Introduction: Peter J. Boettke is a professor of Economics and Philosophy at George Mason University, Research Fellow at the Independent Institute and the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU. He is co-editor of The Review of Austrian Economics and author of the award-winning book, Living Economics: Yesterday, Today, and Tomorrow, published by the Independent Institute and Universidad Francisco Marroquin. Peter Boettke received his BA in economics from Grove City College and his PhD in economics from George Mason University. Before joining the faculty at George Mason University in 1998, he held faculty positions at Oakland University, Manhattan College and New York University. In addition, Boettke was a National Fellow at the Hoover Institution for War, Revolution and Peace at Stanford University during the 1992-1993 academic year. He has been a visiting professor or scholar at the Russian Academy of Sciences in Moscow, the Max Planck Institute for Research into Economic Systems in Jena, Germany, the Stockholm School of Economics, Central European University in Prague and Charles University in Prague.
Daily Bell: It’s been quite a while since we last chatted. How is your program at George Mason going?
Peter Boettke: Yes, I believe we last spoke in 2010. GMU’s program has really been doing quite well since that time. We have added some high quality faculty and continue to recruit some very strong graduate students. And our alumni have been doing some outstanding work—both in terms of publishing and in terms of institution building.
Let me give a few examples. Ben Powell and David Skarbek are both doctoral students that I supervised. Ben Powell recently published his book Out of Poverty with Cambridge University Press and it has met with extremely good reviews and praise from his professional peers. Ben has also moved to Texas Tech University, where he has become the Director of the Free Market Institute.
I am a visiting professor there this year, and during my visit in the fall I was amazed at what Ben is accomplishing there with his faculty partners and graduate students. I expect you will hear great things about Ben’s continued success in contributing to the scientific literature in economics and political economy, with his training of graduate students to be the next generation of college and university teachers of economics and the advancement of the ideas of economic and political liberty through his good work. See his new TV show “Free to Exchange” for an example. Just fantastic stuff. A link to his new institute is here.
David Skarbek’s book, The Social Order of the Underworld, was published by Oxford University Press in 2014, and has been discussed in The Economist and The Atlantic. The book—which is based on material that formed his doctoral dissertation—examines the economic and political organization of gangs inside the prison system. Not only has Dave’s work drawn significant attention, it has won major academic awards from his peers.
David, and his wife Emily Skarbek (also one of my dissertation students), both teach at King’s College London, where they are joined by a handful of outstanding classical liberal thinkers, such as Mark Pennington, John Meadowcraft, etc. King’s developed a Department of Political Economy over the past few years, and it is one of the more exciting academic ventures around—King’s itself is a world-ranked top 60 institution of higher learning, so to have such a strong presence of classical liberal political economists in such an elite institution is very promising. Again, I expect that their graduate students will be making an impact on the international intellectual scene within the next decade.
Closer to home, at GMU we have established a new research center that I am directing and Chris Coyne is the associate director. We have continued to grow our graduate student programs under the direction of Virgil Storr, and our journal editing—Review of Austrian Economics, The Independent Review, Public Choice, and Advances in Austrian Economics—as well as our editing of book series, including Cambridge Studies in Economics, Choice and Society, the Routledge series on Foundations of the Market Economy and the Edward Elgar series, New Thinking in Political Economy. Independent of our editing, my colleagues in our new center have been very active publishing books. Chris Coyne’s Doing Bad By Doing Good (Stanford), Peter Leeson’s Anarchy Unbound (Cambridge), Larry White’s The Clash of Economic Ideas (Cambridge), Paul Aligica’s Institutional Diversity and Political Economy (Oxford) and Virgil Storr’s The Culture of the Market (Routledge) have all been published in the last two or three years.
Our faculty and our alumni continue to make inroads into the academic establishment with high quality publications and innovative research and teaching.
One final note here. Chris Coyne and I just sent off to the publisher our Oxford Handbook of Austrian Economics that will be published in 2015 or 2016. This was a major project for us, and we are thrilled to be part of Oxford’s famed Handbook series. It is another great feather in the cap for the academic advancement of the Austrian school of economics in the economics profession today.
Daily Bell: You’re very busy. What else have you been doing that’s a priority?
Peter Boettke: Well, I guess you can divide my time between my own research and teaching, my administration of academic programs, my professional activities, including my editing, but also my professional association involvement. So let me go through these. I will come back to my own research in a second, so I will start with academic administration.
I mentioned our new research center at GMU. It is The F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics at the Mercatus Center, and it was founded in 2012. In 2013 we received a major grant from the Templeton Foundation to build out our program, and we have received numerous other grants from individuals and foundations that enable us to develop our research and educational initiatives in cooperation with the Department of Economics, the College of Humanities and Social Sciences and the Mercatus Center. You can follow our activities here.
