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 Alisson. 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 excited to have our guest today.

0:35Oh, yes. And speaking of our guests, I'm very pleased that we have Dr. Peter Becci on the show today. Peter Becci is the director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics. He's also the BB&T 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. Thank you so much to both of you for having me on here. It's great.

1:05How are you doing today? I'm doing great. I'm excited to have this conversation with all of you. 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 talk about some 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 Boulding, who's a figure we haven't discussed on the show before. Could you tell us a bit about Boulding and his influence on your work?

1:37You knew him personally. So how did you know him? What made him so special? And why is he still important today? 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. Kenneth Boulding is wonderful intellectual. He is the second John Bates Clark medal winner in economics after Paul Samuelson. And in that early group of John Bates Clark medal winners, he's the only one that didn't win the Nobel Prize in that original grouping.

2:14And 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 because of what he wanted to do. And I'll talk a little bit about that. But he 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. And and I had because of my undergraduate school, we had a year long requirement in history of economic thought.

2:50I had been exposed to Boulding because of his Contra Whig kind of approaches to history of economic ideas. And so I was so excited. You know, my my best friend and I, Dave Perchicko, we spent all of our time we could with Boulding. And he is like a grandfatherly, grandfatherly man. Right. So he decided he took us under his wing and we sat in on all of his classes. And he, you know, would have us over his house for milk and cookies.

3:21And he also painted 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, OK, so that's a little bit about Kenneth Boulding, the man. And I think, you know, really anyone can experience him. Just look him up. You see him. He had this long, flowing white hair and he would sit in class. I had him for a book, a course called Great Books in Economics.

3:54So we read Adam Smith, Karl Marx. Well, Adam Smith, David Ricardo, Karl Marx and John Maynard Keynes. OK, 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 in that regard. But what his history is kind of fascinating because he went to Oxford and was studying chemistry and then got interested in economics.

4:36And one of the papers he wrote as an undergraduate got published in the E.J. under Keynes'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. But the Commonwealth 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 around him.

5:09And he said so it had bad incentives to finish graduate school. So he never got his Ph.D., actually. He he always used to say, you know, that if he would have got a Ph.D., it would have killed him. But early on in his graduate career, he wrote a paper and Frank Knight, you know, published it in the JPE. Not his paper, a response to his paper. So he wrote a paper and Knight decided to write a working paper and Knight decided to write a whole paper in the JPE devoted to it called Mr. Bolden and the Austrians.

5:41And it was because Bolden 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 Bolden. 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, you know, getting getting a job opportunities and started in 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.

6:19But also, you know, he saw the benefit of what Keynes 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. Right. And so right from the beginning of the hegemony of the Samuelsonian program, he was writing an opposition to it.

6:53So he wrote an essay on Bolden's foundations of economic analysis in the JPE. It's called The Role of Mathematics in 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 going to not be that helpful in what he called its flawless precision. And that instead that the vague and literary borderland between economics and sociology is going to prove to be more fruitful for the future of economic research.

7:26And so that's kind of, you know, his that gives you a little bit of a sense of of who he is, I think.

7:35But, yeah, he was an amazing scholar in the paper that, you know, you're referring to. I refer to him as Enchanted and he was an enchanting, you know, figure. So, yeah. This is a paper that you delivered at the inaugural Bolden Lecture for the Initiative for the Study of a Stable Peace. Now, in addition to all this, Bolden was very interested in peace and conflict resolution. Did that play a role in his economic thinking?

8:05And if it did, how so? So 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 the the key thing, you know, with Bolden in that regard is he's a Quaker. All right. And so he's a he's a pacifist. And this, in fact, even was to such extreme that he was an anti he was a pacifist during World War Two, which, you know, was was quite a strong statement to make at that time, given the various threats.

8:38And it's not like he denied the threats. He just, you know, was a was a pacifist and deep in his heart 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 therefore for him to look for peaceableness in various walks of life and try to build up from them. So one of his insights and his wife, Elsa, was also a peace scholar as well.

9:09So they were very, you know, devoted to this issue. But if you look at, like, say, for example, his work on, you know, conflict resolution early on, his work was in the same genre as Thomas Schelling's. And they were both sort of developing the field of conflict resolution simultaneously at that time to try to address things. And Boulding 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.

