Episode Ninety Three

0:00welcome to smith and mark's walk into a bar a history of economics podcast i'm one of your hosts jennifer jun and i'm joined here today by my colleague francois alison we're down one today so jinla safe travels out there she'll be back on the next episode and in the meantime francois how are you doing it's been a while i'm doing fine i'm really happy to join you and i'm really

0:32excited to to have our guest today oh yes and speaking of our guests i'm very pleased that we we have peter dr peter becky on the show today peter becky is the director of the fa hayek program for advanced study in philosophy politics and economics he's also the bbnt professor for the study of capitalism at the mercatus center and distinguished university professor of economics and philosophy at george mason university pete thanks for being on the show welcome uh thank

1:02you so much uh to both of you for having me on here it's great how are you doing today i'm doing great i'm excited to have this conversation with all of you it's uh it's going to be a great day absolutely we're going to be talking about some of your favorite things which we know is austrian economics so we're going to uh talk about some of the of your work that you shared with us and so i'll start off with a question about a paper that you sent us an interesting paper about the influential economist kenneth bolding who's a figure we haven't discussed on the show before um could you tell us a bit about

1:35bolding and his influence on your work you knew him personally so how did you know him what made him so special and why is he still important today uh in this paper that you shared with us you write that he was a strange and weird combination of austrian knightian and keynesian economics so it sounds like a lot yeah uh kenneth bolding is wonderful intellectual um he is the second john bates clark medal winner um in economics uh after paul samuelson and in that early group of uh john

2:08bates clark medal winners he's the only one that didn't win the nobel prize uh in that original grouping and that's kind of important to to see because he's at the top of the profession but also somewhat alienated from the profession but alienated by choice uh because of of what he wanted to do and i'll talk a little bit about that but um he uh in the old days at the university of colorado they forced you into retirement and so he wasn't ready to retire and so he came to george mason as a robinson professor

2:41and um and i had uh because of my undergraduate school we had a year-long requirement in history of economic thought i had been exposed to bolding uh because of his uh contra wig kind of approaches to history of economic ideas and so i was so excited uh you know my my best friend and i day particular we spent all of our time we could with bolding and he is like a grandfatherly grandfatherly man right so he uh decided he uh took us under his wing and we sat in on all of his classes and he uh you know

3:18would have us over his house for milk and cookies and uh he also uh painted uh uh watercolors you know paintings of the city of fairfax which if you've ever been to fairfax is not exactly attractive but he was like he he had so much joy in just life and everything like that so okay so that's a little bit about kenneth bolding the man and i and i think you know really uh anyone can experience him just look him up you see him he you know had this long flowing white hair and he would sit in class i had him for

3:52a book a course called great books in economics so we read adam smith uh uh carl marks uh well adam smith david ricardo carl marks and john maynard canes okay that that was his great books that he read those four books and he would sit with his legs crossed in a chair in the front of the class and he would read from the book like a passage and then he would like just riff off of that and it was like amazing it was a it was a really enthralling experience to have him uh in in that regard but

4:24what his history is kind of fascinating because he went to oxford and uh was studying chemistry and then got interested in economics and one of the papers he wrote as an undergraduate got published in the ej under canes's editorship so he kind of showed signals of superstardom you know at the age of 20 or whatever right very young age and so then he won a commonwealth fellowship to come to the united states and this is in the beginning of the 30s so it's in the midst of the great depression um but the

5:00commonwealth fellowship paid very well so he said he moved to the united states in the middle of a great depression as a graduate student he was living better than some other people were you know around him and he said so it had bad incentives to finish graduate school so he never got his phd actually uh he uh he always used to say you know that if uh he would have got a phd it would have killed him um but early on his graduate career he wrote a paper and frank knight uh you know published it in the jpe uh not his paper a response to his paper so he wrote a paper and knight decided to write a

5:35working paper and knight decided to write a whole paper in the jpe devoted to it called mr bolding and the austrians and it was because bolding um basically had a time model of production and capital as opposed to knightian capital and so that's why he linked them anyway that led to bolding you know it was the old days right so if frank knight says you're a great economist now all of a sudden the job offers start coming in you know and so you know and so he ended up by uh you know getting getting a job opportunities

6:08and started and his whole career was one in which he sort of tried to blend this sort of classical economics because he revered adam smith which we'll talk about in a second but also uh you know he saw the benefit of what canes was arguing he liked what the austrians had to say about subjectivism and issues having to do with that and so he always was trying to blend all these various different thinkers and he saw that as like more fruitful than the smooth and continuous and twice differentiable

6:42right and so right from the beginning of of the the the hegemony of of the samuelsonian program uh he was writing an opposition to it so he wrote an essay on bolding's foundations of economic analysis in the jpe it's called the role of mathematics and economics and if you look it up what he argues is that yeah yeah this is all cool whatever it does but it's going to lead to it's not it's it's going to not be that helpful in what he called it's flawless precision and that instead that the uh vague and literary

7:19borderland between economics and sociology is going to prove to be more fruitful for the future of economic research and so that's kind of you know his that gives you a little bit of a sense of of who he is i think um but yeah he he was an amazing uh scholar in the paper that uh you know you're referring to i refer to him as enchanted and he was an enchanting you know uh figure so yeah this is a paper that you