Since our establishment, we have had major conference events honoring the contributions of Israel Kirzner in 2013 and a very successful conference on the 40th anniversary of Hayek’s Nobel Prize. The links will allow your readers to see video of the lectures provided at these events. Next year we are planning on a public event focused on the Continuing Relevance of Hayek’s The Constitution of Liberty, and Richard Epstein is already confirmed as the keynote speaker. We also sponsor book manuscript vetting conferences and our work on this was featured last year in The Chronicle of Higher Education. As an example, Deirdre McCloskey’s Bourgeois series of books have been in this conference series prior to publication. But the list of books we have held these conferences on through Mercatus for the past 10 to 15 years is very impressive.
Our Hayek Program will sponsor annual public events and these manuscript conferences for works in political economy and social philosophy but our primary focus is on research and teaching. I want to discuss our graduate student programs at length, but before doing I would like to address the professional association involvement and professional engagement because a lot of laymen with a strong interest in Austrian economics operate under a mistaken belief that Austrian economists have no role at all within the larger scientific community. We are a minority no doubt, but we are feisty and we do get a hearing. To give one quick example that you can look up, I recommend readers look up my colleague Larry White’s work (joint with George Selgin) on “Has the Fed Been a Failure?” Larry and George’s work received wide attention, and eventually an entire symposium on their work was published in one of the field journals in the profession. Again, our position is no doubt the minority position, but if one presents their work in a careful and sophisticated manner, folks pay attention. Another great example of this is that last year Alex Salter, one of our graduate students (as a graduate student), published a paper on the JMCB in perhaps the top field journal critical of Bernanke and his use of Bagehot’s rule for central bank management.
We encourage constant professional engagement. Since we last talked to each other, I have been awarded the Adam Smith Prize from the Association of Private Enterprise Educators, received two honorary doctorates—one from Universidad Francisco Marroquin and another from Universitat Alexandru Cuza in Romania (where Ken Arrow also received one), I was elected President of the Association of Private Enterprise Educators and I was elected Vice President of the Southern Economics Association. I bring this up because I want to dispel the mythology that Austrian economists are not only a minority but also a shut-out minority. We have a lot of work to do, but any failure for our advance within the community of our scientific peers is because of our weaknesses not because of a confused and corrupt profession. This is extremely important for the lay audience to start to realize because what it means is that if we work harder, think clearer and write more effectively, we can continue to make significant advances within the economics profession and from that vantage point change the broader cultural conversation.
I am just one of our research and teaching group. There are nine others and they are all being recognized in their respective fields of inquiry and also across the profession in general as major contributors to the literature. So I am very excited about the work we are doing at GMU.
Which brings me to our graduate student programs. When I moved to GMU from NYU in 1998, we had twelve fellowships across four years of classes—so three per year—for students interested in Austrian economics and classical liberal political economy. We also had only three dedicated faculty to the Austrian economics program—Karen Vaughn, Richard Wagner and myself. GMU was always unique in the number of Austrian friendly faculty, but those who devoted their careers to the advancement of ideas within the Austrian framework—methodologically, analytically and, yes, ideologically—was always a very small subset of a more general program. Since that time, the growth has been nothing less than astonishing.
We can now list 12 full-time faculty in our Hayek Program. We also have post-docs and visiting students and scholars. But one of the most exciting things is that this year we are actually funding in total 118 graduate students through our programs with the Hayek Program and Graduate Student Programs at Mercatus. Of those students, 58 are at GMU in our MA and PhD programs and 60 are members of our Smith Fellows and Bastiat Fellows Programs. Smith Fellows are PhD students at other universities in the humanities and social sciences who spent several weekends during the academic year being exposed to Austrian economics, public choice analysis and the institutional analysis of development, and then a week-long research seminar in the summer. This program is in its third year and it is one of the most successful programs we have developed. Virgil Storr has just been an amazing leader of this program.
The Bastiat Fellows is modeled on the Smith Fellows, but is more focused on folks in public policy and law.
The Hayek Program and GSP also sponsor an Advanced Summer Seminar in Austrian Economics, which we are also very excited about.
In September 2015, we will be moving into our own dedicated space on the Fairfax, Virginia campus with plenty of office space for students and seminar rooms, library, etc. It is a very promising time for us at GMU, and I expect our ability to produce high profile research and strong graduate students that will make an impact on the economics profession will only increase over the next decade.
Daily Bell: Your own book, Living Economics: Yesterday, Today and Tomorrow, came out in 2012 and won the FEE Award for Best Book in Austrian Economics that year. How has that been received? The Mercatus Center and The Independent Institute held an event at the National Economists Club this summer, featuring you speaking on your book. Tell us about that.
Peter Boettke: I’ve also published two other books since then: Institutional Economics, 2nd Edition, and The Economic Way of Thinking, 13th Edition, and am currently working on three others—a book on Hayek for the Palgrave Macmillan series on Great Thinkers in Economics, a book on the financial crisis and one on public administration and democratic self-governance. But I understand the interest in Living Economics. It has been received quite well, and quite unexpectedly. It has been translated into Spanish and Romanian already, and there are ongoing negotiations for Chinese and even Persian.
