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The Honest Money Show is your guide to understanding what money really is — and why today’s system isn’t working. Hosted by Anja Dragovic, this show cuts through the noise to explore how money shapes our lives, where it’s gone wrong, and what a better future could look like. Along the way, you'll discover how Bitcoin fits into the bigger picture — not as hype, but as a serious response to a broken system. Whether you're curious, skeptical, or already down the
Speaker: Welcome to the Honest Money
Show a big thanks to our sponsor.
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Anja: Joining me today
is Robert P. Murphy.
Robert is around renowned economist.
He's a Chief economist and Infinio
group, a senior fellow at Meas Institute,
and he's authored a number of books,
probably the most famous of them
Being Choice, which I'm still reading.
Robert, welcome to to Honest Money.
Robert: Thanks so much
for having me, Anya.
Anja: Yeah, you're very welcome.
Um, so I'm so happy to
have you here today.
Um, obviously as a Bitcoin, I'm quite
new to Austrian economics and feel
very lucky to have you as a guest on
the show today to talk about this.
Um, because my journey into this has
been some, sometimes backwards or
even scattered, and I would love to
have sort of the experience of a.
First year grad student, um, just,
just to yeah, get to understand
this wonderful topic from, from
scratch and in a more linear way.
So, um, how would you
describe Austrian economics?
What, what is it?
Robert: Sure thing, and I should probably
make the obligatory joke at the front
end, that what happens occasionally
and happened, like my friend Tom
Woods, he was giving a, I think he was
debating somebody on Aus Economics at
one point in the United States, and,
and he went and gave his thing and
the other guy got up and it was clear.
The other guy thought it
was Australian economics.
And so, anyway, that was kind of funny.
Um, so the, the name obviously
comes because the original
founders were from Austria.
Um, so Carl Manger in 1871 wrote what's
translated as Principles of economics.
And that ushered in it, it was
called the marginal Revolution.
If, if some of your, uh, viewers are
familiar with that term, a phrase it
having to do with, like the old classical
school, they thought of things like as,
as aggregate classes, like, you know,
diamonds and water and things like that.
And, and it was hard to explain
market prices with that old paradigm.
And so it was the so-called
marginal revolution that had
people thinking on the margin.
That's what's where that term comes from.
So when you go into the store,
it's, you know, when you're trying
to decide, oh, should I buy this
many bottles of milk or not?
It's not, do you like milk more
than you like bread or something?
You know what I mean?
It's no one more bottle of milk or one
fewer, so it's thinking on the margin.
So that, that's where the name comes from.
The Menger and bba.
Um, were from Austria and so that's,
that's where the title comes from.
But nowadays, when we talk about the.
The Austrian School, obviously, as
you can tell from my accent, I'm
not from Austria, you know, a lot
of them are from the United States.
Um, so it does tend to be very free
market oriented, like it's opposed to
government intervention, but it really,
it's, that's not it's essence, right?
It, it really is an
objective school of thought.
And you said you're working
through my book choice for example.
And you can see it really is a
scientific enterprise where it just
talks about this is the way that we
approach the study of market prices.
This is what we think
causes the business cycle.
This is how banking works and so on.
Um, I guess I, I'll just give a
few of its characteristics and,
uh, you can take the, you know, the
questions, however you want to go.
To elaborate some of the defining
features of the Austrian school
is, it's very, it's what's called
methodological individualism, right?
So they don't try to explain the economy
in terms of aggregate statistics, like,
you know, aggregate demand or, uh.
You know, the price level
and things like that.
Instead, they really try to start from
individuals and what motivates them
and how do they make their decisions.
And then you can build that up and, you
know, the Austrians do have a theory
of the business cycle, for example, but
it, it really is grounded in, you know,
with individual underpinnings, um, as
opposed to some of the other schools
of thought where just from the get go
when they try to explain what's going
on in the economy, it's like using
aggregate, um, statistics or variables.
Um, I, I guess the other defining
feature, lemme just mention this.
So the Austrian school that even
distinguishes it from like the Chicago
school is the Austrians are tend
to be very big on like applying the
standard principles of the benefits of
market pricing to money and banking.
And so most economists, if you
said, Hey, should the government
be picking the price of oil?
You know, should there be a group
of experts who every month come out
with their meeting and they announce.
Going forward, you know, the price
of crude oil that we're gonna target
between this many, you know, per barrel.
Most economists would
say, no, that's socialism.
You can't do that.
But yet, even in the so-called capitalist
countries, they have central banks where
they have a group of experts who come out
and periodically give announcements about
what the interest rate target is gonna be.
Right.
And so that seems kind of weird.
And so the Austrians, I think, are
the most consistent on that to say no,
the, just for, for all the same reasons
you would want to have freely floating
market determined prices for oil.
Likewise, with interest rates, you,
it doesn't help the economy to have
a group of experts in charge of the
money stock or, you know, the, the safe
interest rate and things like that.
So again, I'll, I'll let you take
the conversation, but that's, I,
I guess I'll, I'll stop there.
But that's part of the defining
characteristic of the O School, and again,
they, so they tend to be very hard money
and in favor of laissez-faire in banking.
Um, and that even that distinguishes
even from a lot of the Chicago school
economists who also typically are
free market compared to Keynesians.
Anja: Yeah, absolutely.
And, and I would love to know like, what
is the scope of economics and is this also
where the different schools of thought
diverge in terms of what that scope is?
Like what should an economist
deal with and not deal with?
Robert: Okay.
Yeah, that's a great question.
So I did spend, uh, some time in the
beginning of that book choice, like
just defining that, like what you
we're, we're here, this is a book
about economics, but what's the,
you know, what is the boundaries
of this science or this discipline?
So I can, I can tell it exactly the way
that, like Meeses, so Ludwig Van Mes was
one of the giants in the Austrian school.
Um, he had many accomplishments.
He sort of unified what you could call
micro and macro point it this way.
So Carl Manger and the other pioneers
in the marginal revolution, they came up
with a way to use subjective preferences
to explain the price of like, you know,
apples versus oranges, things like that.
And they said, oh no, it's not about the,
it's not about the labor theory of value.
It's not about the cost of production.
It's, it starts with subjective valuation.
And you can build up, you know,
pricing from that bedrock.
But once that, you know, started to
take over the profession, still there
was a log jam with explaining money
prices because it seemed like to say,
oh, the reason, you know, how do we
explain the purchasing power of money
is just by its subjective valuation.
It look like you are
arguing in a circle, right?
Because why do you value money?
Oh, because you can buy things with it.
As opposed to like, you know,
why do you value apples?
Well, 'cause they satisfy your hunger.
You like the way they taste, you know,
you can, you can make pies with them.
Um, but with money, it seemed like, no,
the whole function of money, the utility
it gives you is from its purchasing power.
And so to try to explain that by
subjective valuation seemed like
it was arguing in a big circle.
So me has solved that problem.
I'm so, I kind of went on a detour
there, just explained like mes had a
bunch of theoretical accomplishments.
So anyway, in his work when he's
explaining the history of the science of
economics and, and its, its boundaries,
he said historically, you know, it people,
social science, you know, people who
wrote on, on lots of things, you know,
like the back in the day, you know, the
medieval scholastics and things they wrote
on all sorts of, like a, even going back
to Aristale, wrote all sorts of stuff,
including what we now would think of as.
The scope of economics.
And he said, so humans noticed there was
this irregularity and market phenomena.
Like, it seemed like there
were some patterns there.
And they were trying to figure
out, you know, what are the rules
governing how prices behave?
So that was clearly always
part of the subject matter.
But then Meis said, um, with this new
marginal revolution that there, it
wasn't just, we came up with a better
theory to explain market pricing.
He said once they made that switch and
they went from looking at like how many
labor hours went into something or what,
what were the costs of production, right?
'cause those were the two like sort of
classical modes of trying to explain
like, you know, why does a stage coach
trade for 10 times as much as this cow.
You know, and the classical school
would try to look at like, well, what
are the things that went into them?
And like, do it that way.
And the subjective marginal approach
did it the other way around.
And it'd say like, no, the services of
a stage coach are more valuable than,
you know, what the cow can give you.
And that's why, you know,
so that's kind of the thing.
And so Mees said, once that innovation
occurred, which at the time was just
sort of like a, just coming with
a better way of explaining market
prices, that kind of revolutionized
the subject matter of the field.
Because now you were talking about, you
know, the, the human mind psychically or,
you know, subjectively evaluating things.
And that was the bedrock starting
thing of, to explain market prices.
And so he said, once they made that shift,
now the paradigm was like rational action.
Okay.
So, and that's why the, the title of me's
magnum opus, it's not, you know, economics
or it's not, you know, how does the
economy, where it's, it's human action.
Yeah.
And so that's, you know, what
he, and so he called that pology.
So he, he called that the
science of human action.
And so the idea was anything where it
involves a human who has goals and tries
to rationally, you know, choose means to
achieve them, that's what ology studies.
And then economics proper is part of
that where, you know, you have private
property and money prices, right?
So that's kind of the way
Mises thought about it.
The, like the, the tools we
use to analyze that stuff.
