KOL430 | An Insider’s Introduction to Austrian Economics, Bastiat Society—Houston

Kinsella on Liberty Podcast: Episode 430. This is my presentation, “An Insider’s Introduction to Austrian Economics,” Bastiat Society—Houston, American Institute for Economic Research, The Briar Club, Houston Texas (May 2, 2024). From their shownotes: Join AIER’s Bastiat Society program in Houston for an event with Stephan Kinsella, libertarian writer and registered patent attorney in Houston. Mr. Kinsella is both an internationally recognized scholar on libertarian legal theory and a former Senior Fellow with the Mises Institute. The Mises Institute’s purpose is to promote teaching and research in the Austrian school of economics in the tradition of Ludwig von Mises and Murray Rothbard. In the foreword to Stephan’s most recent book, Legal Foundations of a Free Society, the great Austrian economist Hans-Hermann Hoppe said, “Henceforth, then, all essential studies in the philosophy of law and the field of legal theory will have to take full account of the theories and criticisms expounded by Kinsella.” Stephan will be introducing Austrian economics that is in part shaped by the rare insights one can only get as a scholar and insider. This is my first talk on a purely economic topic. I tried not to dumb it down but also not talk over people's heads, but I only had 45 minutes. This is the recording I made on my iphone. My notes: An Insider’s Introduction to Austrian Economics Stephan Kinsella The Bastiat Society—Houston, American Institute for Economic Research The Briar Club, Houston Texas May 2, 2024 Some of you may have heard in recent years of “Austrian economics” Used to be relatively obscure Now most people into Bitcoin are into it Most libertarians are into it Most Austrians happen to be libertarians too But they are distinct: you can be an Austrian and not a libertarian, but it’s rare; or a libertarian and know nothing about economics Ron Paul has been promoting it for decades “End the Fed!” Recently it’s making more of a surge For example, recently the Brazilian UFC fighter Renato Moicano, after winning a recent UFC fight, shouted out: “I love private property and let me tell you something, if you care about your country, read Ludwig von Mises and the six lessons of the Austrian economic school” I thought it was an AI “deepfake” at first, but no…. https://tomwoods.com/ep-2483-ufcs-renato-moicano-and-mises-six-lessons/ And of course Javier Milei, the new libertarian President of Argentina, is a self-proclaimed Austrian economist How did I get interested in it I am not an economist, but I’ve studied Austrian economics for 30 years Had to take an introductory course in economics as an engineer Immediately saw the problems with the Phillips curve Why would all the homeless or unemployed people dying overnight necessarily imply price inflation? Made no sense to me The professor: well the curve would just shift. I read Ayn Rand. Jerome Tuccille: It Usually Begins with Ayn Rand. In her Capitalism book, she recommended books by Mises, and other books like Henry Hazlitt, Economics in One Lesson, so one thing led to the other Over the years I’ve focused on developing libertarian legal theory but I have relied heavily on Austrian economics thinking For example, my new book Legal Foundations of a Free Society rests heavily on Austrian economic thinking Economics as a Science Austrian economics views economics as a science What is science? A systematic study of a type of phenomenon, of a realm of phenomenon We nowadays think of “science” as basically physics and the “testable” empirical sciences But there are axiomatic-deductive sciences, like the laws of applied logic—where propositions are not “tested” And then, there are empirical sciences, like physics: where the “scientific method” is followed: scientists see results, they provide a hypothesis about the possible underlying causal factors, and come up with experiments that can confirm or falsify the hypothesis, the proposed explanation. We are nowadays used to thinking of science only as the empirical or causal sciences, and relegating philosophy and other fields to the “humanities”: not real science. e. we are used to thinking of science now as physics, or technology This shows the dominance of the idea of logical positivism, for perhaps the last 70 years or so But consider psychology, law, philosophy and logic, and the older conception of economics. They were considered sciences though not “testable.” Just different. Different domains of application. e., you study every phenomenon with methods appropriate to the nature of the thing being studied. Humans are not the same as animals, or atoms! Unlike atoms, we have free will, purposes and goals Unlike animals, we have conscience and high-level conceptual understanding In fact the