Study Guide to the Jordan Peterson – Robert Murphy Podcast
This week, Jordan Peterson released an interview titled, “Is Property Theft?”, with Austrian economist Robert Murphy. The conversation was fast and exciting, with a lot of references to books, articles, and other ideas from Austrian economics thrown in.
Since this is likely to be the first introduction to Austrian economics for many people, I am taking it upon myself to release a “study guide” of sorts for this interview. Here I will give citations, references, and other explanations for that may have gone by too quickly for the audience.
As a table of contents, I will use the time stamps from the original video as they appear on YouTube. Almost all of the links will take you to a free book, article, or lecture. That’s one of the great things about Austrian economics: there are a lot free learning resources.
A word of warning: the first few sections are much longer than others, as they provide a lot of necessary background information. Feel free to skim the information as needed on a first pass, and come back to it later for more details.
[2:30] Jordan Peterson Introduces Robert Murphy.
Robert Murphy has an active blog that goes back more than a decade, and covers many different topics. He’s also active on Twitter. He also goes by Bob Murphy, and has an active podcast covering current events and general economics, as well as an older podcast (and affiliated annual cruise) dedicated to discussing the economics of New York Times columnist (and Nobel Laureate) Paul Krugman.
[2:30] Learning about the Austrian school of economics.
Peterson references “Mises”: this is Ludwig von Mises (1881-1973), an economist born in the Austrian empire. He has written many books and articles, all of which are freely available online, which I’ve collected here. Mises is the most important figure in the so-called Austrian School of economics, as it was his books, personality, connections, and activism that inspired several generations of economists both during his time and in the decades after his death. So it may be useful to provide a brief biography, in bullet form:
- Mises first became interested in economics after reading Principles of Economics by Carl Menger (this is the book credited as founding the Austrian School). As a student and then a young economist, his foremost mentor was another giant of Eugen von Böhm-Bawerk (pronounced in English as Oygen von Bome-bah-verk), a student of Menger’s who then became the Minister of Finance to the Austro-Hungarian empire.
- Mises’s first claim to fame as an economist was his book called The Theory of Money and Credit (originally published in 1912; Murphy created a free study guide), which put forward two important ideas: first, the “regression theorem” which interests a lot of bitcoin theorists, and second, what came to be known as the Austrian Business Cycle Theory. More on each of these later in this study guide. After publishing this book, he was called to serve as an officer in the First World War.
- While living in Vienna, he worked as the chief economist of the Viennese Chamber of Commerce, a very prestigious position at the time. He was also very plugged into the “coffee house culture” of the time, where the top intellectuals of Europe would regularly meet in coffeeshops (and elsewhere) to discuss academic and political topics. Mises had earned a following for himself as well, made up of economists who would go on to teach at elite schools around the world. Perhaps the most famous participant at these seminars was Friedrich Hayek (which we will have more to say about later), who went to win the Nobel Prize in economics the year after Mises died.
- In 1921, he published an essay called “Economic Calculation in the Socialist Commonwealth“, which put forward the idea that it is impossible to calculate profits and losses in a society with communal ownership of property. (I’ve summarized this argument using one-syllable words here.) He expanded on this essay with a full-length book called Socialism: An Economic and Sociological Analysis, which gives a comprehensive account of all the features of socialism—not just the strictly economic impacts, but the social/cultural effects as well, including the effects on the family, on international affairs, and the relations between the sexes.
- As he was Jewish, he fled his home in Vienna just before the Nazis embarked on the Anschluss—which proved to be wise, as the Nazis searched his home and stole his papers, perhaps looking to see if he secretly had worked out a solution to the economic calculation problem. After the war, the Soviets got a hold of his papers, and they were only re-discovered in the 1990s by Richard Ebeling.
- Mises first fled to Switzerland, then New York City. By the time he arrived in the US he was in his 60s, and began teaching at New York University, while continuing to write books and giving public speeches. In the US, he published several major works: Human Action (his magnum opus, a treatise containing a coherent unified explanation of every branch of economics, from methodology, to production theory, to the economics of war, and more; Murphy has a detailed study guide), Theory and History (on the differences between theoretical research and historical research); The Ultimate Foundation of Economic Science (on why the method of the social sciences is unique and distinct from that of the natural sciences); and Bureaucracy (on the purpose, nature, and dangers of bureaucratic management as opposed to profit-based management—I’ve summarized this book in one-syllable words here).
- In New York, his reputation from Vienna preceded him. He again was able to attract a following, most notably the most important “American Austrian” Murray Rothbard. Mises had a famously intransigent personality, clashing often not only with intellectual foes, but also those ostensibly on the “same team” as him, including Milton Friedman. Friedman recalls a story of a heated debate at a conference of free market economists, where Mises left the discussion in disgust after saying to his interlocutors: “You’re all a bunch of socialists!”
- Mises died at the age of 92. His life motto was the Latin expression from book IV of Virgil’s Aenid, “tu ne cede malis, sed contra audentior ito”—”do not give in to evils, but proceed more boldly against them.” Towards the end of his life, he met a young publisher named Lew Rockwell. After his death, Rockwell and Rothbard worked with Mises’s wife Margit to set up a think tank in his honor. The Ludwig von Mises Institute was founded in 1981, based in Auburn, Alabama. The Mises Institute has digital copies of nearly all of Mises’s works, and offers them for free download. (The Institute has many live events as well, including a week-long student conference called Mises University.) Many of Mises’s personal papers are physically held at Grove City College.
- Although he officially lost his nobility title “von” after the Great War, for whatever reason he continued publishing under his old name. He would sign letters to friends as “Lu Mises”, and the correct citation for him is “Mises, Ludwig von”.
