On the Shoulders of Shrinking Giants | Lucas M. Engelhardt
Summary
History of Economic Thought: The speaker argues mainstream economics neglects historical foundations, reducing awareness of thinkers like Hayek and Mises.
Austrian Economics: Emphasizes revisiting Austrian insights and classic debates to counter misconceptions that “new” ideas are truly novel.
Data-Driven Shift: Highlights academia’s move toward big data over theory, citing Raj Chetty’s popular course and research as emblematic of this trend.
Intellectual Filter: Describes an “intellectual structure of production” where public intellectuals filter and sometimes distort expert knowledge for the public.
Citation Patterns: Notes that top journals heavily cite recent work, whereas Austrian literature more often integrates older foundational sources.
Public Opinion and Policy: Asserts that public opinion ultimately shapes policy, making economic education on counterintuitive truths essential.
Media Dynamics: Warns that minority views can be amplified when they fit prevailing narratives, leading to disconnects between expert consensus and public beliefs.
Action Plan: Recommends embedding history of thought in curricula, teaching via contrasts to intuition, and contextualizing new research within long-standing debates.
Transcript
It was fall of 2009 and it was a good day. I was early in my last year at the Ohio State University and I was slated to teach intermediate macroeconomics as I had many quarters before and it was Austrian business cycle theory day. It's a good day. So I'm walking through the hallway on the fourth floor of Arps Hall where the economics department was mostly housed and I'm passing one of the senior members of the department. This is somebody who I had never interacted with to this point. We had totally different specialties. I don't think we interacted at all after this particular exchange that I am sharing with you here today. But I'm walking past him and he stops me says, "Are you teaching today?" Yes, I am. But what are you teaching about? Now, I had to think fast because I knew if I said Austrian business cycle theory, he would say, "Well, why are you so interested in business cycles in Australia? and we laugh, but we've all had that kind of interaction, right? If you have not had somebody think we're talking about Australian economics, you're not a real Austrian economist, right? So, I wasn't going to say that. Said, okay, I I could say Mises's business cycle theory. Of course, he doesn't know who Misesus is almost certainly, right? So, I go the safe path. People know Hayek. People generally respect Hayek. I'm teaching Hayek's business cycle theory. And he looks at me and with all sincerity in his voice says I had a business cycle theory. What do you do? What do you do? So I just said yes and kept walking. That was the best I could come up with. Right? So I knew that when I was asked to give this talk that I had to share that particular anecdote. I didn't know that it was going to serve as the foundation for what I wanted to talk about here today. Right? And that is how can we end up in a position where where people don't know that Hayek had a business cycle theory. So a fairly simple fact right about the history of economic thought. Now the history of economic thought is certainly not my discipline. So I'm going to be speaking out not my subdiscipline but nonetheless right I'm going to talk about it anyway. So I I don't feel I need to be an expert to talk about something I suppose. Right. So so I was trying to evaluate how how does this happen? And I think that I found a hint right in a blog post uh from Greg Manchu in 2006. The title of this blog post is Austrian economics and the context of this a student in his principles of economics class sent him an email saying that they had just started reading human action by Ludwig von Mises and wanted to know what did ManQu think right of Mises and of this book. Now ManQu says he says the truthful if slightly embarrassing answers that I've not read the book explaining why may be somewhat edifying however. First, let me reflect on the reasons, though not excuses for my ignorance. And he says, "Most economists at research universities focus their attention on recent work. Things written more than 20 or 30 years ago are usually assumed to be irrelevant, outdated, or incorporated into more recent work. We rarely focus on something like the Mises book written in 1949 for the same reason physicists don't read Newton in the original." So, it is in fact an intentional decision, right, to not know that Hayek had a business cycle theory that that's too long ago. how it's not worth considering. Right? So now I don't want to be too hard on Manq here. Uh later on in this blog post he does say that he was aware of his ignorance of the Austrian school. So he read Hayek's road to surfom. He thought it was terrific and then assigned it in one of his classes at Harvard. Right? So don't give him a little bit of credit where it's due. Right? But this got me thinking like is this something that you my interaction in this hallway Manus post this seems to be just symptoms right of a general tendency to ignore the history of economic thought right so I wanted to go a little bit deeper and you gather some data what are students actually able to learn at places like Harvard if they're interested and kind where did ideas actually come from in the realm of economics right so I looked at what are generally considered the the top five places to study economics in the United States so you have Harvard MIT Stanford, Berkeley and the University of Chicago and I just looked at their curriculum said if I wanted to take a course in the history of economic thought in some form what options do I have available or are there any so I looked at Harvard where where man is and they do have one course in the history of economic thought now it is not a broad history of economic thought course from what I can tell uh the title of the course is canes [clears throat] so I suspect you get a somewhat limited view of the history of economic thought here, but nonetheless, he did write more than 30 years ago. So, I'll give some credit in at least recognizing he exists and might have influence. Uh, so then I looked down the street at MIT. So, how about MIT? If I want to study history of economics, thought there, are there courses where I can do it? And they also do have one. Uh, it's titled classics of economics. And it is taught not by someone who is a member of the economics department, but by a member of the history department because they actually realize the past exists. So what if I go across the country to Stanford? Right? So if I want to study history of economic thought there, do I have courses to take? The answer is simply no. It turns out that professor that I was interacting with in the hallway had gotten his PhD from Stanford. Uh how about you know down the road at Berkeley if you wanted to study history of economic thought there that they do have one course and it is actually titled history of economic thought. So I suspect it's a bit broader than Harvard's option. And how about the University of Chicago? Uh there if you want to take a course in the history of economic thought, too bad. It's not an option. Now, one thing about the University of Chicago, though, if you look at their description for their principles of macroeconomics class, they do mention the history of thought in that description. So, it is at least possible that somebody graduating with an undergraduate uh degree in economics from the University of Chicago might hear the name Freiedman at some point before they graduate. Right? So this seems to be the state of things, right? And and I I want I just was contextualizing this in the place of a larger movement that we're seeing within the mainstream of economics and that is a movement away from right thinking about things from this more theoretical perspective toward a more datadriven perspective which certainly would align very well with manu's observation just ignoring what has happened before the modern techniques we have and we do see symptoms of that as well there at Harvard. uh there was uh recently introduced within the past few years this course from Raj Cetty titled using big data to solve economic and social problems right now I'll read some description here of course you're literate you can read it yourself as well but I'll read it to you right so economics 50 uh that is the most recent number this is a recent of course it has had several different numbers in their catalog since it was introduced I think seven years ago right it will show how big data can be used to understand and address some of the most important social economic problems of our time the course will give students an introduction to frontier research policy applications in economics and social science in a non-technical manner that and I added emphasis here does not require prior coursework in economics or statistics making it suitable both for students exploring economics for the first time as well as for more advanced students. So the intention here you can see very clearly is that you don't even have to know the theory let alone know where it came from. we'll just show you the data and then you're going to learn economics this way purely through these applications and it turns out this course is quite popular. Uh so when it was shortly after shortly after it was introduced uh in 2019 Vox ran an article about this course and they shared this data. I unfortunately was not able to find more recent data. I couldn't find the enrollment data for Harvard. Uh so the principles course that ManQu would teach that's econ 10 you can see the the left uh bar here the enrollment is around 450 or so in the typical semester there uh this big data course that had a different number at that point in time because it was very new uh is almost as popular at that point in time right when it was first introduced right as the more thedriven principles course right so certainly we're seeing abandonment of thinking about the history of thought at all or even thinking theoretically at all as we are presenting econom economics to people. All right. So we see this in instruction. Do we also see it in say the research that is being done at research universities that manu talked about? So this is not particularly scientific I I admit but I thought well I'm just going to pull out a recent edition of the American Economic Review. Just pull out the first article and flip to the references section. So I flipped to the references section and just look at dates. When are these references from? And this is what I found. So, so these would be the decades and the number of references from each of those decades. Uh, if you want to add things up, it turns out 90% of the references are from 2000 and later in this particular paper. Uh, there was one paper that came from before 1970. Uh, that was it was from the 1960s. I forget which year exactly. And it was some econometric method paper. I find that if you want to actually be cited for a long period of time in the mainstream of economics, you need to develop a new econometric method that catches on and then people will actually cite you more than 20 years later. So now notice when I pulled this out, I didn't pay any attention to the title page or who this was or anything. This was just the first article in this issue. So after I uh looked at this data, I thought well maybe maybe I should see who wrote this paper what the title is so I can share that with you. The first author was Raj Cheddy. It turns out I told my wife when I was telling her about this talk Raj Cheddy kind of became the unintentional villain of my story. But here it So it is actually one of his best known uh I guess projects that he's working on the opportunity atlas mapping childhood roots of social mobility where he's looking at a lot of geographic data and how it connects with social mobility over people's lifetimes. He's hoping to find things like oh if you have really good busing systems then that will lead people out of poverty so we can make these policy