Central Banks Bubble Machine vs. Mises & OODA Economics

Bubbles don’t start with hype.
They start with money that was never earned through prior production.

Frank Shostak walks us through the entire chain: how warehouse receipts became fiat, how suspension of redemption became “monetary policy,” how lowering interest rates without prior savings fakes a signal that society has become more future-oriented, and how that fake signal lengthens the structure of production until the subsistence fund is eaten and the whole thing collapses under its own weight.

Most analysts cheer when earnings beat.
Austrians ask one question: is this activity sustainable without continued money-printing?
If the answer is no, it’s a bubble — no matter how efficient the company looks.

This episode is the cleanest explanation you will hear in 2025 of why the current tech/AI boom is not “different” — it is the latest iteration of the same central-bank playbook that gave us tulips, dot-com, and housing.

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Chapters

• 0:00 Defining Bubbles And Counterfeit Money
• 6:23 From Barter To Gold As Money
• 11:56 Receipts, Bank Fraud, And Fiat Foundations
• 18:36 Central Banking’s Daily Management Of Money
• 22:26 Boom-Bust Mechanics And Oxygen Of Credit
• 26:56 Subsistence Fund, Savings, And Capital
• 34:41 Interest Rates, Time Preference, And Malinvestment
• 41:06 Clusters Of Errors And Bubble Sectors
• 46:26 Central Planning, Socialism, And Measurement Illusions
• 51:56 Praxeology: Cause, Human Action, And Prices
• 58:26 Data Worship, Math, And Economic Reality
• 1:03:56 Reading List, Institutions, And Free Market Defenses
• 1:18:56 COVID Stimulus, Money Supply, And Market Euphoria

Transcript

Frank Shostak: 0:56

The counterfeit of the central bank or the banking system creates money, it creates bubbles. And those bubbles are it's like uh like you and me could be part of the bubble also, because we uh we we part of the activities which are supported by uh printing presses. And uh and as long as money supply uh growth continues, and and then this this could last for quite a while, uh every everybody is happy and satisfied. And so various activities like Nvidia and various other uh uh high-tech technology and whatever, right? But they're they're they're not aware that they're bubbles, they think they're very they're actually good. Uh after the announcement of the Nvidia earnings results, they'll be they they turn bullish, you know. They said the market the market is great, fundamentals are good, everything is hanky-dory. The point is that most uh commentators, most economists from both schools, even some of the Austrians, they're looking at the economy in terms of strengths, like they're looking at they're assessing things in terms of how strong the indicator here is. If, for instance, employment is above expectation, they say economy is doing well, right? And if company makes great profits, everything is great. But but that's not the way uh one should look at it, because uh the the problem uh as was articulated by uh Ludwig von Mises and uh Mare Rosbud, that's the the two ones that I believe one needs to look at, and nobody else. And uh in particular Mare Rosbud, they looked at the the the the thing from from a perspective of how distorted the situation is. In other words, first of all, when people yesterday were talking about bubble, right? People talking about bubbles, but nobody defined what what bubble means. What what what what is it, right, when they talk about bubble? They say Nvidia is not a bubble, but something else is a bubble. So if we provide proper definition for bubble, bubble basically is related to something monetary, something uh that uh related to the printing money, right? Or uh monetary policy of the central bank. And uh so so so bubble is is associated with creation of money. Creation of money out of thin air. That's the term I'm using in line with uh Mari Rosbutt also. And uh so what does it mean when you print money? When you print money, you you basically create money, you you're setting in motion what we call the exchange of nothing for something. Why? Because first of all, money is the medium of exchange. You're using money to exchange goods for goods, right? Not something for something. It's just a middleman, nothing else. But uh uh but the moment you print money, it's like a counterfeiter, you're basically setting the option for the counterfeiter to take goods without contributing anything, right? Which means nothing for something. The moment you set in motion nothing for something, the second question is it should be asked, what does it mean exactly? So it's stealing from wealth producers, resources, and providing this to counterfeiter or anybody who holds this new money, right? New and new and and who holds this new money, various bubble activities, various activities that emerged on the back of the increase in money supply. In other words, if you look at the counterfeiter, counter counterfeiter, what it did, printed money, and then you're using the money and goes to the shop and buys things, right? Now, various products that he supports, the sponsors, are basically becoming a bubble because if if if he wouldn't be buying, then they probably wouldn't be reacting, you know, there wouldn't be any effect, right? So which means which means the increase in activities on the back of the increases in money supply and easy, easy monetary policy, means reduction in interest rate, which we'll discuss in a second, sets in motion whereas the emergence of bubble activities. That's what bubble activities are. False activities, which wouldn't be there if not for money creation. They wouldn't be there if not for the counterfeit money.

Mark McGrath: 5:25

Let's pause one second, Frank. So pull us back out for so for our subscribers so that they understand that what you're talking about is a fiat currency system that's driven largely by central banking, which tells us what it what a dollar's worth versus the old way, which there was some kind of a metal standard, whether it's gold or silver. Let's start people back there just so they can see, have a better contrast of where historically we've been for thousands of years, and now we're now in the last, say, hundred or so years, with some exceptions. Yeah, why don't we do that?

