ECONOMICS WEBINAR Featuring Bob Luddy and Dr. William Peterson

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1 ECONOMICS WEBINAR Featuring Bob Luddy and Dr. William Peterson Saturday, August 29th at 9:30 AM EDT There are four major schools of economic thought, which are described below. Definitions are from Wikipedia, the free encyclopedia. Chicago School: The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of University of Chicago, some of whom have constructed and popularized its principles. It is at times referred to as freshwater school of economics, in contrast to the saltwater school based in coastal universities (notably Harvard, MIT, and Berkeley). The Chicago school is associated with neoclassical price theory and libertarianism in its support of radically lower taxation and private sector regulation, but differs from pure free-market economics in its support of government-regulated monetary policy. The "Chicago School" is perhaps one of the better known American "schools" of economics. In its strictest sense, the "Chicago School" refers to the approach of the members of the Department of Economics at the University of Chicago over the past century. In a looser sense, the term "Chicago School" is associated with a particular brand of economics which adheres strictly to Neoclassical price theory in its economic analysis, "free market" libertarianism in much of its policy work and a methodology which is relatively averse to too much mathematical formalism and willing to forego careful general equilibrium reasoning in favor of more results-oriented partial equilibrium analysis. In recent years, the "Chicago School" has been associated with "economic imperialism", i.e. the application of economic reasoning to areas traditionally considered the prerogative of other fields such as political science, legal theory, history and sociology. The school rejected Keynesianism in favor of monetarism until the 1980s, when it turned to rational expectations. It has affected the field of finance by the development of the efficient market hypothesis. In terms of methodology the stress is on "positive economics" that is, empirically based studies using statistics to prove theory.

2 Approximately 70% of the professors in the economics department have been considered part of the school of thought. The University of Chicago department, widely considered one of the world s foremost economics departments, has fielded more Nobel Prize winners and John Bates Clark medalists in economics than any other university. Keynesian Economics: Keynesian economics (also called Keynesianism (pronounced /ˈkeɪnziәn/) and Keynesian Theory) is a macroeconomic theory based on the ideas of 20thcentury British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936; the interpretations of Keynes are contentious, and several schools of thought claim his legacy. Keynesian economics advocates a mixed economy predominantly private sector, but with a large role of government and public sector and served as the economic model during the latter part of the Great Depression, World War II, and the post-war Golden Age of Capitalism, , though it lost some influence following the stagflation of the 1970s. As a middle way between laissez-faire capitalism and socialism, it has been and continues to be attacked from both the laissez-faire right and the socialist left. Public Choice Theory: Public choice in economic theory is the use of modern economic tools to study problems that are traditionally in the province of political science. In particular, it studies the behavior of politicians and government officials as mostly self-interested agents and their interactions in the social system either as such or under alternative constitutional rules. These can be represented a number of ways, including standard constrained utility maximization, game theory, or decision theory. Public choice analysis has roots in positive analysis ("what is") but is often used for normative purposes ("what ought to be"), to identify a problem or suggest how a system could be improved by changes in constitutional rules. A key formulation of public choice theory is in terms of rational choice, the agent-based proportioning of scarce means to given ends. An overlapping formulation with a different focus is positive political theory. Another related field is social choice theory.