applications. So so this is where things look right. So I was thinking about this. I thought, oh, okay, I'm not being entirely fair at this point because I'm not really providing a point of comparison, say from the Austrian view because it might be there are good reasons for you to site people that are more recently uh published because that's who your referees are going to be. So you have a good reason to site a recent paper because that's the person who's going to read the thing and say whether it gets accepted. And that's as true for us. You know, why should I cite Misesus? He's not going to read my paper. there there are significant barriers to that right so it [clears throat] makes sense for even me writing to refer to things that are more recent so I looked at some Austrian papers including an award-winning one it turns out uh Bason Hen's essentialist views on banking contracts and this is what the pattern looks like for them so we do see some concentration of more recent work and that that makes some degree of sense again citations also you want to be up to date uh but if you do the math you find out it's somewhere between 50 and 60% of the references are from the past 25 years. The other roughly half, almost half, come from before that time period and in fact go all the way back to the 1800s. It turns out that people were thinking about banking contracts before the year 1900. And we acknowledge this and recognize it. So, but then I thought to myself, well, I haven't actually read the paper. Sorry. But the title feels like it might be intentionally more history of thoughtish and then naturally you are going to be citing things from before 1970 in that case. So let me pull out a paper another one fairly recent from the quarterly journal of Austrian economics uh that where the title doesn't sound like it must be history of thought and that was Christopher Hansen's a s simple model for the demand for money and the demand for secondary media of exchange and we see broadly the same pattern as we saw with Bus and Hen roughly 50% slightly more than that more recent citations and then the rest stretches out over the course of the previous century right so we see this recognition that the past does in fact exist does have an influence on our ideas, right? So why would I bother focusing on this already saying it's it's not really my specialty. So why would I care right so much about the history of thought and wanting to share with us and make sure that we um do actually emphasize this idea of the history of thought and I think it comes down to this and that is that the reality is that economics often has to revisit old debates. So we shouldn't lose track of these debates, right? And if we do, it is to our detriment because we end up with the problem that people have this impression that ideas are newer than they are, right? So I think about the student that came to me the first day of class this semester, right? Like I don't know what his end grade is going to be yet. But he definitely gives me the impression of being a very strong student, certainly very thoughtful, very attentive in class. And he came up to me at the end of the first day of class and said, "I'm really excited to take this class. It's not really his field. I mostly teach kind of the general education courses. Uh but there's really exciting stuff happening say in New York because now we have totally new ideas, right? Coming from the new mayor there that we're going to be seeing implemented. [laughter] Now you can't blame him. This is his first economics class, right? But we end up with this impression that things are newer than they are. Or when I was in graduate stu uh when I was a graduate student, I had somebody that I knew in middle school messages me on Facebook, "Have you heard about this grand new idea?" right? Totally going to revolutionize the economy. I see you're studying economics. You should really look into it. Turns out that was the Venus Project and the Zeitgeist movement is connected with this. I didn't know anything about it. If you don't know anything about it, congratulations. Uh but when you look deeper into it, all it is, right, is socialism mediated by technology. We love engineers. Put them in charge of everything, right? And then have computers mediate all of this process. Right? So I looked at this is just central planning. That's all it is. That's nothing new. Nonetheless, he's convinced, right? All of the previous arguments do not apply because this is a totally new idea. We won't know till we try it. We can't lose track of the past. So what I want to talk about is kind of why is this this something that happens? Why is this some something that we should care about? So we need to examine then the formation of public opinion as a result of an intellectual structure of production. Right? Then I want to talk some about why should we really care right about the public opinion as a whole because it's not necessarily obvious to everyone that that really matters and then finally offer some plans to make this practical. What are things we can do right for us in the room to improve public awareness of some of these old debates and so I want to share then so I'm thinking about this idea of an intellectual structure of production. I'm very inspired here uh by Hayek's the intellectuals and socialism which had a huge influ influence on uh what I'm sharing with you here today right so we start with just simple model of the structure of production right so we have the hayakian triangle here in the garrisonian form you have time on the horizontal axis we know as time moves from left to right we go from say raw materials to manufacturing to then wholesale and retail there certainly may be additional uh layers right to the productive process that I'm missing But the general story being as we move through the process in time, we're getting closer and closer to final consumption and therefore see less discounting of the value of the goods coming out of that particular stage of production. So it's increase in value as we approach final consumption. So seems rather obvious to me uh this would be a natural place to start. Right? If I want to think about a structure of production, just add the word intellectual in front of this and then we're good to go. Right? So there we go. It's a simple model of the intellectual structure of production. Right? So what we have it's a very simple process. Right? So we have on the one hand original scholars coming up with new original ideas. Uh the problem is that if we want to end up influencing public opinion uh the public isn't necessarily equipped right to deal with these original ideas um directly right. So we need some intermediate class right we call the public intellectuals. Hayek uses this great phrase uh secondhand dealers and ideas right that communicate these ideas then to the public through this translation process right so okay you have a reasonable understanding of what it is the scholars are saying you know how the public talks right so you have to do that translation work and thereby add value right to those ideas right so one thing that hike points out in his essay is this group of public intellectuals right it's a very large group it includes all kinds of people uh I think most Most of us in the room would occasionally fulfill this role and whenever we're communicating with the public we are fulfilling that role but who also cover people like journalists teachers artists though hike didn't mention them YouTubers would also count as would bloggers and the like so all these people influence right public opinion communicating ideas that started with these original scholars adding value by making them translated for public opinion to be able to be formed. Now so I started with this said, "Well, there is an issue with it and that I think it's fundamentally wrong." This doesn't seem right in many ways. Now, I'm not going to say none of this process doesn't happen, right? That that would also be incorrect. But rather, it's missing really key essential components of the story that are absolutely necessary if we want to understand the formation of public opinion. So, we need a different story. So, let's look uh somewhere else in the Austrian literature. And here I actually put my name on the screen, right? this idea of the accumulation of intangible capital. So this 2009 again it was a great year apparently. So Andrew Young right uh wrote this paper uh capital-based theory of secular growth and in this he describes right how secular growth can happen through the accumulation of intangible capital. So his definition here which I think is informative for us is intangible capital is knowledge achieved by devoting time and resources to discovering new knowledge. So it is the intentional acquisition and creation of knowledge. And what Young points out is that intangible capital of this form has two key traits that allow for it to accumulate over time and to lead then to economic growth. First of those is what he calls non-rivalry. Right? So that is once an idea is developed we don't have to each then develop that same idea again right very much unlike my house sort of if one person builds a house it doesn't mean then I also have a house right I have to build it myself I have to do that investment again in building another house on the other hand if Pythagoras develops a theorem right the rest of us can just use that theorem we don't have to rediscover it and reprove it and all of this of course geometries force us to do this in class nonetheless we don't have to we can use that idea it doesn't have to be reinvented and reinvented time and time am we also have a second component of traits of intangible capital that would be standing on the shoulders of giants that is once an idea is developed you can then use that idea in the formation of new ideas so ideas accumulate on top of one another over time and thereby we'll see additional reason for growth now and my contribution right to this was this is actually my first academic uh publication it's it's It's a very hard read. It's three pages. Um, one of them is a numerical example and another half page is references, right? So, you should be able to read it in the next by the time I'm off this slide, honestly. So, so in this comment, what I did, I generally agreed with Young in saying that, yeah, intangible capital is important, but I suggested that he missed a really important part of intangible capital and what allows it to lead to secular growth. And here I appealed to Murray Rothbart. Rothbart says the distinguishing feature of a recipe is that once learned it generally does not have to be learned again right so there is this trait of what I called non-depreciation right of intangible capital so as we add these ideas those ideas don't shrink they don't go away right so as a result we don't have to do that reinvestment continuously here okay so for these three reasons then I would certainly agree non-rivalry helps right standing on the shoulders of giantness helps but also this uh trait of non-depreciation would play a key role in the accumulation of ideas that could then lead to economic growth. Well, I'm older now and I realize uh this view is also wrong, okay, kind of wrong in that it's far more narrow in its application than what I originally believed 17 years ago. So I think that if we apply this what I'm going to call applied expertise, I'll get more to this in a minute. Then I think these insights do basically work. But I think when we look more broadly at the accumulation of knowledge by the public, it doesn't work so well. So for example, um I should know a lot about electricity. I'm surrounded by electricity all the time. Like literally right now, how much electricity am I surrounded by? And not only that, but my dad worked for the electric company for several decades before he retired. I I as a small child was walking around inside of the coal burning power plant that he worked at and could look inside the furnaces through the window. I should know something about how electricity works. Nonetheless, if you ask me, how does it work? Yeah, I don't really know. It's I can