Really it's, you know, the
whole field is purpose of action
or, or purposeful behavior.
And then if you have certain
prerequisite institutional prerequisites,
like private property and money.
Then, you know, there's
like a subset of that.
That's what we, we now call economics.
So that was kind of
the, the way he did it.
Um, you're asking about like,
do other schools of thought?
Do they, if you read and in, in that, you
know, that first chapter of choice, I give
quotes from other schools of like Chicago
school people or, and they, they'll say
things like, um, trying to maximize your
wellbeing under conditions of scarcity
or something, you know what I mean?
They'll, they'll, or using, uh, you know,
limited means and unlimited desires,
and that's what economic studies, you
know, so they, they say things like
that, um, or choice under constraint.
So they're all kind of groping
around that same idea where people
have a bunch of goals that they
subjectively pick, but there's
limitations imposed by nature on them.
And then that's kind of the,
the subject matter of economics.
Anja: Yeah.
So assuming, well, not assuming
we know the dominant school.
Of thought today in economics
is Keynesian school and mm-hmm.
I'm very keen to understand, like you've
already touched on a number of things,
how the Austrian School differs from
other schools of thought, but what
are the main, kind of like the top
three, um, things where the Keynesian
School and the Austrian school differ?
Robert: Okay, so the big one is, um,
like what, what causes recessions, right?
And so for the Keynesians,
it's a shortfall of what they
would call aggregate demand.
And so the idea is that if, um, the
economy can be in a situation such
that the revenue that the employers,
that the firms are getting from selling
their product is not enough to, to
justify or support full employment.
The economy can just be stuck in this,
in this, you know, odd position where
there's a, you know, it's equilibrium,
meaning like, like the economy's
not gonna quickly move outta this.
It can be kinda stuck in this rut.
And yet there's large scale unemployment,
even though, you know, those workers
are eager to work and they're just as
skilled as the people who have jobs.
You know?
So it's not like a matter of that they,
they don't have good skills or something,
and the economy's just stuck like that.
Right?
And so in the Austrian and in
the old classical view, that
shouldn't be possible, right?
That it should be, well, wages should
fall and until the point at which,
you know, so as wages come down.
Employers wanna hire more workers.
And the lower the wage gets, you know,
workers are less eager to get a job.
And so at some point, you know,
the wage should fall such that now
anybody who's still not working, it's
because they say, yeah, that's not,
that's not a big enough pay for me.
I, I'd rather not work.
And so, you know, so that's, so
that's like the old classical story.
And the Austrians largely
agree with that too.
And the keynesians say that, no, that
the economy won't fix itself like that.
And they, and they have a, you know,
and Keynes in his book, the general
theory goes through the argument
as to why that might not happen.
Alright.
Um, part of like, intuitively the story's
like, well, because as the wages are
falling, well now, like the business,
like the people have less money to spend
and so like, now the revenues might
fall from the employer's point of view.
You know what I mean?
So it's, it's not like you can just
hold everything constant and just
have the employer cut the wages.
Which is kinda like the way the
old classical people were thinking.
So that's, that's kind of the argument
Keynes gives us to why it can get stuck.
So related to that, then, if, if
they're diagnosing the problem
differently, it's not surprising that
their solution is different also.
Right?
So for the keynesians they'll say
the, you know, the first thing that
happens should happen is the central
bank should cut interest rates, right?
'cause that will
stimulate spending, right?
Because the, the whole point is in the
Keynesian view, the private sector's not
spending enough if we're in a recession,
either on a consumption or investment.
And so the first thing to do is, you
know, have, have the central bank cut
interest rates, 'cause other things
equal that will stimulate spending.
You know, people will borrow more if
interest rates are lower, and, uh,
households will save less, right?
And so they'll, they'll spend more.
But it could be that
even that's not enough.
And even if the central bank
cuts interest rates to zero.
Still, what if you have
this shortfall on demand?
And then they say that's now the, the
time where it's auspicious for the,
the central government to run a budget
deficit to, you know, to just add
aggregate demand that way to jumpstart
the economy and get outta the rut.
So the Austrian disagree with all that.
And so on the, you know, the deficit
spending stuff, they, they would
say, look, the government, when it
spends money, it's just diverting
resources from the private sector
into political outlets in general.
Why would you expect that
to be an improvement?
So that's, you know, one avenue of
just saying that's not fixing it.
But then more generally, they're gonna
say, the reason the economy finds itself
in a recession in the first place is not
just an act of God or a natural disaster.
It's because of prior episodes of
government artificially pushing
down interest rates and causing
this, you know, false unsustainable
boom that then leads to a crash.
So in the Austrian view.
It's the Keynesian, you know, medicine
that's actually keeping the patient sick.
And so like these recurrent boom bust
cycles, the osters say that's not
just a natural feature of capitalism.
That's because you have this government
banking, you know, money system laid on
top of, you know, the underlying market
economy where they keep artificially
pushing down interest rates that fuels
this unstable boom that then busts.
Uh, so, you know, that's
obviously two big things.
But then more generally in terms of
the differences of the school, like I
said, it's not merely, you know, policy
prescriptions that they on, which
they differ, but even just the, their
whole approach, the, um, the Keynesian
school, uh, you know, fancies themselves
to be very empirical and scientific.
They think they're like
chemist or physicists.
It's just they study the economy and
we come up with hypotheses and we have
testable predictions and we go get
the data, you know, and so they think
they're being real scientific and modern.
Whereas like, so here, not all
Austrians embrace this, but the ones
who follow in the maan tradition
do where they think economic law is
apriori, like it's, it's almost like,
like Euclidean geometry in that sense.
And so they say that, yeah, you
start with basic axioms and then
you logically deduce things.
Now to apply in a given situation, you
have to, you know, use your judgment and
rely on empirical measurements and things.
But the, in terms of like just basic
underlying economic law, they say
that that's actually, you largely
get that through introspection.
So that's just another, like,
that's a methodological difference
between the two camps too.
Anja: Yeah, it's interesting.
I know this isn't quite the same, but
like my background is in marketing
and, and recently I find in the
last 10, 20 years, there's just
been this really push towards, you
know, data driven marketing and you
need to have results for everything.
But marketing has always
been like a science of.
Human psychology in a sense.
And sometimes, you know, even if
something performs really well,
you still need to understand what
aspects of human psychology made
that certain thing perform well.
Um, yeah.
Um,
Robert: yeah, just to give a ape.
Yeah.
So, so, right.
And it's, I hesitate to, to say that
because I've, you know, for some of
your listeners who aren't familiar with
this, I, I know if I say that, it's
gonna sound like, oh, this is like me
medieval scholasticism or something.
And it, like, for example, like to, for
people to learn how to build bridges and
things, you have to study geometry, right?
And to learn pyt, aism, you know, the
Pythagorean Theorem or whatever, it's
not that people go measure a thousand
triangle or, you know, a thousand right
triangles, and see, and we, it's like,
you know, you're missing the, that's
not how you do proofs in geometry.
Like it's a logical, deductive thing.
And then, yeah, you go apply it and quote
the real world and everything, but you,
you're armed with these basic things.
And I would just say.
Like when people are arguing about
tariffs, you know, free trade versus
tariffs or other things, usually
they resort to pretty simple fables
to try to get the intuition across.
And like, it's like once you see the
principle, then it's like, oh, okay.
And that kind of helps you sort through.
'cause the real world is
really messy and complicated.
And the last example I'll give is, um,
like with, with with, in the United
States, president Obama was elected
in, you know, the fall of 2008, right
when the global financial crisis hit.
And then there was this thing
called the Obama stimulus package.
You know, that they passed in early 2009
and they predicted, you know, the, when
they were trying to sell it, um, they
were warning that unemployment at the
time was like 7.5% or something like that.
And they were saying, Hey,
if we don't pass this thing.
Unemployment might get up to like 9%,
but if we do pass it, we'll contain it.
And unemployment, you know,
we'll get to 8% and change,
but it won't break into nine.
So they went ahead and passed it.
They got the stimulus package and then
real actual unemployment went above 10%.
Right?
So unemployment was worse
with the stimulus package than
what they were warning might
happen if we don't do anything.
So in terms of an empirical
refutation, you would say
what more could have happened?
And yet the way the Keynesians
handled that episode was they
said, woo, it's a good thing we
passed that stimulus package.
'cause the economy was in
worse shape than we realized.
Right?
So from their point of view,
they're being consistent.
But, but so again, and it's, and they
even had, you know, ex post studies
showing this is how many jobs were saved
or created by the stimulus spending.
And when you went and looked at
the way those models, you know, or
those, those measurements worked.
There was no empirical outcome that
would've made them say this was a failure.
Like the, the very assumptions they
built into their analysis, us, you
know, made it have to be the case that
government deficit spending created jobs.
Right?
So I'm saying they're being just
as dogmatic or ideological as Mees
is, but they're fooling themselves.
They're pretending they're being
real empirical when it's like, no,
their whole framework assumes the
outcome, and then they just calibrate
it to come up with specific numbers.
But it, you know, it builds in the
way they think the world works.