3 Austrian School of Economics: The Austrian School (also known as the Vienna School or the Psychological School) is a school of economic thought that emphasizes the spontaneous organizing power of the price mechanism. Austrians hold that the complexity of subjective human choices makes mathematical modeling of the evolving market extremely difficult (or undecidable) and advocate a laissez faire approach to the economy. Austrian School economists advocate the strict enforcement of voluntary contractual agreements between economic agents, and hold that commercial transactions should be subject to the smallest possible imposition of forces they consider to be coercive (in particular the smallest possible amount of government intervention). The Austrian School derives its name from its predominantly Austrian founders and early supporters, including Carl Menger, Eugen von Böhm-Bawerk and Ludwig von Mises. Other prominent Austrian School economists of the 20th century include Henry Hazlitt, Murray Rothbard, and Nobel Laureate Friedrich Hayek. Though called 'Austrian, today supporters and proponents of the Austrian School can come from any part of the world. The Austrian School was influential in the early 20th century and was for a time considered by many to be part of mainstream economics. Austrian contributions to mainstream economic thought include being one of the main influences in the development of the neoclassical theory of value, including the subjective theory of value on which it is based, as well as contributions to the "economic calculation debate" which concerns the allocative properties of a centrally planned economy versus a decentralized free market economy. From the middle of the 20th century onwards, it has been considered a heterodox school and currently contributes relatively little to mainstream economic thought. However, Austrian School economists' warnings about the financial crisis has led to renewed interest in the School's theories. Austrian School economists advocate strict adherence to methodological individualism, which they describe as analyzing human action from the perspective of individual agents. Austrian School economists argue that the only means of arriving at a valid economic theory is to derive it logically from basic principles of human action, a method called praxeology. This method holds that it allows for the discovery of fundamental economic laws valid for all human action. Alongside praxeology, these theories traditionally advocated an interpretive approach to history to address specific historical events. Additionally, whereas mainstream economists often utilize natural experiments, Austrian economists contend that testability in economics is virtually impossible since it relies on human actors who cannot be placed in a lab setting without altering their would-

4 be actions. Mainstream economists believe that the methodology adopted by modern Austrian economics lacks scientific rigor; critics have argued that the Austrian approach fails the test of falsifiability. Key Economists and Authors: Milton Friedman, Chicago Quote (paraphrasing) Inflation is purely a monetary phenomena, too much money chasing too few good causes inflation Friedrich von Hayek, Austrian Quote Spontaneous Cooperation which is a description of the natural economy Ludwig von Mises, Austrian Quote Economic Calculation which explains why socialism fails and the market economy works Murray Rothbard, Austrian, Libertarian Known for this theory of Sound Money Henry Hazlitt, Austrian, Writer for NY Times Fearless writer describing the free market H.L. Mencken, Journalist, Iconoclast, Author of Notes on Democracy Quote Voters will get what they voted for good and hard Hans-Hermann Hoppe, Austrian, Scholar at UNLV Thomas J. DiLorenzo, Austrian, Author of The Real Lincoln: A New Look At Abraham Lincoln, His Agenda, and an Unnecessary War Jim Cox, Austrian, Author of The Concise Guide to Economics Jörg Guido Hülsmann, Mises Biography author, Austrian Scholar Frédéric Bastiat, Author of The Law Dedicated his life to spreading the truth about of economics Israel Kirzner, Austrian, Attended Mises Seminars William H. Peterson, Austrian, Attended Mises Seminars Quote Americas other Democracy which is referencing the free market. Ron Paul, Austrian, Medical Doctor and Politician Board Member of Mises Institute, Opposes government interventions Leonard Read, Free Market advocate Founder of he Foundation for Economic Education, Created the first Free Market Think tank in America. Lew Rockwell, Austrian, Founder of The Mises Institute Author of many books including The Left, The Right and The State Joseph Schumpeter, Classical liberal and rejected Keynesianism Quote Capitalism is Creative Destruction

5 Key Terms and Thoughts: Economics is the science of staying alive - inherent is there is no free lunch Opportunity Cost: We choose, no choice is also a choice, we trade off our time for one activity vs another. Profit: Law of scarcity, Profit is a reward for efficiency, Assumes a moral code. Free Market: Unhampered, any attempt to hamper the market creates distortions. Mises stated All Government interventions make things worse Free Trade: Provides the lowest cost, highest quality and strong economies. Protectionism: Leads to economic disaster, Smoot Hawley Tariff Act in 1930 was passed under Hoover and destroyed the US economy. Private Property: Cornerstone of a free society Suggested Reading Material: The Law by Frederic Bastiat The Concise Guide to Economics by Jim Cox Economics in One Lesson by Henry Hazlitt Vision by Leonard Read **Mises in America by Dr. William H Peterson Read some current articles under the heading of Daily **This book has been mailed to you if address has been provided to seminar@captiveaire.com, If you did not receive a book please Kim Tant at kim.tant@captiveaire.com