I think three things really helped the book. First, I got a series of ringing endorsements from leading economists, including two Nobel Prize winners, an AEA Distinguished Fellow and a John Bates Clark Medalist. Those endorsements really were used effectively by The Independent Institute in marketing the book. And I was thrilled to work with David Theroux and his staff at Independent to push the book. Second, the book came out at a unique time when there was a lot of public soul searching about economics as a discipline due to the financial crisis and this work offered an optimistic view of economics as an engine of social inquiry. Three, the book has a coherent narrative that runs from basic principles that trace from Adam Smith to F. A. Hayek, the book celebrates great teachers of economics and the book pursues consistently and persistently the implications of those teachings to provide a more humble but more compelling picture of economics as a scientific discipline and as a tool for social understanding, not as a tool for social control.
Daily Bell: Who is the intended reader? You see economics as “a discipline that touches on the most pressing practical issues at any historical juncture.”
Peter Boettke: The book is primarily written for the student who is contemplating graduate school to offer to them an invitation to join the scientific quest for understanding what economics as a discipline offers, and for graduate students to get them to think about what type economist they want to be and what type of economist and economics teachers they want to be for their careers.
But hopefully the book was written in a way that is more readable. The material in the book was all published before in some form, but for publication it was rewritten in parts to smooth the transition and the selection of material was very much a product of consultation with colleagues and the publication team at Independent.
The title, Living Economics, has three meanings. The first comes from a quote from Ludwig von Mises in Human Action where he states that economics is a living body of scientific thought. The second meaning comes from thinking about what a living body of thought would imply, thus the image of the tree—a strong oak tree deeply rooted in the ground. Obviously, there are new branches but the tree is strong because of its deep and healthy roots. Finally, living economics as meaning thinking about economics 24/7, that the puzzles and paradoxes simply occupy your attention all the time. My focus on the distinction in the book between Mainline and Mainstream economics comes from the first two, especially the second meaning, but my focus on the intellectual excitement of thinking about the world through the economist’s point of view is what the third meaning is all about. Again, I think somehow this three-pronged approach captured some folks’ imagination and this especially caught on fire with a small social media campaign (#LivingEconomics and Facebook) that certainly helped get the word out about the book.
The book is perhaps my most successful, commercially speaking, book to date, but my royalties from the project are all dedicated to help sponsor scholarships for students to attend Universidad Francisco Marroquin and its wonderful educational programs.
Daily Bell: You’ve written, “The wealth and poverty of nations are at stake; the length and quality of life turns on the economic conditions individuals find themselves living with.” Please elaborate.
Peter Boettke: Economic policy determines the wealth and poverty of nations. I have a simple formula: Ideas → Institutions → Outcomes. Bad ideas result in bad institutions with bad outcomes. Socialist ideas → Socialist institutions that provide perverse incentives and distort information → Bad outcomes in terms of economic growth and development and political tyranny.
The fundamental cause of a nation’s economic fate is not to be found in geography, or resource abundance, but in the ideas and institutions that define that system. Private property, freedom of trade (domestic and foreign), fiscal responsibility and sound money provide the right environment for individuals to truck, barter and exchange, and to engage in productive specialization and peaceful cooperation. On the other hand, collective property, restrictions on trade, fiscal irresponsibility and unsound money provide an environment where those who engage in rape, pillage and plunder will fare better than those who seek betterment through trade and cooperation. The vast majority of human history is filled with the miserable existence that such a predatory reality thrusts upon men—life is indeed nasty, brutish and short when violence rather than trade is the main organizing principle of human interaction.
Daily Bell: You did original research on the history and collapse of socialism in several books and edited a book on development economics, The Collapse of Development Planning (1994) as well as a 9-volume reference work on the history of the debate over socialism, Socialism and the Market (2000). In light of your expertise in this area, what’s your take on the recent events in Russia and Ukraine? What’s going on there?
Peter Boettke: I spent the first 10-15 years of my career as a Russia watcher—studied the language (though I never mastered it), read history, literature and, of course, read daily the newspapers that were available. I was a fellow at the Russian Academy of Science in 1992-93. But during the 2000s I became less Russia focused and more focused on East and Central Europe, and other regions of the world dealing with a host of lingering problems in development economics. I also focused once again on more theoretical and methodological issues in comparative analysis and policy evaluation rather than fieldwork on the ground in transitioning economies. So that removed me somewhat from the scene.