So,
Anja: yeah.
Interesting.
And I'm curious to know, Bob, what's
your, what is your opinion on like, why
Sian School is the dominant school today?
What is it, what is it about it
that's appeals to the masses?
Robert: So, um, the, the most Austrians
would would tell this story, and it,
it is a bit, I guess, self-serving, but
you know, I think it's true, is that.
There was a, a healthy debate.
So a co the economics profession
used to be more free market oriented.
They weren't all completely dogmatic,
but you know, they, they were generally
very, you know, free market oriented.
And then, um, you know, in the
early 30, you know, the gr the
Great Depression happens, right?
And it looks like something seriously
wrong with the capitalist economies.
And so then John Maynard Kanes comes out
with the general theory, um, and in that
book, you know, and he's a very smart
guy, and the book was, it was kind of a
mixture of like really detailed arguments
and like some, you know, math in there
that made it look real sophisticated.
But also he had a lot of
observations on things.
He just seemed like he knew a lot.
And so it was an impressive work.
And he, it was very
well done rhetorically.
The re, the reason he called
it the general theory is he
was sort of making like, uh.
An analogy to, to what was
going on with in physics, right?
So in physics, you know, Einstein
comes along and his relativity, he
didn't say that the whole Newtonian
framework was wrong, right?
He didn't say, oh yeah, Newton's an idiot.
And all the, all the physicists that
came before, what he said was, oh, the,
the more, and, and by the way, don't
get, I'm not talking about general
versus spousal, relative, I'm just
like, in general relativity, like the,
you know, the equations about things
like mass and whatever, when you, you
use Einstein's equations, those are
like more general, but then for low,
you know, for velocities that aren't
high relative to speed of light, it
reduces to the old Newtonian lost.
So the idea was, oh, what Newton.
Described was just a special case where
things aren't moving very fast and you
know, and their masses aren't very big.
Right?
So that was kind of the way he
handled, it's like I'm giving you
a more general framework that's,
you know, can cover more scenarios.
Whereas, you know, Newtonian
mechanics only covered the, so
that's what Keynes was saying.
He's saying, oh yeah, those
classical economists, they're right.
That, you know, if the government
spends more, then that means
the private sector spends less.
And if the government's gonna
build a bridge, those resources
had to come from somewhere.
So that means there's fewer, you
know, resources for radios or whatever
elsewhere, he said, but only in
the special case when we're at full
employment, he said, if we're stuck
with, you know, high unemployment
in, in like spare capacity.
Then the old classical wisdom is wrong.
And in that world, if the government runs
a deficit and spends a hundred billion
dollars, GDP goes up by a hundred billion
dollars because you're just putting work.
You know, you're workers who are
sitting at home doing nothing.
Now go to the factories.
So that was the way he
rhetorically handled that.
So it, it was very clever that, you
know, in other words, he wasn't just
saying everyone else was wrong before me.
He was saying, oh, they were
studying this special case.
And then, and here's like where
the cynicism comes in, it's very
popular or, you know, very palatable
to say, we can fix this tomorrow.
Just the government needs to start
spending money like a drunken sailor.
Whereas in the old view, that would've
been very irresponsible and like
it might be politically popular
to just start handing money out.
But No, no, no.
Don't be naughty boys.
Whereas Keynes is giving them permission
and saying, no, the, the smart the wise
thing to do is to just start handing
out money and, you know, just buy stuff.
And so who doesn't want to hear that?
You know, if you're a politician
and the economy's bad, that's
music to your ears, right?
So that's the, the cynical story.
And I, again, it, it's, Keynes
did have a bunch of intellectual
firepower behind what he did.
So I'm not saying Keynes and his disciples
were all consciously lying, but in terms
of explaining institutionally, why,
you know, all the, the big universities
now that get tons of funding from the
government, their economics departments,
are they filled with Austrians?
Are they filled with Keynesians?
And you know, they're
filled with Keynesians.
I think that's not shocking.
That or the central bank employs,
you know, the Federal Reserve
employs hundreds of economists.
Most of those economists don't
think the Fed should be abolished.
Right.
Isn't that shocking?
So I'm just saying that, you know,
there, there is that, that element to it.
Um, and.
Again, but prima fascia it, I think people
thought capitalism failed in the thirties
and Keynes was giving them an alternative.
So I, you know, I dunno if
you wanna go down that path.
I've written a whole book on
the depression and I, I think
that, no, it was, ironically,
it was the exact opposite.
Like what was different in the
thirties was for the first time,
the, you know, various governments
were doing a lot of helping in
peace time that they previously had.
So it's, um, you know,
put it to you this way.
In, in the US at least the way the
history is taught is that Herbert Hoover,
you know, who was the guy who was, you
know, in office from 28 to 32, he's
the guy that sort of gets blamed for
the depression in the United States.
And, and the, the complaint against
him is that he didn't do anything.
He just sat back and it was like,
okay, but the standard story isn't
that before Hoover, all the other
presidents in the United States
had been big interventionists.
Right.
They were, you know what I mean?
So it's kind of weird.
That all the presidents
up to Hoover did nothing.
But on his watch we had the
worst depression in history.
And then thank goodness FDR came in.
Right?
So that's kind of, it's like the
joke I say, it's if a plane crashes
and you and someone says why, and
you say because gravity, right?
Like so Well, well yeah that, but
gravity applies to little other one.
Ones like there must have
been something more specific.
So the same thing with Hoover, whereas
what is different is Hoover was the
most interventionist when the, you
know, stock market first crashed
and he told all the labor unions and
big businesses don't cut wage rates.
And so the, you know, I argue in my book,
that's what, why unemployment went up
so much is because prices were falling.
'cause they were still on the
gold standard, but wage rates
were not allowed to fall.
And so labor got
artificially more expensive.
You know, 31, 32 when that's
why unemployment went up.
Anyway.
So I'm just saying that there
were lots of things that changed
and it looked like the old.
Policies were failing.
And so it looked like, oh yes, our
old faith in capitalism is wrong.
And then Keynes comes along and says,
here's a technocratic fix that happens
to give a lot more power to, you
know, central banks and politicians.
And so, you know, to me it's not shocking
that, you know, that that swept the day.
Anja: Yeah.
I didn't read the book, Robert, but I
watched, um, a talk that you did at the
MEUs Institute on, on this subject matter.
Mm-hmm.
I think back in 2011 or
2014, somewhere around there.
It's really good.
So I'll, I'll link it to the podcast
notes as well for those who wanna learn
more about the causes of the Great
Depression or the alternative view.
But I'm very curious to know, do you
see in this century, a world where
the Keynesian School loses popularity?
Robert: Sure.
So, I, I should perhaps, you know, give
a, a little bit more of a, some more
of the history of economic thought.
So what I'm gonna say is definitely
what happened in the United States,
but I think it also happened,
you know, in Europe for sure.
And then, you know, el elsewhere too, is,
is in terms of, you know, the profession.
So it, it's true that standard people,
you know, there was, there was like
a debate, like, uh, in the thirties,
Lionel Robbins, who was at the London
School of Economics, invited Friedrich
Hayek to come give a series of lectures
there in the, I think it was in 31.
Um, and you know, so Friedrich
Hayak is a member of the Austrian
School, you know, a disciple of me's.
And so Hayek was one of the pioneers
in the Austrian theory of what
happens in the business cycle.
And so I'm saying there was a lively
debate in the early thirties and Hayek
came and gave, you know, his lecture.
And unfortunately Hayek is,
was, is difficult to understand.
Like, like, you know, he is very smart,
but it's, he's not a very clear presenter.
If, if you, if you know you, you can
get lost in what he's trying to say.
And so, um.
Pierro Raffa reviewed Hayek's book
called Prices in Production, which
was like adapted from those lectures
he gave to try to, you know, to give
the, the Austrian v view of like,
what the heck just happened, right?
You know, the world is mired
in this terrible depression
and here comes the Austrian and
telling what they think happened.
And Raffa reviewed and, and Keynes
was the editor of the journal
where this review and they just,
it was just a scathing review.
And so, um, I can understand why
mainstream economists now who like, go
back and read that stuff would say, oh
yeah, these Austria, what the heck are
they even like, it was complicated.
What are they talking about?
Um, and so, so yes, the Keynesians kind
of won that battle, at least on paper.
For a while, but then there was
the keynesians were discredited.
Right.
So I, here I'm answering your question.
Like, could the Keynesians school that
I'm saying intellectually in, in among
economists, Keynes or the Keynesians
suffered a pretty big defeat in the 1970s?
Right.
So there had been like
theoretical objections to their
position, their modeling and
whatever that had been coming.
You know, people like Robert Lucas and you
know, Milton Friedman, people like that.
But where like things really got bad
for them was in the seventies because
there was what's called stagflation
where there was high price inflation
and high unemployment at the same time.
And in the sort of crude Keynesian
paradigm that kind of, you know, ran
the world in the 1950s and sixties,
that should have been impossible.
Yeah.
Right.
And that kind of crude Keynesian
framework, the idea was, oh, if
you have high unemployment, that's
'cause there's not enough demand.