say words about electrons, but I may as well just be saying, you know, alakadabra, alakazoo, bib boppity boo. that it's in terms of the actual meaning behind those words is basically the same right like I don't understand how this works but I don't have to and that's an important point we'll come back to right so so we have here two different views that don't quite work not that there's no truth in them but they don't capture the essential components that we need if we want to understand the formation of public opinion so let's go with something that I think probably does work and here I'm taking very much from Hayek I'm going to call this not the Hayakian triangle that's already taken. The Hayakian funnel or he calls it a civ. A civ is difficult to put up on a screen. So it's a tri it is not a triangle. It is a funnel. That's a funnel. Okay. Right. So what happens with the Hayakian funnel is we have the accumulation of expert knowledge at the top. Now the problem that we face though is that this accumulation of expert knowledge is absolutely enormous. Right? So when I I look at say my own experience at Kent State University, one of the things that we had to go through as part of the tenure promotion process is that they have to evaluate all of your publications, right? What are these things worth? Uh so in an attempt to be very broad and letting us publish wherever we liked, uh one of the members of my department developed what he called the journal quality index. He has this long list of of journals and then looks at various measures of quality and then uh includes those on that journal quality index list. He was tracking 3,100 journals. Now this wasn't just in economics. It was other business disciplines, marketing, entrepreneurship, accounting and so on. But there's an enormous number of journals. So we can see if you want to be an informed business person, it's completely impossible, right, to stay on top of all of the latest research. It's it's just not possible at all. And so when then what do we need? We need some kind of filtering process. We need somebody to go through all of this new knowledge that's being created to figure out what is it that needs to be passed on to the public. Right? So that is the role of this filter or as Hayek would say the civ. That is what the intellectuals do. They sort through all this new knowledge, figure out what is important, what is interesting that needs then to be passed on to the public. So if this is what happens right then it's important for us to understand more about this intellectual class and what kind of traits are necessary for the people that would serve this role. So what are the traits of intellectuals? Now Hayek is very clear intelligence is not a prerequisite. You do not have to be intelligent to be in the intellectual class. I breathe a sigh of relief. [laughter] But what you do have to do, you have to be able to speak and write about a wide range of subjects. That's an essential component. And you also have to become acquainted with new ideas somewhat faster than your audience does. Right? Otherwise, you're serving no purpose. Right? So, we need those two things. Now, a consequence, right, of these two traits when we combine them, as Hayek notes, is there's a tendency for the intellectual class to want to overgeneralize, right? So to take an idea that say originates in one field and then try to apply that idea outside of that field and we end up then with an an inappropriate transfer of concepts between different disciplines. Uh more on this and the essential role that plays in understanding uh public opinion later on. So let's get about correcting right some of my the error in my argument about non-depreciation because really we can think of that uh error of uh thinking about non-depreciation is really I was falling into that same trap I was overgeneralizing a concept right so this idea of non-depreciation not that it never applies but doesn't always apply so I want to suggest then that there are actually two types of knowledge that I want to talk about in this distinction So now naturally we can always ask the question right is knowledge a good in itself that we should pursue and certainly academics especially philosophers would tend to say maybe it is maybe we should do this for fun or what have you and many of us do but nonetheless I think that many people one don't even think about this question and certainly don't care about the answer I think for most people the material well-being that results from knowledge is really the important thing right so how do you take that knowledge put it in application so that then we can be made better off as a society and particularly in an imperial in a material way. So when I think about that I can think of two different types of applicated application of knowledge or applied knowledge. First is applied expertise. Now applied expertise has the trait where society as a whole can be made better off even if only a few people have that particular knowledge. Right? So I'll get more into examples of this in a moment but electricity may fit. The second type is applied public opinion. So applied public opinion is a case where if we have mass error amongst the public that is capable of preventing social progress in a particular area. Right? So applied public opinion then public opinion does matter at this point. Right? So let's hop in first talking about applied expertise. So how does expertise progress? Well here I'll just to keep it brief. I think that ManQu's assumption saying the new stuff basically incorporates what's good from the old stuff, discards what isn't because it's outdated or irrelevant isn't totally wrong. Similarly, I would suggest that the this is where say Young and and my points would also tend to apply that this tends to be true. Just for some more examples outside my field, my understanding is that quantum mechanics actually contains classical mechanics as a special case. It's just at a very large scale, right? Or general relativity. I understand right also when I say understand it means I've heard general relativity contains also classical mechanics as a special case with low velocity and low gravity right so then how does expertise right uh progress well we take these old ideas so we start with idea one we sort through it find what is false and build on whatever remains add to it things that are new we're in effect standing on the shoulders of giants right so we progress from one one idea to the next by incorporating what is uh in it as a special case and say in the case of classical mechanics in its relationship to general relativity or quantum mechanics and we discard whatever is old and false now naturally I am being a bit optimistic here it's not like science never takes a misstep right but at the same time we could see this progression working more or less right as we describe here now the key point here is that society as a whole right can benefit from expertise progressing in this way even What if not everyone possesses that expertise, right? So, in fact, I think about another piece of magic that I have in my pocket. I have no idea how the GPS on my phone works. Not a clue, right? So, I could form in my mind a theory and say, well, I think what it is is that there are these invisible pixies that live in my phone, right? can listen, right, to the world song, right, that goes along lay lines around the earth and they can tell, right, where we are based on that those lay lines in that world song. This is crazy, but nonetheless, me believing this isn't going to hurt anybody, right? As long as I'm not designing cell phones, we're good to go, right? So, so with the cases of applied expertise, as long as the experts, right, have some reasonable measure of what the truth is and as long as I as a consumer can say, "Yes, this is accurately telling me where I am, right?" Then we're good to go. We don't have to have the public as a whole understand these things, right, for society to be better off, right, in these cases. So, back to the funnel. So I would suspect then that the top of the pyramid right is going to tend to progress reasonably well right with these traits of non-rivalry standing on the shoulders of giants non-depreciation of ideas as people within expertise keep what is good and discard what is bad and build upon what is good. Now on the other hand when we get to the bottom of the pyramid there are areas where public opinion does actually matter. We we need more than just top of the pyramid, right? Top of the funnel progress. We need the bottom of the uh funnel to also progress for us to make progress. So why do we care? Well, it's true in some cases, as I just mentioned, mass error may not matter, but in others, it certainly does. And I think that we can say with reasonable confidence that policy is one of those areas. Uh the reality is that basically regardless what political system you live under, there is no unpopular policy that's going to make it in the long run. Something is going to end up overturning it one way or another. Right? So public opinion whatever it says will eventually right out [clears throat] as Misa says he says when casting a ballot people are taking a stand on essential economic theories. It is therefore important for us right to make sure that the public has the essential economic theories right. And this is especially true as we now live in a world in which the role of the state has increased and increased. There are more and more places where policy actually has a say and therefore more and more places where public opinion is going to matter in public error is going to potentially be disastrous. So if we accept then right that policy does in fact matter and have an impact and I suspect you would not be at this conference if you didn't believe that we have to also accept that public opinion will matter. So for us to understand the formation of public opinion, we need two more pieces. We need to know about those traits of intellectuals which are already mentioned and the impact that they have. And then we also have to have some sense of how do these traits of intellectuals actually lead to changes in public opinion. How does public opinion progress or or not progress over time as the case may be. So in terms of the traits of the intellectuals, so remember we have those two key traits, right? first the ability to speak and write about a wide range of topics and then also a tendency to become acquainted with new ideas more quickly than their audience does. Now the result of this Hayek points out is that what we tend to see is an appeal amongst the intellectual class to a small handful of general principles that the intellectuals believe are generalizable. So they end up judging ideas in every field based on how well they fit into this small set of general principles. Now one point that Hayek makes he says these general principles often come from real scientific or technological discoveries claims or trends right that the public intellectuals have observed and are living through. So he gives the example of you since the mid 1800s I think it's undeniable we've seen technological advances that have allowed for the application of scientific principles in the physical world to improve human well-being right through greater control over the physical world. This seems undeniable. So then a natural extension would be that we should then or be able to apply social scientific principles to improve human well-being through greater control over society. That's where we have the overgeneralization. Right? So a lot of what Hayek did as we know through his work was trying to point out that there's a difference right between these two fields and between these processes and what happens right when you try to control them. These are totally different. You can't just transfer one idea to another field. So another point that Hayek makes that is also very important in understanding how uh this progression happens or doesn't is that intellectuals are perfectly willing to amplify minority voices if it fits into whatever their framework happens to be. So they're not necessarily just you taking polls of