However, just recently I was named a Fulbright Fellow in Ukraine, and I had to postpone my trip (and perhaps turn down the fellowship) due to the concerns I have with the situation. I follow the situation with Putin not closely, but with some attention to the facts on the ground. Starting with the Yukos Affair—with criminalization of Mikhail Khodorkovsky—it was quite obvious that the post-communist Russia had institutionalized crony capitalism and not anything approximating the more dynamic and fluid form of creative capitalism. So what emerged in Russia was a rent-seeking state, and Putin’s poor economic policies have been “saved” a few times due to external shocks that provided large inflows of resources to the economy from the international oil market. But if you still look at capital flows, Russia is not a secure haven for international investment and it is just not that attractive of an environment due to insecurity of property rights and the fact that the overall economic situation is still one defined by connections rather than contracts.
Daily Bell: Depending on who’s assessment one reads, Putin is viewed as a savior or as a dictator. Your take?
Peter Boettke: Not a savior, not a dictator. A political leader who wants to extract value from resources for power building, not adopt policies which produce greater economic growth and development and thus well-being for the ordinary citizens of Russia. As Andrei Shleifer often says, Russia is a “normal economy”—by that he means a normal middle income economy, which exhibits a high degree of corruption, cronyism and all the behavior you associate with such struggling economies whether we find them in Asia, Latin America, or Africa, or we look historically at how the relatively rich countries today were when they were middle income countries in the 18th and 19th century. I don’t completely buy Shleifer’s narrative, but I think he makes some very good points.
Russia is not an economy like Western Europe and the US as we just assumed it would be back in the late 1980s glancing forward 25+ years. It has failed to make that transition. But even in its crony capitalist and corrupt political state, one could argue for great improvements over the economic situation in the Soviet Union. Crony capitalism in this sense is preferred to crony socialism—more wealth is produced under the one than the other. But the real issue to move to the next level is to figure out a way to limit the cronyism.
The economic historian John Wallis has a great paper on “Corruption in Economic History,” and he distinguishes between venal corruptions and systemic corruption. His argument is that venal corruption while bothersome is not a fundamental economy killer, but systemic corruption is. I would say bribing would be venal corruption, but the sort of criminalization of economic and political rivals as what happened in the Yukos affair is systemic corruption and can kill an economy. In this sense, I think Shleifer underestimates how much the corruption in Russia today is systemic rather than venal.
Daily Bell: Would the directions in which Russia is going look different without interference by the West?
Peter Boettke: Geopolitics is not my thing, I have no doubt that the situation is very complex and that geopolitics has a lot to do with it and that the Western alliances are not without fault. But I also think Putin is not a savior and he is not set on moving in the right—classical liberal—direction either domestically or internationally. And if we go back to my simple formula, unless you move in that direction, economic development and growth, and with that human well-being, will not follow.
Daily Bell: How do you see the tensions resolving?
Peter Boettke: Strengthening of private property rights, the destatization of the economy, the opening of the economy to free trade, the curtailing of fiscal irresponsibility and discipline on the budget, the establishment of sound money. Leaders can choose such a path any time they want. For some reason most choose the opposite path and become extractive agents of a society’s wealth for personal gain, including temporary power. Early in his years in power Putin seemed to understand the benefits of long-term economic growth for Russia. That message at the moment seems to elude him.
Daily Bell: We’d like to get into some economics nitty-gritty now, including some questions we asked the first time we interviewed you. First, is economics a science? A predictive one?
Peter Boettke: Pattern predictions YES, point predictions NO. Economics can tell us tendencies and directions; it can not tell us exact points and magnitudes.
Economics proper can be divided into three branches of knowledge— pure theory (a priori and deductive), applied theory (where pure theory is used to examine the impact of alternative institutional arrangements on economic performance) and economic history (and public policy). The tests of pure theory are logic, but in applied theory and economic history there are institutional details and factual occurrences that must be accounted for—in this sense empirics matters.
The position is nuanced and requires a lot of spelling out that is beyond the scope of this sort of interview. But just as a teaser, let me stress again that I believe the best way to understand contemporary Austrian economics and political economy is to read Mises as a Hayekian, and Hayek as a Misesian and in that shared research program you will see where we are going today as a research community.
Daily Bell: Is econometrics valid? Can the use of mathematical formulas improve forward-looking economic predictions?
Peter Boettke: It depends on the purpose. As a tool of historical pattern examination, of course, it can help you see correlations in the data, and sometimes suggest avenues of potential causation. But econometrics is best a tool for what happened, not why what happened happened. That why question is one of theory. I don’t not believe mathematics or statistics aids us in forward looking—in other words, I am not persuaded by forecasting models and I think this is one of the big mistakes on standard economics post-WWII—the idea that economics and econometrics can be a tool for social control, rather than that economics should be restricted to its role in social understanding and social criticism.
Daily Bell: What about the issue of gold versus fiat generally? Remind readers where you stand on private—non-governmental—fiat.
