01:14:15.740 And also, too, we just take it for granted that, oh, we have a weekend now.

01:14:22.780 We only typically work five days a week.

01:14:24.340 And even there, when people go into the office now, they don't really work eight hours.

01:14:28.780 They're on Twitter, they're getting coffee, you know what I'm saying?

01:14:31.200 So even now, a work day is not nearly as hard as it was 50 years ago.

01:14:37.120 And so, yes, you might feel like, oh, this job, my boss doesn't appreciate me.

01:14:43.400 But it is that you have way more free time now because productivity is higher.

01:14:49.960 Your wage rate now is way higher than it would have been in the year 1850.

01:14:53.780 And that's because of private property rights, Mises would argue, and the incentives that

01:14:58.660 entrepreneurs face in a market economy.

01:15:02.300 And ultimately, yeah, if you don't like your job, you can quit it and go do something else

01:15:06.180 if you have a genuine market economy.

01:15:08.300 All right, right, right.

01:15:09.720 So you're a wage slave who can choose his slave owner, so to speak.

01:15:16.480 And maybe that is what constitutes freedom when you also face biological necessity.

01:15:22.520 That's the best you can do.

01:15:24.040 All right, so here's a proposition.

01:15:26.500 Property is theft.

01:15:29.220 Now, that stems from the same kind of ideas, the same Marxist matrix, let's say.

01:15:35.340 And the idea there is that, well, people gain arbitrary control over a natural resource and

01:15:46.760 fence it off from the use of others.

01:15:49.740 And that should be a general resource.

01:15:53.200 And the mere fact that they have power enables them to maintain the fences and to benefit preferentially

01:16:00.700 from whatever can be raised there, perhaps as a consequence of use of exploitation of the

01:16:07.520 labor of people who are then allowed onto the land.

01:16:11.000 And again, there's something that's sort of folk attractive about that, although I think

01:16:16.180 it also dangerously incites and justifies envy.

01:16:21.280 But maybe we need a better justification for private property.

01:16:28.820 So what does Mises have to say about that?

01:16:32.440 Okay, I don't know if Mises made this point, but I've seen others, like just prima facie,

01:16:37.380 the statement property is theft is almost a contradiction or a paradox because theft means

01:16:43.240 somebody took your property, right?

01:16:45.060 So the notion of property per se is if property is a nonsensical concept, then so is theft,

01:16:53.760 right?

01:16:54.200 And so that's really hard.

01:16:55.820 I would make that point.

01:16:56.680 I don't know if Mises would make that point.

01:16:58.920 So I think what Mises, one of the things he would say is even the socialists who say,

01:17:05.800 oh, rather than, you know, the anarchy of production or how monstrous would it be to have all the

01:17:11.140 factories in the farmland in the hands of this narrow group of people, the capitalists, let's

01:17:17.280 call them, or the bourgeoisie or whatever term we want to use.

01:17:20.660 And then the mass of the population is utterly dependent on their decisions and look at how

01:17:25.160 they live, their riotous living and their drunkards.

01:17:27.560 And, you know, these aren't refutable people anyway, or sober minded people.

01:17:32.480 This is a crazy system.

01:17:34.180 Let's be more scientific and rational and have experts running it.

01:17:37.300 Still, they're just replacing who the narrow group of people are who are in charge, right?

01:17:43.300 It doesn't, it could not be that the people collectively decide which crops are going to

01:17:49.880 get planted on this acre of farmland, because what if people disagree?

01:17:54.160 There has to be some mechanism by which we can agree, okay, we're going to plant wheat here

01:17:58.100 and we're going to plant tobacco over here, or we're going to build a factory here and this

01:18:02.900 is what we're making, that people can have disagreements about that.

01:18:06.160 And it's, it's silly and naive to assume, oh, if we just had reasonable people sit down

01:18:11.180 and think about what's right, then it would be obvious how to use all of society's, you

01:18:15.740 know, means of production, that no, it's not obvious at all.

01:18:18.840 And so under a socialist approach where we get rid of, you know, the evil or the theft of

01:18:24.520 private property, at least in the means of production, you're actually not getting rid

01:18:28.880 of the fact that a select few have to just decide and everybody else has to go along with

01:18:33.600 it.

01:18:33.760 And so to private property per se, so why, I mean, it's easy to think of private property

01:18:45.480 actually as property, but of course the idea of private property is really the idea that

01:18:50.160 you can own anything.

01:18:51.400 And so then I guess if we go down to first principles, what is it that you need to own

01:18:57.680 in order to make social institutions work?

01:19:00.180 Well, I don't think there's anyone who disputes the idea that you should own the right to dispose

01:19:07.500 of your labor as you see fit.

01:19:10.800 I mean, even people who are on the radical left, I don't think would allow for that degree of

01:19:18.540 the dissolution of ownership to take place.

01:19:22.000 I mean, their objection to begin with is that people are basically enslaved by exploitative

01:19:28.400 capitalist institutions and they should be free to choose.

01:19:32.760 And that means seems to me to mean that they own the right to choose.

01:19:36.660 It's something like that.

01:19:37.800 So what is it that you need to own if we're banding together to maximize productivity and

01:19:45.140 we're doing it in a cooperative way rather than exploiting one another fundamentally?

01:19:50.980 Aberrations be damned for the time being.

01:19:54.120 What is it that we need to own?

01:19:55.980 What rights do we need to own?

01:19:58.640 Right.

01:19:58.920 Okay, great.

01:19:59.380 So you're right that it's interesting that when you talk to, and obviously among, you

01:20:05.240 know, there's different groups like socialist and Marxist and Leninist and communist, those

01:20:10.220 are not all interchangeable terms.

01:20:11.600 And the people who believe in those things would get, you know, take umbrage at people

01:20:15.500 being sloppy with, you know, so.

01:20:17.340 Yeah, well, it gets really complicated in the case of places like Norway and Sweden and

01:20:21.460 well, Canada for that matter, because we're more socialist than the US.

01:20:25.640 And I mean, Canada, Norway and Sweden and Finland and so on are doing quite nicely, all things

01:20:31.740 considered.

01:20:32.460 So these, compared to Stalinist Soviet Union, for example.

01:20:37.360 So yeah, these distinctions make a tremendous amount of difference.

01:20:40.340 So where I was going is to say, though, that when I've talked to, you know, people like

01:20:44.780 anarcho-communists, let's say, or anarcho-socialists that, and I ask them, well, they will say that,

01:20:51.280 oh yeah, people can own their houses, like as long as they're modest, or workers should

01:20:56.600 own their tools, right?

01:20:57.800 So they have no problem with a carpenter owning a hammer and nails and a saw and things like

01:21:03.760 that.

01:21:04.200 So even though those are means of production.

01:21:06.680 Well, it also, but then of course the problem comes up, what exactly do you mean by own?

01:21:11.700 Right.

01:21:12.780 So if I own my house, but I can't own a factory, but I can own my house.

01:21:16.580 Well, that means I can't trade my house for a factory, so I don't own my house in that

01:21:21.820 regard.

01:21:23.140 Yeah, that's a good point.

01:21:23.920 So there's something really fundamental here that we need to sort out about ownership.

01:21:28.620 So what does it mean to own something?

01:21:31.440 Well, it means that you have the right to its use, right?

01:21:36.420 Yeah.

01:21:36.780 Yeah.

01:21:37.260 Your will determines how it will be used, right?

01:21:41.080 And so to say that, yeah, I own a factory means that, yes, not only do I get to determine

01:21:47.580 what gets produced in it or if it just sits there idle, but also, like you say, to really

01:21:54.800 own it means I should be able to sell it to somebody else for money.

01:21:58.660 For anything, essentially.

01:21:59.820 Yeah, for anything.

01:22:00.540 Well, that's where things get tricky, right?

01:22:02.860 Because if ownership means something, it has to mean something like the right to trade the

01:22:10.460 thing you own for other things you want, because why the hell else would you bother owning it?

01:22:15.720 I mean, it'll produce profit, perhaps, but with that profit, you still want to be able

01:22:21.440 to buy things that you can own.

01:22:23.000 So it's the same problem.

01:22:24.140 So what we need here, at least to some...

01:22:26.940 The reason I'm driving at all of this is because we're facing a situation in our culture where

01:22:33.520 there are fundamental revolutionary critiques at the first principle level, right?

01:22:38.720 Right.

01:22:39.220 We're not sovereign individuals.

01:22:40.760 We're members of a group.

01:22:42.640 We didn't band together for cooperation.

01:22:45.000 We banded together to maximize our own selfish needs, our own selfish ambitions.

01:22:52.440 And we do that as a consequence of the expression of arbitrary power, that the fundamental relationship

01:22:58.560 between people in a hierarchy is exploitative, that the enlightenment idea of the sovereign

01:23:04.460 individual is nothing but a justification for claims of power for the privileged group.

01:23:09.560 I mean, these are fundamental critiques.

01:23:12.680 They go all the way to the bottom, which is why I'm trying to chase things down to the

01:23:15.980 bottom.

01:23:16.240 I'm also...

01:23:16.960 And I want to go to this, too, at some point.

01:23:20.220 It's an attractive set of ideas.

01:23:22.040 It's an optimistic set of ideas.

01:23:24.100 But it isn't instilling the same revolutionary fervor among a minority of young people, let's

01:23:30.320 say, in our culture, that these more radical, critical ideas are.

01:23:37.060 And so we also have to address that problem, is that this is kind of a nice way of looking

01:23:41.640 at the world.

01:23:42.340 It's optimistic.

01:23:43.960 It's positive.

01:23:44.920 But it's not romantically attractive.

01:23:47.620 And it's being attacked madly.

01:23:50.000 And so we can't defend it very well.

01:23:52.380 So, OK, so we'll sketch that out.

01:23:54.920 Back to ownership.

01:23:55.900 Yeah.

01:23:56.400 So, yeah.

01:23:57.400 I think at some point in this discussion, what Mises would stress is to say, hey, let's

01:24:04.820 not lose sight of the fact that...

01:24:07.220 And just so you know, Dr. Peterson, Mises was not a natural law theorist, right?

01:24:12.560 So even though plenty of people like libertarians love the work of Mises and people who are

01:24:18.660 very ideological and have views as to where property comes from and ethically, Mises was

01:24:25.100 more utilitarian or pragmatic.

01:24:28.740 And I think he would just say, yeah, I'm happy to have these discussions about the philosophy

01:24:32.960 and the underpinnings of justice and so forth.

01:24:35.100 But push comes to shove, the means of factories and farmland and crude oil deposits and other

01:24:43.320 minerals and things like that, those all need to be owned privately too, because you need

01:24:48.180 to have market prices for those things.

01:24:50.640 Because a given business enterprise needs to be able at the end of the accounting period

01:24:56.760 to say, were we profitable or not?

01:24:59.220 And that's the only way we can know if it's using scarce resources effectively.

01:25:03.940 Okay, so one reason for ownership is that it's very difficult to monetize something without

01:25:09.880 that ownership.

01:25:11.260 And if you can't monetize it, you can't calculate its value.

01:25:14.500 And if you can't calculate its value, you can't use it.

01:25:18.860 Or you can't know whether you're using it efficiently or not.

01:25:22.440 Well, but that would be the same thing, essentially, because if you don't use it efficiently, you're

01:25:26.520 going to have to stop using it pretty damn quickly.

