A Conversation With David Friedman - part 7: Keynesianism, Chicago School, Austrian School, and Anarcho-capitalism

Conversation with Dr. David Friedman about some of the solutions and potential issues of anarcho-capitalism, as well as possible ways of advancing ideas of free society and turning them into reality.  Part 7: Keynesianism, Chicago School, Austrian School, and Anarcho-capitalism.

Interview by Jadranko Brkic, Managing Director at Freedom and Prosperity TV: libertarian network of alternative media in Western Balkans.  Hong Kong, May 21st, 2014.

(see video at the bottom of transcript)

Transcript:

Freedom and Prosperity TV:

I just want to remind you that all these people they are actually libertarians and they appreciate your work greatly, but in a way they with some of these next questions want to give you a bit of hard time.

David Friedman:

That's fine. If everybody agreed with me it would be a very boring world.

Freedom and Prosperity TV:

OK.

Sven Sambunjak asks: Friedman says that he is an anarchist, but not also an anarcho-capitalist of “Austrian” orientation. He also says that like his father, he is a supporter of Chicago school. His father supposedly said that he is a methodological Keynesian. How does David Friedman reconcile his anarchism with Keynesian elements of the methodology of his father?

David Friedman:

I am afraid I do not know where that quote is from or what it meant. There is a...

Freedom and Prosperity TV:

Is it true?

David Friedman:

I don't know. The quote that I know, which was truncated by I think Time Magazine was in one sense we're all Keynesians now and in another sense none of us are Keynesians. And Time made that we are all Keynesians now, which is somewhat misleading quote. And I think his point was that Keynes's work changed the way economists thought about certain questions, but they did not end up with the same conclusions that Keynes did. So he had a real influence, but did not mean that people agreed with him. I don't know what the questioner thinks Keynesianism is. Because a lot of conservatives and libertarians seem to use Keynesian as sort of a general label for everything they don't like. That the real content of Keynes edition, I think, was a theory of why you got involuntary unemployment. Why you got things like the Great Depression. And the theory implied that you might be able to prevent that by having government physical policy in which a government ran a deficit when unemployment was high and a surplus when unemployment was low. And that it seems to be really against Keynesianism. But what Chicago School economics and Keynesianism and Austrianism really are, are parts of neoclassical economics, of the set of ideas that were worked out by Marshall in England, by Menger and Walras in Austria, by ...I'm forgeting... there's somebody in France whose name I am now forgetting, who did a mathematical version... They were all fundamentally making the same kinds of arguments in different forms. Methodologically, what I see as the Chicago School methodology consists of a combination of theory and empirical work. That is, you use economic theory to produce plausible conjectures about the real world. But because the real world is sufficiently complicated that you could almost never rigorously prove by theory that something must be true, you then test your conjectures against real world data. Some Austrians, but I think not all, think the right methodology is pure theory. And the problem is that it is difficult to imagine any prediction about the real world. That it is inconsistent with economic theory if you have a sufficient broad view of what the facts might be.

The way I put that in one of my books was: why am I standing on my head on the table, holding a burning $1000 bill between my toes? It sounds like irrational behavior. Because I want to stand on my head on a table, holding a burning thousand dollar bill between my toes. That is to say we don't know what's in the utility function. If we don't know what people desire, we can't predict what they will do. And any behavior that seems to be irrational in terms of what we expect the people to want, could be rational in terms of odd set of desires. So in that sense you could make plausible guesses, because we know a good deal about what human beings are like, being humans ourselves, but you can't make rigorous conclusions. Therefore, you want to test your theory against the real world. There are two other reasons you want to test it against the real world. One of them is you might have made a mistake in your theory. It might be that you thought you've proved something when you really hadn't, and when the facts tell you your conclusion is wrong, that makes you go look in the theory again. But another is that in my experience figuring out how to test your theory against the real world is a good way of forcing yourself to think through the theory more clearly. And that was my conclusion from my first published journal article, which was an economic theory of the size and shape of nations. In which I claimed to explain the general features of the map of Europe from the fall of the Roman Empire into the present. So it was a very ambitious theory. I submitted it to the Journal of Political Economy and George Stigler rejected it. He rejected it explaining that in order for it to be published in his journal I had to have some kind of empirical tests of the theory. He had some suggestions of tests, none of which I concluded were workable. But I figured out some ways in which I could actually make predictions from the theory that I could test. And in figuring that out, I improved the theory. I had to change from rather vague verbal statements to more precise statements … of saying what can I say about the real world if this theory is true. It is a way of making you think more carefully about your theories.

Freedom and Prosperity TV:

Here's an interesting sort of related question to what Sven was kind of alluding to, which is why aren't there more Chicago School economists anarcho-capitalists?

David Friedman:

That's an interesting question. I don't know how many of them there are. My impression is that there are... I mean there aren't many economists who are anarcho-capitalists at all. But my impression is that there are a number of people who are sympathetic to anarcho-capitalism. Some of them say it might work some of them say it might not work. People like Bryan Caplan and Peter Leeson who don't identify themselves as Austrians, who as far as ... I don't know if they identify themselves as Chicago School either. Then after all, von Mises was not an anarchist. And he is sort of the leading extreme Austrian, at least according to Rothbard. Mises was indeed not even a very hard core libertarian. He argues in various places in favor of the draft. He argues in favor of state subsidy for opera. Now, that may seem Austrian, but not an Austrian economist. I'll have to check but I am reasonably certain that in 'Human Action', ... I know that Human Action contains, at least that edition that I read, contains the statement that people who were opposed to conscription are the enemies of freedom. It's an almost exact quote, I'll have to have a look in the book to get the quote exactly. But somewhere I'm reasonably sure there's also an argument for subsidies for opera. I don't think it is … What's basically going on is that Rothbard was an anarchist and an extreme Austrian. And people who follow Rothbard therefore tend to be that. I remember, I think my father commenting at one point that he thought Gary Becker's political were intermediate between mine and my father's. So he would have not called himself an anarchist, but I don't think he would have been that unsympathetic to the view. Jim Buchanan, I don't know quite where he would have classified himself. He considered himself a philosophical anarchist, but... He wrote a very friendly but useful review of “Machinery of Freedom.” Useful in that he pointed out a problem with my argument which I tried to deal with in the new chapters. I guess maybe part of the answer is that anybody who is willing to be viewed as a nut in one respect is willing to be viewed as a nut in another respect. I think you see this pattern a lot of places. That the extent that you've reject what most people believe in one area, you were then more willing to do that in other areas. So in that sense it is probably true that once you have sort of ruined yourself out of the society of ordinary economists by being an Austrian, you might as well throw in being anarchist as well. But beyond that I think most of it is just historical accident of the fact that Rothbard was both an anarchist and a pretty hard core Austrian.