7:51delivered at the inaugural bolding lecture for the initiative for the study of a stable peace now in addition to all this bolding was very interested in peace and conflict resolution did that play a role in his economic thinking and if it did how so so uh i'll try to be briefer than i was in the first one because i realized that we don't need to have a seminar for a year but uh the uh um the key thing uh you know with bolding in that regard is he's a quaker all right and so he's a he's a pacifist

8:25um and this in fact even was to such extreme that he was an anti he was a pacifist during world war ii uh which you know was was quite a a strong statement to make at that time given the the various threats and it's not like he denied the threats he just you know was a was a pacifist and deep in his heart um and his convictions and that led him eventually to then developing the field of conflict resolution and in this quest quest to find a stable peace or and and therefore for him to look for peaceableness

8:59in various walks of life and try to build up from them so one of his insights uh and his wife elsa was also a peace scholar uh as well so they were very uh uh you know devoted to this issue um but if you look at like say for example his work on um you know uh uh conflict resolution early on his work was in the same genre as uh thomas shellings and they were both sort of developing the field of

9:31conflict resolution simultaneously at that time uh to try to address things and bolding was sort of looking for where we could develop cultures of peace in from our daily life like the way we would resolve a conflict in a family or the way we would resolve a conflict between neighbors to see whether or not you could resolve those conflicts among nations and that you know and so and again to use another parallel like a hirschman he had this kind of knack of like uh that that's albert hirschman

10:03i meant he had this kind of knack of you know sort of summarizing a position so he would talk about you know like exchange system right threat systems you know the and he wanted to study those in in society and then they they would summarize down into that so uh the peace part of his research goes from his student days all the way to the end of his life uh and uh you know it it's uh it's one of the unique things to go back to question one about him which is that he he had a so sense of joy

10:36he just loved ideas and so when you were around him he was just it was just bubbling with enthusiasm about ideas but there also was as a point an urgency because these ideas related to the to humanity right and that's what that's why he saw that borderland between sociology and economics is so important because it was about humanity not about you know the the necessary of the model though he was very skilled as a modeler himself his focus was always more on the humanity rather than the

11:09the technique i guess is one way i'd put it thank you very much a very interesting figure indeed uh still on balding because our audience is interested in a history of economics out perhaps you could tell us a bit about balding's essay entitled after samuelson who needs smith yeah what was balding's argument there it's a great question i just just a footnote is that beatrice uh has a piece i believe on the john bates clark medal winners and the deliberations over

11:43balding um that people should maybe go look up because it's kind of fascinating because again he's a somewhat in in retrospect he's an outlier but i think in real time he wasn't an outlier she sort of argues that he was i think a little bit but anyway it's it's it's a very very you know like all of her work it's it's very useful and powerful to read um this is an essay by the way he published in hope right he you know in the old days the historians of thought you know and these big guys they were like big guys in the field as well and they would you know stigler and whatnot

12:15they would be in in these various different outlets so you think about stigler and samuelson and they would be like wig historians of ideas whatever is good in the ancients is embodied in the moderns so we really don't have to study you know much when when i uh taught at nyu there's two stories about my nyu life experience which should be shared by historians of thought first i was trained i had history of thought but i was really trained as a comparativist and an io person and i show

12:47up at nyu and the department chairman his name's andy schotter calls me into his office and says so we want you to teach the phd course in io what would you teach and i start telling him all the things that i had learned all right which was none of the modern game theory stuff it was all like a decade earlier that kind of stuff and he stared at me and he says i think we'll put you in history of thought so i got put into history of thought so and nyu had a requirement for history of thought at the time um about four years into my time at nyu they decided to kill the history of thought requirement

13:23and the person who led that battle to kill history of thought was bill bommel one of the one of the classic his and his argument was is that the opportunity cost to a modern student of reading the old ideas of wrong you know because again he's a wig so whatever is good in the past is already embodied in the modern so we he loved to do history of thought say his law and all these things like that that he wrote about but that was like a hobby to him not like an input into research and so they

13:53they want to do that i i resist it and one of the snarky older faculty members i had to leave to go teach and he goes he says as i said i said listen i'm just putting in my vote i don't think we should get rid of the requirement and and and i but i gotta go teach and he goes undoubtedly a history of thought class which it was i had to go teach so i was dismissed um okay so this essay 1971 i believe um um was in hope and uh what bolding argues in there is after samuelson who needs smith

14:27and his argument is we all do and the reason why we all do is because uh everything that smith had was not embodied in samuelson there's still parts of smith which are part of what he called an extended present that bolding meant that that smith is part of our extended present meaning he can still teach us things today that we're not talking about in our standard process because it wasn't this complete absorption of whatever was good into today's models and so he's trying to identify those parts of smith

15:03that can still speak to us scientifically today so it was a very progressive research program for history of thought like we read in the past not just because we want to find out as you know you know stigler or others say the errors uh that great minds made in the past it's that we want to read because they can still tell us what questions we should be asking today and how to maybe think about answering them and so it's in this regard and um just to sound really crazy here uh i got interested