Frank Shostak: 6:01

Yeah. Well, first of all, you know, like what's what's the what's the purpose of money at all? Why do we have money? Well, Balter cannot support proper activities. In other words, if I'm a butcher, let's say, and I would like to exchange my meat for strawberries, the strawberry guy farmer says uh he's a vegetarian, he doesn't like meat, right? So we've got a problem. But there couldn't be a so-called exchange. So therefore, so in order to resolve the issue, it took many, many hundreds or thousands of years until human beings found a solution that instead of having a barter system or direct ex direct exchange, we're probably required to find some commodity which is very marketable, everybody will accept it, and it doesn't mind. So people eventually, after many, many, many years, after trying various things, they have settled on gold as money, right? As as the meat.

Mark McGrath: 6:59

What you're describing though with the strawberries and the meat, that's the double coincidence of wants, correct? That's right, that's right.

Frank Shostak: 7:05

In other words, so-called direct exchange, barter, right? The barter was inefficient. You can't really, you couldn't really do things or develop things. But uh, in other words, if somebody specializes, they would have problems because he specialized in uh producing meat, but very few people really want meat, let's say, or or something else, etc. So while once they have found or established another thing, like a commodity or or a thing that you could exchange for it, the meat could be exchanged for uh something, let's call it X, or let's call it gold. Let's say people have discovered after many years that gold is very acceptable commodity. So the butcher would accept his meat for uh gold, and then and then the strawberry farmer or farmer wouldn't mind to accept uh to exchange his product. He will accept the first of all gold, right? So because he knows that he can he can use gold for whatever things he wants, right, to exchange it. So in other words, money, and and and that's what Mises called money, money is the uh most marketable commodity which fulfills the role of the medium of exchange. Why it's the most marketable? Because people found it acceptable, like it, like and and why they have sex uh settled on gold. Because gold is uh durable, uh you can splice it into uh tiny stuff, and it's portable, and uh, and uh, and uh and it's not non-destructible, right? And that's a very important thing. And so apart from being useful for jewelry and uh other things, it be the people discovered or realized that it can be used for as a medium of exchange, as a middleman. And that's how they started. So when you have a when you have a system which is based on gold, let's say, if I got something, I can uh I can go and exchange it, if I got gold, I can go and exchange it for something I really want, right? And we can pass the gold to somebody else and and everybody is is satisfied. In other words, you're paying with uh something which is accepted by everybody, everybody is is is ready to uh ready to exchange his stuff for gold because you know they can use gold to exchange for something else, right? In other words, with with the help of gold, you can exchange, or with the help of proper money, you can exchange something for something. Not what you accept, you exchange something you have for gold, and then you exchange gold for something that you really want, right? Which means something for something. But but the moment we introduce a system which is not based uh based on gold, but let's say some some kind of a fraudulent system. Let's say the historically speaking, uh, people didn't want to carry gold in their pockets, which is too dangerous, too risky. So they they were placing gold with banks, storing with the banks, and banks would give give them a certificate. And and then this certificate was written there, this particular guy, his name, whatever, he he placed uh uh 10 ounces of gold with my bank, right? And uh entitled to take the gold anytime he wants. So now people started to trade with those certificates.

Mark McGrath: 10:30

In other words, his money is a receipt.

Frank Shostak: 10:33

But money is like a receipt, right? In this sense. So so that so therefore people were trading with those receipts, and uh, and those receipts were seen as money. So as long as the the receipts were fully covered by gold, nothing wrong with it, right? But banks discovered that why not to cheat? You know, that's really how it works. People, when they sit on such a such amount of uh possibilities, there was a temptation to cheat, to commit a fraud. So some banks started to issue more receipts than actually than gold. We had gold. So we had all of a sudden receipts unbacked by gold were floating around. And because many banks were doing uh were issuing receipts because people were uh storing the gold with various buyers. So in a free market, what would happen that the receipts that of the banks that overissued that too many receipts, uh the purchasing power of those receipts would start declining, right? Because there were too many of them. So what would happen? Uh people, holders of these uh of the receipts, uh would say, hey, I I I I deposited gold, and now all of a sudden the value of my gold is is the best now. No, no, I'd rather go and try and take it out. So people would would approach the this bank that that overissued those receipts, right? And and uh the there were that would they would demand the gold back, right? So now if many of them uh would approach the bank, the the bank, the bank would go under, right? Would be bankrupt. So instead of relying uh bankruptcy of those banks, the government said, no, no, no. We issue a decree uh that's that uh that tells you or that stipulates that banks don't need to redeem, redeem the tickets or receipts for gold. You don't have to redeem as a bank. So the banks uh realize, well, hey, we got now massive opportunity. Now we can issue tickets, as as many tickets as we like, right? And uh that this would uh this did this would create massive hyperinflation, right?

Mark McGrath: 13:43

So so just as a as an example, as we're recording today on November 20th, and uh this is for people that are listening, this is uh I'm holding up a pure troy ounce of silver. One and this is a U.S. coin. If I'm understanding what you're saying, I I take this to a bank, they're gonna give me one dollar. And if I had a one dollar bill and I go to a bank, they're gonna give me one ounce of silver. Today, to get one of these, I need 51 receipts. I need 50.