9:51And that, you know, and so and again, to use another parallel, like a Hirschman, he had this kind of knack of like that. That's Albert Hirschman. I mean, 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, and he wanted to study those in society and then they would summarize down into that. So the peace part of his research goes from his student days all the way to the end of his life.

10:26And, you know, it's 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. He 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 necessary of the model, though.

11:02He was very skilled as a modeler himself. His focus was always more on the humanity rather than the technique, I guess, is one way I'd put it. Thank you very much. A very interesting figure, indeed. 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? Yeah, it's a great question. I just just a footnote is that Beatrice has a piece, I believe, on the John Bates Clark medal winners and the deliberations over Balding that people should maybe go look up because it's kind of fascinating because, again, he's a somewhat in retrospect, he's an outlier.

11:51But 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 a very, very, you know, like all of her work, it's very useful and powerful to read. This is an essay, by the way, he published in Hope, right? 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, they would be in these various different outlets. So you think about Stigler and Samuelson, and they would be like Whig historians of ideas.

12:25Whatever is good in the ancients is embodied in the moderns. So we really don't have to study, you know, much. When I 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 I.O. person. And I show up 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 I.O., what would you teach?

12:56And 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 NYU had a requirement for history of thought at the time.

13:17About four years into my time at NYU, they decided to kill the history of thought requirement. And the person who led that battle to kill history of thought was Bill Bommel. One of the classic, 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 Whig. So whatever is good in the past is already embodied in the modern. So he loved to do history of thought, say his law, and all these things like that that he wrote about.

13:49But that was like a hobby to him, not like an input into research. And so they wanted to do that. I resisted, 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, but I got to go teach. And he goes, undoubtedly a history of thought class, which it was. I had to go teach. So I was dismissed. Okay, so this essay, 1971, I believe, was in Hope.

14:23And what Bolden argues in there is after Samuelson, who needs Smith, and his argument is we all do. And the reason why we all do is because 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 Bolden meant 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

14:55complete absorption of whatever was good into today's models. And so he's trying to identify those parts of Smith that 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 Stigler or others say, the errors 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.

15:28And so it's in this regard. And just to sound really crazy here, I got interested in this kind of way of intellectual history, because when I was back as an undergraduate, we had I had this course on this as they had at those times, Western Civ, right? A Western Civ course. And we had to read this weird book called A Canicle for Leibovitz. It's kind of an apocalypse, you know, like apocalypse kind of book where you the earth gets

16:02destroyed, 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 about 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. OK, but what Leibovitz, the Canicle Leibovitz kind of promotes is the notion that knowledge progresses like a corkscrew in the sense that's that's tilted on its side.

16:34So 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 and you make advances. And then I did this like intellectual arbitrage thing when I was 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.

17:08But 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 us at, which is if 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 so I love I make all of my students read this essay like every class that

17:39I 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 about appropriating ideas. And that means like, you know, the journal articles, I'm literally like 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

18:10corkscrew metaphor is 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 exploiting that history as we push the discipline forward or something like that. So prescriptive in that sense. Is that? Yeah, I actually if you go back and look at the old, you know, discussion board for his for HES, I had a debate with Margaret and and Roy, you know, years ago when they were

18:40trying 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 it 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.

19:12So 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, then this model? I by the way, I don't know if the book still exists for what that this is like. But to me, that was like a better intermediate 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

19:43is a canonical set of models, learn it. And then, you know, and so I, I, I, 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 in the neoclassical world today that are like bolding. And like, that was like my, the shut up argument against me. It actually is an, it's an accurate observation, right?

20:15Like, 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, but 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,

20:48uh, 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 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.

21:22And 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, um, 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 Wiesel. And if you could tell us a bit about, um, what his argument was in the debate and who are

21:57the 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 to 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

22:30desirable 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, uh, uh, 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.

23:01And 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, now, 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,

23:31uh, 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, if Marx and, and, and Smith walked into a bar and were debating, they would be debate 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, of production needs to become rationalized.

24:03That's why the term rational economic calculation comes in is because it's not because the economists invented it. 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 and 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

24:36issue. 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, dialectical materialism actually kills that response because if the base determines a superstructure, if you change the base, you're going to change the, 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

25:11know, basically trying to figure out 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 precursor 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?