the scholars that are above them in the process and then oh here's the majority that is what's going to get passed on to the public. No, they evaluate ideas independently in some sense. How do they fit within the general narrative that they believe about how the world works and then they share what fits and don't what doesn't. Right? So it doesn't really matter to the intellectual class if 95% of economists agree that the burden of a tariff mostly falls on the consumers in the country of that imposes that tariff. If the other 5% happens to match a particular intellectual's general view of the world, that's going to be what gets amplified. So, so as an actual example, it doesn't matter, right? If the grand majority of economists, not just in this room, but also other gatherings we might disagree with on many fundamental issues. Nonetheless, we generally reject price controls as a reasonable way of fighting inflation or ensuring ensuring affordability. Nonetheless, that doesn't stop the New York Times from running an op-ed titled, "Economists hate this idea, it could be a way out of the affordability crisis." [laughter] or the very next day in Forbes the real story economists don't tell you about price controls right so it doesn't they know it's a minority opinion but it fits into right the general way that they view society and how the world works and therefore they're willing to amplify minority opinions now this is something that I say like this is a dire thing but there are times I'm holding minority opinions so this is potentially useful keep that in mind right but The result of this though is that because of the intermediating role of the intellectuals, we can end up with a significant disconnect between what happens at the top of the civ and what comes out of the bottom of the civ. That is the intellectuals are sorting through scholarship. They aren't necessarily keeping what's true, but they're keeping what fits their view of the world and that gets passed on to the public. We can end up with an enormous disconnect between what the public believes and what experts believe. So then how does public opinion progress as a result of this? Well, I I would suggest that public opinion gets opinion gets formed by two traits of this process, right? So the first is the role of the intellectual class and the filtering mechanisms that they provide. Uh the second which it turns out is going to be quite important to us is the reality that people die. People would be kind of surprised by this. But okay, no. Why is it why does that matter, right, that people die, right? Well, that means then that every generation has to relearn, right? Any counterintuitive truth? After all, right, counter counterintuitive truths must exist, right? If they did not exist, then the reality is that education would just systematically mislead us about reality. We should just go by intuition all the time, right? And what we would find then right is that any society that had a lot of education would naturally then be poorer from its waste of resources than a society without education. Now this is not saying all education is useful certainly right but it is at least possible for education to give us an improved view than we might naturally have otherwise when we want to think about the world around us and it turns out education is a big role that the intellectual class provides. So, so many of us I will say I am personally very comforted by the fact that there are counterintuitive truths out there gives me something to do that is perhaps not a waste of resources I would hope. All right. So intellectual class then providing education right so we have professional educators certainly teachers professors many people in this room authors of homeschool curriculum as well fulfilling this type of role right but then we also have other cultural influencers that act as educators to the general public artists journalists movie makers documentarians right bloggers again YouTubers Instagrammers tick tockers mises.org or writers, right? All of these are again part of that intellectual class informing the public, educating the public and we find having to re-educate the public generation after generation in whatever those counterintuitive truths happen to be. Right? So, so then how does intangible uh capital right that accumulates at the top of the funnel, the top of the civ, right, influence public opinion? Well, I want to suggest that this is where I went wrong in 2009 because of this reality of mortality. These truths are in fact appreciating. We do lose track of ideas from one generation to the next and therefore we don't get to just keep building on exactly the same giants uh year after year after year. No, the these giants shrink. So then the reality is few people are experts in anything. Almost no one is an expert in everything. The only one I know is David Gordon. [clears throat] So in intellectuals, you know, they're infatuated with this idea of the generalizable with with the new and they can rush into errors as a result of that and pass those on to the public. Right? So we have all of these things working against us and accumulating right positive knowledge amongst public opinion. Right? So it is true expertise stands on the shoulders of giants. Public opinion on the shoulders of shrinking giants. Shrunk by the mortality of the learned and the wise. shrunk by the imperfect intellectual class. So what then can we do? Well, that's a good question. So what we need to think more about is again this history of economic thought. We've had these debates in the past, right? Let's revisit them and let's share them with the next generation as we go. Right? So I think it's fair to say that when you look at the history of economic thought what you find right is that conflict right between erroneous intuition and the triumph of reason and evidence at least in expertise that's what we find we don't necessarily find that in public opinion right so but time and again we find things like Adam Smith declaring that wealth is not right the gold that is in the king's vault it's our ability to improve our well-being right through production through trade we have cases like Carl Minger telling us that goods are not valued as these abstract ract general classes but rather as distinct units that we actually act upon. These are counterintuitive truths that people need to relearn generation after generation. Or we have Hayek very importantly reminding us that the knowledge of general rules is not the same as the knowledge of the particular circumstances of time and place. Counterintuitive truths that need to be taught and rettaught, learned and relearned generation by generation. Right? So I would suggest then that we should not communicate these ideas in isolation, right? but rather in contrast, right, to how our intuition might naturally mislead us. And so my plan for action then now I will say a lot of this are things that I know we are already doing. I suspect many people in this room in fact I will share some evidence of that. But I want to talk to kind of three overlapping groups that I suspect are going to be represented in this room. So first would be those that have some kind of say in curriculum design. Right? So here the obvious thing would be to advocate right for the teaching of the history of economic thought and it turns out when you look at many Austrian influence programs it's clear we're already doing this right so I just pulled out three that I was aware of right so being a a graduate of Grove City College I was somewhat aware of the curriculum there and double check to make sure that the things haven't changed too much on this front turns out when you go to Grove City that you have three courses available to you in the history of economic thought one of one of those specialized in Austrian economics Right. Two being a sequence of before and after the Marshallist revolution. Now take take a minute to do the math here. I know this is difficult for us. This implies then that Grove City College, that's a little school in Northwest Pennsylvania, something like 2400 students last I checked, offers as many courses in the history of economic thought as Harvard plus [snorts] MIT plus Stanford plus Berkeley plus Chicago. >> [laughter] >> Or how about Hillsdale? Hillsdale offers a twocore sequence in the history of economic thought. Interesting thing about this one, this is required of all economics majors to take that sequence. You don't find that when you go to Chicago. You don't find even the the option for the courses in Chicago or you have GMU at the undergraduate level. They have four courses available in the history of economic thought. Two of those is a two course sequence on Adam Smith by himself, right? one more on Austrian economics and another general history of economic thought course. And so we're doing good work here. So let's keep spreading that wherever you have the opportunity. Uh the second group I'd like to speak to would be those of us that I certainly fall into this group. Those that are teach get provide instruction and also provide the role of the intellectual whether that is to students that are paying tuition or whether it be to the public as a whole. Right? Incorporate history of thought into your courses into your sharing of ideas. The ideas you're sharing came from somewhere. There's no problem with naming names. Right? I would also suggest that it's important to highlight not just the origins but also the contrast, right? What are those erroneous intuitions that we might naturally have that are being corrected, right, by these new ideas, these discoveries that were made in the past? I would suggest here that the formulas you you see from Jesus on the sermon on the mount, he says time and again, right? You have heard it said, but I say unto you, this is a very powerful formula because it recognizes first, right? Here's what you might be walking in with. But it needs to be corrected, right? So we are acknowledging where students are, where the audience is, right? And then pushing them forward in a better direction. So I I think that is extremely important that it helps then to inoculate students from this tendency to think these ideas are totally new because they didn't happen to hear about it from professor Inglehart. Oh, Professor never told us about how great socialism would be in providing public grocery stores to the people of New York City. So it must be a new idea he didn't know about. Provide the contrast. Right? So these ideas are not new. And then finally I want to talk to the original researchers. Right? So there's the your primary call is call is not in that intellectual class is the pro provision and creation of new ideas. Well, you certainly can incorporate the history of thought into your research. And again, we see already evidence of that amongst this crowd. But even if you're not doing history of thought research itself, which as I said, I've done none of this. Nonetheless, that is important for us to do. But regardless what research you're doing, contextualizing your work, right, in terms of the debates, right, that didn't just start 20 years ago, but have been going on now often for centuries or millennia, right? So providing this broader context for the ideas that we are creating, the ideas that we're sharing, the ideas we are advocating amongst other scholars, helps to provide then people like me who do provide that teaching role to then see these connections then communicate them more clearly. So it has been said that those who forget the past are condemned to repeat it. And it seems like those of us in economics in each generation we forget the past and are condemned to repeat it. We have to learn and relearn. We have to teach and retach the same ideas over and again. This is necessary from the way the public opinion is formed. We have no choice about this. We have to repeat these same debates over and again. However, we do have the choice to come prepared for that. And so, I do want to thank the Mises Institute for the invitation to give this talk, particularly Dr. Soleno who gave it to me. And I also want to recognize one more element of the intellectual structure of production that I have not yet mentioned. I'd like to thank Dr. Prince, right, for his donation, right, that made this possible and for all the donors that are investing in the intellectual structure of production here at the Mises Institute. And I hope that we are providing then right a return on that investment and then making a difference in how people view these issues so that we can move forward in the public and thereby have [snorts] a better society. So to close then with just a very quick reminder did in fact have a business cycle theory. Thank you. >> [applause]