Frank Shostak: 14:17

Yeah, see, see, Marco, what I wanted to give you some background as to what happened to the medium of exchange. So so the point is now, the point now that that government can can uh dec they issue a decree that banks don't need to redeem the tickets for gold. Right? The moment they do this, they're running a risk of uh that every bank will say, well, that's a great opportunity, I'll start issuing a lot of tickets, right? So so that that's that's you know, in order to control the supply of tickets, that the government introduces an organization, we call it central bank, a monopoly, and says, you'll be in charge of managing the certificates of various banks, right? And uh you can also issue your own certificate, which will be linked to the various banks at a ratio, right? And that's really how we started the whole fiat system, right? Paper system with central banking, right? And uh uh but but the the the central bank was established on some foundation of fraud already because the banks didn't have to redeem the certificates for gold, right? So it's been already based on a on a fraudulent system. So in order to maintain the fraud, the central bank is now obliged on a uh on a daily basis to print money all the time, to manage money. Why? Because because if, for instance, too over issuing as a particular bank overissues too many tickets, right, at the end of the day, he has to clear the the those tickets with somebody else, right? There's a clearing of checks, let's say, right? And uh so the so the uh so bank, every bank will present to another bank its checks, right? And if a particular bank doesn't have enough money to support those checks, it will be declared bankrupt also. So the central bank's role in this fraudulent system is to print enough money that banks will not bankrupt each other. That's all. That's the reason why banks, central bank conducts open market operations on a daily basis. Nobody talks about it. Every day they're buying and selling assets. So this is much this could be discussion for something for for another discussion. But I just wanted to, again, to elaborate the whole issue that we right now don't have a system, monetary system, which is backed by gold, but it's backed by nothing, right? And uh, and when it's backed by nothing, it's basically like after fraud. The whole system is is not so is supported by it's not supported, that the base is fraudulent because it'd be it's it's been established in order to protect the fraud, right? In order to justify or allow the banks not to redeem the certificates for gold. That's all. So at present we have a situation where where a central bank can manage the money supply, managers, which means, but let's say the bank, the central bank can can tell the banks to keep certain amount of money or central bank money or whatever you want to call it as reserves against deposits, right? So I don't want to go now to the whole bank, the whole system of banking system here. It's just discussion on its own. But in order to make things simple, as far as boomba cycles are concerned, what happens is you can you can look at the the money that the central bank generates in conjunction with banks. Banks also banks are a major contributor to creation of money. We have a situation where uh where uh money uh uh is are printed uh in a managed way. And that's but that's basically the managed printing as such, right? Sets sets in motion uh what we call the fraudulent money, counterfeit money, creates the bubbles, if you want, right?

Mark McGrath: 18:24

So now So I was gonna say, so you've given us a really good grounding on a on an authentic definition of money.

Frank Shostak: 18:31

Just a little bit, you know, but you need more. It's it's a requirement.

Mark McGrath: 18:34

Yeah, no, no, and well well, believe me, we're gonna link to a lot of you know, like I I make sure everybody tries to read human action and and and other things, but it's a complicated book too for for ordinary people. I made the mistake. They told me don't start with that one, and I went right at it. But uh I would yeah, I would tell people don't start there, maybe Rothbard's America's Great Depression or something. But anyway.

Frank Shostak: 18:56

Yeah, but you know, they're all great, you know, but the point that you need a certain uh philosophical foundation, etc. So for the first lecture, it's it's it's very hard, you know.

Mark McGrath: 19:10

So you want to take us through the boom bus. Maybe should we start by defining what actually is a price?

Frank Shostak: 19:16

Price, yeah, uh, if if it's of anything, right? Uh it's it's a rate of exchange of something for something else. That's really uh price, you know, in this. But the but the point for as far as boom bus cycles are uh is concerned requires something a little bit something else. In other words, we just started to discuss the counterfeit money and and the fraud. So now when a counterfeiter he prints money, that's simple, right? And he uses the the fraud and money to take, to grab goods and services from all those guys who produce something, right? But he produced absolutely nothing. Now that we have an exchange of nothing for something. Now, but he comes with empty tickets, which doesn't, he's not backed up by anything, and buys goods. So somebody produces those goods and he gives him in return empty tickets. But because it's a in a in a because we live in a complex environment, people don't are not aware of this, right? Only uh over time they're they're starting to realize that prices are starting to go up, whatever. But inflation is not increasing prices. Symptoms of inflation could be increases in prices, right? But anyhow, so so once once we have a once the counterfeiter or the central bank or the banking system creates money, it creates bubbles. And those bubbles are it's like uh like you and me could be part of the bubble also, because we we we part of the activities which are supported by printing presses. And uh, and as long as money supply growth continues, and and and this this could last for quite a while, every everybody is happy and satisfied. And so various activities like Nvidia and various other high-tech technology and whatever, right? They're actually bubbles. But they're not aware that they're bubbles, they think they're very they're actually good. Why? Because the fill the the way the analysts are looking at things, they look at and uh look at things in terms of strengths of the so-called economic activity or economic indicators. So if economic indicators are strong, they say, well, everything is hunky-dory. But in other words, they don't really look at the the fact that the strengths occurred here on account of, on account of printing presses, on account of counterfeiters, right? In other words, the environment that we there was created, it's like uh you're sitting on a volcano, right? And uh and on this volcano, on this massive bubble, let's say, you got a lot of activities which are which appear to be quite good and quite genuine and and and quite healthy. But the moment the the printing press is reversing, because at some stage the central bank comes to the conclusion that he basically is scared that prices are starting to go higher, let's say, right? And he says, Well, I need to reverse this. And the moment they're doing this, the oxygen that supported these bubbles starting to evaporate, and the bubble is starting to be comes under pressure. And various activities which are sitting on this bubble have to fall, right? They have to fall, right? It doesn't matter whether you need NVIDIA, AI, all sorts of things, it's it's irrelevant, right? It's all beside the points. They will have to fall, right? How long they were how long it may take for them to do to fall, it's another story. Now, what that's the Austrian economics cannot tell, give you the timing, but what the Austrian economics can tell you, that the economic bust is in response to the economic boom which was created by the central bank, nothing else, right? Central banks are the causes of the boom-bust cycles. And that's so the the the question now is for how long? As we said, we don't know. But we can provide some guesstimate. First of all, in order to maintain activities, people require require consumer goods. They have to eat, they have to be stay alive, right? I believe that you follow for you're following Ayn Rand also, right? Rand?