25:42It 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 Weber says, look, socialism is not going to be able to achieve that. And then Mises kind of works the details of that argument out. And his argument is quite simple. It's, it's a syllogism and it starts with private property 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

26:15to get rid of a whole host of things that follow 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 prices. 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

26:50do it. So you can't rationalize production. So if you go to 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 people 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 Weberian idea that, you know, the way we have value, freedom

27:24and 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, Mises is really good friends with Otto Bauer, who is the leading Marxist, Austro-socialist, right? He was a classmate of Otto Neurath. And they hated each other.

27:56So they were all studying with Bambavrik, Schumpeter's in there as well, Otto Bauer, you know, Otto Neurath. A funny fact of history is that Lenin, you know, in the Bolshevik movement, when they were in exile, one of the leading economists was a guy named Nikolai Bukharin. And he wrote a book criticizing the Austrians because Lenin sent him to Vienna to study with Bambavrik because Bambavrik had written Karl Marx in the close of his system to try

28:27to learn how to, you know, destroy the Austrian argument. And so Bukharin has a book criticizing the Austrians. But 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 the famous speech that ended up by getting him killed, invokes Mises. In his essay on, you know, because he's telling the peasants to enrich themselves, we're going

28:59to 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. That was the speech in which he's viewed as in the later purges that they highlight to refer to him as a right-wing deviationist, right? Trotsky was the left-wing deviationist, Bukharin was the right-wing deviationist, and Stalin was

29:29the plumb line. Hey, that's too far afield. But Otto Bauer, Otto Norrath, Norrath had written on the natural economy, the idea that you could abolish money, you could abolish it, and you could have a rationalized economy with that. Otto Bauer became basically the finance minister under Red Vienna, and Mises, the claim is that Mises' argument made him back off of going full socialism and everything, and I

30:00have no idea. That's apocryphal maybe, who knows? But there was all these different people. Rudolf Hilferding is in the earlier generation. He's mainly dealing with Bambavrik. But that's the kind of a milieu that they, intellectual milieu that they were all done.

30:16Karl Polanyi picks up, tries to argue in the debate on socialist accounting, and then Jacob Marshak and other technical economists. That all translates from the German language to then the English language. And then you have people like, you know, Frederick Taylor, but most famously, Abel Lerner and Oscar Lange. 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.

30:49Whereas Lange 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 put together a collection back in 2000. It's a nine volume library collection of all the main articles 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

31:22volume work. It costs astronomical. So it's just a library, you know, edition. 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, 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 debate and how it's evolved over time. And now I have this new monograph, which just came out in the little, little short monograph

31:52in the elements, Cambridge elements series on the calculation debate. Um, but yeah, it's, it's, uh, it's, uh, 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 Lavoie. 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 Goodwin series that Cambridge did on historical perspectives on economics.

32:24And it's, uh, it's, his name is Don Lavoie and it's called the social 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, 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 the debate gone off the race? And, uh, uh, you mentioned your element, um, book on the socialist calculation debate.

32:58And we wonder whether your account is, um, uh, sum up of the debates or does it mean to be a corrective, um, corrective book? So I, I always have a distinction I like to make between the, the, the, the position of any one thinker and the position of the profession, which is a multiplicity of thinkers, right? And so, uh, you know, uh, I have a particular position, but I, there's a pluralism of positions

33:31out 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, say like versions of democratic socialism or, you know, whatever, you know, you could imagine different things or technologies like do this, the supercomputer now solve the problem that we used to think wasn't.

34:05So this is an ongoing and evolving conversation. And to me, it's a very healthy one because, uh, you know, I, uh, I, I don't, 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 different 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,

34:40right. And then what does that mean for his own theory? Right. Uh, other people say, for example, you know, Keynes criticizing, uh, untrampled, uh, you know, uh, um, you know, uh, basically, uh, unregulated capitalism, you know, and these kinds of debates. And then what do we learn from that? And 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, of various different things and goals.

35:13So 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, which 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

35:49we would solve the problem that was done basically by, you know, linear, uh, you know, uh, sort of, um, you know, linear programming or whatnot. And, and those kinds of evolution of that research program. And 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.