15:35in in in this kind of way of of intellectual history because um when i was back as an undergraduate we had i had this course on as they had at those times western civ right a western civ course and um we had to read this weird book called a canical uh uh for leibovitz um it's kind of an apoc you know like a apocalypse kind of book where you the earth gets destroyed the civilization gets destroyed by a nuclear bomb and then they have to recreate it or whatever but one of the things that's fascinating

16:09about it is its history of ideas because the way the book tries to tell the story is that the greeks believed that knowledge was cyclical and the enlightenment believed that knowledge was linear okay but what uh leibovitz the canical leibovitz kind of promotes is the notion that knowledge progresses like a corkscrew in the scent that's that's tilted on its side so what happens is that you get you know you make advances but then you go back but then you make advances and you go back

16:40and you make advances and then i did this like intellectual arbitrage thing when i was a a student because what i had as i mentioned i had to take a year-long history of economic thought and so i'm studying like regular you know economics to learn you know like what are the models and micro and macro and things like that and then i'm studying history of ideas and i'm seeing that some of the ideas there are better than the ideas over here but yet somehow they're not in there so what's going on and so it's like this corkscrew and so that's what i think balding's trying to get

17:15us at which is this he's not trying to tell us that we should go back and be adam smith what he's telling us is that we should appropriate adam smith for the way we think about things today and that's this like corkscrew kind of idea now that everyone's turned off the show because of my crazy idea but but that's it so i love i make all of my students read this essay like every class that i teach it doesn't matter whether it's history of thought or not i have them read this essay because i think it's so fundamental about the way that we should think

17:46about appropriating ideas and and that means like you know the journal articles i'm literally like uh a journal article 20 years ago might be better than a journal article today and let alone 140 years ago you know today and we should be really attuned to this i got a little bit of a follow-up question so it seems like there are actually two things going on with your remark here which is the corkscrew metaphor is uh serving like a descriptive and a prescriptive role so a descriptive role in how the history of of economic science has been progressing but also here's a way we should be

18:21exploiting that history as we push the discipline forward or you know something like that so prescriptive in that sense is that yeah yeah i actually if you go back and look at the old um you know discussion board for his for hes i had a debate with margaret and uh and roy uh you know years ago when they were trying to say that you know history of economic thought should leave economics and just be in history departments you know kind of thing and like i understand that i'm a big believer in like social history and all those things like that so don't get me wrong about that but i always thought

18:55it was like really really vital that you actually have people who view history of economic thought as an input into modern economic thinking and that it was a shame to like abandon that because to me i think it's a it's it's it's a resource so just for teaching point of view like think about a textbook for intermediate macro like froyan's book which what froyan approach was not just the models themselves but the evolution of the models like how is it that the debates shape this model then that model

19:29than this model i by the way i don't know if the book still exists or what that this is like but to me that was like a better intermediate uh book to tell students because you could talk about the evolution of ideas and the debate between the ideas rather than the idea of like this is a canonical set of models learn it and then you know um and so i i i i uh margaret by the way and if you go back and look at it one of her lines is is that because i invoke bolding and she said there's just she made an actual correct observation she said there aren't any leading economists

20:04in the neoclassical world today that are like bolding and like that was like my the shut up argument against me it actually is an absurd it's a accurate observation right like so you know you think about it like when was the last time a major historian of thought was hired at a major university right straight up you know like in a position for being a historian of thought and so you know she she was right about the practicalities of everything like where the conversation is

20:35but i'm i'm doing the normative thing which is like what it should be not you know like or whatever and so yeah that's um but yeah so i'm i i i i think all economists should return uh to the uh the the the library to read the classics and all uh empirical work should start with studying in the archives rather than in statistics that you should actually go and learn narrative history and learn the history through memoirs

21:05memoirs and all these things like that so i i think that if we trained our graduate students to study in economics if we train them to study ideas and to study actualities as experienced by real people we would have much better models and much better empirical tests than we do today and now just to shift the discussion a bit um i we we have a set of questions for you about the socialist calculation debate which is something that you're a specialist on and so uh for anyone in our audience who might not be familiar with it

21:38um could you give us a little bit of an elevator pitch about the socialist calculation debate um for one and second a big figure in this is ludwig von vieses and if you could tell us a bit about um what his argument was in the debate and who are the more interesting austrian and socialist participants like in this discussion all right so just in in uh in really sort of basic terms is that in any kind of uh assessment of systems you have to move from what's considered to be desirable

22:15to what's considered feasible to then what would be considered viable all right and you need some sorting mechanism to do that we could have desirable systems that are completely unworkable and then they're not really that desirable because that leads to crash streams or whatever we could have systems that are feasible but are just too costly to sustain themselves over time so they just are short-lived and whatnot and so instead we must move from the desirable to the feasible to the

22:47uh viable and it's that tool that about economic calculation uh which is you know being used to move in those directions to take that idea it's a sorting tool and the way it's mainly sorting is on the economics of it to ensure that the social system is producing more with less rather than producing less with more if we produce less with more we become poor and downtrodden rather than you know well

23:20now why does this matter for socialism um in the debate uh the position of socialism if you go back in time obviously there was some uh issues having to do with you know freeing us up and you know alienation and all those issues like that but the mechanism by which that was going to be achieved was to have a radical burst of productivity was if marx and and smith walked into a bar and were debating they would