Peter Boettke: I believe strongly in the abolition of the state monopoly in the supply of currency. Whether a gold standard would emerge on the market, or some other form of money—say cryptocurrencies—I have no idea. I believe the market mechanism will be the best determinant of the medium of exchange as well as the unit of accounting. Given that the state doesn’t seem to be persuaded to give up its legal monopoly, I am not sure how best to discipline central banks—obviously, some form of rules to tie their hands and some set of strong incentives to curtail the manipulation of money and credit to satisfy political ends. But what the best method to achieve that is has proven elusive. We cannot expect central banks to act as if they are participants in an ideal free-banking system, so we have to think differently than mimic efforts. Thus, I continually fall back on a classic gold standard as perhaps the best. But again, not sure that is right. As we saw, governments found ways to manipulate even when the hands were supposedly tied.
I am very much influenced by Adam Smith’s discussion in the fifth book of The Wealth of Nations on the “juggling tricks” of government—ancient as well as modern— and that is to run deficits, accumulate public debt and then debase the currency to pay the debt back cheaply rather than declare bankruptcy for fiscal indiscipline. I believe Smith is spot on and that modern governments engage in this juggling trick all the time. Classical economists warned about juggling, but Keynesian economists embraced the juggling and chided fellow economists to simply become master jugglers. This is the state of modern macroeconomics— when push comes to shove, they all are would-be master jugglers. But even master jugglers can drop the ball sometimes.
Unfortunately for modern economies when those in decision power engage in the manipulation of money and credit in combination with fiscal irresponsibility, when they drop the ball, it can threaten the entire system. And due to interlocked balance sheets throughout the global economy, it can actually threaten the global economic situation. Thus, we are stuck on an endless cycle in which we pursue policies where short-run relief from the mistakes caused by bad juggling always takes precedent over long-run economic growth and betterment. For much of the period of the economics of illusion (the Keynesian period of 1945 to today), we have been fortune in the West to experience tremendous technological shocks and periodic expansions of trading opportunities, and this has hidden from view some of the real deleterious effects of bad juggling. But with the slowdown in technological progress and the strains of the global financial crisis, the economics of illusion is getting harder and harder to hide.
Daily Bell: Where do you stand on the inflation versus deflation question from a monetary standpoint? We believe that in a modern monopoly central bank economy deflation is mostly the product of a tremendous asset bubble that breaks.
Peter Boettke: I still would argue that we fear deflation so much that we ended up with permanent inflation.
I recommend to your readers Roger Koppl’s excellent “Crisis to Confidence” monograph for IEA. It is the best work that blends the Fisher debt-deflation story and the Austrian inflation-boom story together to provide a coherent narrative of the crisis of the ’20-’30s and the 2000s.
Daily Bell: Where do you stand on the quantity theory of money? Valid? Questionable?
Peter Boettke: The quantity theory is a truism, as Ludwig von Mises taught us. It is extremely powerful against monetary cranks. Unfortunately, in the modeling stratagem of some economists they translate the quantity theory into a mechanical interpretation and this is wrong and potentially just as dangerous. As Hayek (and Garrison) often put it, money is a joint between economic activities. It is not a broken joint as Keynesians argue, but it is also not a tight joint as Monetarists and Rational Expectationists argued. It is instead a loose joint. As a result, a change in a nominal variable (money) can have an impact on real variables in the economy. Thus you get the boom and the bust. This is the theory that I hold.
Daily Bell: Where do you stand on the Misesian business cycle? Are you having second thoughts?
Peter Boettke: Nope. If anything, I think the basic elements of the Misesian theory of the trade cycle and Hayek’s emphasis on prices and production has an even stronger logical and empirical case for it. It is not going away, but actually coming back—a new National Bureau of Economic Research paper, for example, has articulated a credit induced boom story to explain the origins of the financial crisis. Bottom line, ABCT has more than a promising future in economic analysis.
Daily Bell: Do you believe that interest rates at less than zero are deflationary?
Peter Boettke: Nope, inflationary in the long run— we have been merely reinflating the bubble rather than allowing market corrections to follow. There have been offsetting factors as well, but I would say my expectation is that we will see inflation. Now, governments have done a very good job of redefining the measures of inflation, such as the Boskin Commission, and if you measured inflation the way it used to be measured, then we would see more of it. But it is very important to many that they have been working with this narrative about the zero lower bound and a liquidity trap so that the argument for fiscal policy goes through.
I think when we look back on the past several years of monetary policy we will look closely not just at QE, but focus a lot on Operation Twist, which was extremely important in my reading of making sure that longer-term interest rates did not reflect the appropriate inflation expectations. We will also focus a lot on regime uncertainty, which led to investors to hold off, and we will look at the policy of paying interest on reserves, which gave banks incentive to hold rather than lend out. A lot of contradictory policies, rather than sad economic circumstances can explain behavior since 2008. Keynesian policies produced a Keynesian world, not a solution to a Keynesian problem.
Lots of work to do to straighten out the historical narrative of the 2000s.
Daily Bell: Where do you stand on the growing controversy over Menger versus Mises and the idea that Mises does not represent Menger’s Austrian approach? Can you summarize the differences?