So just go ahead and, you
know, lower interest rates and
stimulate spending that way.
And if that's not, if that
doesn't work, the government
can run a big budget deficit.
So, but just get enough,
throw enough spending at the
wall and that'll fix things.
And then the idea was, oh, if you overdo
it, if you're spending too much money
such that, you know, unemployment falls
and now everybody's at the factories,
and the factories are humming, and now
if you just keep printing too much money
and spend and having, you know, too much
deficit spending, what will happen is
there's too much aggregate demand and
then prices will start rising rapidly.
And so, so then in that case, oh,
then you, you pump the brakes, you
know, you don't spend, you cut,
you raise taxes, you cut spending.
But the idea was you were
supposed to get one or the other.
You either have an economy
with high unemployment, but low
inflation or you can overheat and
yeah, you'd have full employment.
You know, everybody's got a job, but
geez, you know, eggs and gasoline
keep getting really expensive.
But in the 1970s, you had both at
the same time, like you had high
unemployment and prices at the grocery
store were rising really rapidly.
And so like, what was the
central bank supposed to do?
It seemed like whichever way
they moved, they were gonna make
one of those worse and you, that
wasn't supposed to be possible.
Whereas the, like Chicago school
kind of people, um, had been giving
an answer all along to that to
say, well, this, this can happen.
You, you guys are thinking about it.
So they, they built in what's
called expectations, right?
And the idea was just real quickly, one,
like, yeah, if, if people don't expect
inflation, you can kind of fool them.
And if the, if the central bank
prints a bunch of money and goes and
spends it, then you know you can get
by and you can reduce unemployment.
Everyone can go back to work.
But once labor unions start realizing this
pattern, then they're gonna say, oh yeah,
we wanted $15 an hour for our workers.
But now that we know the central
bank's printing a bunch of money.
We want $20.
And so the fact that the central
bank inflates isn't gonna all of a
sudden get everyone to go back to
work because they're just gonna raise
their wage demands knowing that, you
know, we gotta keep up with inflation.
And so then you get into
this vicious spiral.
So that's kind of what happened.
And so then, you know, there was
a revolution in economic modeling.
It, it kind of goes back to what
I said at the beginning about how
the Keynesian models can be really
simplistic, whereas the Austrians have
like individual moorings and you know,
so in the old school models there,
there was no one in there to guess
what inflation was gonna be like.
People weren't even in the model.
And so then that was part of the
revolution, like in the late seventies,
going into the early eighties, that
now to get your paper published in
Economics journal, you had to have
agents in the model that understood how
the world worked and they made rational
forecasts about inflation and things.
Whereas before, that
wasn't even in the model.
I'm saying that there already is
a sense in which the old school,
like sort of crude keynesianism of
the fifties and sixties is dead.
And now there's more.
But, but still you're right
that the people now, you know,
they're called new Keynesians.
Like you just slap a, a, a new in
front of it and now it that fixes it.
So in terms of, you know, that stuff, I
not, I'm not merely saying this because of
the, the podcast venue here, but I really
do think Bitcoin changed a lot because
it showed, for one thing you can have a
private sector money, whereas like, like
for some people that was just kind of,
they just assumed that, oh yeah, money
is what central banks are in charge of.
And so just to have Bitcoin is
this possibility out there, I
think challenges that paradigm.
And then, you know, things like, oh,
and it's max units, it's 21 million.
And so that forces people
to have the conversation of.
Well, can you have a, you know,
a monetary system where prices
kind of fall every year and Yeah.
Why not?
And so I'm just saying it
kinda shatters those old views.
'cause like the standard Keynesian
framework, they want prices to rise every
year because they need to have room to,
to cut interest rates in case the economy
gets into a, you know, a rough patch.
Because if you had 0% inflation,
then oh, we can't cut interest rates
too much because we'll hit the,
what they call the zero lower bound.
So that's why they like prices to, to,
you know, go up and up every year at
the grocery store to give them room to
cut if there's a, so I'm just saying
everything about Bitcoin in the kind of
world that would produce, if people use
that as the money is very anti kasian.
And so, you know, I, I think that, you
know, both the theoretical problems
for people who are like, you know, in
economics proper, but just in terms of
the financial sector and the people who
are out there doing stuff, I think, you
know, blockchain-based finance in general.
Kind of showing that yeah, these
keynesians don't really have a good
model that can explain everything.
Anja: Yeah.
And one thing I've, I've observed, and
I'm curious to know this has some merit,
but like if I look at the Keynesian
economists versus the Austrian economist,
even though there is some disagreement
within each school amongst, you know,
Austrians don't always agree with other
Austrian on everything, but it just seems
to me that there's a lot more disagreement
between Keynesians, um, internally
as to why certain things happen.
It's almost like the explanations
of things are so elastic.
Robert: Yes.
So I I, I agree with, you
know, your observation.
I, I endorse that too.
You're right.
I, I think that's a true statement.
And then I can think of at least
two reasons why that would be.
Um, so one is benign and, and
one is like malign malignant.
Um, so the, the one that you know is more.
It is not like a, a knock on the can.
It's just because they are the
dominant, you know, the sort of default.
Anja: Yeah.
Robert: It makes, in other words, I think
probably a lot of mainstream economists
today, you know, if you and I tried to
classify them, we'd say, oh, they're,
you know, new Keynesian or whatever.
They might not be walking around
thinking I'm a new Keynesian.
Like to them that might just be
like, I believe in supply and demand.
Yeah.
I'm an economy.
You know what I mean?
They might just think,
no, that's just economics.
What are you talking about?
Right?
So in other words, it's so mainstream and
such the default position, they might not
even think that that's anything special.
And so in their mind when they're like,
when you and I would say, oh, look at
the keynesians are all arguing with each
other, I think they would just think.
Yeah, we're economists and we have
different opinions on things, what
you talk, you know what I mean?
Whereas if you are in one of these more
niche subgroups, like the Austrians
or the, you know, there's things
like the post kasians or maybe for
modern monetary theory or you know,
Marxists are still around there.
Like the reason you're leaving the
mainstream and joining one of these
subgroups is because they appeal to you.
And so there almost is this more
inbuilt homogeneity in your views.
You know what I mean?
Like if like with religion, you
could do a similar thing, right?
That you could have Roman
Catholics could be arguing about.
So, but if someone goes and joins
some very particular religious
sect, they're gonna be very much
in agreement because that's the
whole reason they joined that thing.
You know what I mean?
They had a bunch of print doctrines
that separated them from everybody else.
So, so there, there is that element,
but I do think there's more to it than
just that, like to, you know, explain
the phenomenon that you observed.
And I think it is, you know,
I'm an Austrian, so I must
must've picked them for a reason.
I think they're just more rigorous.
Right.
A lot of the stuff that mes does in
his work, I've heard other economists
try to read it and they say what
it, it's like, this is philosophy.
This is, what the heck is this?
Like, he spends a few chapters explaining
what's the scope of our field of study
and what are the, you know, the logical
foundations of economics and what
assumptions are we making and stuff.
Whereas other econom, you know, book
one, chapter one starts measuring
GDP or something, or, you know,
here's the production function.
You know what I mean?
So I'm just saying it's like mees take
some time to really think about like,
what is it that we're doing here, guys?
And, uh, other economists think
that that's, like I said, philosophy
or waste of time or whatever.
So it's not surprising to me that that
yeah, like you're viewing and seeing
the sey and seeing more open-ended
and just, hey, anything goes, whereas
the Austrians have some more inbuilt.
Discipline.
I guess I would say that kind of, you
know, anything that's published in an
Austrian journal is gonna adhere to a
certain set of principles more so than in,
you know, a standard economics journal.
I guess except for like
the math stuff, right?
Like the, the eco, the more mainstream
economics journals would say, oh,
you gotta have a model and it's
gotta, you know, you gotta have
proofs and things as there's gotta
be some mathematical rigor to it.
Whereas the Austrians it's more verbal.
So I guess that's the, the distinction.
But the, the Austrian say, right,
ours is more logically, internally
consistent, whereas you guys like,
yeah, you, you make a math model and
we just think the model isn't really
capturing what the economy does.
Anja: Yeah.
One day I will read human action,
I'm gonna work my way up there.
'cause I know it's like 900 and something
pages and it's very like difficult read.
Um, I'm reading your book very
slowly 'cause you know, each time
I read over something I'm like.
What, what, what does he mean by that?
And then I'll go read over it.
Mm-hmm.
Again, to try absorb it better.
Um, well, you,
Robert: well you might, you, maybe you
caught this, but like the, the point
of that book Choice, the way the it
was commissioned was somebody said, you
know, the guy commissioning a David Thore
said, undergrads can't read Human Action.
We need something that's like
300 ish pages that covers all
the material Human Action does.
But it's one book and it's
accessible to an undergrad.
So, so yes, the choice was explicitly,
I went through, you know, section
by section of human action and
then distilled it down into choice.
So that's, that's what
choice is, is doing.
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Anja: Yeah.
Yeah.
So yeah, step one, it's
read choice step two.
Read human action.
Um, but I wanna know your, uh,
like the Austrian perspective
on common resource problems.