23:50debate over whether or not the invisible hand should be taken from behind our backs and put in front of our face right that was that was marx's idea you know all this anarchy of production needs to become rationalized that's why the term rational economic calculation comes in is because it's not because the economists invented it's because marx invented it saying i'm going to rationalize production and rationalization of production was essential for him to move from the kingdom of necessity to the kingdom of freedom and it's in the kingdom of freedom that you're going to get rid of the classes

24:22and all these things like that so there's an aspiration about what's desirable but in order for it to be desirable it has to actually achieve this goal and so you know various different economic thinkers stepped in to try to address this issue one of them was to focus on incentives you would think that might be the first thing any economist would focus on and in fact they did but you know from a marxian point of view uh dialectical materialism actually kills that response because if the base determines a

24:54superstructure if you change the base you're going to change this the the ideas and that will affect the incentive mechanisms that people have so then you know people started asking sort of different questions pareto asked a question about this you know enrico baroni asked questions about this you know basically trying to figure out uh a system of equations that could solve you know the problem of production and max weber actually in 1917 i think 1917 or 1918 gave a lecture in which he actually is a

25:30precursor to the calculation argument that mises makes so weber stands up and gives this whole talk about why socialism can't achieve the modernity right so think about weber's notion of what modernity requires right it requires bureaucratization calculation what what james scott would call legibility right you need to have you know all these things to be able to and and weber says look socialism's not going to be able to achieve that and then mises kind of works the details of that argument out and and his argument is quite simple it's it's a syllogism and it starts with private

26:04property because again marxism was arguing that needed to abolish private property so mises is saying look you know if you try to abolish private property you're going to get rid of a whole host of things that follow from by implication from that marx understood that you're getting rid of commodity production but the question is if you get rid of commodity production can you actually achieve this move towards getting this workable system and so without private property and the means of production there's no market for the means of production without a market there's no

26:37prices without prices reflecting relative scarcities there's no way for economic decision makers to decide whether or not investing in project a or project b is the more rational one to do it so you can't rationalize production so if you go the socialist means you can't obtain the socialist ends mises is quite clear that he in that he has no problem with socialist ends right this isn't a normative argument like oh i don't like collectivism because it's collectivism or whatever there were

27:10people that made that argument too but that's not the argument mises says mises is like the goals of socialism are laudable the problem is is that the means don't obtain the ends and so again this is a very very bearing an idea that you know the way we have value freedom and science according to Weber is to treat ends as given and limit our analysis to the means chosen to the attainment of those given ends you know whether or not you can do that or not as a separate story but that's what was going on in their head and so that's the beginning of the debate in germany in german language first of all

27:44mises is really good friends with otto bauer who is the leading marxist austro uh socialists right he was a classmate of otto nurath and they hated each other so they were all studying with bombavrik schumpeter's in there as well uh otto bauer uh you know otto nurath a funny fact of history is that lenin uh you know in the bolshevik movement when they were in exile one of the the leading economists was a guy named nikolai bucharin and he wrote a book

28:18criticizing the austrians because lenin sent him to vienna to study with bombavrik because bombavrik had written karl marx in the close of his system to try to learn how to you know uh destroy the the austrian argument and so bucharin has a book of criticizing the austrians but in in in 1925 when he's the leading economist in the soviet experience and they are experiencing the decline because of war communism and then they introduced a new economic policy he actually in in the famous speech that ended

28:50up by getting him killed invokes mises he in his essay on you know because he's he's telling the peasants to enrich themselves we're going to give you back your property and you enrich yourselves and then at the next stage we'll win but he refers to mises as the most learned critic of communism and that professor mises is correct at the moment but we will have the day in the end once technology catches up and does that um that was the speech in which uh he's viewed as in the later purges that they highlight to refer to him as a right-wing deviationist right strotsky was the left-wing

29:25deviationist bucharin was the right-wing deviationist and stalin was the the plumb line hey i'm that's too far afield but otto bauer otto norath norath had written on the natural economy the idea that you could abolish money you could abolish and you could have a rationalized economy with that otto bauer became uh the um basically the finance minister under red vienna and and uh you know mises uh the claim is that mises argument made him back off of going full socialism and and everything and and when i have

30:00no idea that's apocryphal maybe who knows um but there was all these different people rudolph hilferding is in the earlier generation he's mainly dealing with bombavrik but that's the kind of a milieu that they intellectual milieu that they were all done carl polania picks up tries to argue in the debate on socialist accounting um and then jacob marshack and other technical economists that all translates from the german language to then the english language and then you have people like uh you know uh frederick

30:34taylor uh but most famously abel lerner and and oscar langa and it's at that point that then you also have robbins and hayek get involved so robbins and hayek get involved on the side of mises trying to refine his argument um whereas langa and lerner and then eventually abraham bergson and others are trying to develop the market socialist argument and so it's way too expensive but i i put together a collection back in 2000 uh it's a nine volume uh like our you know library collection of the of all the main

31:12articles from the early socialists all the way to up to that time 1999 the debate that was going on you know and it's a nine volume work um it costs astronomical so it's just a library you know edition um i have no idea how many people have ever even looked at it it was amazing for me to do you know as a historian of thought i i you know i devoted several years of my life to doing this collection and i love it um and i have an introduction to it that tries to go through some of the stages of the