Peter Boettke: I don’t follow that controversy, sorry. Mises is Bohm-Bawerk’s greatest student, Bohm-Bawerk was Menger’s greatest student and Hayek is Mises’s greatest student. And Kirzner is Mises’s best representative in the modern Austrian school. Those are my opinions on those issues. There are, of course, important differences between each of these thinkers but there is also a very strong thread that binds them together into a school of thought. But without Mises and Hayek it is unclear that we would even remember Menger and Bohm-Bawerk today except that they were early neoclassical economists. Mises and Hayek are the towering intellectual figures of the Austrian School of Economics.
Daily Bell: You have an avowed sympathy for Hayek. Was Hayek a greater thinker than Mises? Was he a greater synthesizer— someone who took the best of 20th century sociopolitical quasi-socialist thought and merged it with Austrian concepts?
Peter Boettke: 1. I consider Mises the greatest economist who ever lived. 2. I consider Hayek, Mises’s greatest follower. 3. Hayek was different from Mises for a variety of subtle reasons: (a) the way professional opinion was shared was through books for Mises and journal articles for Hayek, (b) Hayek integrated into the English-speaking economics profession precisely at the time that the intellectual power of balance shifted first from the continent to UK and then from the UK to the US, (c) Hayek is a great synthesizer, but not of socialist thought (god no!), but of evolutionary theory, and provided what Bruce Caldwell describes as “scientific subjectivism” rather than the continental philosophical subjectivism/ intersubjectivism of Mises (and some of his students such as Alfred Schutz).
Daily Bell: Hayek and Keynes had monumental intellectual duels. Keynes is still the darling of mainstream economic academia. Why is that, do you think?
Peter Boettke: First of all, consider historical context. Keynes wrote at a time after Britain had experienced a period of economic decline similar to Japan has during the lost decade. Second, Keynes was able, through an ingenious twist, to link the greatest fear of capitalism (mass unemployment) with the greatest resentment of capitalism (idle rich) into an explanation of the instability of capitalism, furthered by Keynesians such as Hicks, Lerner, Samuelson and all the post-WW2 Keynesians such as Solow and Tobin, etc.
In addition to the intellectual tradition embedded in Harvard and MIT, there is also the establishment of Keynesian institutions of economic governance such as the IMF and the World Bank. So we have Keynesian theory, which produces Keynesian policy, which requires Keynesian institutions for implementation. So since WWII we have never had a non-Keynesian policy space; we waffle between liberal Keynesianism and conservative Keynesianism. But all political regimes in the democratic West since WWII have been fundamentally Keynesian. These are regulatory to nationalization in the micro sphere, and fine tuning in the macro sphere. If you look at the world through this lens, then the financial crisis is merely another example of the outcomes from pursuing Keynesian policies. In this case it was conservative Keynesianism post-Reagan, but Keynesianism nevertheless. Greenspan, for example, is a Keynesian not only in his understanding analytically of how the economy works but also in what he thought were the right solutions.
Daily Bell: Has Keynesianism proved predictive during the latest great crisis?
Peter Boettke: NO. It is not predictive, in my reading. It is rather the cause and the problem for the continued malaise.
Daily Bell: Can printing money create prosperity?
Peter Boettke: Never. Bad economics.
Daily Bell: Nonetheless, the EU, US, Japan and China are all printing. What will be the outcome?
Peter Boettke: Further manipulation of money and credit followed by malinvestments followed by recalculations in the market. Depending on the off-setting factors such as technological and trade, the distortions will be great and corrections will be painful. If the money supply (printing) is not off-set by increased money demand, then we will experience not just the distortions mentioned above, but we will experience declining purchasing power of the relevant currency and thus we will see efforts by entrepreneurs large and small to find substitutes and hedges—cryptocurrencies, gold, sophisticated barter, etc. will become more in use. We will see. The economist in me is very curious, the individual in me worries about the economic future of my kids.
Daily Bell: Are we headed for a crack-up greater than the Great Depression?
Peter Boettke: That is a hard one. A lot of things point to such a dire prediction, but I would be hesitant to offer one along those lines. I am cautiously optimistic because I take Adam Smith’s observation very seriously. Smith argued:
The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred obstructions with which the folly of human laws too often encumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security.
“An Inquiry into the Nature and Causes of the Wealth of Nations” (IV. 5. 82)
So we can muddle through. Tomorrow can be better than today, even as we engage in a tremendous amount of counterproductive policies. As long as technological innovation (Schumpeterian growth) and trading opportunities (Smithian growth) are not closed off, things will get better over time.
I really like a book of a Mercatus colleague of mine, Adam Thierer, Permissionless Innovation.