Um, this is something that's
always discussed in Australia.
Um, another thing as well that
I, I never knew until getting
into Bitcoin, and you just feel
so silly to say now in hindsight,
but I didn't realize how closely
economics is li linked to politics.
And you can almost, you know, guess
someone's political views based on
what their economic beliefs are.
Um, so yeah, let's talk about
common resource problems and
what the Austrian view is on that
Robert: Sure thing.
Uh, so I'll, I'll give some like
standard results and then, you know,
if, if there's particular things that
people in Australia are worried about,
you know, obviously let me know.
So this might surprise some
of your listeners to hear.
'cause you know, they
hear, oh yeah, this group.
These people, they're very free Martin.
They don't like the government.
They're, they're pro business.
They probably are fine with businesses
dumping chemical and, and no, that,
that actually isn't it, right?
That, so here, I wanna be clear,
this is sort of merging into
what's called libertarianism.
So, so Austrian economics is a
science, it's not a political ideology.
But in practice, certainly in the
United States, most people who
are fans of a economics are also
political libertarians, right?
So again, it's not like a logical
connection, but in practice
that tends to be what happened.
And partly for what you just said, Ona,
that if, if your economic analysis is,
oh, what causes the business cycle?
It's government intervention
and money and banking.
And so most people would say, if
that's how I think the world works,
my political views are, I don't
want the government doing that.
'cause I don't want recessions.
You know what I mean?
So it's kind of like that, that
it, it's not shocking that those
two things tend to go together.
So anyway, Murray Rothbard.
Was one of the giants in the Austrian
school, and he also wrote a lot on,
he's like one of the founding fathers
of the American Libertarian movement.
And so his take on, you know, things like
pollution and stuff like that, where most
mainstream economists say, oh, this is
an area where the, the free market fails
and you need government intervention.
And Rothbart takes that standard narrative
and kind of flips it on its head.
And he said, no, the old, you know,
common law, property rights tradition
from Great Britain that, you know, that
the American Colonist brought over.
That's what all you need
for a lot of this stuff.
And so, yes, if, if there's some factory
and they're dumping chemicals in the
river, and then people downstream, you
know, are getting sick under the old,
you know, common law tradition, they
could go ahead and get an injunction
against, they say, Hey, you're,
you're violating our property rights.
And he said it was, what happened in, you
know, during the industrial revolution
was that a lot of the big businesses,
you know, they had a lot of political
power and they were wealthy and they
would influence the judges to not enforce
those, you know, those complaints.
Right.
So other words, the, the, or if there's
some factory that's putting smoke in
the air and then like, you know, the
people who have their laundry out, you
know, to dry, they're getting city,
you know, just 'cause there's stuff.
And then those people, you know, they
should be able to use the, the courts to
stop the factory 'cause they're, you know,
harming, they're damaging their property.
But the courts wouldn't enforce
that because they didn't wanna
impede the industrial revolution.
Right.
But, you know, I'm talking like in the
late 18 hundreds, early 19 hundreds.
And so Rothberg was arguing,
saying so far from this being,
you know, the free market.
Problem.
It's showing that it was actually,
you know, the, the government run
judicial system that they just made
the, the calculation that we're gonna
favor, you know, the big business
owners versus these, you know, dinky
little homeowners who are complaining
about their water, their air quality.
And so that's, you know, the way he's,
Roth Bar said that's actually like, you
know, strict adherence to property rights
would solve a lot of these problems.
And it was only the government ignoring
property rights from, you know, small
property owners that l led to, you
know, these environmental problems.
Um, and then another like standard
kind of thing would be, I'm sure
you've heard of this, the, like what's
called the tragedy of the commons.
And so, yeah, it, it's a well-known
problem that if you have a common
resource that you know, like you've got
a, a, a lake and there's a bunch of fish
there, if anyone can just show up and
just fish as much as they want, that's,
that's probably gonna be too much.
It'll deplete, you know, the resources.
So that's why people say, oh, you
need the government to have, like,
I dunno if you have it in Australia,
but here we have like fishing seasons.
Like you can only fish between this time.
And they even have kind of crazy rules.
Like you can't use engines on the boat.
It's gotta be just a boat where you,
you know, have paddles or something.
Or you can't have nets that are
bigger than such and such, right?
So like they're artificially hindering the
productivity of the fishing operations.
But that's only because they
still have this weird system
where it's like nobody owns it.
And so if you had just a privately owned
fishery, which, you know, those do exist,
they could set whatever rules they want.
They could just say, oh, if you catch this
many fish, we charge you such and such.
Right?
So, um, and that solves all the problems.
Or it, you know, back in the day in
England they had the enclosure movement.
And so the, you know, when they had
grazing, if anybody could just take
their cattle and graze, then there
would be too much grazing, right?
And the, you know, the land wouldn't
be able to replenish itself.
But once they invented barbed wire and.
And said, Nope, here's property
rights and you own this land.
And then people knew, so if I don't
have my cattle graze in this plot
of land, and then other people can't
just come in and and take it and let
you know, let the grass replenish,
well then that solves the problem.
So with, with all these things,
economists in the Austrian school would
tend to say, the problem is ill-defined
prop or ill enforced property rights.
And once you just specify who owns what,
then if there's some kind of weird outcome
happening, people have the ability to
just make con contractual arrangements
and, you know, rearrange things and,
and it'll, and to avoid that outcome.
'cause it's, if, if there's
some resource being depleted,
that's not good for anybody.
So if you could just get somebody
to be the owner of that, they
can take steps to protect it.
Anja: Yeah.
And this touches a little bit on what
I wanna, the direction I wanna go
into next, and that is like central
planning slash central banking.
Robert: Sure.
Anja: Um.
You know, even when I asked charge GPT
charge, GPT is quite direct and brutal.
And if you just put in a very
simple prompt, like what's the
problem with central banking?
I was quite surprised just
how direct the response was.
Um, sometimes it does tend to have a bit
of a bias where it's trying to protect
institutions or established norms.
It wasn't on this occasion.
Um, but yeah.
Let's, let's talk about the problem with
central planning and central banking.
The kind of one in the same.
Robert: You just want me to go?
Anja: Yeah, go
Robert: ahead.
Okay.
Okay.
Yeah.
I didn't know if you, if you
wanna get more context to it.
Yeah, sure.
So, uh, and here again, the, the
Austrian school is, they have a special
place in history when it comes to,
well, on both topics actually, but
in terms of central planning, you
know, meaning like outright socialism
in the, in the old school tradition
and, and I should be clear nowadays.
People use the word socialist, like just
somebody who wants a big welfare state,
and it's say, oh, that's socialism.
And I understand, you know,
why someone could say that.
But you know, historically, I mean,
socialism had a very particular
meaning as in the government owns
the means of production or at
least a large scale, you know?
Um, and so Ludwig von Meese is every,
you know, people, the Marxist as
well as, you know, the fans of the
free market agree that Ludwig Van
Meese has advanced one of the most
powerful critiques of central planning.
Obviously the Marxists think he was
wrong, but they acknowledged that
yes, this guy's attack was, you
know, one we had to grapple with.
Where Mees argued that Yeah.
Up till now.
So he wrote this, uh, I guess
this would've been what, 1912?
Uh,
Anja: is that when he first came?
Robert: Yeah.
Um, I'm thinking of the
theory of money and credit.
1920, I think, is when, you
know, he had this first broadside
come out and he, he argued that.
Up till then, yes.
Like the conservative critics of
socialism or communism, everything they
wrote was, was fine insofar as it went.
Like they would say, Hey, there's
an incentive problem, right?
That if, if you're paying people
according to their needs and taking
from their, according to their
abilities, the high productivity
people aren't gonna work as hard.
And you know, the other people
aren't gonna work as hard too, that
are, are getting paid based on how
many kids they have or whatever,
not in terms of how much, you know,
time you put into the factory.
And so there's that issue.
And then there's also like the,
you know, power corrupts, right?
The people recognized.
Having a group of experts in charge
of where everyone goes to work.
You're probably not gonna be in a position
to criticize the government if they
can just send you to Siberia, right?
You know, say, oh, that's where your
labor hours are needed, comrade, right?
So people, or if the government
owns all the newspapers.
Do you think they're gonna publish a
bunch of criticism of the ruling elite?
Probably not.
Right?
So it was, and me's you know, said, yeah,
these are all valid criticisms, but he
said it's overlooking the fundamental
economic problem with central planning
as such is that it lacks market prices.
And he said the central planner, like, if
you really had full, full-blown socialism,
then you're not gonna have market prices,
you know, for the, for the land, the
farmland, or for the factories or for
tractors and things like that because
they're, they're all owned by the state.
And he said the problem with that
is there's a million different ways
you could produce things, you know,
in terms of technological recipes
and ways to use more land or less
labor and, you know, so forth.
And so how would the central
planners know what to make?
He's saying, 'cause they
could go ahead and do it.
They could come with a five year plan
and everyone can go out and do it.
And Misa said, even if we just stipulate
that, suppose all the comrades are
enthusiastic and they work, you
know, there's not a shirking problem,
there's not an incentive problem.