Speaker 1: 23:29

Yeah, oh yeah, yeah.

Frank Shostak: 23:31

To me, it was one of the greatest economies, Ayn Rand. Although officially she is not. So basically, there's something called, oh, we call it the few few good Austrians in Austrian economies like Bombaverg, if you heard his name.

Mark McGrath: 23:45

Yeah, Oigen Bombaberg.

Frank Shostak: 23:47

Yeah. There they were also von Strigel, and also Mari Rosba. They were talking about a subsistence fund. In other words, you have to have a subsistent fund, subsistent, another fund of consumer goods in order to stay alive. Now you cannot start to produce whilst you don't have the means of means of supporting you, so subsistence. And uh so so so in other words, printing money, what it does, it destroys the subsistence fund. It destroys your ability to produce. It basically motivates consumption, which is not supported by anything. In fact, the mainstream economics is based on demand creates supply, which is utter nonsense, right? Demand does not create supply, but in reverse, you have you have to produce first before it can consume. The mainstream economics says, well, if if you start, if you boost the uh demand consumption, the the rest will follow suit. It's not, right? So the so the point is that uh that you have to have you have to have enough consumer goods, ability to produce consumer goods, uh in order to keep the economy going. In order to have this ability, you have to have what we call capital goods, right? Infrastructure. It's an infrastructure cannot originally emerge just out of the blue. You have to, somebody has to build the tools, machinery, etc. Those people that are engaged in building tools and machinery must be fair. You have to give them something to eat, right? Otherwise they will die of starvation. They won't be able to produce anything, right?

Mark McGrath: 25:26

I always I always point people to iPencil by Leonard Reed to basically understand what you're talking about.

Frank Shostak: 25:32

Yeah, yeah. Pencil is also great. I mean, but but I'm just saying that that uh uh uh what what is required always is the uh tools and machinery to create economic growth. But tools and machinery cannot emerge out of the blue. Somebody has to produce them. And those somebody are individuals that are must be supported, uh must must be fed, must must must be given a decent living, if you want, right?

Mark McGrath: 26:03

So you wrote recently too on your Substack that you can't you can't even have innovation unless you have an economy that's based on savings and capital.

Frank Shostak: 26:13

Absolutely.

Mark McGrath: 26:14

Yeah. Tell us about that.

Frank Shostak: 26:16

Okay. Now so so so first of all, when those three guys who got the Nobel Prize for discovering inverted commerce innovation as an important factor, Mises wrote about it thousand years ago and was saying that the innovation cannot cause economic growth by itself. You have to have to have capital, right? You have to have tools and machinery. In order to have tools and machinery, you have to have savings. If you're producing ten apples and you're consuming two, the saving is eight apples. Now, those eight apples can be used to fund somebody, to fund a butcher or a baker or whoever, right? In other words, you have to look at the things as they are, not uh in a complicated way as the mainstream does. And so so saving is is something real. Saved, saved consumer goods, nothing is gonna going to happen, right? Because at the end of the day, people we want to have good life. Good life means we have to we need to have good good food, we have to have cars, all sorts of things, but we need to feed ourselves. If if we cannot feed ourselves, it's all useless. And uh so so the so the the the point of discussing, let's say, subsistent fund, that's that's that's what it's all about all about. So you can have ideas, let's say, and uh if if uh Robinson Crusoe, let's say, can be visualized, or you can say that he's an intelligent guy. He's an engineer by profession, he knows exactly uh how to do things. But he doesn't have the means. He's he he got only his own hands, that's all. And he got things in nature. So in order to stay alive, he discovered an apple tree. And he said, that's great. So now if so if so he started to pick up eight, he managed to manages to pick up eight apples a day, and that's really just enough for him to stay alive. But then he realizes that if he would have a particular stick, this particular stick, special stick, would allow him to collect maybe uh 20 apples a day. But he doesn't want the stick. In order to make the stick, he would have to allocate his time for making the stick, and then he will die of starvation because he won't have enough apples. So what he would he what he has to do is every day when he manages to, by hand, to pick up eight apples, to put aside apple or two until he'll have enough apples that will allow him, will allow him to concentrate now on building the sticks. That's really how important the savings are. Savings of consumer goods. And that's that's the subsistence fund. So now if you look at the system as a whole, subsistence fund, it could be everybody, well everybody that produces things contributes to subs to subsistence fund if if if it is not a counterfeiter. But because there are so many counterfeiters because of the printing presses, because they're coming with empty tickets, they're basically virtually stealing from the subsistence fund, stealing, and denying those people that that actually that have contributed to the subsistence fund, denying, denying them, uh-huh, and and they they cannot produce teams.