word science just means knowledge, from the Latin scientia. Think of words like “conscience”—with knowledge—or “scienter” in the law. In fact the original Copyright Clause of the US Constitution authorizes copyright law (books) to protect the “sciences” and patent law (inventions) to protect the “arts.” “Science” back then meant knowledge, or books The “arts” meant inventions of “artisans.” So the meaning then was backward to current usage, where science means technology and STEM, and “the arts” means books, plays, and so on The rise of what Hayek criticized as scientism in the mid-1900s is why people now think of science only as applying to the natural sciences, like physics and chemistry, and relegate other fields of study to the humanities or liberal arts. Think of the Covid crisis: “follow the science” And yet philosophy itself is prior to the scientific method itself Consider: when Karl Popper and his logical positivist followers say that the only meaningful and scientific statements are those that are falsifiable by experiment, —what is their proof of this very statement itself? After all, it is a foundational approach, it is not itself subject to empirical testing. By its own terms, it is unscientific. So the scientific method itself has to rest on philosophical principles which are not themselves testable, they are not subject to the scientific method itself What this means is that basic philosophy has to precede inquiry in the natural sciences. Physics rests on philosophical foundations. Philosophy must come first. An axiomatic, apriori, and deductive system underlies all of empirical enquiry. Philosophy and the natural sciences are all important but philosophy is primus inter pares: first among equals. The reason we think of “science” now as restricted to the natural sciences, is because of the logical positivism revolution in the 1950s. Mainline economics started rejecting its apriorist and deductivist roots and attempted to adopt or “ape” the methods of physics to seem “scientific,” since the conception of what “science” was had changed. They said that the only meaningful or “scientific” statements are those that are testable, falsifiable, refutable in an experiment or with data And so you will hear that some economist has come out with a paper that shows that actually, increasing the minimum wage does not cause unemployment at all. Any economist worth his salt knows this is wrong. We know supply and demand. Price controls lead to shortages. Minimum wage necessarily causes unemployment. The higher the minimum wage, the more unemployment that is caused. We know this by reason, not by experience or data Imagine a $100 per hour minimum wage! For this reason the proponents of minimum wage rarely ask for a very large minimum wage. They seem to realize that at a certain point, it would cause so much economic devastation that people would wake up. Consider also the very idea of exchange. A and B exchange things. They must both think they are better off by doing the trade. Otherwise they would not trade. That is where “profit” comes from. Each values the thing obtained from the other more than the thing he gave up. A merchant who sells a cake values the money he receives more than the cake he gave up. The customer has the opposite preference ranking. After the trade, each one has more wealth, i.e. is richer. More wealth has been created in the world just by virtue of a trade, even though no one created any new product or thing. How could any empirical study falsify this? It’s inherent in the nature of exchange and human interaction. Economics looks at the actor’s purpose and goals to explain each actor’s actions by talking about their goals or ends or purposes—that is, teleologically: by reference to their purposes. What is Economics and why does it matter? “Economics has been defined in a variety of ways. In the nineteenth century it was typically defined as the science of wealth or exchangeable wealth. In the twentieth century, it has typically been defined as the science that studies the allocation of scarce means among competing ends.” From Reisman’s definition of wealth in Capitalism, https://stephankinsella.com/reisman/ See also Adam Smith: The Wealth of Nations By the we need to be clear on what wealth is: is the the availability of means to satisfy human desires. Wealth is not money. Money can be a measure of wealth but it is not wealth itself. Increasing the supply of food or houses makes people wealthier. Increasing the supply of money just increases prices. Money is not wealth. It is a unique type of good. For capital goods, or consumer goods: the more, the better. Not so with money. In other words, we live in a world where people live together and interact, trade and exchange. There is a division and specialization of labor There is money,...