They just do what they're told.
And, um, you know, assumed that
we're not worried about corruption.
Imagine the central planners really are
angels and they just wanna do what's
in the best interest of their people.
His point was they
wouldn't know what to do.
They could go ahead and do something.
They produce a bunch of cars and
a bunch of houses and diapers
and, you know, ships and so on.
But then how would they know X post?
Should we do that again next cycle,
or should we tweak what we did?
And he's saying there's really, it's
a difficult problem because you don't,
you don't, the, the issue is you
don't know what the cost is, right?
Like the economic cost because
there's so many thousands of different
interrelationships, um, to say,
should we use this ton of iron ore
in this project or in this one?
And it's really difficult to, you
know, pin down the implications of
using it in one line versus another.
And he, and he said the way this
is solved in a market economy is
through the profit and loss mechanism.
Like once you have genuine ownership and
all those things, you have market prices.
And then you can look at an enterprise
and say, did it make good use of
society's resources this last cycle?
And you just say, did it turn a profit?
And so what does that mean
if they turn to profit?
It's that their customers paid them more
money than the money they had to spend
getting the inputs from other people.
And that's the sense in which they
added value to those resources, right?
And so if something's profitable,
you want it to continue.
And if it's suffered a loss, that's like
society's way of saying Uhuh society
has a higher use for those resources
than what you're doing with them.
You're squandering them.
And so businesses that keep suffering
losses eventually go under, right?
So that was Me's explanation of.
You know, the problem with central
planning is that they lack what he
called economic calculation, right?
So that's kinda just the full blown
critique of outright socialism.
So then, you know, central banking
is like one element of that.
And, and there, I'll
just be real quick here.
He, the specific problem with
central banking is that it
fuels the business cycle.
And so in ME'S framework,
prices serve a function.
They help communicate information,
you know, just like I just said,
with the profit and loss and, and
guiding entrepreneurs to be good
stewards of society's resources and
the interest rate and that framework,
what, what function does it serve?
It helps coordinate stuff over time.
And so, you know, real intuitively, if, if
the households become very future oriented
and they want to, you know, not consume
as much today to be able to consume
more down the road, they save more.
That pushes down interest rates.
That gives entrepreneurs the green light
to invest in longer projects, right?
'cause there's more savings available
and the lower interest rates, lower
cost of borrowing and so forth.
But what if the reason the interest
rate fell isn't 'cause households
saved more, but because the central
bank just printed more money.
So now you're like giving the
green light to the entrepreneurs
to have longer term projects, you
know, more grandiose projects.
They're bidding away
workers from other lines.
So wages are rising, everybody feels rich.
It's a boom, but it's
based on quicksand, right?
Because it's just the central
bank printed up money.
There actually wasn't more saving.
And so that's, you know, that's the
problem with, with central banking, that
it, it fuels these boom bust cycles.
Anja: Yeah.
And you've mentioned the
business cycle a number of times.
I'm very keen to know, like, what's
the definition of, of that theory?
Robert: Well, well, sure.
So, so by business cycle, I just
mean the, um, you know, the,
the, the seemingly natural ups
and downs in the market economy.
That seems like there's periods so.
Over long stretches of time, the
standards of living go up, right?
Like g real GDP per capita, if you wanna
use that metric, tends to be higher than
it was, you know, 10 years ago for just
about every place you can look on earth.
But it's not just a smooth, you
know, constant rate of increase.
There's wild upswings and then crashes.
And so, you know, and so that's what
people mean by the business cycle.
And then they have different
theories as to what causes it.
And I'm saying in the Ian view, me meaning
little van me's what his explanation was.
He thought it was, it was actually banking
per se, that what you may have heard is
called his fractional reserve banking.
So the idea of banks, in a sense,
lending out more than their
customers have put in a deposit.
And so that makes interest
rates artificially low and gives
this, you know, false stimulus.
And then the, the problem with
the central bank is it comes
in and just exacerbates that.
So in the in me's view, if banking were.
Uh, limited to, uh, lending that was
close to a hundred percent reserves, you
wouldn't have these boom bust cycles.
And so that's, you know, that,
that's kind of his, his vision.
Anja: Yeah.
And one thing I'm very curious to know
is, you know, recently I think a lot of
people have obviously been very burnt
by what happened during the pandemic.
Governments worldwide printed a lot of
money to respond to the crisis, and I'm
very curious to know how the Austrians
would've handled that situation.
We have a Black Swan event,
something unforeseen.
How, how do you solve that responsibly?
Robert: Right.
Um, okay.
So here it's tricky because, you know, I
know a lot of Austrian in practice would
say, oh, you know, the, the governments
of the world really fed into the hysteria
and they exaggerated the problems.
And, you know, may, it may either.
Out of ignorance or malice, you know,
like they had other reasons for wanting
to exert their control and so, so forth.
And plus, the more we learned
about this was a government funded
project that, you know, whatever.
So a lot of that you could just see,
hey, if we just had smaller limited
government, this wouldn't have happened.
And I, and I think that's true,
but I think the more interesting
question is, okay, yeah, sure.
This particular case, you could say
that, you know, government kind of
created the problem and the lockdown
certainly exacerbated everything.
But like, what would happen, you know?
But if there really were a genuine crisis
of, you know, some virus that breaks
out that really, you know, is extremely
contagious and very fatal, right?
Like, you know, something from a
Stephen King novel or something.
Um, and, and so there again, with
all this stuff, it's, uh, I, I think
just allowing for the more concrete.
Definition and enforcement of property
rights is the way to solve this stuff.
That's strictly speaking.
So, so you wouldn't need government
to enforce things, is is what I'm
saying, that I I think that the,
the correct policy regime, just
as you know, businesses can set
whatever policies they want, right?
And so in, in practice, um, yes,
the, I I think people took things
way too far with this, you know,
with, with CID in practice.
And there've been lots of studies to
try to show, you know, those areas or
those countries that were very aggressive
didn't have better outcomes than the
ones that were very lax and so on.
You know, to say things like that.
But again, in principle, what if
there was some, you know, really
serious virus that came out?
Even in a situation like that, I
would not favor giving the government
the power to determine, Hey, are you
allowed to leave your house or not?
But the, but the flip side is I
think you sh you do need to give
businesses that flexibility, right?
That a business, I think should have the
right to say, if you want to come into
this store, you gotta have a mask on,
or you gotta show proof of vaccination.
Or, or an employer could have the right
to say, if you wanna work here, you
need to do whatever, you know, type
things they, that the employer wants.
Because I think you, you gotta
have, you gotta be consistent
with is what is what I'm saying.
Because if you're not, if you're just,
'cause because the reason I'm saying
this is, I know a lot of libertarians
in the United States were so vehemently
opposed to even businesses like, you
know, voluntarily insisting on masks or
whatever, that they applauded when the
Florida governor and the, I think the
Texas one as well, they said it's illegal.
They were saying, in other words.
If you're a business in our state, you
can't insist that people have masks
on or you can't, you know, insist
that people show vaccination status.
And I thought that was the pendulum
swung too far the other way right there.
So that's what I'm saying.
I think the consistent libertarian
position is, you know, private
property rights let people do.
And then in terms of like, well, how
does that relate to the Austrian school?
Again, I think the, I just like central
planning doesn't work and you sort
of, you know, leave decentralized
decision making up to the people
who are in the best position to have
all the relevant information and
who like, who have skin in the game.
Likewise, I would say who cares the
most about whether the workers at
this particular factory all get sick.
The owner of that factory, or I mean
the workers themselves, but also
the owner of that factory is the
one who is really in a position to,
you know, assess the trade offs of,
well, geez, if we just closed down.
We're not making any product.
But on the other hand, if there's
a serious virus going around,
everyone comes in and they all
get sick and half of 'em die.
We're not making any product either.
Right.
So, you know, I, as opposed
to the governor just deciding,
you know what I mean?
Where if if they just, you know, shut
down, then they get applauded for doing
the, the smart, healthy thing, but
they're not suffering the losses from all
that lost output as much as, you know.
So anyway, that, that's kind of my
view that, again, with all this stuff,
just like with the environmental
issues, if there is some weird
problem, I think ultimately giving
people property rights and giving them
the decision making ability, that's
the, the best thing in practice.
'cause the, the politicians aren't
gonna have the right information and
they don't have the right incentives.
Anja: Yeah, it's interesting because
like Australia's got a very different
culture to the US and I think a
lot of that comes from our history.
Like the US was born out of a revolution.
It was built on libertarian principles.
Um, whereas Australia's got a very
like egalitarian, um, societal values.
And definitely during COVID that came
out even more that we are somewhat a
collectivist society more than most
people would've thought prior to COVID.
Robert: Can I stop you real fast though?
What's funny is, and, and this is
partly just because Americans are so
ignorant, but the stereotype, at least
that I have here of you, is that you
guys are real rugged individualists.
You know, you just, just tough
guys and you go out and you
fight crocodiles and stuff.
So
Anja: that's one or two characters.
Just one.
But no, no, that's, that's not the case.