Mark McGrath: 29:37

Do you think so so basically what ends up happening is that the price signals get distorted in such a way that when I make a value judgment on buying a stock or buying a home in the year 2000 or something like that, I'm sorry, like a dot-com stock or like a you know a house in like 2005 or whatever, I'm getting I'm operating on distorted price signals. And then I what Mises would call a malinvestment. I make a bad investment off of uh the wrong I have the wrong in other words, I have the wrong orientation when I make a decision to buy something or purchase something, and I I think the value's higher than it actually is in reality.

Frank Shostak: 30:18

Yeah, look, look, the whole issue of malinvestment and misallocation of resources can be put in a in a simple way. In other words, let's let's say let's start with interest rates. When central bank lowers interest rates, right, everybody is this delighted, in particular Donald Trump says, yeah, we need to make uh have a low interest rate. But interest rates is basically it's like a it's a signal, it's a it's a doesn't cause anything. Just a uh a reflection of uh how much people individuals would like how much that they would like to uh consume today versus tomorrow. So let's say uh uh that's what we call time preference. In other words, if people if individuals would like you can well I can start even in a simple more simplistic way. If you take a completely poor individual who got nothing in his possession, and uh and you ask him, would you you got you got li got little little bit of resources just just to stay alive? If you ask this individual to commit some of his resources for lending or investment, he will say, No, go to hell. I can't do it, right? I c I can I can't I can't I can't invest and can't lend anything, right? I'm I just but barely can stay alive. So therefore, his time preference is unlimited. He basically only wants to live at present. He cannot live in the in the future at all, cannot plan anything. Now, the moment it will start, he will become a little bit wealthier. Start considering lending, investing, now what's his time preference will start to go down. And this and this will be reflected in what we call interest rate. The market interest rate will go in a proper free market. That's what the interest rate will signal to everybody that now people the rates have gone down because people, nobody will say they have become wealthy or whatever, but now they they're ready to let, ready to invest. And because at the moment somebody says, I want to invest for the future, means that sometimes in the future, they will be ready to produce consumer goods in the future. But in order to produce consumer goods in the future, we have to have the tools and machinery, right? You have to produce them. And to produce them, you have to provide food and support to various individuals that are making those tools and machinery, right? So so therefore, for what it means that when interest rates are going down, people the people have decided this way, and and therefore they have allocated resources, which means savings and all the necessary things to build the infrastructure. But the moment central bank comes and lowers interest rate, regardless of whether people do save or not, we have a problem. Because as a businessman, you are starting, you are starting basically, you're reacting to interest rates. So what do you do? The moment your lower the low interest rates have been been lowered, you go and build various capital projects. Because uh if you can make a calculation in terms of project evaluation, you say, well, under these conditions, uh it's it's worth my while to invest in a various capital projects. But the moment you're starting to do it, you have a problem because no savings were allocated, but nobody allocated savings for that, right? Nobody, the pip people haven't haven't made this decision. So what will happen then that you the capital project that you're undertaking now, that it will steal resources from something which which produces something useful, right? Something good, wealth created. And that's why we we call it misallocation of resources. It steals resources from something good towards something which is false, right? Which shouldn't be, shouldn't happen, right? And therefore, and therefore, once the central bank reverses reverses its interest rate policy, the whole thing will crumble, right?

Mark McGrath: 34:18

And that's why we have like the dot-com bust and the housing bust.

Frank Shostak: 34:22

Exactly, exactly. So in other words, you cannot falsify uh going against the the market wishes, the wishes of people.

Mark McGrath: 34:31

Well, you say I I I remember when I was first learning Austrian economics, somebody had was mentoring me and was saying that, you know, Austrian economics can tell you what and it can tell you why and it can tell you where, but it will never tell you when. You have to be you have to look for signals and be prepared. But as you were saying earlier about the timing, but one of the things that Rothbard talks about is like you can start to see these clusters of errors. Like all of a sudden, you know, it's not just that one housing person went down, it was like a cluster of them, a bunch of these of these business. Yeah. Tell us about the cluster the cluster of errors.

Frank Shostak: 35:09

Well, they all sit on the the uh earthquake on this on this massive gigantic bubble. And then they may might may have a great appearance. They they may the company may be run efficiently, they have uh efficient inventory control. Everything looks perfect, right? The managing director of smart people, everything. But they basically were seduced, as Morozbud said, because of the low interest rate, to enter the the sector, which normally it wouldn't wouldn't have happened. They were caught.

Mark McGrath: 35:40

They were so punch. I mean, this is what we talk about all the time. I mean, this is your when your orientation is disconnected from reality, it's gonna have a negative effect on how you make sense of your reality, have a negative effect on how you decide, act, and and learn.