01:25:30.080 And so, to some degree, pricing is the antidote to the tragedy of the commons.

01:25:35.660 That's another way of looking at it is that, so for example, in the oceans, no one owns

01:25:41.560 the oceans, at least not past, once you get out 200 miles, it's free for all, essentially.

01:25:48.060 And so the consequence of that is that everyone is incentivized to take every goddamn fish as

01:25:52.420 fast as they possibly can.

01:25:53.760 And that's exactly what's happened.

01:25:55.560 And it's because the fish are free.

01:25:58.000 Right.

01:25:58.340 But they're not, because they're a finite resource.

01:26:00.580 And so the problem is we haven't monetized, or a problem, a potential problem, is that

01:26:04.720 we haven't assigned a monetized value to the fish.

01:26:09.580 And so once they're pulled into an economy, they're worth something.

01:26:12.480 But out there, free-floating, it's every man for himself.

01:26:15.120 And so that means that without private property, you know, you could make a case that private

01:26:20.460 property leads to the despoiling of the natural environment.

01:26:23.500 Say, okay, well, what about those situations where there is no private property?

01:26:26.640 Well, then you get instantaneous despoiling of the natural environment, because there's

01:26:30.260 no incentive to maintain it.

01:26:32.480 So we could say, you need to own things so that your commitment to your specialization

01:26:40.700 is paid for.

01:26:43.520 Right?

01:26:44.020 So I want you to become a brain surgeon.

01:26:46.300 That means I have to give you something.

01:26:49.340 And to give you something means you get to own it, to dispose of it as you see fit.

01:26:54.540 And so we want to incentivize everyone to specialize so that we can exploit each other with maximal

01:27:01.420 efficiency, and that's to everyone's good.

01:27:06.720 That's in everyone's best interests.

01:27:09.060 It's something like that.

01:27:10.920 And so we need private property to manage the incentive.

01:27:15.060 And then you also said to price things properly, because that's also an important consideration.

01:27:19.420 Right.

01:27:19.780 So historically, even before Mises came along, yeah, the critics of socialism warned about

01:27:27.160 the incentive issue.

01:27:28.520 And like to say, hey, there's some really productive people.

01:27:31.160 If they're just getting paid, you know, from each according to his ability to each according

01:27:34.760 to his needs, why would a super productive person, you know, exert himself so much if he's

01:27:40.840 just going to get food based on how many people are in his household or something?

01:27:44.040 You know, that kind of thing.

01:27:44.840 Um, so that, that was a standard thing, but then the socialist countered that and said,

01:27:49.880 well, no, in a socialist society, there'd be a new socialist man who would just, you

01:27:54.220 know, give out of altruism, you know, just to benefit, you know, to be the benefactor of

01:27:58.580 his fellow man.

01:27:59.520 And it's only when you grow up in a capitalist system that you're greedy and self-centered

01:28:04.260 because you have to be to survive.

01:28:05.460 So Mises came along and he, in his argument, you know, he acknowledged the truth of the

01:28:11.740 incentive issues, but his was more of a, of a calculation or, or just a knowing what

01:28:18.380 to do and saying, you know, even if we stipulate for the sake of argument that all the comrades

01:28:23.280 are willing to do whatever the central planners tell them and the central planners truly want

01:28:27.640 the best for their subjects.

01:28:29.500 It's just, you don't know where should we locate the factories?

01:28:32.460 How much, how many cars should we make?

01:28:33.780 Should we build more food distribution centers?

01:28:35.940 Should we have more farms here or there?

01:28:37.560 How many of our incoming, you know, of our crop of young scholars should go into these

01:28:43.200 different technical fields?

01:28:44.700 Okay.

01:28:45.160 And the reason, the reason that you don't know that is because in order to know that, in

01:28:50.500 order to know the price of one thing, you have to know the price of everything else.

01:28:55.980 Right.

01:28:56.580 Right.

01:28:56.860 That's the fundamental problem.

01:28:58.520 So, and then the problem is worse because, well, how in the world can you calculate the

01:29:03.660 fundamental price of everything?

01:29:05.140 Because that's an insuperable computational obstacle.

01:29:09.260 And the answer is, well, you distribute the computational problem to the maximum number

01:29:13.780 of actors and you try to bring everything under the monetization web.

01:29:17.360 Right.

01:29:17.600 And there are places where that, where we have real trouble with that, where we can't monetize

01:29:23.420 something accurately.

01:29:25.840 Yeah.

01:29:26.360 So there's, there's areas where it doesn't work very well, but in general, yes.

01:29:30.760 If you just think about what does it mean in a decentralized market economy with private

01:29:34.660 property, not just for carpenters owning hammers, but for the whole factory being owned by a small

01:29:40.820 group of people or one person, you know, and everything is owned privately.

01:29:46.400 And then, yeah, people have accountants.

01:29:48.200 And at the end, like I say, of an accounting period, they look back and say, how did we

01:29:51.340 do?

01:29:52.100 And if they're profitable, just think through what does that mean?

01:29:54.560 It means that their customers gave them more dollars than they had to spend on the resources

01:30:00.820 to make that stuff, the goods or the services.

01:30:03.200 Well, we could use an analogy.

01:30:04.900 So imagine you're a carpenter and you want to build a house, but you don't have a ruler.

01:30:09.540 You don't have any way to measure length, right?

01:30:13.660 Well, so maybe you eyeball it.

01:30:16.260 Maybe you get pretty good at that, but for maybe you can't even do that.

01:30:19.080 So you can't measure length and now you have to build a house.

01:30:21.820 Well, you can't because you have to measure.

01:30:23.700 And so then the fundamental principle here is that money is the measure of value and it's

01:30:30.940 computed as a consequence of a distributed network.

01:30:34.920 And that's the only reason it works.

01:30:36.600 And each person is pursuing something of value insofar as they're capable of doing that.

01:30:42.900 And they make some pricing decisions on the basis of their specialized expertise.

01:30:49.100 And then we sum the consequences of that specialized computation.

01:30:53.780 And we have a price for everything or virtually everything.

01:30:57.960 And because we have a price for everything, we can roughly decide what to do.

01:31:03.380 So it's best to think of this really as a computational enterprise.

01:31:07.720 I believe.

01:31:08.880 Yeah.

01:31:09.200 And Mises used the term calculation.

01:31:11.560 Yeah.

01:31:12.040 And that was, so you're exactly right.

01:31:13.780 He argued that one of the most important distinctions of modern civilization was the ability

01:31:19.740 to apply arithmetic to human action.

01:31:21.940 Right, right, right.

01:31:22.900 Well, so, so yeah, this is the measurement issue.

01:31:24.900 And so we're, we're basically making the case that you, you can't, you can't get anywhere

01:31:31.940 unless you can measure.

01:31:34.160 And money is the measure and it's a measure.

01:31:37.120 And so the proposition that central planning will work is the proposition that you can substitute

01:31:43.880 one expert mind for a million distributed expert minds.

01:31:49.320 And that's just not the case.

01:31:51.180 It's obviously not the case because each person is going to have knowledge that pertains to

01:31:56.800 their locality that isn't accessible.

01:31:59.580 And that's another element of specialization that isn't accessible to everyone.

01:32:04.180 And so it's much better to let everyone make the decisions and sum them.

01:32:07.940 And, and so we have this, this free market society isn't a mechanism to allow property

01:32:15.660 holders to exploit others.

01:32:17.220 Let's say it's a mechanism that the entire human race uses to calculate the comparative

01:32:22.860 value of everything.

01:32:24.380 Right.

01:32:25.020 And it makes thought possible.

01:32:26.560 And Mies does point that out when he talks about arithmetic is that it enables us to do

01:32:30.980 arithmetic and we can decide, is it worth it?

01:32:35.160 Yeah.

01:32:35.460 And so Hayek, um, who is, you know, a follower of Mises and won the Nobel prize in 74 for a

01:32:43.560 lot of this stuff.

01:32:44.100 He had a discussion where he was saying, for example, if a, if a tin mine collapses in Africa

01:32:52.680 or something, everybody around the world who uses tin needs to use less of it, at least

01:32:59.380 in the near term, until they get that mine up and running again.

01:33:01.680 And so in a market economy, the way that happens is the price of tin goes up.

01:33:07.200 And so you're saying like some factory owner in North Dakota doesn't even need to know why

01:33:13.080 it's, it's irrelevant.

01:33:14.600 He doesn't need to know the particulars of the mine.

01:33:16.640 He just needs to know tin is more scarce now than it was yesterday.

01:33:19.660 So to, if you can use something else on the margin.

01:33:23.340 And that's exactly what happens when the price goes up, people who can substitute out of

01:33:27.280 tin for something else do so.

01:33:28.940 But for firms that absolutely need tin, there's no other way to do this.

01:33:32.020 Right.

01:33:32.040 And they don't need to know anything about tin.

01:33:34.240 That's what's so cool about money is that you don't need to know anything about what it

01:33:38.700 is that you're purchasing.

01:33:39.980 And thank God for that because we don't know anything about anything.

01:33:44.440 You know, so if you go, I mean, I've tried to buy printers, which is very, very difficult

01:33:50.120 because there's like 300 printers, you know, it's like, how the hell do you possibly know

01:33:54.200 which printer is the right printer?

01:33:56.040 And the answer basically is, well, roughly speaking, you can use price.

01:34:01.520 You can assume the printer is worth whatever it's, whatever the price is.

01:34:06.460 It's, it's as good an indication of the quality as you're going to manage.

01:34:11.240 And, and thank God for that because otherwise you wouldn't be able to make a decision.

01:34:15.120 I mean, I ran into this sort of problem trying to price some things that I produced.

01:34:19.260 I produced these software programs, myself and my collaborators.

01:34:25.980 One of them, the self-authoring suite is designed to help people write about their past and their

01:34:30.240 present and to make a plan for the future.

01:34:31.920 And we were trying to price that and it was unbelievably difficult decision.

01:34:36.400 And it started me thinking about pricing.

01:34:38.900 You know, if you make it really expensive, well, that's some indication that it's of high

01:34:43.900 value, but it limits the number of people who can use it.

01:34:46.420 If you make it, we thought, well, maybe we should make it free.

01:34:49.880 Would more people use it?

01:34:51.560 Because we were basically, we wanted people to use it, you know?

01:34:54.140 I mean, we had other motives, I suppose, but fundamentally the motive was, well, we have

01:34:59.840 some psychological knowledge.

01:35:01.100 Let's see if we can share this with people as broadly as possible.

01:35:03.840 But our conclusion eventually was that free was the wrong price.

01:35:08.420 We couldn't generate enough profit to continually improve it.

01:35:12.120 We couldn't justify the effort that we had put into it.

01:35:15.280 And so we're likely to start looking at other things because we weren't incentivized properly.

01:35:19.380 And people might respond that something worth zero isn't worth anything.

01:35:25.320 Right.

01:35:25.420 And that was just one pricing decision.

01:35:28.720 And so, you know, we set it at a moderate to low price, and that seems to have worked.

01:35:33.540 But it really did introduce me to the complexities of pricing.

01:35:37.280 And people were willing to pay what we charged for it.

01:35:41.540 And so maybe we should have charged more, who the hell knows, or perhaps less.

01:35:45.460 But, okay, so let's go back to first principles a little bit.

01:35:49.820 So people need to own things because if they don't, they don't, we can't incentivize them

01:35:56.700 to specialize in production.