- Mises had a younger brother, Richard von Mises, who was a highly successful applied mathematician and probability theorist at Harvard (his work is still cited by engineers to this day). Mises had his own unique probability theory which he spelled out in chapter VI of Human Action.
For the most comprehensive biography of this person, see Jorg Guido Hulsmann’s Mises: The Last Knight of Liberalism.
Peterson references Murphy’s book “Choice: Cooperation, Enterprise, and Human Action”, available for purchase here. Murphy’s book is a simplification and distillation of the ideas found in Human Action, for a modern audience.
Murphy says Peterson’s comments on how people respond to social cues and other feedback are very “Hayekian”. This is a reference to Friedrich Hayek, another Austrian School economist. Hayek is most famous for his formulation of “the knowledge problem”, based on his article The Use of Knowledge in Society, his argument (based on Mises’s essay on economic calculation) being that knowledge is dispersed in society, and cannot be grasped by one mind alone; this is why free-market exchange is important, since (according to Hayek) they in effect aggregate all this information and distill it into a single number: the market price. Without private ownership of the means of production, there is no free-market exchange, and no prices; thus, central planners cannot have the information they need to allocate resources efficiently.
A brief biography of Hayek (1899-1992), as he is perhaps the most well-known Austrian economist today.
- Hayek was originally a socialist at the University of Vienna, before reading Mises’s Socialism which converted him to a free-market position. While never officially a student of Mises, Hayek was a frequent participant in Mises’s private seminars.
- In fact, it was on Mises’s recommendation and fundraising that Hayek got his first job at the newly-created “Austrian Institute for Business Cycle Research”. Hayek went on to teach at the London School of Economics, where he built on Mises’s theories on the business cycle to later publish The Pure Theory of Capital, which would establish him as one the top economists in the world.
- While in England, he developed a friendly rivalry with John Maynard Keynes on the merits of central planning during a depression, which has been immortalized in a series of popular educational rap videos.
- Towards the end of WWII, he published a book called The Road to Serfdom, an international bestseller warning about how the infringements on liberty instituted during the war may slowly grow over time, until the the free-market system is replaced by a quasi-feudal one.
- After the war, he moved to the United States and became more interested on the evolution and design of political institutions, publishing The Constitution of Liberty; Law, Legislation, and Liberty; and much more.
- He was extremely influential in academia and politics: he is one of the most cited economists ever, he won the Nobel Prize in economics in 1974, and the Presidential Medal of Freedom in 1991. When Margaret Thatcher first came to lead the Conservative Party, she is said to have slammed down a copy of The Road to Serfdom in a meeting, declaring “This is what we believe.”
[6:00] The basics of Austrian economics by Ludwig von Mises is distilled in Murphy’s book ‘Choice’. Robert outlines the basic building blocks of this economic system.
Peterson and Murphy give a very brief account of what the “Austrian School” is and what distinguishes it from others schools, so here is a more detailed bullet-form list going over these basics:
- First, some background. People have been theorizing about economics for thousands of years. But it’s only relatively recently that the science has been taken seriously. Adam Smith is often said to be the father of classical economics, with the publication of his book The Wealth of Nations in 1776 (here is an introduction to Smith written by Mises). One of the many questions Smith sought to answer was, where do prices come from? His answer was that prices reflect value, and value is an objective notion based on how much labor it takes to produce something. This became known as the labor theory of value (LTV), and it influenced economists for the next century, including Marx. The use of the LTV to explain prices, in addition to an overall objective view of value, became known as “classical economics.”
- The “Austrian School” or “Austrian economics” is shorthand for the “Austrian School of economics”, a “school of thought” within economics originally founded by a Viennese economist named Carl Menger. In 1871, Menger wrote a book known in English as “Principles of Economics“. This book used a particular method of theorizing: a logical, step-by-step verbal account of economic principles. It did not use or invoke any mathematical or statistical relationships.
- Moreover, it introduced the concept that value is subjective—meaning that each individual had their own unique value on the same object, which determined how much of a good they wanted and when. This more generally explains why exchange is possible in the first place. If everyone valued everything exactly the same, then why would anyone trade with another?
- Finally, Menger flipped the traditional way that classical economists explained the difference between the prices of consumer goods and the materials that went into their production. The objective value theorists believed that the prices of inputs and outputs are determined more or less independent of each other, based on how much labor goes into each. But Menger had a different idea: specifically, that there is sequence to production: first, entrepreneurs anticipate revenues they can likely generate by selling something; then, using that as a guide, they value the tools and labor they will require to produce that good at an accordingly less. Because if they valued their inputs higher than (or even identically to) the value of their output, it wouldn’t make sense to produce anything at all.
- The term “Austrian economics” was originally meant as a term of derision. It came up in a debate Menger had with scholars of the German Historical School, who believed that there were no such thing as universal economic laws. Menger argued the contrary position, in what became known as the Methodenstreit (“debate about method”). The Germans were not impressed by Menger and his method, and denounced him as mere Austrian, as opposed to a mighty German.
- Those influenced by Menger were, initially, mostly based in Vienna. They carried on his tradition of verbal argumentation, and refined his method over the years. While the historicism of the Germans eventually fell out of favour, economics based on mathematical and statistical/aggregate reasoning took its place. Mises has contributed the most into Austrian methodology. His position regarding the use of math in economic theory can perhaps most starkly be summed up with this quotation from Human Action, chapter XVI, section 5:
- “The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. Its syllogisms are not only sterile; they divert the mind from the study of the real problems and distort the relations between the various phenomena.”
- To summarize, the Misesian/Austrian position on the proper method of economics is this: economics starts with one axiom (so-called the “action axiom”): humans “act”, simply meaning we have the power to choose. Without this axiom, it is impossible to distinguish between the behaviour of humans an
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