Frank Shostak: 35:57

Yeah, so so so basically you cannot come and say, well, which sector is overvalued, undervalued. That's what the most guys are doing. That's that's a waste waste of time. All you know that the bubble was created, that's what the Australians would tell you. When the bubble will burst, uh, we'll we'll have to watch the the central bank policies. And the the most important thing is to look at the uh the state of the subsistent fund. Uh the the to evaluate this the state, it must be qualitative analysis. You can't quantitatively to say uh how much consumer goods or or the subsidi or how big a subsistence fund is. But we can tell that uh that uh uh we can tell who are or the factors that undermining the subsistence fund. There are two factors the size of the government and the monetary policy of the central bank or printing presses. That's all. So once you observe that money supply is running high, you know that they destroy this destroys the subsistence fund. If you observe that government spend outlets are going sky high, you know this choice this is going to destroy, destroys the subsistence fund. So you know that, and therefore, if you qualitatively reach the conclusion that the subsistence fund is in trouble, stagnating, because usually it tends to grow. But let's say it's not growing any longer, it's it's stagnant, God forbid it's declining. You know in you're in serious trouble. You know that we are heading for a six serious recession or maybe depression, right? And and uh and uh so again, this is hinges on the state of the subsistence fund. So that's why uh uh uh uh the Rosbaldian, for instance, or Misesian, they don't really look at so many indicators like all the other guys. They're looking at heaps of indicators and they're reaching some idiotic conclusions, no conclusions at all, right? Stupid uh stupid conclusions. Because like like if you listen to the Jerome Powell, so each time he says, well, we cannot decide about the next interest rate policy until we'll have enough indicators. This is all useless, useless talk, right? Who cares about so many indicators? All you have to tell assess is what's the state of the bottom line. And if you reckon that the bottom line is in trouble, the next step is how do you fix this bottom line? So Miza said to fix the bottom line, do nothing. The government should step out because that the less government does, the better it's for the wealth creation, right? The the less central bank prints, the better it's for the for the wealth creation. Because the the the central bank it basically what it does, it prints money, which means stealing, it's like counterfeit, it steals wealth from wealth producers. Government, what it does, useless activities, it has to fund them. Where it takes the funding from the fellow wealth generation, private sector. So the private sector is is under pressure. So the moment you you're pressurizing the private sector, you're basically killing the economy. Because government cannot create wealth.

Mark McGrath: 39:15

Now, more often than not, when there is a bust, the government is gonna double down or triple down. They're not gonna get out of the way. They're gonna, you know, it's like if you we we hear oftentimes the analogy of waking up with a hangover, you gotta let the hangover pass and drink water. You you don't start drinking again. But the the the the government policy is really to let's get drinking again.

Frank Shostak: 39:37

Yeah, the government basically wants to support the bubbles, in other words, because economic bust is not about wealth destruction, it's about the bubble destruction. Because economic bust destroys various parasitic activities, various bubbles. And the reason why the bubbles, again, we said they they emerge on the back of printing presses, on the back of the empty money, unbacked money. And also uh the bubble activities cannot support themselves uh uh truly. Wouldn't be wouldn't wouldn't wouldn't be around. So the profits that would they like Nvidia produces or whatever, it's all false. Now it's false in what respect. It's in in terms of money, my in terms of money that uh monetary turns, right? As far as proper allocation of resources concerned, they are misallocated part of the bubble, and therefore they ha they will have to go like like when once the bubble bursts completely, they will disappear. And obviously, something the AI will not disappear, something that it will come in a different form or whatever, all this will be fine. But but the point is that many so-called great activities that people are mesmerized and they're they're saying, well, the great management, great inventory control, whatever, it's all bullshit, right?

Speaker 1: 41:05

Yeah.

Frank Shostak: 41:05

The point is if they sit on the volcano and volcano will burst, they will s they will sink with the volcano.

Mark McGrath: 41:14

Well, this is also the thing that the Austrians talk a lot about is that you can't centrally plan the economy. The economy is too complex, and markets are too complex. You can't have a group of bankers or a group of politicians or even both at the same time with monetary policy and fiscal policy, they they can't plan for everybody. It's impossible.

Frank Shostak: 41:34

No, you you you already all you also have here in uh an American economy, every economy that uh has the central bank, it's basically semi-socialism. Because what we what what those central bankers are doing is they they try to guide the economy along a particular uh uh uh particular path, the same way it has to follow this particular path. Then they decide what's the the right rate of growth should be, and they they try to tell you uh how the economy is is performing, and they they created all those indicators like GDP, industrial production, all those things. All this is uh all those indicators are false. You cannot measure, you cannot, you cannot say say anything, right? But in terms of quantities. But they they creating have created the illusion, runs for many, many, many, many decades, and we got uh uh uh accustomed to this. We believe that the economy is some kind of a satellite or some spaceship which follows a particular trajectory, and then a smart guy at the central bank at the Fed decides whether the satellite is on the right trajectory or not. If it's not, they'll give it a push, right? Either up or either down. And how the push is done by means of printing money, but by means of interest rates.

Mark McGrath: 42:58

So it's uh what you're describing, it sounds like what Hayek called the fatal conceit. Our uh who pa who Ponch and I uh work and develop through our work, John Boyd actually did read Hayek, and he did read the fatal conceit. But what you're talking about is that these central planners, be they politicians or bankers, they think that they have the ability to control the economy through looking at spreadsheets or dashboards or whatever for everybody, and that's the fatal conceit because we know in complexity knowledge is tacit and dispersed and and and everything is bottom-up, not the opposite. You can't plan an economy from the top down because you don't have the ability to price, you don't have the ability to subjectively value things, and you end up making malinvestments and things like that.

Frank Shostak: 43:45

Well, you know, you see, we we got a great example in a former Soviet Union collapsed, right? All the communist countries collapsed, right? Everywhere been socialism which where was introduced, it's a disaster.