01:35:58.040 And then we don't have anything.

01:36:00.300 And so ownership allows for incentivization, essentially.

01:36:04.440 So that's one component, but I'm saying an independent issue is even if right now, let's

01:36:11.440 assume we have all the stuff that's, you know, the resources are available and people have

01:36:15.180 studied to be brain surgeons and carpenters and whatever.

01:36:18.040 Even so, we don't know what to do with all these resources without having a profit loss.

01:36:24.860 Right, right.

01:36:25.180 Okay, I got to get that in my head.

01:36:26.960 Because that's, okay, is there another, is there some, is there another attribute?

01:36:30.600 We got two there.

01:36:32.880 Ownership allows for proper incentivization, and it also allows for pricing.

01:36:36.700 And that's necessary to provide comparative information about comparative value.

01:36:40.880 Absolutely crucial.

01:36:41.920 Is there anything else that ownership is key to?

01:36:45.060 There probably is.

01:36:45.840 But is there anything else we're missing?

01:36:47.340 Well, I mean, not in terms of like the narrow economics of it, but I think the broader,

01:36:52.860 so Mises would call himself a classical liberal, or he would just say liberal, but for our terms,

01:36:57.580 we mean classical liberal, like, you know, individual rights and so on.

01:37:00.520 And I think he would just say in that paradigm, private property was the ultimate bulwark against

01:37:07.400 oppression by the political authorities.

01:37:09.680 Okay, okay, so that's a good one, too.

01:37:12.120 So you might say, well, we need, maybe it's better to have a thousand rich people than one tyrant.

01:37:21.040 Because you've distributed the tyranny, at least, right?

01:37:25.200 Now there's tension between the tyrants, and maybe it's even better if there's a hundred

01:37:28.300 thousand tyrants, because they're competing amongst themselves.

01:37:32.240 And I mean, I think you could make that case, because one of the factors that delimited the

01:37:37.460 power of the absolute monarch, say, as England developed, was the fact that there were nobles

01:37:41.560 who also had independent basis of power.

01:37:43.800 So ownership also gives individuals authority and power.

01:37:49.700 Right, and another way of looking at it.

01:37:52.360 That's part of incentivization, but it also stabilizes societies.

01:37:55.920 Right, so it's, so if you think about it, it's true, you know, the Marxists do have a grain of

01:38:01.880 truth that the average worker, especially with no savings, is sort of at the mercy of all the big

01:38:07.620 firms, you know, oh, gee, I need a job.

01:38:09.140 And right now there's really just a hundred companies that are viable that might hire me.

01:38:14.620 And, and if, you know, if I don't get along with them, or if I don't kowtow and do what

01:38:18.740 they want, be a yes man, then, you know, I'm out and I have to just do whatever.

01:38:23.080 But how in the world are you, is that situation improved by saying, let's get rid of the hundred

01:38:27.480 owners and just have the state be the sole employer and tell everyone, here's where you're

01:38:31.140 going to work.

01:38:32.360 That there you've replaced, like you say, the hundred petty tyrants where ultimately you can

01:38:37.560 just quit and go somewhere else.

01:38:39.240 Now you have to leave the country if you don't get along with your boss, who is the state.

01:38:44.320 Well, and you can see too.

01:38:45.680 Yeah.

01:38:45.980 Well, and then, and imagine also the disproportion in power.

01:38:49.520 Okay.

01:38:49.740 So let's go to that.

01:38:50.720 There's a centralized authority that's making all the decisions.

01:38:53.660 And then there's all these citizens and they're all equal.

01:38:57.400 Well, yeah, but they're not equal in relationship to the centralized authority.

01:39:00.760 They're radically unequal.

01:39:02.240 They have no power whatsoever.

01:39:03.500 And so now if you look at a place like communist China, at least the central tyrannical tendency

01:39:11.120 of the state is counterbalanced by the authority and power of the tycoons.

01:39:17.820 And you got to think about that as something that's better.

01:39:20.400 At least there's a competition between tyranny and at that point, even if you're very, very

01:39:25.100 cynical about the whole situation.

01:39:26.820 It, it's a good thing that there are locales of power that are independent of the state,

01:39:34.440 of the state's central authority.

01:39:36.840 Right.

01:39:37.380 And that's merely because the state, even if it was benevolent, might be wrong.

01:39:41.600 So just in terms of diversity of opinion, we'd want to have multiple power sources.

01:39:46.320 Now, you know, I've also talked to my brother-in-law helped me sort of puzzle this through too.

01:39:50.020 You know, there's some utility in having some people who specialize in the ownership of money.

01:39:55.440 And so they have a tremendous amount of money, partly because some things are really expensive

01:39:59.780 to do.

01:40:01.220 So if you want to build a factory to build microchips, for example, that's a couple of billion

01:40:06.320 dollars in investment minimum.

01:40:08.020 And so unless we have these huge pools of freely available capital, then that requires

01:40:13.580 a certain amount of disproportion in distribution, right?

01:40:18.360 So that there are some people who are extremely rich, we couldn't do any of the things that

01:40:22.540 riches require if we didn't have people who were rich.

01:40:27.220 And so, so let, tell me what you think about this.

01:40:30.020 So is it the case that distribution of economic resources to the poorest is dependent on their

01:40:39.500 availability to the rich first?

01:40:42.100 So you think about cell phones, when they first come out, they're like $25,000.

01:40:45.580 And so there's some people who can afford a $25,000 cell phone, and they buy them, and

01:40:51.180 then now they're worth $20,000.

01:40:53.080 And then more people can buy them because it's the $20,000 price range.

01:40:57.180 I mean, if we didn't have radical inequalities in income distribution, would we ever be able

01:41:02.520 to introduce new expensive products into the market?

01:41:06.060 Let me answer this way.

01:41:11.780 And if you want to press me, I can try to elaborate more.

01:41:14.460 But I think for sure what Mises would say, and I would agree with this, is for the introduction

01:41:20.980 of new products, you do want to have private property and the ability of certain people

01:41:26.120 to have accumulated vast fortunes.

01:41:28.360 Because if you think about how did some person get to be a billionaire, it was only because

01:41:33.740 of that person's superior foresight in anticipating what the consumers wanted.

01:41:38.580 And that's how you got to that position.

01:41:40.520 And then that person then to decide, hmm, there's this new technology called a cell phone or a

01:41:46.400 cellular phone.

01:41:47.760 Yeah, I think it's worth sinking millions of dollars, and it's seen if this will pan out.

01:41:52.220 It's the, you know, who's making that decision?

01:41:54.640 It's the person who's got the proven track record so far.

01:41:57.860 Whereas if you had a different system where, oh no, we don't allow individuals to accumulate

01:42:02.420 vast fortunes, the state owns everything, then it's going to be a committee that's always

01:42:07.200 going to guess and say, okay, bring in the new proposals, let's vote on it.

01:42:10.880 You know, like, so it's, there's not as much skin in the game to use, you know, that popular

01:42:15.060 phrase now that it's not that individuals own money.

01:42:17.920 And so that's like, you could just see how given human nature and the limits of what people's

01:42:25.420 expertise is that distributing and decentralizing it and allowing for the possibility of massive

01:42:31.440 fortunes to accumulate is a better engine for innovation that now people can specialize.

01:42:37.260 And a certain billionaire who doesn't know anything about phones, like he made his money

01:42:40.180 with cars, might say, I'm going to pass on that.

01:42:42.620 I don't know anything about that.

01:42:43.520 Whereas somebody else who's more technically savvy might invest in it, but there needs to

01:42:47.760 be some way you can't just invest in every promoter who says, Hey, I've got this new

01:42:53.160 product that's going to revolutionize the world because most of them are going to be

01:42:56.840 your argument basically is, well, there are people out there who specialized and developed

01:43:01.100 expertise within a certain domain.

01:43:02.640 And as a consequence, they've accumulated a fortune and that marks accepting aberrations

01:43:09.400 that marks the development of that expertise.

01:43:11.960 It's a pragmatic marker for the development of that expertise.

01:43:14.840 You want those people making decisions in their area.

01:43:19.380 And if they make decisions in another area and it's a bad decision, they're just going

01:43:23.100 to lose their money.

01:43:23.940 Right.

01:43:24.180 And so it's self-correcting.

01:43:26.140 And like you said, maybe this is what your, I don't know if you said brother-in-law was

01:43:29.260 getting it, but there are people in a market economy who specialize in investments.

01:43:35.320 Like they're good at just picking companies like Warren Buffett or whatever, to use a popular

01:43:39.520 example.

01:43:40.140 So it's not that Warren Buffett necessarily is good at running a car factory, but he

01:43:44.240 knows what team is going to be good at doing that.

01:43:47.400 Like he can just interview people and get a sense of, I think this is, this firm's going

01:43:50.700 to do well over the next 10 years.

01:43:52.280 And so, you know, there is that.

01:43:54.000 So someone who's just good at investing and picking winners in the stock market, if you really

01:43:59.200 are good at that over time, you accumulate money and then you have more decision as to which

01:44:04.360 firms get funded.

01:44:05.640 So again, it's like a meritocracy and all this stuff presupposes there's property rights

01:44:10.680 and, you know, people aren't stealing it from each other.

01:44:13.040 Yes.

01:44:13.060 And free action and the ability to make rational decisions.

01:44:15.620 But assuming people obey the rules, then yeah, over time, who is it that's made a boatload

01:44:19.480 of money in the stock market?

01:44:20.580 The people who has successfully predicted better than everybody else, which stocks are likely

01:44:25.000 to go up or they sold the ones that were before they went down.

01:44:28.120 And that's exactly the kind of person you want deploying the scarce amount of capital funds.

01:44:33.700 That's, you know, sort of guiding the trajectory of our industrial base or whatever.

01:44:37.840 Well, that's the person you would turn to if you were looking for advice.

01:44:40.940 So it seems like that's the sort of person that you'd want.

01:44:44.160 Now, that means that the thing about that, again, and this is a moral issue, is that means

01:44:48.160 those of us who don't have billions of dollars have to put up with the fact that there are

01:44:52.400 people who do, right?

01:44:54.320 And I suppose it's tempting to assume that they've gathered their fortune as a consequence

01:45:03.060 of, you know, some misbegotten adventure that involves oppression and unfair extraction.

01:45:08.620 And of course, there's always some truth in that because all systems are susceptible to

01:45:12.620 corruption to some degree.

01:45:14.200 See, I've been thinking about this idea of systemic racism a lot lately.

01:45:18.120 And it's a very, very treacherous term, and purposefully so, I believe, or maybe it's

01:45:25.620 evolved that way in some sense, because terms that are particularly treacherous are difficult

01:45:30.040 to dispense with.

01:45:31.420 It isn't the racism part of that that's the problem, although it's the heavy weight of the

01:45:39.500 two.

01:45:41.020 You say racism and everyone responds, well, that's a terrible thing.

01:45:44.680 And then to object to anything that has racism appended to it is a very treacherous enterprise,

01:45:51.400 because it looks like you're objecting to something that's obviously terrible.

01:45:55.300 I mean, even if you're a filthy, greedy capitalist, you want to exploit everybody from each race

01:46:00.700 to the maximum degree possible.

01:46:02.860 And so even for you, racism is going to be a terrible thing.

01:46:05.720 But then there's this systemic issue, you see, and that's what, and that sort of snuck in

01:46:10.480 there, systemic.