31:45debate and how it evolved over time and now i have this new monograph which just came out in a little little short monograph in the elements cambridge elements series on the calculation debate um but yeah it's it's a it's a you know one last thing on this is that my my professor who i did my dissertation under he's really the expert in this his name's don lavoy he passed away unfortunately very young um he was only 50 when he passed away but he wrote a fantastic book and it's in the crawford

32:19goodwin series that cambridge did on historical perspectives on economics and it's uh it's his name is don lavoy it's called the socials calculation debate revisited so it's very good thank you very much um pete for this introduction um we want to know if there is a standard interpretation of the debates or if there are radical uh positions uh on the debate and if and in what way do you think has

32:49the debate gone off the race and uh you mentioned your element um book on the socialist calculation debate and we wonder whether your account is um a sum up of the debates or does it mean to be a corrective um corrective corrective book so i i always have a distinction i like to make between the the the the the position of any one thinker and the position of the profession which is a multiplicity of

33:22thinkers right and so uh you know i have a particular position but i there's a pluralism of positions out there in the profession and it's always about interlock years and new ways in which people define things and stuff so this this kind of conversation is not dead by any stretch of the imagination it's a completely live and ongoing one that relates to whether or not we can find that set of institutions that make socialism work that's part of the whole issue having to do with you know uh

33:53say like versions of democratic socialism or you know whatever you know you could imagine different things or technologies like do this a supercomputer now solve the problem that we used to think wasn't and so this is an ongoing and evolving conversation and to me it's a very healthy one because uh you know i i i don't i i it's it's i think the debate is urgent for humanity to solve that's a whole different thing but as an intellectual i think it's fascinating because it opens up so many

34:24different nuanced interpretations of the way the world works and the way that you know uh by by having these contrasts right and i think that economics always was a discipline of contrast adam smith criticizing mercantilism right and then what does that mean for his own theory right uh other people say for example you know canes criticizing uh untrampled uh you know uh um you know uh basically uh unregulated capitalism you know and these kind of debates and then what do we learn from that

34:58and so to me i think this debate is ongoing fresh it highlights issues of institutions epistemics incentives incentives who matter uh and and you know and and the workability of of various different things and goals so to me i think that you know um like duncan foley an example in my elements i i we begin with a discussion of duncan foley's recent essays so duncan foley just wrote a two-part essay

35:28which is all about the history of the socialist calculation issue his argument is that you know modern uh you know uh technologies in complex adaptive systems you know this is where he's going with the santa fe type thing and so his argument is is that you know you know we had a kind of a false view of how we would solve the problem that was done basically by you know linear uh you know sort of um you know linear programming or whatnot and and those kind of evolution of that research program

36:02and now we have this alternative program which is the santa fe program so we have more hope that we can solve it this is all going on he thinks that you know mises and hayek were are refuted by the modern developments and so this is the way you go so it's kind of fascinating so i'm trying to counter that claim i want to take on duncan foley i mean you know it's it's it's not like uh you know i want to take on bernie sanders right i i'm trying to make an argument again you know with duncan foley right that's who i'm trying to make an argument with and then you know there's this other guy uh

36:34you know lopez that was in the cambridge journal uh of economics and he's trying to make his argument about why the the debate goes this way or that way so this is maybe maybe too deep a dive into the woods but let me give it because given the philosophy economics and whatnot that both of you sort of pay attention to um so uh i was i was asked to write don lavoie i mentioned he passed away this will be the 25th anniversary of his death so there's going to be a special issue on him and i

37:10was asked whether or not i would uh you know be willing to write a a piece for it and i agreed and the piece i'm going to write is going to be titled uh why scientism kills science all right why scientists and the reason is is that lavoie spent after he did his socialist calculation debate book he spent the rest of his career talking about hermeneutics and a lot of people don't understand why he made this turn away from economics to philosophy of science what he called the interpretive

37:41turn uh towards more hermeneutics and um uh basically phenomenology and hermeneutics so he was a you know he kind of took two trends like you know there's a great austrian social social thinker alfred schutz and he was a student of mises and he was a phenomenologist and so he was part of the movement that went from husserl to like later husserl and then schutz okay and then on the other hand you know mises was very influenced in his historical scholarship by people like uh rickert and and

38:17collingwood and whatnot that which eventually led into like issues having to do with hermeneutics and what lavoie did was he merged these okay that's what he did and thought that was an answer hayek after he did his socialist calculation moves also left economics a lot of it is because they thought oh hayek lost so he took his ball and ran away or whatever but the reality was in my interpretation hayek was forced to try to make two turns one was to recapture institutions because modern economics had squeezed institutions out and then because they squeezed institutions out

38:54his argument is they squeeze it out because they followed the wrong philosophy of science so i need to have another philosophy of science so what hayek does is he starts working on a counter-revolution of science and he's tied to what you could call the growth of knowledge scott would be better at discussing this than me but like you would call it like growth of knowledge sort of science right so it's popper but it's not quite popper it's polania but it's not quite polania it's hayek and he's kind of in that world and that's what he spent time doing so he wrote counter-revolution and some