'cause even as you, as you're
speaking, I'm, I'm listening and
I'm like, I'm curious person.
I love learning, but I can just totally
sense that there will be listeners
from Australia who think, um, that, you
know, the government is the trustworthy
party and the private sector's bad.
And I just, to me, like it doesn't
really necessarily make sense because
why would you trust one group of
people over another group of people?
They're all just people.
Um, but it's very interesting 'cause
yeah, they definitely would trust
something like that to be outsourced to a
government rather than the private sector.
I cannot see a reality in Australia
where people feel comfortable
saying, let the corporations decide.
I just can't see it.
Robert: Yeah, and I appreciate that and
I, I like the way you phrased it too.
Because there is a stereotype that like
libertarian ties, especially like outta
the United States, I'm sure have this,
you know, this stereotype of, we, we think
that businesses are, are good and that oh
yeah, entrepreneurs are good, are hero,
and it's those dastardly politicians.
And some people do talk like that.
But I think like you, you just
kinda hit the nail on the head.
The, the more correct thing is that
people in general are fallible and
you, you gotta be careful with them.
And so they, it's not so much that,
oh, the, the businesses are, um,
better than the politicians, but rather
you're, you're just limiting the scope
of, of how much damage they can do.
Right.
And so just like with a, with a
government, like in the United States,
we have the phrase checks and balances
where, you know, the idea is, oh,
you don't want the president to just
be able to do whatever he wants.
He's not a king.
Like, like in theory, at least, the,
the Congress is supposed to raise taxes.
In theory, at least Congress
is supposed to declare wars.
Again, the executive has really
usurped those privileges over the
years, but that's kind of the idea.
And so I'm saying by the same token, it's
just a matter of like power sharing and
checks and balances to say who should
be in charge of, you know, for this
factory if, if there is a a virus going
around, who should make the decision?
Should the people you know come into work?
Or should they just shut down?
And I'm saying it seems pretty reasonable
to say the owner of the factory is the
person to vest with that authority.
Again, he can't compel if somebody's at
home and says, no, I'm doing my research,
or maybe I have a lung condition.
I'm not going into work today.
And if you wanna fire me, go ahead.
But no, so the employer can't enslave
that person and say, no, you're coming
to work or we're gonna shoot you.
The worst the employer can do is
say, well, I'm gonna stop paying you.
Right?
Which again, that is perfectly
reasonable to say, you know, the
employee can't say, no, you gotta keep
paying me and I'm not going to work.
So I, I'm just saying, it, it, it
isn't that this sort of naive view that
people in the private sector are angels.
It's just rather everybody
is potentially a devil.
And so therefore you gotta
limit everybody's power.
And that yes, if you're afraid
of profit seeking business and
the bad things they'll do okay.
But, you know, the government has
printing presses and they start wars.
So it's not like government
has clean hands either.
Anja: Yeah, absolutely.
And you know, in hindsight now thinking
about how it would've panned out, the
whole thing had, had it been given
to the private sector, I imagine
you would've had some corporations
that had somewhat balanced rules.
Some would've been more strict, in
other words, would've been more loose.
Um, but I think in, in that.
You would've had some sort of competition
almost between the private sector where,
you know, you, you, you kind of naturally,
um, optimize based on what exactly
were doing and how they're responding.
And if you have one central entity
where you have no competition and
no point of reference, you know,
we, we did with other countries, I
guess, but Australia's so isolated.
Mm-hmm.
And we were possibly seen as one
of the strictest countries when
it came to lockdowns and things.
Robert: Right.
Yeah.
I'm, I'm glad you said that.
'cause again, that's a, another
huge virtue of decentralization and
not, you know, having the government
monopolized those decisions.
Is that Yeah.
Different companies would've tried
different things and they all would've
been watching each other and there
could, you know, there would've been
studies over time as to which things
were more effective and, and so on.
And that I think would've been better than
what happened in, you know, in practice.
Because, because I, I think.
Any honest person would have to say,
a lot of this stuff was just crazy.
Like, like it, it, in other words, it
didn't even follow from the science.
It was clearly just, you know,
to make the public feel like
something was, was happening.
Like, like, I don't know what they
did in, on Australia, but like United
States there were, you know, and all
the public areas, like all the water
fountains had like tape put in front of
them so you couldn't, you know, and they
were turned off, which what you don't
get COVID from, you know what I mean?
Like, you could go lick if someone
with who was, had COVID licked the
thing and then you went and licked it,
you probably wouldn't get it right.
It was from breathing
the air for a long time.
Like that was the issue.
And so I'm just saying, or people who were
out jogging on the beach were arrested.
It's like, that's just cra you know,
you're not giving COVID to someone,
you're out jogging on the beach.
That's just not how it transmitted.
So, whereas staying in shape and getting
out in the sun or whatever and keeping
your immune system robust, that would
be, you know, a good thing to do.
So I'm just saying it, it
wasn't, it wasn't as if.
Yes, there were a bunch of things that
a draconian enforcement could have
done, but you know, we have people's
civil, civil liberties or whatever.
That what I'm thinking, it's
not like, like with seat belts,
like that's a good example.
Where in general Yes, a a a a,
a large, you know, normal size
adult driving the car should have
a seatbelt on that's going in.
The overwhelming majority
of cases be a good idea.
And then you could have a question,
should the government force you to do
that, or you know, leave it up to you.
Okay.
But I'm saying the stuff that the
governments around the world did
during COVID, it wasn't like that.
They were enforcing things that made
no sense, even on their own terms.
And it was just clearly people, you
know, just going overloading with
it or just getting drunk with power
and just, they liked this, you know,
like in the United States, again, I
can't speak to what happened there.
It was things like they kept liquor
stores open 'cause they were essential
services, but you couldn't go to church.
And so it's just things like that,
you know, that seemed kind of, anyway.
Anja: Yeah.
The funniest example for me is, um,
on the airplanes, when everyone used
to have to wear a mask throughout the
whole flight, but when the food came
out, you take it off and you meal, it's
like, well, everyone's got masks off.
That's like, just made
no sense whatsoever.
Um, but that was a heavy discussion.
And I wanna pivot to
something a bit more fun.
Do you think meas would be a
Bitcoin or if he was alive today?
Robert: Oh, that's a great question.
Um, I, well, I think for sure he would
not want the government to, in, you know,
to interfere with people's ability to use
Bitcoin in whatever capacity they wanted.
And also to not have punitive taxation,
you know, that made it impractical to
try to switch to a Bitcoin standard.
Um, I'm not sure, as you may know, as.
Early on, especially, there were a lot
of people who were fans of Mees, who
were skeptical of Bitcoin because, um,
of what's called the regression theorem.
So I, I'll be real fast with this,
but when Mees was explaining the
purchasing power of money, one of the
moves that he made, actually, it goes
back to something I said earlier in
this conversation, if you remember that
there was this difficulty in taking the
subjective marginal utility explanation
of market value and applying it to money.
'cause it looked, you were
just going in a circle.
It's like, oh, why do you value money?
Because it can buy things.
Well how come money can buy things?
Oh 'cause we value it.
And it looked like you went in a big, it's
mees broke that up with the time element.
And he said, no, no, no.
It has purchasing power right now because
you expect it to have it in the future.
And why?
Well 'cause it had it in the past.
Right.
So he kind of broke the time
element, but then that like
invited, um, an infinite regress.
'cause it was kind of like he's
explaining gold's purchasing power today.
Partly by reference to our, our
knowledge or our memory of it.
Oh, it had purchasing power yesterday.
Well, but why did it have it yesterday?
Oh, 'cause the day before, right?
So it seems like you go back forever.
But he said, no, you
don't go back forever.
Because there was a point, you know, we
don't have records of it, but it must have
existed logically when there was barter.
You know, no money existed, but people
still would've used gold, you know,
for ornamental reasons or whatever.
Right?
Like, people must have liked
gold even before it was money.
Right?
And so that's kind of just like
logically how me's, you know,
made, made his explanation.
And so a necessary part of that story
was that the thing that right now
is the money must have served in a
past life is just a mere commodity.
So when Bitcoin first came on the
scene, a lot of fans of Mees said,
this can't ever be money because
you know, you can't eat Bitcoins,
you can't use 'em to build a car.
Bitcoin doesn't do anything
except it could be a money.
So how can that be?
And so they thought, you know,
it violated me's theories.
So at this point, most Austrians
have gotten over that, right?
Because in other words,
bitcoin's clearly been adopted.
People don't have a problem,
you know, pricing it right now.
Like we, we can remember what
Bitcoin's price was yesterday, right?
So in other words, if you thought that
story I just went through was gonna be
a pose, a difficulty for Bitcoin, it
should have never gotten off the ground.
But now that it is where it is
that hurdle's been passed, whether
it really was a hurdle or just a
misunderstanding of meses, right?
So, um, having settled that though,
like there are plenty of people who
are fans of the audit, like Peter
Schiff as being the, the most notable
example who still say, yep, Bitcoin's
intrinsic fundamental value is zero.
It's a bubble.
I can't understand why it's lasted
this long, but it's going to zero.
If it goes to zero next Tuesday.