01:46:11.680 systemic, well, systemic implies central tendency, right?

01:46:18.940 Because otherwise you wouldn't use the word systemic.

01:46:21.140 And so the proposition is essentially that the central tendency of the social institutions

01:46:26.580 is racism, rather than an aberration in their behavior or a deviation from the central tendency.

01:46:34.020 And what we're trying to sort out right here is what the central tendency is.

01:46:38.300 And so we're saying, well, people band together for productive purposes, they specialize because

01:46:44.100 that is advantageous with regards to maximizing productivity and distribution because of the

01:46:49.360 pricing issue.

01:46:50.480 It's not a matter of exploitation.

01:46:53.000 You have to specialize to do this, and there's a price to be paid for that.

01:46:56.360 But the price to be paid is offset by the price that you are paid for specializing.

01:47:03.780 And so that's a completely different view of, and so a system like that isn't going to

01:47:09.420 be systemically prejudiced because it works at counter purposes to its central tendency.

01:47:15.780 If productivity is the aim and the goal, then you want to exploit everyone equally.

01:47:20.740 Right. So just on the narrow point that you made, I just want to amplify it that, yes, in a market economy,

01:47:28.380 there is an inbuilt penalty for irrational prejudice.

01:47:33.100 So, you know, you've got...

01:47:34.100 Okay, so now we can define irrational prejudice, too.

01:47:36.700 And this gets to the issue of merit.

01:47:38.420 Right.

01:47:38.860 So imagine you're making widgets.

01:47:41.580 Well, then the hiring criteria is going to be facility and making widgets.

01:47:46.080 And anything that isn't relevant to facility in making widgets is prejudicial.

01:47:53.300 And if you allow those prejudices to influence your hiring decisions, you're going to be less

01:47:58.600 competitive than someone who doesn't.

01:48:01.100 And so the central tendency is against prejudice, not for it.

01:48:04.580 It has to be if you define prejudice as deviation from the proclivity to select for the desired output.

01:48:12.920 Right. And so, for example, you know, the male-female alleged wage gap.

01:48:19.440 And I'm, you know, I know I saw your wonderful interview on that issue.

01:48:24.380 But on its own terms, just think it's odd then if it really were true that in the United States,

01:48:31.140 you know, men and women, you know, men or women only get paid whatever the number is,

01:48:35.160 88 cents for a man for the same work.

01:48:38.200 It's a mystery then.

01:48:39.860 Well, so how come all the firms that are run by greedy capitalists aren't hiring just women?

01:48:44.560 Because they can get the same output.

01:48:46.300 Right.

01:48:46.380 Because they make a 12% profit instantly by doing so.

01:48:50.040 Right.

01:48:50.680 And so if they're greedy and exploitive, why aren't they jumping all over that?

01:48:54.240 And the counterargument has to be, well, they're so prejudiced against women that they'll allow

01:48:58.780 that prejudice to override their greed.

01:49:01.580 Right.

01:49:01.760 And what's interesting, too, is it's not merely that, like, so I don't have to insist that

01:49:06.760 every single employer thinks like that.

01:49:08.720 Just all it would take is 5% to 10%.

01:49:11.360 Like, for example, why don't the female-owned businesses at least just hire all women to

01:49:15.900 take advantage of the fact that women will do the same work?

01:49:19.040 You know what I mean?

01:49:19.420 So it's the other, the side that has to maintain that, no, it's this blind, irrational, you know,

01:49:25.200 sexism that overrides the greed has to apply to...

01:49:29.760 But you have to explain, well, why?

01:49:32.820 What the hell's the motivation exactly?

01:49:34.940 Is that, so what is this?

01:49:36.100 That there's a widely distributed cabal of owners who are so prejudiced against women

01:49:43.000 in the main that merely to sustain their prejudice against women, they're willing to take a 12%

01:49:48.540 profit hit year after year.

01:49:50.140 And none of them are deviating from that to gain a competitive advantage.

01:49:54.000 Right.

01:49:54.660 And that's the theory.

01:49:55.740 Right.

01:49:55.840 And why can't women who see this, it's so obvious to them, why don't they start opening

01:50:00.900 businesses to at least, you know, pay their female, you know, sisters 95 cents to them?

01:50:08.400 You know what I mean?

01:50:08.920 So it's weird that this...

01:50:10.580 Yeah, so 89 cents for that matter.

01:50:12.020 Right.

01:50:12.340 So it's weird that that system...

01:50:13.780 So, and then of course they would then respond and say, well, it's because of the, you know,

01:50:17.940 and they push the sexism back, like you say, into the system.

01:50:20.860 And I think you're right, it's an insidious term because they use racism or sexism as

01:50:24.720 the bad thing to taint it.

01:50:26.920 But then...

01:50:27.320 It's unbelievably insidious.

01:50:28.720 Right.

01:50:28.940 And that's partly why I wanted to have this discussion.

01:50:31.380 It's like, is it systemic?

01:50:33.860 That's the issue.

01:50:34.760 Not is it racist?

01:50:35.800 Yeah, yeah, there's racism.

01:50:37.040 No kidding.

01:50:37.520 There's all sorts of arbitrary stupidity.

01:50:40.560 No one debates that.

01:50:42.000 But systemic means central tendency.

01:50:44.340 And so what we're trying to clear up here today, at least in part, is what is the central

01:50:49.340 tendencies of our psychological motivation as individuals and the central tendency with

01:50:54.360 regards to how we organize our societies?

01:50:57.540 And we need to make a counter argument to the proposition that it's blind, it's the blind

01:51:02.080 application of power, which I think is not only a weak argument, I think it flies in

01:51:08.040 the face of the truth.

01:51:09.640 It's an anti-truth.

01:51:11.020 Because people don't organize their social institutions on the basis of exploitative power.

01:51:15.700 It's not even very efficient to do that.

01:51:18.320 Right.

01:51:18.560 Because people aren't incentivized when they're tyrannized.

01:51:22.420 And so, yes, so that's another area where I think what, you know, I've heard your lectures

01:51:27.000 coincides very nicely with Mises' work.

01:51:30.040 When you say, yes, there are hierarchies, but they're not based merely on pure power.

01:51:36.160 There's some merit involved, or sometimes there's merit.

01:51:38.820 And that's what Mises says, that he, like, he would talk about, you know, they refer to

01:51:43.620 like the cotton king or the barons of industry.

01:51:47.160 And he said, in a market economy, the people who are at the top, the John D, like, why is

01:51:52.760 John D. Rockefeller, you know, why was he on top?

01:51:56.020 Because he delivered kerosene at much lower prices than his competitors did.

01:52:00.860 That's how...

01:52:01.160 Well, the same thing can be said for Walmart and for Bill Gates, for that matter, who made...

01:52:06.580 I remember what happened when Microsoft started to develop.

01:52:09.820 Gates bundled software together and sold it for like one-tenth the price of his competitors.

01:52:14.040 And he just wiped them out.

01:52:16.040 And so, and it happened very, very rapidly.

01:52:19.020 And so, okay, so here's another issue with ownership.

01:52:23.000 I, Robert Breedlove brought this up today on Twitter.

01:52:26.080 It's not his idea, but other people have made the same case, but he did it quite nicely.

01:52:30.680 He said that private property should, the right to private property should also be considered

01:52:37.040 the responsibility of private property and responsibility properly had.

01:52:42.260 It's like, okay, now you, here's a car and you own it.

01:52:46.780 So what are you going to do with that car?

01:52:49.200 Well, are you going to take care of it or are you going to wreck it?

01:52:52.580 Well, what if a thousand of you own it?

01:52:54.500 So do you take better care of a rental car or your own car?

01:52:58.920 And so then the question is, well, if you own something, do you take better care of it

01:53:02.400 than if you don't own it?

01:53:04.020 And I think everybody can kind of answer that question for themselves.

01:53:08.080 It's in your best interest to take care of something that you own.

01:53:13.260 And maybe you don't do a very good job of it, but all that implies is that you do even

01:53:16.600 a worse job if you didn't own it.

01:53:19.360 Right.

01:53:19.880 And just to extend that against the Misesian framework, that's what he would say is, again,

01:53:24.900 the critical function of having prices and just simple accounting.

01:53:30.680 Like Mises quoted Goethe, who said one of the modern miracles or the best invention of

01:53:36.180 the human mind was double entry bookkeeping or something like that.

01:53:38.660 I forget the exact quote, but that seems like an odd thing for a philosopher.

01:53:42.820 It's worth, yes, it is an odd thing.

01:53:45.580 First of all, you should define double entry bookkeeping so everyone knows what that is.

01:53:50.840 Okay.

01:53:51.200 So that, you know, in terms of accounting, that there's like the liabilities and then

01:53:57.260 on the opposite side of the balance sheet, you know, you have the assets and then the

01:54:02.060 liabilities and the capital and the company.

01:54:05.360 So that every transaction, you sort of see the mirror image and you can just keep track

01:54:09.360 of what's happening.

01:54:10.080 And Mises's point was that sort of trivial thing that the socialists just say, oh, that's

01:54:15.860 just an appendage of the market economy to put some numbers on it.

01:54:18.960 But he's like, no, that's critical because it allows the owner to know, have we squandered

01:54:26.040 our funds?

01:54:26.780 Like our capital at the end of the period, is it higher or lower?

01:54:30.840 And it's sort of like a scorecard.

01:54:32.200 And so I'm just, what you just said reminded me of that, like to say without prices, it's

01:54:37.080 not merely that you wouldn't have the incentive.

01:54:38.400 You wouldn't even know, did I add to the stockpile of what I've been entrusted with to be a steward

01:54:45.040 for, you know, in society of the, like these portions of resources, it's my, I own.

01:54:50.700 And did that go up or down without market prices?

01:54:53.700 You literally don't even know whether it went up or down.

01:54:56.400 So it would be like if you had a car and not just knowing, do you take care of it or not,

01:55:00.700 but not even be able to see it or not even to be able to open the hood and tell if there

01:55:03.700 was an engine inside?

01:55:04.940 Like you wouldn't know, am I driving it too hard if you couldn't check up on it in some

01:55:09.040 way?

01:55:09.320 And so that's what market prices do.

01:55:11.380 If you've earned a profit, that's a signal or feedback from the entire society that in

01:55:17.020 a sense, the consumers say, you've done a good job using scarce resources, that you've

01:55:22.900 transformed resources into something valuable.

01:55:24.700 So, okay, so ownership buys us incentive, it buys us stewardship, it buys us measurement.

01:55:38.740 And those aren't replaceable, especially measurement.

01:55:42.580 That might be the most crucial of all of them because the others fall without measurement.

01:55:47.100 You can't even keep track of what you're doing.

01:55:49.080 That's the point you're just making now.

01:55:50.480 Yeah, Mises has a phrase where he said the central planners without market prices would

01:55:56.740 be groping in the dark.

01:55:58.400 Well, that's a huge issue.

01:56:01.480 I read in Solzhenitsyn, I believe, that the central planners in the Stellan Soviet Union

01:56:06.920 had to make something like 50,000 pricing decisions a day.

01:56:11.940 And, well, you can't even make 50,000 decisions a day.

01:56:14.960 I mean, that's impossible.

01:56:16.020 But, and I don't know how they managed it, but without, right, there's always an assumption.