Mark McGrath: 43:59

Well, it's pertinent. Tell us where tell us where you I mean that's pertinent to the discussion, your own experience. Tell us where you grew up and how that all what it was.

Frank Shostak: 44:07

I I'm I'm basically I'm basically, well, I was born in Latvia, which was part of the Soviet Union a long time ago. But then I migrated, my family migrated to Israel, and from there we moved to Australia. So I lived in Australia a long time. Great country, but unfortunately also practicing socialism. Most countries in the world today, there's there's no free market, let's say fair capitalism. There was something similar to proper capitalism was in the United States in the 19th century. And so if you read Ayn Rand, she she was she is talking about capitalism. And she's saying, well, that capitalists are basically people or the system was totally condemned today by all the socialists, and nobody defends capitalism any longer. It's a be it's be it's becoming a bad word. But because without capitalism, we wouldn't have industrial revolution, we wouldn't have all the goodies that we have right now, all the technological know-how. Even the the guys who got the Nobel Prize mentioned in the importance of enlightenment, right? But the point is, again, you have to have capitalism, which protects individuals' rights and property rights, of course. Without this, you you can't have anything. But but having said all that, you have to have the ability to build infrastructure and all these things and produce all the goods that we require. So America was the only the only country which which was close to the free market. Right? And uh right now the the the governments and the central banks or the Fed are busy destroying the the whole the great system America was. And so and and given that socialism is is encroaching in America, I don't know how long America will be America. It will be just another socialistic state.

Mark McGrath: 46:13

I want to bring Punch in here because we talk all the time about how systems drive behaviors.

Brian "Ponch" Rivera: 46:19

Yeah, this is great. So they thanks for these insights. And I was thinking about my children, you know, when when I have these conversations, they come back and start talking about what they're hearing at school, that it's not fair that billionaires are making money, they're not paying their fair share. Um, we all need to pay our fair share of taxes. Uh you hear stories that uh, you know, you have folks on SNAP benefits here in the U.S. that don't really understand it. Again, I'm generalizing here, they don't understand economic principles. They don't know that money's coming from somewhere uh it's being created. Uh that's actually inflating the cost of their living, right? It makes it more expensive for them to live. So uh I think what happens when you have the central bank approach is you have these, I'll call it a fifth generation warfare. You can actually use this to weaponize uh a population against their own government. You know, so I heard Elon Musk recently point out his experience with uh Doge, finding all the waste in the government. He recognized or realized that he can't fix that. There's nothing he can do. There's so much waste. And I think this is, again, it's a an emergent property of printing money, if you will. So his view is, believe it or not, is to grow the economy. The only way out of the mess that we have in the government is to grow an economy through AI, which I believe he means that by, you know, hey, there could be a potential for a universal universal basic income. Now we're getting into deeper socialism, if you will. But we are we're we're at a turning point right now where we may not see the America that we started off with, like you pointed out. Uh, this may be the end.

Frank Shostak: 47:43

Yeah, you see, is it Bonch? What um what uh uh is it the criticism against Musk and various uh great businesses that they would like the government to be run on a principle of business, to become effective, efficient. This is a terrible thing because the the more efficient the government, the more they're gonna encroach into our life, the more they're gonna attack it, the more efficient. Why? Because uh a government role, and I'm not here, I'm in opposition a little bit with Mari Rosbutt, I'm in favor of Ayn Rand, for instance, and Mises himself. They say that the role of the government is to provide a protection. That's what the American Constitution says. Protect individuals against the government. In other words, you need the government as a big stick. If somebody violates your right, the government should protect you, right? Uh should government should be able to protect you against external enemies and internal uh gangsters, right? But that's about it. Government shouldn't be in business, shouldn't, shouldn't run anything, shouldn't be a good thing.

Brian "Ponch" Rivera: 48:46

Yeah, here they're in our daily lives, right? It's it's it is the go back to the point that uh Moose brought up, and that is complex, you know, system-strived behaviors. So the system creates a you know a place for people to have power, and that's what human some humans want. So that isn't going to go away anytime soon. And I think with the information age and the age of AI, may maybe it is possible that we can get back to a more capitalistic society. But at the moment, the way things look here in the US, from my perspective, and this is my orientation, we're kind of at the end. I don't think there is a way out of the direction we're heading.

Frank Shostak: 49:21

Yeah, you you see, well, you you can look at the Trump, for instance, right? Supposedly a successful business, but he basically wants to be a tyrant. He he wants to control everything, right? He he doesn't want free market. He only wants a f market that will that will make him money, right? The moment he runs tries to run the government on the principle of making deals, it's a terrible thing. You don't do such a thing, right? You know, they they the the best policy he could have done is dismantle the government, completely make it very small, and uh and close shut the central bank. That's what the the the Javier in Argentina had to do it, right? Millet. But Millet hasn't done it, right? He he he had the opportunity, still has to close the central bank. Because central bank is the greatest destroyer of the free market, the greatest destroyer of the well-being of individuals. But people somehow believe we need the central bank, and that's that's the tragedy, right? So so basically the the the the socialistic ideas, bad ideas, I call them bad, maybe somebody else will tell me I'm talking nonsense, are basically uh the enemy of the of the wealth creation and uh the free market. So capitalism requires absolute freedom, total freedom. That's what that's what uh uh Ayn Rand says. And also Mises was saying total freedom, also Rosabott says, without being free, you cannot think properly.