39:26other essays all the way through so lavoie in many ways was sitting wake up in the 1980s and he thought he had made an argument just as with as much veracity as hayek had made an argument and you know economists are like like i don't care it is like his argument is like but my argument is so solid how can they possibly miss my argument and then his answer is they have the wrong philosophy so they can't see what my argument is and so that's what leads lavoie into this whole you know rabbit hole of

39:58hermeneutics which of course he took a boatload of crap for because economists just don't like continental philosophy and we're you know western economists are all analytic philosophers right and so lavoie is deep into you know when i was a student i had to go see godamer he was like an old man you know and and i'm you know i'm reading habermas and you know my other professors are like why the hell are you reading that guy you know like and and to a lot of classical liberals like where i'm coming from habermas is like the devil because you know he was involved in this positivist dispute with popper

40:32in the german language and the classical liberals like popper they don't like habermas so how can you like habermas and i'm sitting there like oh no habermas is better than you know popper or whatever and they're like you're crazy and so i want to write this paper clarifying like what it is that lavoie was trying to do and why it is it makes sense for him to do that and i think that that's another area in which the socialist calculation debate forces us to think about methodological issues analytical issues as well of course as social philosophical issues but those come after

41:06a methodological issue and an analytical issue and so how is it that we study how markets work that we think are so important to solving calculation problems well that requires you know processes entrepreneurship all kinds of things like that which are theoretical nuisances to standard general competitive equilibrium models right and so there's an analytical component there's a methodological component and so i've spent i got my degree in 1988 i started studying these issues in a serious way

41:39in 1984 and i never get tired as you can probably tell about talking about them uh so either uh i'm stuck in a circle or i'm on that corkscrew i don't know which one so it seems like well it's seems like much of what you said is actually like one big argument for for people that study economics to actually also study philosophy so i welcome that kind of oh yeah i believe in that 100 yeah yeah um so this book that that you published with the austrian economics the elements

42:12austrian economics series at cambridge it's called the socialist calculation debate for our audience members who want to check it out and i want to ask before we move on to a different question what what do you want the legacy of this book to be like i i'm assuming you don't want it to be like the final stopping point of the debate um but in like what direction would you like the debate to continue so there's a variety of ways in which this is the the case in political philosophy part of what i'm trying to get people to do is move from ideal theorizing to non-ideal theorizing right this is

42:46you know what's called the arizona school or whatever gauss and schmitz and these guys i i i think the leverage of doing that is this feasibility viability kind of claim right so i'm going to move from you know uh uh you know cohen's you know uh you know uh little disney trip or whatever to you know the the you know to be able to to actually have this sort of work right so that's the the the one aspect of it that i think we need to keep talking about and and and addressing and and

43:17improving upon to understand the kind of broad liberal projects um in in society um but the the more technical issues have to do with uh at the moment with techno socialism that is whether or not you know big learn big ai can resolve you know these issues and and whatnot and i'm on the side i'm i'm a huge ai uh optimist because i'm an agi skeptic what do i mean by that i think the the tools of ai are

43:54amazing you know all this large language models all this stuff we should all learn them know how to work with them they're fantastic things you know um but what they aren't aren't substitutes for human creativity and and and uh and and in many ways getting out beyond combinatorial thinking you know kind of idea so algorithms are not necessarily the way that we do they they are things that we do we do

44:26use algorithms but they're not necessarily the things that an entrepreneur or a creative artist is doing right i mean and so it's it's um you know put it one way i think ai can produce bach but what it can't produce is miles davis what it can produce is a robot that kicks a ball but it can't produce ronaldo right uh or you know uh and these things and so there's something there and in social epistemology literature the way they discuss this is the difference between kind learning environments

45:01and wicked learning environments so a kind learning environment is one in which the parameters are relatively fixed so think about a game of chess or even go like every you know now they're talking that the chess can the iai can play go but even in go there's there's only so many moves there's so many strict rules you know when when you you move your pawn your pawn doesn't say to you no i want to move like a bishop so i'm going to be a bishop you know there doesn't there's no aspiration of the pawn to be a bishop right um and and and and you and it's fixed within that so while that that

45:37those uh combinations are complex meaning that there's an infant there's really a large number that's beyond our ability to calculate like this and therefore ai can really do a better job than we can with it what it isn't is in a world in which the parameters are relatively free right which is and when we're in a world that the parameters are relatively free like for example uh the uh the the the you know innovation in any in an economy or whatever so

46:11you know think about the way that people depict in science fiction innovations versus the innovations that you've actually experienced in life because the innovations in science fiction usually take what currently exists and like add something to it whereas the innovations that you actually experience in real life are things that are totally different than what used to be before and so if what we rely on for the advancement of our social order is this kind of innovation and and and creativity i don't

46:44think ai can mimic it now other people will argue that it can and so for a philosopher we're back to debates like the theory of mind and whether or not you know this is a great classical uh debate in 1949 touring when he came up with the famous touring test that's in a conversation at a conference at manchester with polonia where polonia is trying to say that you know machines can't think and touring is saying they can think and they debate well that debate carries all the way forward to

47:16searle and the you know the the chinese language you know room test and all these things like that so to me i think this just opens up so many fascinating questions and uh so i hope the legacy of my book uh if if i could write it myself it would be a giant question mark at the end and an invitation to inquiry for the next generation to keep going forward and thinking about these things thank you very much