01:56:22.260 There's always an implicit assumption on the basis of people who are pushing central planning

01:56:26.680 that the data will somehow be there for the planners to take.

01:56:32.060 Right.

01:56:32.360 Okay.

01:56:32.920 So, there's a couple more things I want to cover here.

01:56:36.020 And so, the business cycle, let's talk about that.

01:56:43.000 Because that's, if we talked about general economics and the philosophy of economics, and

01:56:47.620 one of the things we tried to understand was how we should regard the organization of social

01:56:54.000 institutions and the motivation of individuals.

01:56:57.560 The motivation of individuals isn't to exploit other people.

01:57:01.460 It's to stave off catastrophe using social cooperation as the means to do so.

01:57:07.300 It's something like that.

01:57:08.360 And the willingness to accept the sacrifice of specialization to participate in that process

01:57:13.280 with the benefit of ownership and all the things that we discussed that emerge as a consequence

01:57:18.560 of that.

01:57:19.740 And that isn't something that anyone decided.

01:57:21.740 That's the other thing we should point out is these systems have evolved across time.

01:57:25.200 I mean, there's been rational inputs in all of that and rational formalizations of the

01:57:31.740 system.

01:57:32.220 But this is an evolved system.

01:57:33.980 And it's a consequence of distributed computation running across hundreds and thousands of years.

01:57:41.180 Right.

01:57:41.880 And I should mention that within the Austrian school, there's different emphases.

01:57:46.180 So, Mises was very rationalistic.

01:57:48.860 So, he would say, oh, the reason people engage in social cooperation is because they use their

01:57:55.000 reason and they understand the higher productivity of the division of labor.

01:57:58.060 Whereas Hayek, who's also a big figure in the Austrian school, he was more evolutionary in

01:58:04.420 the sense of different cultures for whatever reason.

01:58:07.740 You know, like these people just didn't like cannibalism for some reason.

01:58:11.380 And then they would tend to multiply more than cultures that thought cannibalism was okay.

01:58:16.080 You know what I mean?

01:58:16.360 So, for him, it wasn't so much that they had to understand why.

01:58:19.600 It was just those that happened to think, oh, no, you know, private property is a good

01:58:24.580 thing or you should be able to...

01:58:25.980 Or if some society thought merchants were a noble profession, that they would explode

01:58:31.300 and take off.

01:58:31.920 And then they would conquer everyone else who thought that, no, working for the government

01:58:34.960 was the only thing that mothers should hope their kids do.

01:58:36.860 Right.

01:58:37.120 Well, so there might be an evolutionary process at work here, so to speak, as far as that works

01:58:42.580 in the social world.

01:58:43.720 Um, random innovation followed by selection.

01:58:48.120 There's certainly some of that, but it's also necessary for us to understand rationally

01:58:54.160 what the consequence of that is, at least so we don't disturb it unduly when we're tempted

01:59:02.180 to.

01:59:02.600 Right.

01:59:03.020 And that's something that Hayek brought up a lot.

01:59:05.480 I think in his noble acceptance speech, too, is to say the problem with the socialists

01:59:11.220 or more generally, like people coming along, looking at social institutions that we've

01:59:15.340 inherited over thousands of years saying, that doesn't make sense to me.

01:59:18.820 I think we can do better.

01:59:19.680 And just to throw that out.

01:59:20.740 And that led to all the horrors of the 20th century, like the smartest guys in the room

01:59:25.140 not understanding the social utility of some of these traditions.

01:59:29.660 And so, you know, Hayek would argue that's actually not being scientific and rational.

01:59:32.700 Like, let's think through there must be some reason.

01:59:35.620 Yeah.

01:59:36.100 Well, the big the big issue there for me is, you know, as look for anyone, anyone who's

01:59:40.500 intelligent, it's a very complicated because we do use planning in our day to day lives,

01:59:47.640 you know, and I mean, that's an assumption of the Austrian school.

01:59:51.100 And so then you might say, well, isn't there a role for planning at the highest levels of

01:59:56.540 social organization?

01:59:57.460 And the answer to that has to be something like the more complex the problem, the less

02:00:03.580 likely that individual rationality is going to be able to solve it.

02:00:08.120 You have to start moving towards distributed computational systems to solve incredibly complex

02:00:13.500 problems.

02:00:14.780 Yeah, exactly right.

02:00:16.060 And that they talk about that a lot in the Austrian tradition, too, to say we shouldn't

02:00:21.020 even concede to the socialists this term planner, because in the market economy, like you said,

02:00:26.160 Dr. Pisa, there's lots of planning, like the CEOs and the, you know, the VPs of finance

02:00:31.060 and marketing, they sit down and they're planning all the time.

02:00:34.200 Like, should we introduce this new product line?

02:00:35.620 Should we build a factory here?

02:00:36.600 But it's decentralized, whereas what the socialists mean by planning is, no, a select

02:00:41.500 group of people with political power are going to do the planning and impose it on everybody

02:00:45.960 else.

02:00:46.700 It's like systemic racism, centralized planning.

02:00:50.880 The planning sounds good.

02:00:52.120 It's the centralized that's the problem.

02:00:54.040 The more centralized the planning, the more room for catastrophic error.

02:00:58.720 Right, right.

02:00:59.640 And also the political oppression, too.

02:01:03.820 Like we said, that it's not a narrowly economic issue.

02:01:07.260 But yes, since looking at history, we know it is possible that sometimes people do really

02:01:11.740 awful things.

02:01:13.140 That's another independent reason you would want to limit how much power a few people

02:01:17.020 have.

02:01:17.320 And to give them the power over the whole economy, that's a very risky thing to do.

02:01:21.480 It's not merely that they might not make enough eggs.

02:01:23.480 They might send people to work in death camps.

02:01:26.300 OK, so are there more criticisms of socialism lurking inside the Austrian school at the level

02:01:32.540 of first principles?

02:01:33.320 Or have we discussed most of them?

02:01:35.600 I think hitting the calculation issue is the critical contribution that Mises made.

02:01:41.000 He goes through all inconsistencies in the Marxist worldview, like the polylogism.

02:01:48.900 And so Mises says, they say there's polylogism, but they've never taken a theorem from economics

02:01:54.220 and shown, oh, this is true according to bourgeois logic, but proletarian logic has a different

02:01:59.620 axiom.

02:02:00.160 And therefore, it's step four.

02:02:01.220 The proof is right.

02:02:02.120 He just says, they just say that.

02:02:03.280 You know what I mean?

02:02:03.600 So Mises does really get into, rolls up his sleeves and critiques Marxism.

02:02:07.780 But in terms of, for your audience, I think that the main thing was why calculation is

02:02:13.200 such a flaw for socialism, but the market economy solves it with private property and

02:02:17.900 money prices.

02:02:19.640 OK, OK.

02:02:20.240 Let's talk about the business cycle now, if you don't mind.

02:02:23.120 So I'm going to give you free reign to do that.

02:02:25.380 I'll interrupt, of course.

02:02:27.480 OK, sure.

02:02:28.140 So in this, again, like I said in the beginning, is I think one of the key contributions of the

02:02:34.520 Austrian school that even other free market oriented economists like the Chicago school

02:02:38.660 don't have.

02:02:40.040 So in the Austrian tradition, like we said, prices serve a very important social function.

02:02:45.260 It's like you say, there's like decentralized people all around the world with local information

02:02:48.880 and the price system is the nexus by which that gets communicated around.

02:02:52.800 Like Hayek even likened it to a nervous system.

02:02:55.620 And so that's a sense in which the whole system stays rational, if you want to use that

02:03:00.480 phrase, or how do we husband our resources economically, you need market prices to have

02:03:06.960 that.

02:03:07.800 OK, but now specifically, what is it that interest rates do?

02:03:11.720 And in the Austrian school, they say that has to do with intertemporal planning, like

02:03:17.560 long term decisions.

02:03:19.680 That's where interest rates really play a decisive role.

02:03:23.280 And so give a silly example.

02:03:25.680 You know, you're an entrepreneur trying to decide whether to build an apartment building,

02:03:29.120 you know, so you can know how much the steel costs, the concrete, the lumber, the glass,

02:03:33.600 you know how much it'll cost to build.

02:03:35.420 You can even forecast, you know, oh, in this neighborhood, I'll be able to rent it for such

02:03:39.320 and such, and I'll bring in this revenue.

02:03:41.280 So over the next 20 years, every year, I'll bring in this much net income.

02:03:45.660 Here's the upfront cost.

02:03:47.340 Should I build it or not?

02:03:48.860 A critical input to that decision, that calculation is what's the interest rate?

02:03:53.140 Is the interest rate is really high, then you won't build it.

02:03:55.280 If it's really low, then you might.

02:03:56.560 Okay, so let me harass you about the interest rate.

02:03:59.580 Sure.

02:04:00.060 So why do we have an interest rate?

02:04:03.860 What is it exactly?

02:04:06.040 Okay, so the Austrian framework, loosely speaking, it has to do with, let me say, like the amount

02:04:15.300 of impatience, the amount by which people are willing to defer consumption as long as they

02:04:23.040 get more down the road.

02:04:24.100 So the higher the interest rate, it's like the bigger the penalty is on waiting.

02:04:28.880 So if society is very future-oriented and very long-term thinking, they're willing to

02:04:35.180 save a lot.

02:04:36.320 Other things equal, that tends to push down interest rates.

02:04:38.640 So firms can borrow at cheap rates and invest in long-term projects.

02:04:42.480 So people are willing to...

02:04:43.300 So why do you think our interest rates are so low right now?

02:04:46.400 Okay, so right now, I think it's because of the intervention of central banks.

02:04:51.000 And so this ties into the Austrian concern with that is the low interest rates are giving

02:04:57.680 the signal to entrepreneurs, go ahead and invest in really long-term projects, but it's the

02:05:02.040 wrong signal.

02:05:02.480 Right, because, okay, so your money, in conditions of low interest, you have money, say, in a bank

02:05:09.700 account.

02:05:10.080 So it can be translated into spendable currency instantaneously.

02:05:15.680 And it's performing a function that's reflected in the interest rate.

02:05:21.740 And so if it's just sitting there collecting 0.1% and the inflation rate is 3%, your money

02:05:27.460 is losing value across time.

02:05:29.640 So you're going to be incentivized to go find something more useful to do with the money,

02:05:33.300 hypothetically.

02:05:33.900 Right, so it's a two-pronged thing that low interest rates, other things equal, make

02:05:39.240 people not save as much, right?

02:05:41.960 Because why would I save if I'm only earning, like you say, 0.1%, whereas if you were earning

02:05:45.560 10% in your savings account, you might save more.

02:05:48.640 But then on the flip side too, businesses who want to borrow funds to go start a project

02:05:53.460 can get it on much better terms.

02:05:55.880 The idea of saving is complicated too, because, you know, the typical folk notion of a billionaire

02:06:02.320 is something like Scrooge McDuck.

02:06:04.640 You remember Scrooge McDuck?

02:06:05.740 He had this money bin full of money.

02:06:07.680 And of course, as long as all the money is in Scrooge McDuck's money bin, no one else has

02:06:14.340 access to it.

02:06:15.080 It's like he's stuffed a 500-foot mattress full of cash, and he's just sitting on it, occupying

02:06:22.700 it, hoarding it.

02:06:23.420 But when we save money in a modern economy, that isn't what happens at all.