Unless countries kill the goose that lays the golden eggs economically speaking—and that is entrepreneurship and entrepreneurial innovation—we can, as Smith put it, live with a lot of ruin in a nation. But if you cut off that source of creativity and dynamic adjustment, then you can feel the full pinch of the stupidity of government policies. I am optimistic we can still prevent that full pinch from being felt.
Daily Bell: You mentioned in the past that neither Mises nor Hayek were entirely “anti-war.” Would they approve of the current war on terror?
Peter Boettke: I am sympathetic with those who have a visceral reaction against events such as 9/11 or the recent events in Paris, but I also am levelheaded enough to realize that the US foreign policies have induced some of these responses—what is called blowback. We have done a lot of things in foreign affairs—from military to even humanitarian efforts—that I view as harmful for peaceful relations between nation-states.
Do I believe some people are evil in the world? Yes. I just don’t believe they belong to only one religion or only one region of the world.
I am more radically libertarian on foreign policy than either Mises or Hayek (or Friedman or Buchanan, for that matter). I would stand with Rothbard and others. I am not an expert in this field, so I rely on the work of my close colleague Chris Coyne and his work to form many of my judgments about what is what. Chris is a very careful scholar, but also a very passionate scholar. I ask him questions oftentimes from a more conservative position than I would be comfortable holding just to see how he replies to what I consider the tough questions. My father was in the military—flew in WWII and spent time in a German prisoner of war camp. I often think about an imagined debate between my father and Chris about these issues and see if I can adjudicate that debate.
I do know that Coyne was spot on in his analysis of After War about the costs of the war and also the cost effectiveness of the after-war reconstruction to achieve its goals. Coyne is extremely levelheaded when it comes to analysis of these very hot button issues. I recommend his books, After War and Doing Bad By Doing Good, to everyone I can. You will not be disappointed. And if you want to have a GREAT public speaker, who will fire up your crowd, you will be hard-pressed to find a more passionate scholar than Chris Coyne. Working with him is a real joy.
Daily Bell: Given the current level of socioeconomic chaos and what you see coming, what should people do? How should they protect themselves? Should they buy farms? Second houses in less volatile locations? Second passports? Should they take physical delivery of gold and silver?
Peter Boettke: Wow. I am not in that business. I guess I would follow simple rules of finance to protect yourself and your family. I am not a survivalist, but I live in a different world than the 99%. First, I am a tenured academic at a large state university so my job security is very strong. Second, I am a reasonably well-compensated academic so not only is my position very secure, but my compensation is actually very high by historical standards. I’d like to make more money, like everyone else, but considering what English professors makes, let me just say it is very good to be an economics professor (even one that is also a professor of philosophy). Third, I live within the blast zone radius of a nuclear strike on DC. I say that only half jokingly because if something horrendous was to happen, the probability that I will be around during round two is much lower than most folks. Thankfully, I put that probability so low that I don’t worry about it. So we are back to my first considerations in making my personal calculations.
Daily Bell: Should people stay away from paper markets or should they expect we might see expansions of averages in the Dow and S&P?
Peter Boettke: Again, this is beyond my expertise. I often tell folks who ask me questions like that, if I knew the answer you wouldn’t have the opportunity to ask me because I’d be so rich I’d own my own island. But the reality is that I love economics—research and teaching—so much that even if I were a billionaire, I’d still be doing what I am doing. To me being an economics professor is the greatest job in the world.
Daily Bell: Is there a worldwide stock boom taking place as a result of so much money printing? Are you investing in stocks?
Peter Boettke: I do think we have been reinflating a boom. The real question is one of timing—when to get out. If you don’t invest during the boom, you miss out on the run-up of asset prices; if you stay in too long you lose the value you recently gained. So the question is timing. I invest in index funds, not particular stocks; my portfolio is divided between stocks and bonds, and right now I still have more stocks than I do bonds. I have a very risky portfolio for retirement precisely because I don’t expect to ever retire and I have such a position of job security. If I had a more normal employment situation there is no doubt I would be more risk-averse—no doubt.
Daily Bell: Anything else coming up soon for you?
Peter Boettke: As I mentioned before, I am currently working on three book projects and they are in various stages—one just needs rewriting, for another the research is basically done but the writing needs to be done and with the other, the research will start this summer. I am very excited about these projects because I think they have great potential. The one with Palgrave Macmillan will be part of a major series on the “Great Thinkers,” and the other two I hope will be with a major university press. Thus the chances for these books to have an impact on the general economics conversation is greater than some of my other book projects from the past.
Still, you never know. Living Economics, for example, really has done well and continues to do well due to the great efforts of The Independent Institute and UFM, but especially among English-speaking readers. The Independent Institute priced the book to sell and really pushed it, and as I said earlier, I did get a sort of big push from a social media campaign that just resonated with folks at the time—it was pictures of people reading the book in all different social situations, including on mountain climbs, on the beach, with their kids, with their pets, etc., and student groups got excited about the book, etc. I get emails still from kids who have read the book. It was just a great experience and I think the message of the book provides a nice counter-weight to the dominant thinking in economics methodologically, analytically and ideologically. That book is really a very accurate depiction of me as a teacher, scholar and person. I hope some of your readers will pick it up and email me their reactions. I love hearing from people about the book and the way I try to get folks to think about economics an invitation to inquire about the world around them.