On the Shoulders of Shrinking Giants | Lucas M. Engelhardt
Summary
Transcript
It was fall of 2009 and it was a good day. I was early in my last year at the Ohio State University and I was slated to teach intermediate macroeconomics as I had many quarters before and it was Austrian business cycle theory day. It's a good day. So I'm walking through the hallway on the fourth floor of Arps Hall where the economics department was mostly housed and I'm passing one of the senior members of the department. This is somebody who I had never interacted with to this point. We had totally different specialties. I don't think we interacted at all after this particular exchange that I am sharing with you here today. But I'm walking past him and he stops me says, "Are you teaching today?" Yes, I am. But what are you teaching about? Now, I had to think fast because I knew if I said Austrian business cycle theory, he would say, "Well, why are you so interested in business cycles in Australia? and we laugh, but we've all had that kind of interaction, right? If you have not had somebody think we're talking about Australian economics, you're not a real Austrian economist, right? So, I wasn't going to say that. Said, okay, I I could say Mises's business cycle theory. Of course, he doesn't know who Misesus is almost certainly, right? So, I go the safe path. People know Hayek. People generally respect Hayek. I'm teaching Hayek's business cycle theory. And he looks at me and with all sincerity in his voice says I had a business cycle theory. What do you do? What do you do? So I just said yes and kept walking. That was the best I could come up with. Right? So I knew that when I was asked to give this talk that I had to share that particular anecdote. I didn't know that it was going to serve as the foundation for what I wanted to talk about here today. Right? And that is how can we end up in a position where where people don't know that Hayek had a business cycle theory. So a fairly simple fact right about the history of economic thought. Now the history of economic thought is certainly not my discipline. So I'm going to be speaking out not my subdiscipline but nonetheless right I'm going to talk about it anyway. So I I don't feel I need to be an expert to talk about something I suppose. Right. So so I was trying to evaluate how how does this happen? And I think that I found a hint right in a blog post uh from Greg Manchu in 2006. The title of this blog post is Austrian economics and the context of this a student in his principles of economics class sent him an email saying that they had just started reading human action by Ludwig von Mises and wanted to know what did ManQu think right of Mises and of this book. Now ManQu says he says the truthful if slightly embarrassing answers that I've not read the book explaining why may be somewhat edifying however. First, let me reflect on the reasons, though not excuses for my ignorance. And he says, "Most economists at research universities focus their attention on recent work. Things written more than 20 or 30 years ago are usually assumed to be irrelevant, outdated, or incorporated into more recent work. We rarely focus on something like the Mises book written in 1949 for the same reason physicists don't read Newton in the original." So, it is in fact an intentional decision, right, to not know that Hayek had a business cycle theory that that's too long ago. how it's not worth considering. Right? So now I don't want to be too hard on Manq here. Uh later on in this blog post he does say that he was aware of his ignorance of the Austrian school. So he read Hayek's road to surfom. He thought it was terrific and then assigned it in one of his classes at Harvard. Right? So don't give him a little bit of credit where it's due. Right? But this got me thinking like is this something that you my interaction in this hallway Manus post this seems to be just symptoms right of a general tendency to ignore the history of economic thought right so I wanted to go a little bit deeper and you gather some data what are students actually able to learn at places like Harvard if they're interested and kind where did ideas actually come from in the realm of economics right so I looked at what are generally considered the the top five places to study economics in the United States so you have Harvard MIT Stanford, Berkeley and the University of Chicago and I just looked at their curriculum said if I wanted to take a course in the history of economic thought in some form what options do I have available or are there any so I looked at Harvard where where man is and they do have one course in the history of economic thought now it is not a broad history of economic thought course from what I can tell uh the title of the course is canes [clears throat] so I suspect you get a somewhat limited view of the history of economic thought here, but nonetheless, he did write more than 30 years ago. So, I'll give some credit in at least recognizing he exists and might have influence. Uh, so then I looked down the street at MIT. So, how about MIT? If I want to study history of economics, thought there, are there courses where I can do it? And they also do have one. Uh, it's titled classics of economics. And it is taught not by someone who is a member of the economics department, but by a member of the history department because they actually realize the past exists. So what if I go across the country to Stanford? Right? So if I want to study history of economic thought there, do I have courses to take? The answer is simply no. It turns out that professor that I was interacting with in the hallway had gotten his PhD from Stanford. Uh how about you know down the road at Berkeley if you wanted to study history of economic thought there that they do have one course and it is actually titled history of economic thought. So I suspect it's a bit broader than Harvard's option. And how about the University of Chicago? Uh there if you want to take a course in the history of economic thought, too bad. It's not an option. Now, one thing about the University of Chicago, though, if you look at their description for their principles of macroeconomics class, they do mention the history of thought in that description. So, it is at least possible that somebody graduating with an undergraduate uh degree in economics from the University of Chicago might hear the name Freiedman at some point before they graduate. Right? So this seems to be the state of things, right? And and I I want I just was contextualizing this in the place of a larger movement that we're seeing within the mainstream of economics and that is a movement away from right thinking about things from this more theoretical perspective toward a more datadriven perspective which certainly would align very well with manu's observation just ignoring what has happened before the modern techniques we have and we do see symptoms of that as well there at Harvard. uh there was uh recently introduced within the past few years this course from Raj Cetty titled using big data to solve economic and social problems right now I'll read some description here of course you're literate you can read it yourself as well but I'll read it to you right so economics 50 uh that is the most recent number this is a recent of course it has had several different numbers in their catalog since it was introduced I think seven years ago right it will show how big data can be used to understand and address some of the most important social economic problems of our time the course will give students an introduction to frontier research policy applications in economics and social science in a non-technical manner that and I added emphasis here does not require prior coursework in economics or statistics making it suitable both for students exploring economics for the first time as well as for more advanced students. So the intention here you can see very clearly is that you don't even have to know the theory let alone know where it came from. we'll just show you the data and then you're going to learn economics this way purely through these applications and it turns out this course is quite popular. Uh so when it was shortly after shortly after it was introduced uh in 2019 Vox ran an article about this course and they shared this data. I unfortunately was not able to find more recent data. I couldn't find the enrollment data for Harvard. Uh so the principles course that ManQu would teach that's econ 10 you can see the the left uh bar here the enrollment is around 450 or so in the typical semester there uh this big data course that had a different number at that point in time because it was very new uh is almost as popular at that point in time right when it was first introduced right as the more thedriven principles course right so certainly we're seeing abandonment of thinking about the history of thought at all or even thinking theoretically at all as we are presenting econom economics to people. All right. So we see this in instruction. Do we also see it in say the research that is being done at research universities that manu talked about? So this is not particularly scientific I I admit but I thought well I'm just going to pull out a recent edition of the American Economic Review. Just pull out the first article and flip to the references section. So I flipped to the references section and just look at dates. When are these references from? And this is what I found. So, so these would be the decades and the number of references from each of those decades. Uh, if you want to add things up, it turns out 90% of the references are from 2000 and later in this particular paper. Uh, there was one paper that came from before 1970. Uh, that was it was from the 1960s. I forget which year exactly. And it was some econometric method paper. I find that if you want to actually be cited for a long period of time in the mainstream of economics, you need to develop a new econometric method that catches on and then people will actually cite you more than 20 years later. So now notice when I pulled this out, I didn't pay any attention to the title page or who this was or anything. This was just the first article in this issue. So after I uh looked at this data, I thought well maybe maybe I should see who wrote this paper what the title is so I can share that with you. The first author was Raj Cheddy. It turns out I told my wife when I was telling her about this talk Raj Cheddy kind of became the unintentional villain of my story. But here it So it is actually one of his best known uh I guess projects that he's working on the opportunity atlas mapping childhood roots of social mobility where he's looking at a lot of geographic data and how it connects with social mobility over people's lifetimes. He's hoping to find things like oh if you have really good busing systems then that will lead people out of poverty so we can make these policy applications. So so this is where things look right. So I was thinking about this. I thought, oh, okay, I'm not being entirely fair at this point because I'm not really providing a point of comparison, say from the Austrian view because it might be there are good reasons for you to site people that are more recently uh published because that's who your referees are going to be. So you have a good reason to site a recent paper because that's the person who's going to read the thing and say whether it gets accepted. And that's as true for us. You know, why should I cite Misesus? He's not going to read my paper. there