47:46so the the skepticism that you just expressed um against uh artificial intelligence and and its capacity to to uh to uh to replace markets and innovations it's precisely what you uh recently in july put in your um wall street journal uh co-op uh written with marian toppy entitled algorithm can't replace free market and i i wonder um if your arguments relate to some specific former austrian uh positions like is it von mises or or is it uh hayek

48:28or in other words um after pete but care who needs uh von mises or mr hayek everyone does um in particular uh so you know um my own view on this is that uh you know certain ideas make adjacent possible the nest evolution of those ideas and so menger and bombavrik make possible the way that mises then reconfigures

49:00economics and the way mises configured economics made possible what hayek did with his economics the good fortune for mises is that he had hayek because you had someone of unique uh genius that was able to take the evolutionary potential of your ideas and move it much further than what other people could do with it and so to me i i think that you know we turn to hayek uh in this regard because he had a very subtle and deeper understanding i have a very short introduction on hayek coming out with oxford

49:35and i try to make the argument it's not done yet i mean it's done in a first draft but it's not fully done yet but i'm trying to make the argument in the book for young kids that hayek was while hayek was an observer of the 20th century he's the theorist for the 21st century so i'm trying to make this kind weird argument okay um and and and i i try to you know so to me i think along your line that so many questions that hayek raised which were cut short because the economics profession was unwilling to

50:11raise his questions at that time they now could be raised today one of those is about novelty and creativity right and how do you incorporate that into economic thinking right and how do you incorporate an open-ended universe into the the models of economics and so to me i think those are the kind of issues that are involved now what i the article says that ai can't replace the free market but i would also argue ai can't replace scientists it can't replace artists it can't replace musicians now what

50:43do i mean by that because clearly it can produce art it can produce music it can you know produce it can run regressions for us or whatever right so what do i mean by that well arthur c clark has a great phrase he says any teacher that can be replaced by a computer should be replaced by a computer you know francois jennifer we're professional students we've been in school forever we've had really really bad teachers i every one of us has sat in a classroom and had a teacher that was terrible they can be

51:17replaced by a computer right but we've also had teachers otherwise we wouldn't be here that were transformative and those teachers can't be replaced by a computer i conjecture that the kind of works that we read and are remembered you know that especially for historians of thought i mean think about it we're still reading adam smith it's going to be the 250th anniversary of the wealth of nations right and we're still reading it and learning from it let alone the theory of moral sentiments you know last year or whatever was con's 300th you know birthday two years ago was smith's or whatever

51:52right you know again we're still like wrestling with con's notions of how can we have a world where strangers nowhere in the world so cosmopolitan liberalism and how do you have a you know perpetual peace like we're in a world of war we're still puzzling how the hell do we get you know perpetual peace and so these people speak to us and they resonate through the years and to me i think those are the ones that can't be replaced right and so it's it's that future person that's doing that that can't be replaced but surely some can be replaced right and so you know music arts science and everything i got

52:29so market is just a one set of institutions related to our commercial life which is consistent with the open society and so it's about open society that i think ai can't replace uh it can replace a closed society right it's a tool for a closed society but not a tool for an open society and um so that's that's i hope that i can get that message across that that and and that kind of conversation i'll you know you asked me about this question versus things i'll i'll i'll tell you a sort of a kind of a

53:04funny story of my own education i had i had very i was very fortunate i had really great teachers teachers and some of whom were famous so bolding we've already talked about but then also jim buchanan and gordon tullock all right those were my other teachers and so it was kind of fascinating in the 1980s to have them you know they were still like in their prime in many ways bolding was the senior of all of them uh but here's the difference between tullock and buchanan buchanan never left the class without asking us a question he would always ask us a question to end class and we would always

53:38be puzzled people would say professor buchanan you know do you have any idea how we should think about he'd say he'd always say in his southern drawl if i knew the answer to that i wouldn't have asked the question right gordon tullock never ended a class without a declaration like this is the truth right and i think that that style of reasoning is quite evident in their own writings when you see it so one is a questioner and a prober and constantly searching for something that is beyond his grasp

54:08but keeps going after it and the other one is cocksure and knows the answer and can put an explanation part at the end of it and you know both are very valuable i don't want to say that they're not but one is more consistent with what we might call demonstrative reasoning qed economics and the other one is more about plausible reasoning and this idea of the constant evolution and advancement and development of of economics and i want to encourage young teachers and scholars to be part of that other

54:40tradition of economics more than more so than this one though i go back to bolding bolding has a great essay in which he's talking about economics and he refers to social science and i said the borderland he refers to social science without economics as an amorphous jellyfish right so if you don't have that that that tullock part of you you end up by being an amorphous jellyfish uh but if you if you have just that you're just a skeleton so and that doesn't work either so you have to be

55:16somewhere attacking back and forth yeah and you don't you don't happen to play dungeons and dragons do you i don't but i was gonna say i was i think the next test for ai should be not can it play chess or can it play go but we'll be the satisfactory dungeon master yeah yeah i i have a colleague who does it and i know that there's a lot of creativity with the voices and the playing and the role playing and everything like that i uh one of my former students adam martin is actually really uh he and his wife go to like these conventions to play and everything like that i'm gonna ask him about this