Daily Bell: We’ll finish with a question we asked at the end of the interview last time. What is the future for Austrian economics?
Peter Boettke: We are right now neck-deep in the job search for academic economists in the UK. One of our best students had over 20 interviews for tenure-track jobs and she has received to date 9 invitations for campus visits out of those 20 initial interviews. That is amazing. She is not alone in this success. She is a very, very talented young women and will be an economist you will all hear about soon enough if you haven’t already—Abby Hall (we wrote a very nice paper together, “Keep Off the Grass: The Economics of Prohibition and U.S. Drug Policy”). But we have other students who are also finding gainful employment as academic economists pursuing Austrian economics explicitly. New centers are being created almost every year throughout academia from teaching schools to major research universities.
I taught the first part of my career at NYU (1990-1998) and served on several dissertation committees, but I was not the chair of any because I didn’t think it was fair for me to do that to a young aspiring economist as an assistant professor without any professional clout. At GMU I moved as an Associate Professor and after a few years I started having my own dissertation students. My first real student ended up going into philosophy and she is now a philosophy professor at University of Virginia. But all my other students pursued careers in economics. Starting around 2002 with Edward Stringham, I have been very fortunate to have supervised so many students who have developed into scholars of impact within Austrian economics, public choice economics and institutional analysis.
I am chairing at least one or two students each year and the same with my close colleagues in Austrian economics. We are graduating somewhere between five and ten PhD students each year and they are all finding gainful employment as economists. Our students at GMU are extremely well trained as researchers and teachers of modern economics, but they also have a deep appreciation for philosophical considerations and historical analysis. The future is very bright indeed because what we are doing at GMU is now also being replicated in large part by our alumni at other major research schools and in developing outstanding undergraduate programs. For a scientific research program, and a scholarly tradition, it is just amazing to see it go in so many new directions that you never expected or even imagined it could go. By the way, the Richmond Fed recently recognized this unique energy in an interview where I am quoted, “Breaking into the Mainstream.”
But you can also see it in the energy that our faculty and students bring to their research and the topics they choose. GMU’s SSRN ranking in terms of downloads puts us in the top echelon of economics departments in the world—people are interested in what we have to say, even if they disagree with it. Several of our economists are highly ranked on RePEc as well as Google Scholar. Again, people are interested in what we have to say about Austrian economics and the political economy of public policy.
Last year, if you followed closely, you also saw that according to Thomson Reuters (the scientific publisher responsible for the Social Science Citation Index), Israel Kirzner was on the short list of potential Nobel Prize winners. If this happens in the next few years, it could be another major push advancing the Austrian approach within the scientific establishment.
Austrian economics isn’t taught yet at Harvard and MIT as part of the curriculum of scientific economics, but some of the ideas are starting to penetrate—whether it is ideas about knowledge, or radical ideas about free banking, or quirky ideas about the industrial organization of a pirate ship, or deadly serious ideas about costs of war. The future is very bright for Austrian economics.
To go back to your earlier questions that I passed on, about the stock market, I might not know stocks but I do know scientific economics and I will say this: I would go long on Austrian economics and sell short on the other contenders to the conventional wisdom.
Daily Bell: Thanks for your time.
Peter Boettke: Thanks for the opportunity.
After Thoughts
By Anthony Wile (The Daily Bell)
Peter Boettke’s accomplishments as enumerated above speak for themselves. Along with a handful of other pioneers, he’s bringing Austrian economics into the forefront of economic thought.
For the past decades, he’s helped create an increasingly large group of likeminded people who will also spread the word about this most elegant and truthful “science.” Human action, business cycles and the truth about money are explained by Austrian economics in a way that we find difficult to contradict.
The greater the numbers of people who know about these concepts, the greater the chance that over time, truly civil societies can be created and sustained.
One of the most interesting aspects of Austrian economics is the way many of its proponents are “aggregators”—those who tend to integrate large parts of life experience into the free-market paradigm.
Dr. Boettke, as we can see from this interview, seems occasionally to see his discipline in terms of discreet parts rather than as a single whole. Part of this is professional courtesy, as we can see him deferring to other colleagues who have a speciality in a given field, and hesitating to give his opinion on asset protection.
Part of this is modesty and the instinctive reluctance of a learned man to provide a point of view in an area he feels he does not have an entire mastery of. Yet Dr. Boettke possesses a rich knowledge of so many disciplines that compose economics that he certainly has no need of deference.
We’re glad Dr. Boettke continues to teach with such enthusiasm and effectiveness and to spread the word about this elegant and compelling way to view the world and everyone in it.
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