there are significant barriers to that right so it [clears throat] makes sense for even me writing to refer to things that are more recent so I looked at some Austrian papers including an award-winning one it turns out uh Bason Hen's essentialist views on banking contracts and this is what the pattern looks like for them so we do see some concentration of more recent work and that that makes some degree of sense again citations also you want to be up to date uh but if you do the math you find out it's somewhere between 50 and 60% of the references are from the past 25 years. The other roughly half, almost half, come from before that time period and in fact go all the way back to the 1800s. It turns out that people were thinking about banking contracts before the year 1900. And we acknowledge this and recognize it. So, but then I thought to myself, well, I haven't actually read the paper. Sorry. But the title feels like it might be intentionally more history of thoughtish and then naturally you are going to be citing things from before 1970 in that case. So let me pull out a paper another one fairly recent from the quarterly journal of Austrian economics uh that where the title doesn't sound like it must be history of thought and that was Christopher Hansen's a s simple model for the demand for money and the demand for secondary media of exchange and we see broadly the same pattern as we saw with Bus and Hen roughly 50% slightly more than that more recent citations and then the rest stretches out over the course of the previous century right so we see this recognition that the past does in fact exist does have an influence on our ideas, right? So why would I bother focusing on this already saying it's it's not really my specialty. So why would I care right so much about the history of thought and wanting to share with us and make sure that we um do actually emphasize this idea of the history of thought and I think it comes down to this and that is that the reality is that economics often has to revisit old debates. So we shouldn't lose track of these debates, right? And if we do, it is to our detriment because we end up with the problem that people have this impression that ideas are newer than they are, right? So I think about the student that came to me the first day of class this semester, right? Like I don't know what his end grade is going to be yet. But he definitely gives me the impression of being a very strong student, certainly very thoughtful, very attentive in class. And he came up to me at the end of the first day of class and said, "I'm really excited to take this class. It's not really his field. I mostly teach kind of the general education courses. Uh but there's really exciting stuff happening say in New York because now we have totally new ideas, right? Coming from the new mayor there that we're going to be seeing implemented. [laughter] Now you can't blame him. This is his first economics class, right? But we end up with this impression that things are newer than they are. Or when I was in graduate stu uh when I was a graduate student, I had somebody that I knew in middle school messages me on Facebook, "Have you heard about this grand new idea?" right? Totally going to revolutionize the economy. I see you're studying economics. You should really look into it. Turns out that was the Venus Project and the Zeitgeist movement is connected with this. I didn't know anything about it. If you don't know anything about it, congratulations. Uh but when you look deeper into it, all it is, right, is socialism mediated by technology. We love engineers. Put them in charge of everything, right? And then have computers mediate all of this process. Right? So I looked at this is just central planning. That's all it is. That's nothing new. Nonetheless, he's convinced, right? All of the previous arguments do not apply because this is a totally new idea. We won't know till we try it. We can't lose track of the past. So what I want to talk about is kind of why is this this something that happens? Why is this some something that we should care about? So we need to examine then the formation of public opinion as a result of an intellectual structure of production. Right? Then I want to talk some about why should we really care right about the public opinion as a whole because it's not necessarily obvious to everyone that that really matters and then finally offer some plans to make this practical. What are things we can do right for us in the room to improve public awareness of some of these old debates and so I want to share then so I'm thinking about this idea of an intellectual structure of production. I'm very inspired here uh by Hayek's the intellectuals and socialism which had a huge influ influence on uh what I'm sharing with you here today right so we start with just simple model of the structure of production right so we have the hayakian triangle here in the garrisonian form you have time on the horizontal axis we know as time moves from left to right we go from say raw materials to manufacturing to then wholesale and retail there certainly may be additional uh layers right to the productive process that I'm missing But the general story being as we move through the process in time, we're getting closer and closer to final consumption and therefore see less discounting of the value of the goods coming out of that particular stage of production. So it's increase in value as we approach final consumption. So seems rather obvious to me uh this would be a natural place to start. Right? If I want to think about a structure of production, just add the word intellectual in front of this and then we're good to go. Right? So there we go. It's a simple model of the intellectual structure of production. Right? So what we have it's a very simple process. Right? So we have on the one hand original scholars coming up with new original ideas. Uh the problem is that if we want to end up influencing public opinion uh the public isn't necessarily equipped right to deal with these original ideas um directly right. So we need some intermediate class right we call the public intellectuals. Hayek uses this great phrase uh secondhand dealers and ideas right that communicate these ideas then to the public through this translation process right so okay you have a reasonable understanding of what it is the scholars are saying you know how the public talks right so you have to do that translation work and thereby add value right to those ideas right so one thing that hike points out in his essay is this group of public intellectuals right it's a very large group it includes all kinds of people uh I think most Most of us in the room would occasionally fulfill this role and whenever we're communicating with the public we are fulfilling that role but who also cover people like journalists teachers artists though hike didn't mention them YouTubers would also count as would bloggers and the like so all these people influence right public opinion communicating ideas that started with these original scholars adding value by making them translated for public opinion to be able to be formed. Now so I started with this said, "Well, there is an issue with it and that I think it's fundamentally wrong." This doesn't seem right in many ways. Now, I'm not going to say none of this process doesn't happen, right? That that would also be incorrect. But rather, it's missing really key essential components of the story that are absolutely necessary if we want to understand the formation of public opinion. So, we need a different story. So, let's look uh somewhere else in the Austrian literature. And here I actually put my name on the screen, right? this idea of the accumulation of intangible capital. So this 2009 again it was a great year apparently. So Andrew Young right uh wrote this paper uh capital-based theory of secular growth and in this he describes right how secular growth can happen through the accumulation of intangible capital. So his definition here which I think is informative for us is intangible capital is knowledge achieved by devoting time and resources to discovering new knowledge. So it is the intentional acquisition and creation of knowledge. And what Young points out is that intangible capital of this form has two key traits that allow for it to accumulate over time and to lead then to economic growth. First of those is what he calls non-rivalry. Right? So that is once an idea is developed we don't have to each then develop that same idea again right very much unlike my house sort of if one person builds a house it doesn't mean then I also have a house right I have to build it myself I have to do that investment again in building another house on the other hand if Pythagoras develops a theorem right the rest of us can just use that theorem we don't have to rediscover it and reprove it and all of this of course geometries force us to do this in class nonetheless we don't have to we can use that idea it doesn't have to be reinvented and reinvented time and time am we also have a second component of traits of intangible capital that would be standing on the shoulders of giants that is once an idea is developed you can then use that idea in the formation of new ideas so ideas accumulate on top of one another over time and thereby we'll see additional reason for growth now and my contribution right to this was this is actually my first academic uh publication it's it's It's a very hard read. It's three pages. Um, one of them is a numerical example and another half page is references, right? So, you should be able to read it in the next by the time I'm off this slide, honestly. So, so in this comment, what I did, I generally agreed with Young in saying that, yeah, intangible capital is important, but I suggested that he missed a really important part of intangible capital and what allows it to lead to secular growth. And here I appealed to Murray Rothbart. Rothbart says the distinguishing feature of a recipe is that once learned it generally does not have to be learned again right so there is this trait of what I called non-depreciation right of intangible capital so as we add these ideas those ideas don't shrink they don't go away right so as a result we don't have to do that reinvestment continuously here okay so for these three reasons then I would certainly agree non-rivalry helps right standing on the shoulders of giantness helps but also this uh trait of non-depreciation would play a key role in the accumulation of ideas that could then lead to economic growth. Well, I'm older now and I realize uh this view is also wrong, okay, kind of wrong in that it's far more narrow in its application than what I originally believed 17 years ago. So I think that if we apply this what I'm going to call applied expertise, I'll get more to this in a minute. Then I think these insights do basically work. But I think when we look more broadly at the accumulation of knowledge by the public, it doesn't work so well. So for example, um I should know a lot about electricity. I'm surrounded by electricity all the time. Like literally right now, how much electricity am I surrounded by? And not only that, but my dad worked for the electric company for several decades before he retired. I I as a small child was walking around inside of the coal burning power plant that he worked at and could look inside the furnaces through the window. I should know something about how electricity works. Nonetheless, if you ask me, how does it work? Yeah, I don't really know. It's I can say words about electrons, but I may as well just be saying, you know, alakadabra, alakazoo, bib boppity boo. that it's in terms of the actual meaning behind those words is basically the same right like I don't understand how this works but I don't have to and that's an important point we'll come back to right so so we have here two different views that don't quite work not that there's no truth in them but they don't capture the essential components that we need if we want to understand the formation of public opinion so let's go with something that I think probably does work and here I'm taking very much