55:50actually uh so that's great yeah yeah and we've come to our final question which is it's this so you might be the best known living austrian economist and we want to know how do you see the current relationship between austrian economics and mainstream economics do they do they play nice together do they not play nice together what are your hopes for the future of the austrian school well so there's a lot of um so jim buchanan in 1979 gave a talk called on hayek and what he argued in

56:30that piece was that the microeconomic counter-revolution to keynesianism so there was a macro counter-revolution that we all talk about and that's you know milton friedman rational expectations stuff like that but buchanan was saying that there was also a micro counter-revolution and that took the form of property rights economics law and economics public choice economics and market process economics and what he argued at the time is that what needs to see what needs to happen is

57:02that these various schools of thought need to view themselves in as a as a point of conciliation not of conflict whereas they were actually in conflict with one another for a variety of methodological and analytical issues and his argument is no no no you need to like see yourself as part of this sort of grouping that's gone on and i would argue that um since 2000 and and the puzzles that the world threw at us after the collapse of communism and after the difficulties with development economics

57:33that there was a resurgence of interest in institutions and innovation and these kind of issues like that and so that there's you know there's an adjacentness to some of the concerns in austrian economics that are evident in the sort of rise not only of new institutional economics but the kind of institutional economics and political economy that you know as a mogul and robinson represent and or that kind of stuff and so i think there's uh you know wedges of opportunities in question space

58:04but that methodologically there's still this huge divide and so it makes the conversation quite difficult and so what what kills i think progress in science for people who are the slightly out of sync is two two things careerism or cynicism the careerism takes the form of oh i'll just try to mimic what the top five guys do you know in terms of modeling and measuring and therefore i lose the insight because the these issues about process and creativity you know let me just give a very simple example

58:38if you want to study the process of equilibrating you can't use simultaneous equation systems to study process because simultaneous equations just gives a solution concept of a unique p and q we're done that the process is over and so if i want to study process i can't do that that method but if that's the only method that i've been taught and that method by the way is not just for general competitive equilibrium but for also partial equilibrium and comparative statics same thing

59:09you just get a move like that i'm at you know i have i the orange is froze overnight boom new change in the price right kind of thing um and so what we want to study is the the the process of of exchange and the bargaining and as adam smith put it the higgling and bargaining of the market and if you're going to do that you need a different set of tools than what we currently have and people who have invested a lot in those tools don't necessarily believe that they need to need to change or get rid of those tools and so there still is a very conversation you know uh problem um what's fascinating is in the 90s um there used to be a lot more dialogue

59:46between heterodox economists because while they disagreed about maybe some of the conclusions they agreed that the problem situation needed to be more complex all right and so if you think about like a two by two matrix steve metham is laughing right now if you think about two by two matrix uh what you have is you have you know a simple problem situation all right and then a position about what the order is in the world or you have a complex problem situation and then you think about what order is in the world so you have orderly or disorderly and what you normally would see is that

1:00:18you have a simple problem situation and neoclassical economists would say you have order and then the keynesians or market you know failure people would say you have a complex problem situation and you have disorder right and then you have you know say marks or some other you know critics of economics and they would say even under an orderly condition it's disorder right it's not you know and then you have the austrians who argue even in a complex environment we still get economic order and that's because

1:00:48these institutions serve as buffers to allow us to cope with our ignorance and guide us through in deep uncertainty and decisions that research program still remains unique in many ways uh it's not alone there's other people who are adjacent to it but it's still there and that's you know what i hope i don't care if it's still called austrian economics or whatever right what i what i care about is that this idea this hayekian kind of program gets pushed forward continually pushed forward into

1:01:19new areas scott wrote a whole book dealing with political economy and hayekian epistemic issues so those kind of projects are what we need to be looking at and seeing you know and encouraging younger people to pursue the implications of those and push them in ways so because you know scott made possible his contribution he makes adjacent possible the next contribution in the evolution and to me i think that's what we're all you know as you know as a doctoral dissertation advisor which i've been very involved with you know what came to me was one of the most important things i could

1:01:56ever do is try to learn how to get out of students ways right like so you know not to force fit them into little mini me's but instead to get out of their way so they can become their their own research program and so that's kind of how i've approached it and that's how i approach science how i approach my editing responsibilities which is i have particular points of view but in editing i want to encourage large points of view out there um even ones i might consider to be error as long as they're made in a coherent and plausible way i'm like okay you know like let's have a conversation

1:02:30about it and that way i think we make possible you know this growth and so to me the future of austrian economics isn't in any kind of catechism it's instead in the invitation of inquiry and that's where we need to keep going and keep going forward and try to learn from the great thinkers of the past but not be you know uh wedded to them you know but go forward yeah there we have it so for all your economists out there study more history and philosophy and stay original yeah that's for

1:03:04everybody pete thank you so much for stopping by it's been a real pleasure to talk to you we appreciate you sharing your work with us and where you're sharing your time no it's a great opportunity i love your show and i'm really thrilled to have participated join us again next month for another episode of smix and mark's walk into a bar a history of economics podcast you

1:03:36you you you you