02:06:28.680 We put money, unless we put it in the proverbial mattress, we put it in the bank, and that enables

02:06:34.200 other people to use it.

02:06:36.140 And they can use a substantial fraction of it to go and pursue pursuits that, in principle,

02:06:41.880 have to be more productive than the interest rate that we're being awarded.

02:06:47.300 So we're not hoarding the money.

02:06:49.060 Right.

02:06:50.560 So everything you just said is true.

02:06:51.880 But what's ironic is, if you think about it, even if people did do that, it would actually

02:06:58.020 be socially advantageous, right?

02:06:59.260 So someone goes out and produces a bunch of goods and services, and people give them cash.

02:07:04.140 And then he goes and just stores it in his basement.

02:07:06.640 If you think about that, that person's going around doing work for people and giving them

02:07:11.020 benefits.

02:07:12.300 And then he doesn't get to consume anything.

02:07:13.760 Without consuming anything.

02:07:14.740 Right.

02:07:14.980 Right.

02:07:15.420 Exactly.

02:07:15.920 Except future consideration.

02:07:17.360 Right.

02:07:18.240 And so if he never, like, in terms of like, what's the worst case scenario?

02:07:21.340 Oh, he never spends it.

02:07:22.680 That's actually, no, that would mean-

02:07:23.520 So if he never spends it, it's deflationary.

02:07:25.980 Right.

02:07:26.020 It drives down the cost of goods.

02:07:27.540 Right.

02:07:27.820 Right.

02:07:28.080 So it's just ironic to that.

02:07:29.740 But you're right.

02:07:30.420 Right.

02:07:30.680 And the other thing, too, is for most of today's billionaires, it's not even that they

02:07:34.200 have money in a checking account that the bank had lent out.

02:07:36.280 It's that they own stock in companies they created.

02:07:39.260 So like Bill Gates or whatever.

02:07:41.580 Right.

02:07:41.860 So what they have is, it's very interesting because in some sense they have power and in

02:07:49.000 some sense they have authority and in some sense they can exercise compulsion.

02:07:52.920 But they also have a tremendous amount of responsibility because you really have to ask, and I've

02:07:57.560 asked myself this many times, especially in recent years, do you want that responsibility?

02:08:05.500 Having a billion dollars is no joke.

02:08:07.640 I mean, yes, I think Ted Turner famously calculated that if you spent as much as you could every

02:08:12.340 possible day just on what are those goods that disappear?

02:08:16.600 They're consumable goods, you know, you use them and then they're gone.

02:08:20.440 You could spend $400 million in your lifetime and that would be flat out nothing but hedonistic

02:08:26.460 spending.

02:08:27.380 So maybe you have $20 billion and well, that's like you're basically running a pretty good

02:08:33.240 sized country at that point.

02:08:35.040 Right.

02:08:35.140 And it's not as, I read a biography of Howard Hughes, you know, Howard Hughes had obsessive

02:08:39.920 compulsive disorder and he got very ill in his later years and like his money just evaporated

02:08:45.060 around him.

02:08:45.740 As soon as he was unable to stay on top of it, it just disappeared like mad.

02:08:50.360 And that makes perfect sense because money is obviously valuable.

02:08:54.480 And if you don't keep an eye on it, it has a tendency to distribute itself elsewhere extraordinarily

02:09:00.760 rapidly.

02:09:01.460 And so this envy of people who are extraordinarily well off, you know, it's, it's based on a

02:09:07.920 misapprehension about the nature of their existence, at least to some, I'm not making

02:09:12.840 a case for the wonderfulness of abject poverty.

02:09:16.060 Believe me, I, I mean, I'm not doing that at all.

02:09:20.140 It's just that the picture isn't so simple.

02:09:22.140 You do have a tremendous amount of responsibility along with all that money.

02:09:25.860 And if you don't exercise the responsibility properly, all that happens is the money disappears

02:09:30.220 extremely rapidly.

02:09:32.660 Right.

02:09:33.100 Which is, again, another reason just in terms of pragmatic considerations that you were

02:09:37.060 mentioning a while ago about redistribute, you know, is there some utility or like allowing

02:09:42.280 for the existence of billionaire speculators or, you know, stock investors and things.

02:09:46.580 And I would say, yes, that it's not, it's not correct to think that, oh, the reason they

02:09:51.600 achieved that is because they siphoned it off from everybody else.

02:09:54.220 Yes, that no, largely.

02:09:55.600 Well, let's, okay, let's go after that.

02:09:57.320 Okay.

02:09:57.720 They inherited it.

02:09:59.340 Let's start with that.

02:10:00.440 So justify that.

02:10:02.440 Okay.

02:10:02.860 Well, there, I would say the person who, you know, if I go out and create a fortune, most

02:10:09.840 people are okay with me being able to go and spend it at the casino or, you know, smoke

02:10:14.480 it away or buy yachts or whatever, but I'm not allowed to give it to my kid.

02:10:18.020 That seems weird.

02:10:19.880 So it's, yeah, well, I guess the, the, the rejoinder would be, well, why should your

02:10:24.180 child have a special advantage?

02:10:25.760 But my objection to that objection is, okay, aren't you trying to give your children all

02:10:32.740 the special advantages that you can?

02:10:34.740 And isn't that what you're supposed to do now?

02:10:36.640 Special doesn't necessarily mean at the expense of someone else.

02:10:40.200 See, this is the critical issue here is that what we're facing in our culture war is

02:10:45.320 the proposition that those who have, have as a consequence of exploitation and that

02:10:51.880 there's no such thing as merit.

02:10:53.700 There's just different, there's, there's exploitation's justification for itself.

02:10:58.060 Now we already narrowly defined merit, right?

02:11:01.000 So when we say our society is meritocratic, what we would say is no more than this.

02:11:05.780 And maybe merit is the wrong word.

02:11:07.400 And that's a big problem.

02:11:08.560 So if I'm hiring a dishwasher, merit for me is that person's ability to wash dishes and

02:11:15.380 nothing else.

02:11:16.980 So the merit is very, and so we need a better word than merit.

02:11:20.300 It's like functional utility or something like that, because a company, even by law, you

02:11:25.640 have to do this.

02:11:26.500 You know, if you're going to hire someone in the United States, the labor laws are very

02:11:29.780 clear about this point.

02:11:30.920 You have to do a job analysis, which breaks down the job into its functional units, let's

02:11:36.000 say, and then you have to look through your candidate pool and you have to find the person

02:11:40.240 who's most qualified to perform those tasks using the best measurement techniques that are

02:11:46.120 currently available.

02:11:47.100 If you don't do that, you're in violation of the law.

02:11:50.040 And so that's another rejoinder to the notion of systemic racism.

02:11:53.320 And those bloody laws have teeth.

02:11:55.400 They're, they're not trivial.

02:11:57.140 So, and they're heavily enforced, but merit isn't defined in terms of ethical utility

02:12:02.780 precisely.

02:12:03.460 It's defined very narrowly in terms of pragmatic function.

02:12:07.560 It's that you're meritorious to the degree you're meritorious in this particular situation

02:12:13.060 to the degree that you can perform that particular function.

02:12:16.640 And you can't say that a society is greedy and exploitative and say at the same time that

02:12:22.220 it isn't predicated on merit using that narrow definition of merit, because you're not going

02:12:27.800 to be very effective at being greedy and exploitive if you're not selecting for productive capacity,

02:12:33.720 let's say.

02:12:34.880 And I, I think just more generally on these points that you're raising, like, I don't

02:12:41.240 think most people would, would say, yeah, it's a tragedy.

02:12:44.420 Some kids are born without legs.

02:12:46.880 Like that happens.

02:12:48.560 It would be crazy for us to chop everyone's legs off to say, well, this is the only way

02:12:53.660 to make it fair.

02:12:54.580 Right.

02:12:54.880 That you would realize, no, that doesn't help anybody, including the people who naturally

02:12:58.340 would have been born without legs.

02:12:59.380 Like they benefit from being in a society.

02:13:01.100 So likewise, I understand, Hey, it's not fair.

02:13:05.340 If some guy's rich and gives his fortune to his kid when, you know, I didn't get that,

02:13:10.640 but by all, you know, I'm fortunate that my parents stayed married and that, you know,

02:13:15.620 they valued.

02:13:16.160 Well, yeah, that, that's right.

02:13:18.040 That's exactly the issue, right?

02:13:19.560 Is that this, we, and I saw this, watch this happen, so to speak on, from a historical

02:13:28.580 perspective, looking at what happened in places like the Soviet Union and in communist China,

02:13:33.040 still happening in places like North Korea, where every single person has enough of a

02:13:39.300 comparative advantage so that there's some dimension along which they can be rightfully

02:13:44.720 regarded as an oppressor because they have, we all differ in our advantages and disadvantages.

02:13:51.360 All I have to do is point to your comparative advantages, despite your disadvantages and say,

02:13:56.500 well, you're a member of the oppressed, oppressor class because, well, you're physically

02:14:02.420 healthy, you're, you know, you're, you're not, you're near six feet tall instead of four

02:14:08.280 foot eight, you're, you know, you have use of all your limbs, you had parents who stayed

02:14:13.000 married, you're of above average intelligence, et cetera, et cetera.

02:14:17.400 I can make that, so what we would say instead is that for maximum fairness, you allow people

02:14:22.780 their comparative advantages, but you encourage them to specialize in trade.

02:14:26.820 Right, right. And that you're not, again, you're, you're, you're actually not

02:14:33.980 helping the, the, the disadvantaged on whatever that narrow criterion is that you're looking at

02:14:39.940 in that moment of analysis by hamstringing everybody else on that one dimension. So,

02:14:45.460 so you're exactly right that we are rather than looking around it, it like rather than looking with

02:14:50.080 envy at other people or saying that's unfair to say, oh no, this person has this ability that I

02:14:55.100 lack. And so let that person develop that and run with it and produce an abundance and then trade

02:15:00.680 with me. And I'll, well, that's, that's the, well, then it's the issue with regard. Let's,

02:15:04.680 let's talk about the unfairness issue. It's like, well, there's, there's, there doesn't look to me

02:15:12.420 like there's any systematic centralized way of eradicating the essential unfairness because the

02:15:18.220 unfairness and the, here's a perverse little issue as well. You know, amongst those who are tempted

02:15:24.480 to engage in critiques of our social institutions, let's say on the basis of their hypothetical

02:15:30.740 grounding in power, there's this mantra of diversity. Okay. So let's think about that for

02:15:37.320 a minute. Well, diversity has to mean something like difference in ability because otherwise,

02:15:42.700 why would it be a good? And so then we could say, well, yeah, you want to have a diverse workforce

02:15:47.580 because well, all things considered, you need people who are capable of doing a variety of different

02:15:52.740 things in case the environment shifts on you. Okay. So diversity is a good, but diversity is no

02:15:57.960 good at all unless there's comparative advantage. And so, and I don't see how to get over the equity

02:16:05.100 hurdle with regards to comparative advantage. You know, we want equality of outcome. Well,

02:16:09.240 do we want equality of outcome on all measures, all conceivable measures? Well, there's no comparative

02:16:14.620 advantage then anymore. There's no diversity. So which is, which is we're going to have,

02:16:18.900 we're going to have diversity or equity because we can't have both.