from Hayek I'm going to call this not the Hayakian triangle that's already taken. The Hayakian funnel or he calls it a civ. A civ is difficult to put up on a screen. So it's a tri it is not a triangle. It is a funnel. That's a funnel. Okay. Right. So what happens with the Hayakian funnel is we have the accumulation of expert knowledge at the top. Now the problem that we face though is that this accumulation of expert knowledge is absolutely enormous. Right? So when I I look at say my own experience at Kent State University, one of the things that we had to go through as part of the tenure promotion process is that they have to evaluate all of your publications, right? What are these things worth? Uh so in an attempt to be very broad and letting us publish wherever we liked, uh one of the members of my department developed what he called the journal quality index. He has this long list of of journals and then looks at various measures of quality and then uh includes those on that journal quality index list. He was tracking 3,100 journals. Now this wasn't just in economics. It was other business disciplines, marketing, entrepreneurship, accounting and so on. But there's an enormous number of journals. So we can see if you want to be an informed business person, it's completely impossible, right, to stay on top of all of the latest research. It's it's just not possible at all. And so when then what do we need? We need some kind of filtering process. We need somebody to go through all of this new knowledge that's being created to figure out what is it that needs to be passed on to the public. Right? So that is the role of this filter or as Hayek would say the civ. That is what the intellectuals do. They sort through all this new knowledge, figure out what is important, what is interesting that needs then to be passed on to the public. So if this is what happens right then it's important for us to understand more about this intellectual class and what kind of traits are necessary for the people that would serve this role. So what are the traits of intellectuals? Now Hayek is very clear intelligence is not a prerequisite. You do not have to be intelligent to be in the intellectual class. I breathe a sigh of relief. [laughter] But what you do have to do, you have to be able to speak and write about a wide range of subjects. That's an essential component. And you also have to become acquainted with new ideas somewhat faster than your audience does. Right? Otherwise, you're serving no purpose. Right? So, we need those two things. Now, a consequence, right, of these two traits when we combine them, as Hayek notes, is there's a tendency for the intellectual class to want to overgeneralize, right? So to take an idea that say originates in one field and then try to apply that idea outside of that field and we end up then with an an inappropriate transfer of concepts between different disciplines. Uh more on this and the essential role that plays in understanding uh public opinion later on. So let's get about correcting right some of my the error in my argument about non-depreciation because really we can think of that uh error of uh thinking about non-depreciation is really I was falling into that same trap I was overgeneralizing a concept right so this idea of non-depreciation not that it never applies but doesn't always apply so I want to suggest then that there are actually two types of knowledge that I want to talk about in this distinction So now naturally we can always ask the question right is knowledge a good in itself that we should pursue and certainly academics especially philosophers would tend to say maybe it is maybe we should do this for fun or what have you and many of us do but nonetheless I think that many people one don't even think about this question and certainly don't care about the answer I think for most people the material well-being that results from knowledge is really the important thing right so how do you take that knowledge put it in application so that then we can be made better off as a society and particularly in an imperial in a material way. So when I think about that I can think of two different types of applicated application of knowledge or applied knowledge. First is applied expertise. Now applied expertise has the trait where society as a whole can be made better off even if only a few people have that particular knowledge. Right? So I'll get more into examples of this in a moment but electricity may fit. The second type is applied public opinion. So applied public opinion is a case where if we have mass error amongst the public that is capable of preventing social progress in a particular area. Right? So applied public opinion then public opinion does matter at this point. Right? So let's hop in first talking about applied expertise. So how does expertise progress? Well here I'll just to keep it brief. I think that ManQu's assumption saying the new stuff basically incorporates what's good from the old stuff, discards what isn't because it's outdated or irrelevant isn't totally wrong. Similarly, I would suggest that the this is where say Young and and my points would also tend to apply that this tends to be true. Just for some more examples outside my field, my understanding is that quantum mechanics actually contains classical mechanics as a special case. It's just at a very large scale, right? Or general relativity. I understand right also when I say understand it means I've heard general relativity contains also classical mechanics as a special case with low velocity and low gravity right so then how does expertise right uh progress well we take these old ideas so we start with idea one we sort through it find what is false and build on whatever remains add to it things that are new we're in effect standing on the shoulders of giants right so we progress from one one idea to the next by incorporating what is uh in it as a special case and say in the case of classical mechanics in its relationship to general relativity or quantum mechanics and we discard whatever is old and false now naturally I am being a bit optimistic here it's not like science never takes a misstep right but at the same time we could see this progression working more or less right as we describe here now the key point here is that society as a whole right can benefit from expertise progressing in this way even What if not everyone possesses that expertise, right? So, in fact, I think about another piece of magic that I have in my pocket. I have no idea how the GPS on my phone works. Not a clue, right? So, I could form in my mind a theory and say, well, I think what it is is that there are these invisible pixies that live in my phone, right? can listen, right, to the world song, right, that goes along lay lines around the earth and they can tell, right, where we are based on that those lay lines in that world song. This is crazy, but nonetheless, me believing this isn't going to hurt anybody, right? As long as I'm not designing cell phones, we're good to go, right? So, so with the cases of applied expertise, as long as the experts, right, have some reasonable measure of what the truth is and as long as I as a consumer can say, "Yes, this is accurately telling me where I am, right?" Then we're good to go. We don't have to have the public as a whole understand these things, right, for society to be better off, right, in these cases. So, back to the funnel. So I would suspect then that the top of the pyramid right is going to tend to progress reasonably well right with these traits of non-rivalry standing on the shoulders of giants non-depreciation of ideas as people within expertise keep what is good and discard what is bad and build upon what is good. Now on the other hand when we get to the bottom of the pyramid there are areas where public opinion does actually matter. We we need more than just top of the pyramid, right? Top of the funnel progress. We need the bottom of the uh funnel to also progress for us to make progress. So why do we care? Well, it's true in some cases, as I just mentioned, mass error may not matter, but in others, it certainly does. And I think that we can say with reasonable confidence that policy is one of those areas. Uh the reality is that basically regardless what political system you live under, there is no unpopular policy that's going to make it in the long run. Something is going to end up overturning it one way or another. Right? So public opinion whatever it says will eventually right out [clears throat] as Misa says he says when casting a ballot people are taking a stand on essential economic theories. It is therefore important for us right to make sure that the public has the essential economic theories right. And this is especially true as we now live in a world in which the role of the state has increased and increased. There are more and more places where policy actually has a say and therefore more and more places where public opinion is going to matter in public error is going to potentially be disastrous. So if we accept then right that policy does in fact matter and have an impact and I suspect you would not be at this conference if you didn't believe that we have to also accept that public opinion will matter. So for us to understand the formation of public opinion, we need two more pieces. We need to know about those traits of intellectuals which are already mentioned and the impact that they have. And then we also have to have some sense of how do these traits of intellectuals actually lead to changes in public opinion. How does public opinion progress or or not progress over time as the case may be. So in terms of the traits of the intellectuals, so remember we have those two key traits, right? first the ability to speak and write about a wide range of topics and then also a tendency to become acquainted with new ideas more quickly than their audience does. Now the result of this Hayek points out is that what we tend to see is an appeal amongst the intellectual class to a small handful of general principles that the intellectuals believe are generalizable. So they end up judging ideas in every field based on how well they fit into this small set of general principles. Now one point that Hayek makes he says these general principles often come from real scientific or technological discoveries claims or trends right that the public intellectuals have observed and are living through. So he gives the example of you since the mid 1800s I think it's undeniable we've seen technological advances that have allowed for the application of scientific principles in the physical world to improve human well-being right through greater control over the physical world. This seems undeniable. So then a natural extension would be that we should then or be able to apply social scientific principles to improve human well-being through greater control over society. That's where we have the overgeneralization. Right? So a lot of what Hayek did as we know through his work was trying to point out that there's a difference right between these two fields and between these processes and what happens right when you try to control them. These are totally different. You can't just transfer one idea to another field. So another point that Hayek makes that is also very important in understanding how uh this progression happens or doesn't is that intellectuals are perfectly willing to amplify minority voices if it fits into whatever their framework happens to be. So they're not necessarily just you taking polls of the scholars that are above them in the process and then oh here's the majority that is what's going to get passed on to the public. No, they evaluate ideas independently in some sense. How do they fit within the general narrative that they believe about how the world works and then they share what fits and don't what doesn't. Right? So it doesn't really matter to the intellectual class if 95% of economists agree that the burden of a tariff mostly falls on the consumers in the country of that imposes that tariff. If the other 5% happens to match a particular intellectual's general view of the world, that's