Don't say I didn't warn you, right?
So.
Me is, you know, was an old
school guy, very conservative.
It wouldn't shock me.
I mean, for one thing he
would be astounded by color
television or whatever, you know?
So I don't, I don't know.
Well, I guess he, he, he lived longer.
He saw colored television, but I, I
think it's possible he might have just
thought this, this seems too weird.
This is too intangible.
No, a gold coin, like, you know,
a bar a gold, that's money.
That's hard.
The government can't,
can't print more of those.
So anyway, those, those are
the two things for sure.
He would be all for the freedom and go
ahead and let people use it if they want.
But whether he personally
would be a ler, I don't know.
Anja: Maybe he would get over it.
Like all other Ians I,
Robert: maybe
Anja: first day they're
like, oh, actually.
But I'm curious to know like, what
actually made the MEUs fan get over it?
Like.
And, and become Bitcoin is like,
um, how did they get past it?
Robert: I, I mean, so I pointed out
early on, you know, the, I, the thing
I just said to you that, Hey, hey guys,
you're right, there is this prima facie
tension, but notice, and I, and I was
quoting from Mees to say, you know,
to just to show like very specifically
what he was saying is for something
to become a medium of exchange, it
must have first had some other use.
Because his, his argument was like,
how would, how would you know at
day one what its exchange ratio
was with all the other commodities?
Right?
Un unless it had previously just been
a mere commodity that was in barter.
And so I'm saying, you know, Bitcoin,
those 10,000 bitcoins for the two
pizzas, like, which is like the first
documented transaction they happened.
And so, you know, if, if me's story is
right, the way you guys want to use it
for Bitcoin, that first transaction, the
guy with the Bitcoins and the guy with
the two pizzas, they should have said.
How can we come up with a trade?
Because I don't know how many
Bitcoins trade for a pizza.
I don't.
We have no, no record.
We have no prior sales
of Bitcoins for pizza.
So I guess we can't do it.
Well, they did do it.
You know what I mean?
So my point was that's where it
would've stopped it once that happened.
Me's argument if you, if you're
trying to use it to stop Bitcoin
from doing anything is already, you
know, is already rendered impotent.
So I think, I'm not saying I
personally did, but other people
couldn't, you know, make similar.
So I'm saying intellectually, once
Bitcoin got off the ground, it really
was the case that if you were an
Austrian who understood what Mees was
saying, you'd have to realize that
you know this, this no longer applies.
And then also other points I was making,
like both Mes and Roth Bar said in
their writings that if in the future
for some reason gold should lose all
of its non-monetary value, right?
Like if nobody liked gold
jewelry anymore and nobody used
it for filling their teeth and.
Said it could still continue
to serve as the money.
And their argument was because
people still would've had the memory
of the gold price the day before.
Right.
So it's not like they all of a sudden
wouldn't know how to value gold.
And so, you know, I, I use that argument.
Think others could see that too, that
once Bitcoin got off the ground and you
had a market price as like an anchor
to guide you as to, well, how much do
I think it's gonna be worth tomorrow?
Then, you know, the fact that it
didn't historically serve as, you
know, some mere commodity and barter.
So what, you know, you don't need it to.
So I think there was that.
And also too, just, you know, the passage
of time and it keeps hitting all time
highs and whatever, like after a while.
Like, well, how many times is Bitcoin
gonna die before we stop saying that?
You know?
So
Anja: the frequency of that is dropping.
So few more years, few
more cycles at least.
Um, now final question I wanted to ask
you was, obviously the Austrians love
the concept of hard money, and it's
been said that the hardest money always
wins or has won out of most cases in
history, but maybe one, um, where a softer
form of money has won, uh, because the
government stepped in and made fiat like
legal tender and, and enforced everyone
to essentially use it, um, because
they prefer it for whatever reason.
Robert: Mm-hmm.
Anja: Um, I'm very curious to know,
do you think, or do you believe
that the concept of the hardest
money winning again, can overcome.
All the institutionalized
resistance there is against it.
Robert: Okay, so great question.
Um, yeah, and let me make one, one
point that I've stressed a lot is
that there's a, you know, once you
understand the virtues of, of hard
money, I said that what's cool about
Bitcoin is there's a sense in which
it's even harder than gold, right?
Because of the $21 million cap that,
you know, with gold in principle,
you know, they, they could go
and mine, you know, asteroids.
There's asteroids out there
in the solar and lots of gold.
And right now it wouldn't be
economical to go get them,
but down the road it could be.
And so the idea is at some point, or
you know, you know, when our technology
progresses to the point at which we
can just rearrange, you know, corks or
something and create new gold atoms out
of other atoms, like at that point, gold
isn't gonna be physically scarce anymore.
And so the idea is it would be good if
we had the ability to have a money that
was mathematically constrained, not
just physically, because those physical
constraints, again, might not be binding.
So that's, you know, a, a good thing
to, to have in our back pocket that
we've got this in principle, this
money that, that can't be inflated,
namely the Bitcoin or, you know, other
cryptocurrencies that are like it.
Um, I, I would caution people though that
even when we were on the classical gold
standard, there still was the problem
like of, you know, booms and busts.
And it, it had to do with like when
Mees developed his theory of the
business cycle that was on during
the classical gold standard era.
You know, he came out in 1912 with his,
you know, first it was like his doctoral
dissertation that, that made that case.
And so what was happening were
the banks were issuing paper notes
that were claims on the gold coins.
Right.
And if they issued more paper notes
than there were coins in the vault, then
you could get these boom bust cycles.
'cause you know, interest rates
would get pushed artificially low.
So I'm saying even if the whole world
adopted Bitcoin, and even if, you know,
when you went into the store, everything
was quoted in Satoshi's and you just held
up your phone and you had the private keys
and you were doing, you know, I'm saying
that even if that were the case, if there
were still third party institutions that
issued claims on Bitcoin and that those
things after a while, like imagine like
a stable coin that was tied to Bitcoins.
Right.
So the, the, the coin, the stable
coin itself was not Bitcoin, but
it just, you know, promised, oh,
we will maintain parody with it.
And then as long as, so after a
while, if the community started to
trust those 'cause they had a good
track record, then that would in a
sense be like inflating the supply of
bitcoins just in the way right now,
you know, you're checking deposit with.
Your bank is not, you know, there
aren't pieces of government currency
in the vault backing that up.
And so even though, you know,
your government says what the
currency is, the private banks can
kind of inflate on top of that.
So I'm saying that is still possible.
That could happen, in which
case, you know, you'd still
have these boom bust cycles.
But, and here's the, the final point
I'll make though is it's the reason
Bitcoin has an advantage and there's
more of a promise, or if it's not
Bitcoin, you know, something like it.
'cause I, I know there's, with the
block size and things, people are
saying it would be tough right now,
Bitcoin can't just replace all the money
in terms of buying a cup of coffee.
There had to be something, you
know, lightning or whatever.
But the, the point is, the part of the
reason people put their gold coins or
their gold bars in the bank to get the
notes was that it was just so much more
convenient to walk around town spending
the notes or writing a paper check
rather than carrying on a bag of coins.
But with cryptocurrency,
there isn't that issue, right?
Like, in other words, your online
banking is just as convenient as
holding your, you know, your private
wallet and keeping the private keys.
You get what I'm saying?
So, um, there is a reason that you
could expect more people to just hold
the, the digital currencies themselves
rather than giving 'em to another
third party who then, you know, could,
could have the temptation to inflate.
So that was my kind of long way of giving
the context to say there still is danger
even if everyone switched to Bitcoin.
But they're also the, the very nature
of Bitcoin does give it an inbuilt
advantage such that it's possible
people, enough people could be doing
quote the right thing that, you know,
the business cycle would largely be
contained or it be the kind of thing
where people could largely opt out of it
if they wanted to and say, yeah, with,
given the commerce that I engage in and
the people I found around planet Earth.
Who wanna deal with me in the
way that we think is appropriate.
We're kind of like, separate
from these other people who are,
you know, wildcat speculators.
Yeah.
Anja: Interesting.
And thank you so much for that answer.
I'm a bit sad I won't be around to
see, see it unfold for the, like,
I mean, I will for the remainder
of my life, but probably not for
the remainder of Bitcoin's life.
Um, do you have any final thoughts
that you wanna leave with the audience?
Robert: Um, I, I would just encourage
people that I know the wake economics is
taught in school sometimes is very dry,
but I would, you know, I would encourage
you to read up in the Austrian school,
there's a reason I was attracted to 'em.
I think they're very intuitive, but
just in general, you know, these
arguments over money and banking.
I, I think this is like with, you know,
cryptocurrencies and stable coins.
Like this is all money and
banking theory in action and
this is a very exciting time.
And so I just let people know
that, you know, you're living
through something that's pretty
special and try to appreciate it.
Anja: Absolutely.
Thanks so much for your time Robert.
Robert: Thanks for having me.
Ona.
Speaker 2: That's it for this week
on The Honest Money Show, a big
shout out again to shop bitcoin.com
au for making this episode possible.
Until next week, stay smart with
your money and stay decentralized.