02:16:23.120 Yeah, you're, you're right. It is a weird paradox and it's similar to, to how men and women are

02:16:28.540 exactly equal, but women are actually better at everything. Like there's, there's the, you know,

02:16:32.580 those, those two undercurrents in the standard, you know, rhetoric coming out nowadays in these,

02:16:37.600 in these culture wars. So, so yeah, I I'm agreeing with you that it's the, yes, the ostensible reason

02:16:44.580 for why you would want to promote diversity in the workplace is that because they, they will argue

02:16:50.460 with, if you say, oh no, I should be able to hire, um, the most qualified people and, you know,

02:16:56.700 to make the most profit and it's not fit. They'll argue with you and say, oh no, you're not going to

02:17:00.360 sacrifice profit. You'll make more money if you do what we're telling you to, because for the reasons,

02:17:04.280 you know, you're saying that you'll, you'll have, have new perspectives when you're making decisions

02:17:08.380 and you'll know about, you know, these people will know how this customer base will react to your

02:17:12.900 marketing. And so they're telling you that this is actually the profitable decision if you were

02:17:17.900 enlightened. Well, and you know, there, well, the thing is, is there's probably some merit to that

02:17:22.480 argument, which is that, you know, if you want to serve a population, you probably want representatives

02:17:28.140 of the population within your decision-making purview. But I would say the market already rewards

02:17:33.020 that, right? Intensive. Right. And just to use a different analogy, it's like within the climate

02:17:38.820 change debate. I don't know how much you follow that, but it's a similar thing where they want

02:17:43.120 to pass all these regulations, like to give business, like to mandate businesses have energy

02:17:47.960 efficient, you know, insulation and do all these things. And so the right wing says, no, that's

02:17:54.360 going to impose costs. And then the left will say, oh no, actually they'll save money. And so I would

02:17:59.420 always point out, well, then you don't need to mandate it. Just fax your data to the CFO of the

02:18:04.400 corporation and they'll do it on their own. And so likewise, like you're saying here, if it really

02:18:08.140 is true that this will promote, you know, profit, if this is a, if this is a good move for the company,

02:18:13.160 it's weird that we need to browbeat and coerce everyone into doing it. When by assumption,

02:18:17.520 these are greedy capitalists who do anything for a buck, except again, apparently the one thing they

02:18:23.480 won't do is hire different people. Well, especially given that you could, you could attain a comparative

02:18:28.980 advantage by doing so. Right. And I would say that's actually what's happened. I mean, look,

02:18:33.800 if you think about it historically, look at how quick women moved into the workplace. It's been,

02:18:39.180 let's say a hundred years, not that they weren't working like mad before that, because they certainly

02:18:43.680 were. But as soon as it became possible for women to enter the workplace on the same terms as men,

02:18:50.340 the workplace opened itself up to them with incredible rapidity. And it's certainly a consequence

02:18:55.660 of taking advantage of the available brainpower. So that system does work. Yeah. And I, so,

02:19:02.920 and I should also mention too, with a bunch of this, you know, if it sounds like we're being real

02:19:08.140 out of touch and like, well, yeah, it's easy for you guys to say that given our demographic

02:19:12.080 characteristic, there are a lot of things like injustices. And, but I would just say,

02:19:17.620 I would attribute a lot of that to, um, you know, bad government schools and minimum wage laws and

02:19:24.400 things, you know, things along those lines, government measures that make it hard for someone to start a

02:19:30.700 business and compete with the established firm. So there's a lot of things that explain why in

02:19:35.220 practice, I think certain relatively politically powerless groups don't get a fair shake. But my

02:19:42.040 point is it's not the pure market economy. Well, we can also, look, we can also be perfectly blunt in

02:19:48.200 pointing out that aberrations in the system might allow for the maintenance of prejudice.

02:19:54.540 That's not the issue. The issue is whether or not the bloody prejudice is the central tendency,

02:20:00.500 because that's the systemic racism claim. I mean, the fact that the systems are error prone is I have

02:20:06.060 no problem with that. Obviously that's the case locally and sometimes more widely, but that doesn't

02:20:12.540 mean it's the central tendency of the systems. The central tendencies, tendency of the system works

02:20:17.100 against slavery, for example, not for it, even though there are aberrations. And the issue is what's

02:20:23.520 central and what's an aberration. The claim that it's power that's central is a totalizing claim.

02:20:29.420 And it's... And I would just add to that though, too, it's my, I mean, as a complimentary point is

02:20:34.460 I'm just saying like Jim Crow laws that, you know, the Southern states that had those, it was the

02:20:40.880 government forcing companies to do that. Why? Because they would say, oh, some of these private

02:20:46.260 businesses are just going to serve to blacks and whites equally because they don't understand the

02:20:50.740 way our social system work. You know what I mean? So it's, it's funny that like a Jim Crow law is

02:20:55.400 cited as an example of the failures of laissez-faire capitalism. And no, on its own terms, it was the

02:20:59.600 government overriding the prerogatives of business owners to force them. Yeah. Because the money of

02:21:05.840 any race is of equal value. Right. And all it would take is a few diners and bus companies and

02:21:11.200 whatever to believe that. And then, you know, that this, the segregated system would, would have a

02:21:16.380 problem and would tend to break. Well, and I, that did happen to some degree because black

02:21:19.960 businesses emerged to address exactly that lack. Now that didn't remove the prejudicial laws, but it

02:21:25.780 did allow for the provision of goods to the black community in those particular circumstances. So the

02:21:31.220 market found a way around the laws, at least with regards to the distribution of resources. Right.

02:21:36.400 So it's no justification for the laws. It's quite the contrary. Yeah. So, okay, we need to talk

02:21:43.200 about the business cycle. So, um, so let's start by what it is and why it's important. Right. So

02:21:49.420 what the business cycle, what people mean is the fact that market economies tend to grow over time,

02:21:55.080 you know, that the amount of goods per hour per person goes up, but it's not a smooth periodic

02:22:01.040 increase. There's wild ups and downs. And in particular, there's periods where there's high

02:22:06.700 unemployment. And then other times when the labor market seems very tight and people can get jobs

02:22:11.620 easily. And so what, why, where does that come from? Why is that the case? And so the Austrian

02:22:17.200 explanation is what happens is the banking system. And in modern times under the ages of central banks,

02:22:24.960 um, pushes down interest rates below where they should be. So interest rates get pushed to

02:22:30.540 artificially low levels that gives the wrong signal to the entrepreneurs. They start long-term

02:22:36.040 projects, even though the public hasn't saved enough to actually justify those investments.

02:22:41.620 So it gives this false boom period where everything seems prosperous. Businesses are hiring,

02:22:46.980 but there's not enough actual saving to bring it to the finish line. And at some point the banks

02:22:53.080 chicken out, the central bank raises rates because inflation's kicking up. And then, you know, there's a

02:22:59.040 crash. And so in the Austrian view, the, the, the depression or the recession, the crisis is caused by the

02:23:07.520 preceding boom. And the only way to get rid of that boom bus cycle is to stop with this alleged medicine

02:23:12.740 of cutting interest rates to stimulate spending that, no, that's just sowing the seeds for the next crash.

02:23:18.980 So the price paid for central planning, that's not guided by market signals is deviation from

02:23:25.660 the average, essentially volatility.

02:23:30.320 Yes, there's that. But then also in the long run, I think the Austrians would argue because of the mail.

02:23:35.380 And it's not just that, Oh, it's the same average over the hundred years. It's just more volatile, but that

02:23:40.180 the average is lower than it otherwise would be because.

02:23:42.640 Right. Oh yes. Right. So the productivity suffers as well as in volatility increasing. Right. So.

02:23:51.480 Well, okay. I can also see an analogy there with the theories that I've been laying out because,

02:23:57.660 you know, my sense is, is that failure to react to a market signal, so to speak in the psychological

02:24:05.060 world, just stores up catastrophe for later. So.

02:24:10.720 Yeah. Yeah. So in the Austrian view, the interest rate has a role to play. It serves a function

02:24:16.760 in modern times when they say things, Oh, the Fed, because of slow consumer spending, the Fed cut

02:24:22.640 interest rates to try to steam or are now, you know, because of the coronavirus, the interest rates

02:24:26.860 are very low in the, in most economic frameworks. That's like a good thing. And, Oh, the question is

02:24:33.140 just, is that medicine going to be enough to help? And in the Austrian view, no, that's poison that

02:24:38.100 you're not doing us any favors by making interest rates lower than they should be, because that's

02:24:42.220 the wrong signal. Just like, you know, if, if you put a thermometer on a, on a feverish patient's head

02:24:47.060 and it's real high and you put some ice on it to bring it down to 98.6 Fahrenheit, that's you're not

02:24:53.820 actually doing any favors by, by masking the signal. No, that's that signal tells you something. And so if

02:24:59.960 interest rates are supposed to be 6%, even, and how would interest rates be calculated properly

02:25:05.640 in the absence of, of determination by a central source?

02:25:11.120 Just decentral, just like, you know, how is the price of oil, you know, set? We don't have a group

02:25:17.000 of, so you just allow private lenders to set the private interest rates, private lenders and

02:25:20.920 borrowers work, you know, they could work through commercial banks and what, but it's decentralizers.

02:25:24.500 I mean, if you think about it, it's weird in the ostensibly free market capitalist U S there's,

02:25:29.940 a group of people who tell us what interest rates are and they periodically. Okay. So why,

02:25:34.040 why is that? Well, the official, I know that's a terribly complicated question, but I'd still,

02:25:40.820 I don't know the answer to it. It is odd. So it's the price of money is, is centrally planned.

02:25:48.460 Right. And actually, because interest is the price of money essentially, or the price of borrowing it.

02:25:52.460 Yeah. The, um, yes, it's funny. Uh, I think it was, I think it was Jon Stewart. Um, you know,

02:25:58.160 the daily show guy, he had Alan Greenspan on if I hope I'm not mixing up the, this is the spirit of

02:26:03.200 this is correct. And he asked him that once he said, you know, we have a free market economy,

02:26:06.100 right? Why do we have a group of central plan? And, you know, Greenspan kind of gave some

02:26:11.100 obfuscation answer. But so the official reason people would give is they say, Oh, before central

02:26:18.200 banks in the U S there were these panics, you know, and there was wild deflationary, you know,

02:26:23.140 there was ups and downs. And then the fed was supposed to be formed to be a lender of last

02:26:27.440 resort and to provide stability. So even if that were true on its own terms, well, no, the great

02:26:32.480 depression happened on the feds watch. The great recession happened on the feds watch other empirical

02:26:38.360 measures. There was more volatility post fed than pre fed. So even on its own terms, that didn't

02:26:44.320 mean the more cynical people would say, well, you know, it's a group of bankers and they were

02:26:50.100 instrumental in, you know, the, the federal reserve act and getting that thing established. And

02:26:54.440 it's an instant institution that provides liquidity and bails out bankers when they get into trouble.

02:27:00.880 And so, you know, what's the mystery there that that's why it happens. So, you know, that's the,

02:27:05.300 the cynical interpretation. And which interpretation do you, do you favor? I mean,

02:27:11.040 we don't want to be cynical about it. Right. And it's always, I'm always leery of conversations that

02:27:16.420 point to they, you know, because these huge problems, they're all our problems, right?