36:20I 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, 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, uh, you know, Lopez that was in the Cambridge Journal, uh, of economics. And he's trying to make his argument about why the, 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

36:52the philosophy economics and whatnot, that both of you sort of pay attention to. Um, so, uh, I was, I was asked to write Don LaVoy. 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 was 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.

37:22All right. Why scientists. And the reason is, is that LaVoy spent after he did his socials 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 turn, uh, towards more hermeneutics and, um, uh, basically phenomenology and hermeneutics. So he was, uh, you know, he kind of took two trends.

37:52Like, uh, 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, uh, Mises was very influenced in his historical scholarship by people like, uh, Rickert and, uh, and Collingwood and whatnot, that, which eventually led into like issues having to do with hermeneutics. And what LaVoy did was he merged these.

38:24Okay. That's what he did. And thought that was an answer. Hayek after he did his socialist calculation moves also left economics. And 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, his argument is they squeeze it out because

38:55they 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 Polonia, but it's not quite Polonia. 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 other essays all the way through.

39:28So 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, eh, like, I don't care. And 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 hermeneutics, which

39:59of 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 Gadamer. He was like an old man, you know, and, and, 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

41:04issues, but those come after a 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.

41:36I started studying these issues in a serious way in 1984, and I never get tired, as you can probably tell, about talking about them. So either I'm stuck in a circle or I'm on that corkscrew. I don't know which one.

41:54So it seems like, well, it seems like much of what you said is actually like one big argument for people that study economics to actually also study philosophy. So I welcome that kind of implication. Oh, yeah, I believe in that 100%. Yeah, yeah. So this book that you published with the Austrian economics, the elements of Austrian economics series at Cambridge, it's called The Socialist Calculation Debate for our audience members. You want to check it out. And I want to ask before we move on to a different question, what do you want the legacy of this

42:25book to be? Like, I'm assuming you don't want it to be like the final stopping point of the debate. But in what direction would you like the debate to continue? So there's a variety of ways in which this is 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 what's called the Arizona school or whatever, Gauss and Schmitz and these guys. I think the leverage of doing that is this feasibility, viability kind of claim.

42:56Right. So I'm going to move from, you know, you know, Cohen's, you know, you know, little Disney trip or whatever to, you know, the, you know, to be able to actually have this sort of work. Right. So that's the one aspect of it that I think we need to keep talking about and addressing and improving upon to understand the kind of broad liberal projects in society.

43:27But the more technical issues have to do with, at the moment, with techno-socialism. That is whether or not, you know, big AI can resolve, you know, these issues and whatnot. And I'm on the side, I'm a huge AI optimist. Because I'm an AGI skeptic. What do I mean by that? I think the tools of AI are amazing. You know, all this large language models, all this stuff.

43:58We should all learn them, know how to work with them. They're fantastic things, you know. But what they aren't, aren't substitutes for human creativity. 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 are things that we do. We do use algorithms. But they're not necessarily the things that an entrepreneur or a creative artist is doing.

44:33Right. I mean, so it's, 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. Or, you know, 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 and wicked learning environments. So a kind learning environment is one in which the parameters are relatively fixed.

45:07So think about a game of chess or even Go. Like, you know, now they're talking that the chess can, the AI can play Go. But even in Go, there's only so many moves. There's so many strict rules. Because, you know, when 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's no aspiration of the pawn to be a bishop. Right. And it's fixed within that. So while those combinations are complex, meaning that there's really a large number that's beyond

45:45our 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. And when we're in a world that the parameters are relatively free, like, for example, the, you know, innovation in an economy or whatever. So, you know, think about the way that people depict in science fiction innovations versus the

46:17innovations 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 creativity, I don't think AI can mimic it. Now, other people will argue that it can.

46:48And 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 debate. In 1949, Turing, when he came up with the famous Turing 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 Turing is saying they can think and they debate. Well, that debate carries all the way forward to Searle and the, you know, the Chinese language

47:19test, you know, room test and all these things like that. So to me, I think this just opens up so many fascinating questions. And so I hope the legacy of my book, 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. So the skepticism that you just expressed against artificial intelligence and its capacity

47:55to replace markets and innovations, it's precisely what you recently in July put in your Wall Street Journal co-op written with Marian Toppy entitled Algorithm Can't Replace Free Market. And I wonder if your arguments relate to some specific former Austrian positions, like is it

48:25von Mises or is it Hayek? Or in other words, after Pete Burtke, who needs von Mises or Mr. Hayek? Everyone does. In particular, Hayek. So, you know, my own view on this is that, you know, certain ideas make adjacent possible the next evolution of those ideas. And so Menger and Bambavrik make possible the way that Mises then reconfigures economics and

49:02the 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 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 think that, you know, we turn to Hayek in this regard because he had a very subtle and deeper understanding.