going to be what gets amplified. So, so as an actual example, it doesn't matter, right? If the grand majority of economists, not just in this room, but also other gatherings we might disagree with on many fundamental issues. Nonetheless, we generally reject price controls as a reasonable way of fighting inflation or ensuring ensuring affordability. Nonetheless, that doesn't stop the New York Times from running an op-ed titled, "Economists hate this idea, it could be a way out of the affordability crisis." [laughter] or the very next day in Forbes the real story economists don't tell you about price controls right so it doesn't they know it's a minority opinion but it fits into right the general way that they view society and how the world works and therefore they're willing to amplify minority opinions now this is something that I say like this is a dire thing but there are times I'm holding minority opinions so this is potentially useful keep that in mind right but The result of this though is that because of the intermediating role of the intellectuals, we can end up with a significant disconnect between what happens at the top of the civ and what comes out of the bottom of the civ. That is the intellectuals are sorting through scholarship. They aren't necessarily keeping what's true, but they're keeping what fits their view of the world and that gets passed on to the public. We can end up with an enormous disconnect between what the public believes and what experts believe. So then how does public opinion progress as a result of this? Well, I I would suggest that public opinion gets opinion gets formed by two traits of this process, right? So the first is the role of the intellectual class and the filtering mechanisms that they provide. Uh the second which it turns out is going to be quite important to us is the reality that people die. People would be kind of surprised by this. But okay, no. Why is it why does that matter, right, that people die, right? Well, that means then that every generation has to relearn, right? Any counterintuitive truth? After all, right, counter counterintuitive truths must exist, right? If they did not exist, then the reality is that education would just systematically mislead us about reality. We should just go by intuition all the time, right? And what we would find then right is that any society that had a lot of education would naturally then be poorer from its waste of resources than a society without education. Now this is not saying all education is useful certainly right but it is at least possible for education to give us an improved view than we might naturally have otherwise when we want to think about the world around us and it turns out education is a big role that the intellectual class provides. So, so many of us I will say I am personally very comforted by the fact that there are counterintuitive truths out there gives me something to do that is perhaps not a waste of resources I would hope. All right. So intellectual class then providing education right so we have professional educators certainly teachers professors many people in this room authors of homeschool curriculum as well fulfilling this type of role right but then we also have other cultural influencers that act as educators to the general public artists journalists movie makers documentarians right bloggers again YouTubers Instagrammers tick tockers mises.org or writers, right? All of these are again part of that intellectual class informing the public, educating the public and we find having to re-educate the public generation after generation in whatever those counterintuitive truths happen to be. Right? So, so then how does intangible uh capital right that accumulates at the top of the funnel, the top of the civ, right, influence public opinion? Well, I want to suggest that this is where I went wrong in 2009 because of this reality of mortality. These truths are in fact appreciating. We do lose track of ideas from one generation to the next and therefore we don't get to just keep building on exactly the same giants uh year after year after year. No, the these giants shrink. So then the reality is few people are experts in anything. Almost no one is an expert in everything. The only one I know is David Gordon. [clears throat] So in intellectuals, you know, they're infatuated with this idea of the generalizable with with the new and they can rush into errors as a result of that and pass those on to the public. Right? So we have all of these things working against us and accumulating right positive knowledge amongst public opinion. Right? So it is true expertise stands on the shoulders of giants. Public opinion on the shoulders of shrinking giants. Shrunk by the mortality of the learned and the wise. shrunk by the imperfect intellectual class. So what then can we do? Well, that's a good question. So what we need to think more about is again this history of economic thought. We've had these debates in the past, right? Let's revisit them and let's share them with the next generation as we go. Right? So I think it's fair to say that when you look at the history of economic thought what you find right is that conflict right between erroneous intuition and the triumph of reason and evidence at least in expertise that's what we find we don't necessarily find that in public opinion right so but time and again we find things like Adam Smith declaring that wealth is not right the gold that is in the king's vault it's our ability to improve our well-being right through production through trade we have cases like Carl Minger telling us that goods are not valued as these abstract ract general classes but rather as distinct units that we actually act upon. These are counterintuitive truths that people need to relearn generation after generation. Or we have Hayek very importantly reminding us that the knowledge of general rules is not the same as the knowledge of the particular circumstances of time and place. Counterintuitive truths that need to be taught and rettaught, learned and relearned generation by generation. Right? So I would suggest then that we should not communicate these ideas in isolation, right? but rather in contrast, right, to how our intuition might naturally mislead us. And so my plan for action then now I will say a lot of this are things that I know we are already doing. I suspect many people in this room in fact I will share some evidence of that. But I want to talk to kind of three overlapping groups that I suspect are going to be represented in this room. So first would be those that have some kind of say in curriculum design. Right? So here the obvious thing would be to advocate right for the teaching of the history of economic thought and it turns out when you look at many Austrian influence programs it's clear we're already doing this right so I just pulled out three that I was aware of right so being a a graduate of Grove City College I was somewhat aware of the curriculum there and double check to make sure that the things haven't changed too much on this front turns out when you go to Grove City that you have three courses available to you in the history of economic thought one of one of those specialized in Austrian economics Right. Two being a sequence of before and after the Marshallist revolution. Now take take a minute to do the math here. I know this is difficult for us. This implies then that Grove City College, that's a little school in Northwest Pennsylvania, something like 2400 students last I checked, offers as many courses in the history of economic thought as Harvard plus [snorts] MIT plus Stanford plus Berkeley plus Chicago. >> [laughter] >> Or how about Hillsdale? Hillsdale offers a twocore sequence in the history of economic thought. Interesting thing about this one, this is required of all economics majors to take that sequence. You don't find that when you go to Chicago. You don't find even the the option for the courses in Chicago or you have GMU at the undergraduate level. They have four courses available in the history of economic thought. Two of those is a two course sequence on Adam Smith by himself, right? one more on Austrian economics and another general history of economic thought course. And so we're doing good work here. So let's keep spreading that wherever you have the opportunity. Uh the second group I'd like to speak to would be those of us that I certainly fall into this group. Those that are teach get provide instruction and also provide the role of the intellectual whether that is to students that are paying tuition or whether it be to the public as a whole. Right? Incorporate history of thought into your courses into your sharing of ideas. The ideas you're sharing came from somewhere. There's no problem with naming names. Right? I would also suggest that it's important to highlight not just the origins but also the contrast, right? What are those erroneous intuitions that we might naturally have that are being corrected, right, by these new ideas, these discoveries that were made in the past? I would suggest here that the formulas you you see from Jesus on the sermon on the mount, he says time and again, right? You have heard it said, but I say unto you, this is a very powerful formula because it recognizes first, right? Here's what you might be walking in with. But it needs to be corrected, right? So we are acknowledging where students are, where the audience is, right? And then pushing them forward in a better direction. So I I think that is extremely important that it helps then to inoculate students from this tendency to think these ideas are totally new because they didn't happen to hear about it from professor Inglehart. Oh, Professor never told us about how great socialism would be in providing public grocery stores to the people of New York City. So it must be a new idea he didn't know about. Provide the contrast. Right? So these ideas are not new. And then finally I want to talk to the original researchers. Right? So there's the your primary call is call is not in that intellectual class is the pro provision and creation of new ideas. Well, you certainly can incorporate the history of thought into your research. And again, we see already evidence of that amongst this crowd. But even if you're not doing history of thought research itself, which as I said, I've done none of this. Nonetheless, that is important for us to do. But regardless what research you're doing, contextualizing your work, right, in terms of the debates, right, that didn't just start 20 years ago, but have been going on now often for centuries or millennia, right? So providing this broader context for the ideas that we are creating, the ideas that we're sharing, the ideas we are advocating amongst other scholars, helps to provide then people like me who do provide that teaching role to then see these connections then communicate them more clearly. So it has been said that those who forget the past are condemned to repeat it. And it seems like those of us in economics in each generation we forget the past and are condemned to repeat it. We have to learn and relearn. We have to teach and retach the same ideas over and again. This is necessary from the way the public opinion is formed. We have no choice about this. We have to repeat these same debates over and again. However, we do have the choice to come prepared for that. And so, I do want to thank the Mises Institute for the invitation to give this talk, particularly Dr. Soleno who gave it to me. And I also want to recognize one more element of the intellectual structure of production that I have not yet mentioned. I'd like to thank Dr. Prince, right, for his donation, right, that made this possible and for all the donors that are investing in the intellectual structure of production here at the Mises Institute. And I hope that we are providing then right a return on that investment and then making a difference in how people view these issues so that we can move forward in the public and thereby have [snorts] a better society. So to close then with just a very quick reminder did in fact have a business cycle theory. Thank you. >> [applause]