02:27:22.260 There are problems, man. So we have this central banking authority and we decided at some point

02:27:27.980 that that was a good idea. And I cynical theories tend to be incomplete at best in my view. I mean,

02:27:35.820 what's the cost in your view or the view of the Austrian school of having the central interest

02:27:43.220 rate planned in this manner? It's the business cycle. That's, that's the, that's the issue is that

02:27:48.580 it's not informed properly, the decisions. Right. That by periodically pushing interest rates below

02:27:57.060 what they should be, you know, what's the just in pure cause and effect, what's the, what's the problem

02:28:02.840 with that is when it comes to interest rates in particular, it causes this artificial boom period

02:28:08.220 that necessarily must end in a bust. And as we say, over the course of the cycle, resources are used

02:28:14.180 inefficiently so that when the whole thing is said and done with people are poorer than they

02:28:18.520 otherwise would have been had interest rates been set in a true market all along. So that's,

02:28:24.340 you know, the cost of doing that. Besides that, there's redistributive things as well,

02:28:28.900 that if you have this engine of inflation, where in a sense, in modern times, the central bank can

02:28:33.820 literally just create money electronically, that's an avenue to corruption. Like right now,

02:28:39.260 the federal reserve is buying private sector bonds. They started doing that, you know, in the

02:28:43.700 wake of the coronavirus panic. So, you know, are they doing that purely on the merits or is there some,

02:28:49.840 you know, things going on beside, behind the scenes as to which companies bonds get purchased

02:28:54.920 and don't. So it's, with all this stuff, yes, there's different motivations, but I...

02:29:01.140 Yeah, well, sometimes it's not merely is there corruption, but, you know, is there sufficient

02:29:06.200 transparency so that conspiracy theories of corruption stay, what, less popular? That's a

02:29:15.400 problem, you know, when these decisions are being made, even if they're not actually corrupt, they

02:29:18.900 destroy trust in public institutions because they're not transparent and there is room for

02:29:23.080 corruption. Right. So, so, so yeah, what the Austrians can say is regardless of where the

02:29:27.280 motivations are, but the fact is that, yes, centrally planning prices, you know, we know

02:29:32.640 outright central planning of all prices doesn't work. That's, you know, the collapse of socialism.

02:29:36.920 We can just see empirically that doesn't work. And then the Austrians, I think, are being consistent

02:29:41.500 and saying, so why are we centrally planning money and banking? You know, if central planning doesn't work

02:29:47.020 elsewhere, why does it work? Let me close this then. What do you, this is a bit of a left field

02:29:52.700 question, but I've talked to some people recently about Bitcoin, so I'm going to ask you about it.

02:29:57.900 It's sort of the ultimate decentralized economics. Any, any opinions about Bitcoin? What do you think

02:30:06.220 about this idea of taking the monetary system out of the, even the hypothetical control of centralized

02:30:11.440 institutions? And, and, you know, regardless in some sense of the specific merits of Bitcoin,

02:30:17.260 it's, it's a revolutionary idea in some sense. What do you, what do you think about it?

02:30:24.320 Right. So I think it's a fascinating case study and I think it took a lot of us economists by surprise.

02:30:30.880 I think if you had asked me before it was, you know, in 2007, could something like Bitcoin exist?

02:30:36.600 I think I would have predicted, well, no, because how would it get off the ground? Like why would

02:30:40.580 people accept it? It's just, it seems like it's a circular problem. Like how would anyone know what

02:30:44.620 it was worth? And how it did get off the ground is at first it was almost free. Like it was, you know,

02:30:50.100 somebody gave a bunch for two pizzas or something, and then it just kind of bootstrapped. So that's

02:30:54.460 how they got around that problem. I would say, which, you know, I didn't think of, or I wouldn't

02:30:58.220 have thought of if you'd asked me ahead of time. So. Right. Although it's a classic free market,

02:31:02.560 you know, why not invest in it if it's pennies to the dollar, so to speak, because there's

02:31:07.820 some potential upside. Right. And so. Yeah. The market took care of that in some sense.

02:31:13.000 Yeah. So I, so what, you know, the intellectual problem they saw, because Hayek had a famous

02:31:18.040 essay where he was arguing for, so what he said is, you know, free, free market types have

02:31:25.100 tended to focus on commodity money, like gold and silver coins and contrast it with fiat money,

02:31:29.540 like government paper, because historically the government paper would crash and, you

02:31:34.300 know, the, the, the hard money, the gold and silver was sound stable currency. But Hayek

02:31:39.260 said, maybe that's wrong. Maybe it's just because historically fiat paper money has been issued

02:31:45.160 by governments. What if you had private firms that could issue name brand currency that was

02:31:50.120 just paper, but, you know, as a private company, so you had name brand recognition and they would,

02:31:54.400 you know, compete with each other. So in other words, to privatize central banking,

02:31:58.300 let's call it. And so he had a whole essay on that. And, but even there, the problem was you

02:32:03.320 had to trust, you know, the reputation or the, the, the honesty, integrity of the issuer of whatever

02:32:09.700 those paper notes were. So I think the virtue of Bitcoin is they, you know, Satoshi figured out a way

02:32:16.120 to make it so that there's a sense in which the system keeps track of itself and there's no one in

02:32:24.080 charge of it. You know, it's completely distributed. Right. And so, and, but, and how do you safely

02:32:27.860 spend money and solve that problem to, to accurately transfer funds if nobody's in charge

02:32:33.460 of this, of the whole ledger? So that was like the intellectual masterpiece in terms of what he did.

02:32:39.380 And then now we, so, so that's, what's new about it. And, and yes, it's now that it's off the ground.

02:32:44.100 Yeah. And to answer your question, yeah, there's a growing number of people who are Austrian

02:32:49.180 enthusiasts who are saying Bitcoin or cryptocurrency in general is great. I'll say for sure. I like it

02:32:57.460 because it shows the public that you could have privately created money, just like with, with Uber

02:33:04.500 and Lyft. To me, that's the easiest way to get the public to see you don't need to have government

02:33:09.620 medallions for taxi cabs because before Uber and Lyft, people might've just thought, oh no, it's for

02:33:14.340 safety. You can't just have a free market and, and rides because the cabbie might shoot you or,

02:33:19.500 you know, rob you at gunpoint or something, or, you know, be driving. Right. And that didn't happen.

02:33:23.760 Well, eBay is interesting that way too, you know, because eBay to me is an absolute miracle. I mean,

02:33:30.560 I know it's, it's a less robust platform than it once was, but I mean, it was free enterprise at its

02:33:36.380 most wildly unregulated. And it produced this incredible explosion of value because people could

02:33:43.620 trade frozen capital very, you know, your junk in your basement was now worth something to someone.

02:33:48.220 And the cynics said, well, you know, I'll send you broken junk and you'll pay me with a check that'll

02:33:53.220 bounce. And that didn't happen. You know, they, they put in place brokers, escrow agents to begin

02:33:59.120 with, not eBay itself, but they were available so that you could ensure your transaction. And what

02:34:07.280 happened was the bulk of the transactions were so honest, like 99% of them are 90, 98.5% of them

02:34:13.060 that the escrow agents weren't necessary. So, which was extremely interesting in my estimation and Uber

02:34:20.920 and Lyft are very interesting examples of that as well, because they were, they seem to be at least

02:34:27.480 as safe as taxis. In my experience, the Uber and Lyft cars are usually in better shape than taxi

02:34:33.660 cabs. And they're much cheaper. And generally it's a more pleasant experience. Yeah. And it's cheaper

02:34:38.040 and it provides instant or did provide instant employment to people, which was a real miracle.

02:34:42.860 In my estimation, it's like you were unemployed, but you had access to a car. It's like you had a

02:34:47.360 job right then and there. Remarkable, remarkable. So just as I think the average person could

02:34:54.420 understand the possibility of, oh yeah, maybe we don't need the government to have a cartel

02:34:59.720 operation with taxi cabs in the name of protecting the public from unscrupulous drivers. Likewise,

02:35:06.940 I think with cryptocurrency, people seeing that and seeing how it works and realizing,

02:35:12.900 oh yeah, maybe it's not, it shouldn't, we shouldn't just take it for granted that, oh,

02:35:16.340 clearly the government provides courts and police and money. Obviously the government has to be in

02:35:20.700 charge of issuing money because otherwise that to me, that's what one of the virtues of,

02:35:25.320 you know, cryptocurrency is, is that people can at least see an example of something that

02:35:29.880 was obviously had nothing to do with the political system.

02:35:33.780 Yeah. Well, it does definitely seem to be a currency whose fundamental underlying philosophy

02:35:39.860 is in line with the fundamental underlying philosophy of the Austrian school of economics.

02:35:46.660 Certainly. The only reason I'm going to stop is I just do want to acknowledge it. Some Austrians are

02:35:51.780 divided on that. So some are really, they love commodity money and they think no gold and silver

02:35:56.660 and they think Bitcoin, like, no, that makes no sense. That's crazy. That's just like a big bubble.

02:36:01.640 So I don't endorse that, but I do want to just say that, that our Austrians are divided.

02:36:07.940 Yeah. Well, I guess the, I guess the affinity is that it's a distributed currency, um, it, it,

02:36:14.920 that hypothetically capitalizes on distributed computation. It's not under the control of any

02:36:20.940 centralized bureaucracy, whether or not it's the proper solution to that problem. I, I, so there's

02:36:27.720 room for intelligent debates about that. Any Austrian, you know, Norm is going to say,

02:36:31.640 go ahead and do what you want. They don't want to shut it down. Obviously like go ahead and do it

02:36:34.660 if you want to. I'm just, you know, I personally wouldn't invest in it. Like that would be their

02:36:37.140 view. Right. And you're right. Right. The, the Bitcoin enthusiasts though, they would say there's a

02:36:41.260 sense in which it's even harder than gold because, you know, it hits the 21 million and that's it.

02:36:46.260 Whereas in principle, we could go get an asteroid that has a bunch of gold. So maybe gold actually

02:36:52.120 wouldn't be the best money for the next 200 years because of some discovery or some, you know,

02:36:56.820 innovation in chemistry where they can just make gold pretty cheaply. Out of seawater, for example.

02:37:02.060 Whereas Bitcoin just, it's very nature mathematically, it's got a fixed limit. And so there's a sense in

02:37:07.880 which that's really hard if it were to become money.

02:37:10.600 All right. Well, I think that's probably a good place to stop. I've been speaking with

02:37:18.720 Dr. Robert Murphy. This is his book, Choice, Cooperation, Enterprise, and Human Action. And

02:37:25.820 today we talked about the Austrian School of Economics and many other things. And thank you

02:37:30.520 very much. It was very educational as far as I was concerned. I'm much more solid in my understanding

02:37:37.080 of perhaps economics in general. Not that I know anything about it yet, but that was very helpful.

02:37:43.060 And I appreciate you taking the time to speak with me and wish you luck with your book. And

02:37:48.420 anything else you'd like to add before we close up?

02:37:52.460 Oh, I mean, I would just thank you for this opportunity to talk with you. And I was very

02:37:56.680 excited to do so. And I just want to mention, I've been watching a lot of your lectures and I'm a big

02:38:01.020 fan of your work and appreciate what you've been doing.

02:38:03.140 No, thank you. Thank you very much. All right.

189. Is Property Theft？｜ Dr. Robert Murphy

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The Jordan B. Peterson Podcast

189. Is Property Theft？ ｜ Dr. Robert Murphy

Summary

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189. Is Property Theft？｜ Dr. Robert Murphy