49:32I have a very short introduction on Hayek coming out with Oxford and 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 of weird argument, okay?

49:58And 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 raise 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? How do you incorporate an open-ended universe into the models of economics? And so to me, I think those are the kind of issues that are involved.

50:31Now, 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 do 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.

51:01You know, Francois, Jennifer, we're professional students. We've been in school forever. We've had really, really bad teachers. Every one of us has sat in a classroom and had a teacher that was terrible. They can be replaced 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, especially

51:34for 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 Kant's 300th birthday, two years ago was Smith's or whatever, right? You know, again, we're still like wrestling with Kant'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.

52:05We'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 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 like that. So market is just a one set of institutions related to our commercial life, which is consistent

52:36with the open society. And so it's about open society that I think AI can't replace. It can replace a closed society, right? It's a tool for a closed society, but not a tool for an open society. And so that's, that's, I hope that I can get that message across that, that, and, and that kind of conversation. You know, you asked me about this question versus things. I'll, I'll, I'll, I'll tell you a sort of a, kind of a funny story of my own education. I had, I had very, I was very fortunate.

53:07I had really great 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 be puzzled.

53:39People would say, Professor Buchanan, you know, do you have any idea how we should think about it? 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, but keeps going after it.

54:10And 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 economics. And I want to encourage young teachers and scholars to be part of that other tradition

54:41of economics. More so than this one, though, I go back to Balding. Balding has a great essay in which he's talking about economics and he refers to social science. I said the borderland. He refers to social science without economics as an amorphous jellyfish. Right? So if you don't have that Tulloch part of you, you end up by being an amorphous jellyfish. But if you have just that, you're just a skeleton.

55:13So and that doesn't work either. So you have to be somewhere attacking back and forth. Yeah. You don't happen to play Dungeons and Dragons, do you? I don't. But 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 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. One of my former students, Adam Martin, is actually really he and his wife go to like

55:46these conventions to play and everything like that. I'm going to ask him about this, actually. 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 so Jim Buchanan in 1979 gave a talk called on Hayek.

56:28And what he argued in that piece was that the microeconomic counterrevolution to Keynesianism. So there was a macro counterrevolution 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 counterrevolution 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 that these

57:02various 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 since 2000 and and the puzzles that the world threw at us after the collapse of communism and after the difficulties with development economics, that there was a

57:34resurgence 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, Asimoglu and Robinson represent and or that kind of stuff. And so I think there's, you know, wedges of opportunities in question space, but that

58:05methodologically, 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,

58:36you know, let me just give a very simple example. If 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. 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

59:07statics, same thing. You just get a move like that. I'm not, you know, I have the oranges froze overnight. Boom, new change in the price. Right. Kind of thing. And so what we want to study is the process 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, problem.

59:41What's fascinating is in the 90s, there used to be a lot more dialogue between 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 Medema is laughing right now. If you think about two by two matrix, 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.

1:00:14So you have orderly or disorderly. And what you normally would see is that you 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 Marx 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,

1:00:45we still get economic order. And that's because these institutions serve as buffers to allow us to cope with our ignorance and guide us through and deep to uncertainty and decisions. That research program still remains unique in many ways. 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 care about is that this idea, this Hayekian kind of program gets pushed forward,

1:01:18continually pushed forward into new areas. Scott wrote a whole book dealing with political economy and Hayekian epistemic issues. So those kinds 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

1:01:49advisor, which I've been very involved with, you know, what came to me was one of the most important things I could ever 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 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

1:02:20of view out there, 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 about 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, wedded to them, you know, but go forward.

1:02:56Yeah. There we have it. So for all your economists out there, study more history and philosophy and stay original. So that's for everybody. 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.

1:03:24Join us again next month for another episode of Smig's and Mark's Walk into a Bar, a History of Economics podcast.

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