Brian "Ponch" Rivera: 50:52

So Moose, I want to bring up a point here. When we go into the constructal law from physics, it's the same thing, right? We we have to evolve towards more freedom. Yeah that that's that's the alignment here is physics, natural science says the same thing. And I think that's the overlap in this maybe the big connection between what Boyd brought us and what we've been looking at lately in the Mises Institute is it's a flow system, right? And a flow system should flow towards better design where currency, it could be information, money, blood, oil, whatever it may be, flows better through that system. And it's not socialism.

Mark McGrath: 51:25

Remember that Boyd, too, I mean he had a degree in economics, but he he came of age in economics that might not have been a pure Austrian view, but it was certainly more probably trending that way than it is now, where government controls literally, literally everything. Was this was this guy? So so John John Boyd is our I'm not familiar with him. No, well, this is who I presented at the Austrian economics research conference with Hunter Hastings, and basically what we were John Boyd was very interdisciplinary. Economics was one of his one of his things, you know, one of his backgrounds. And certainly he was he was into freedom and and a prioriistic thinking. So there's a lot of synergy, and that's what our papers were trying to show, the synergy between Ludwig von Mises, Rothbard, Huerta de Soto, Hayek, and others, with with Boyd's outlook, that as Ponch was saying, at the state of the universe, we're meant to be free and unhampered by external coercion to do things, whether it's engage in markets or raise a family or exchange with others or anything.

Speaker 3: 52:26

Absolutely.

Mark McGrath: 52:27

And that's yeah, and that's where the that's where a lot of the uh that's where a lot of the the work that we do, um, as I I think you would agree, Frank. I mean, when you read human action or and you read, you know, I I think Rothbard's Man Economy and State is a little more accessible and readable than than Mises.

Frank Shostak: 52:45

He's easier to read for the people that are listening that you know don't that that want to be easier to read for the for the guy for the guys that have been brought up on the mainstream economics, right?

Mark McGrath: 52:56

Yeah, yeah. Rothbard's the place to start. I guess what I was saying is that like economic they're they're describing science. They're describing and discovering, they're not creating or imputing things that are mechanistic or Keynesian or socialistic or technocratic or whatever, because they because it allows for, as Mises says, right, I mean, all economic action is actually human action, and humans are organic and part of the part of the universe, and we're not designed to be operated on by outside forces that are far away from our homes and far away from our families and other things to weigh in on every single economic decision that we have to make.

Frank Shostak: 53:37

Well, you see, you see, since you raised this point, the great contribution of Mises that uh he basically introduced this what what we what he called praxeology. In other words, he basically was saying that causality, cause in effect. Cause in effect, according to Mises, the cause emanates from us, from our minds, right? From ourselves, not from outside factors. But the mainstream economists are using it the other way around. They're saying we uh there are outside factors which are driving us. In other words, they're presenting, they see viewing uh individual as a robot, as a machine, right? Which is driven by outside factors. And Mises says, no, no, no, no, causality comes from you. You decide whether what uh you're setting the goals, and and by setting goals, you you could find out the means you require to achieve those goals, right? But uh in other words, uh outside factors are important, but they're not the causes. The primary causes are coming from you. And that's very important because like Mrs. was saying, we uh the you can introduce the most complicated mathematics in economics, quantum, mathematics, physics, whatever you whatever you want, uh it will not provide you with explanation of why things are happening, right, in the in the human world. In other words, uh Mises was saying mathematics can only describe things, but it cannot explain. And that's the they're that's very important because because because praxeology or what Mises did, and what actually Ayn Rand also, they're basically trying to explain why things are happening, right? Now when when they talk about inflation, just just a simple example, they're all on on on TV they describe which components gone up, how much food gone up, whatever. But they don't tell you the reason behind inflation, right? So they tell you the reason are greedy businesses, right? They'll tell you profiteering, right? All sorts of nonsense, right? But nobody will say maybe it came from printing presses from the central bank itself, right? And uh and that's really that's really the cause for inflation. But in other words, the tendency of the mainstream and uh non-Austrians are to this to describe things. They will describe the world in most complicated things, using most complicated formulas, but they don't explain anything.

Mark McGrath: 56:10

It was it was praxeology actually that hooked me, and and Pach, I want to bring you in on this. This is actually what hooked me in my connection of drawing all this to Boyd, because when you when you read human action and you read the first part about about where he's describing praxeology, in other words, this the study of human action, he's describing Oodaloop's sketch. Like he's like he's he's literally talking about about Oodaloop's sketch, about how our orientation implicitly guides and controls and our our sense-making. Frank, isn't it like that Mises says something like, you know, we envision and we feel and we understand of the uh uneasiness that we want to overcome within our within our minds or whatever, we imagine what that state is. So we make decisions and actions and learn and adapt to to get to that state that we envision or reimagine.

Frank Shostak: 57:00

Yeah, look, you know, the the the whole the whole idea of uneasiness, it's a philosophical a lot of a lot of philosophers were debate disputing this, right? But how people take decisions, it's uh it's you know how the mind works, we don't we we can't really tell, right? Always saying that uh we we decide, for instance, if my money income goes up, for instance, it doesn't mean that I'm automatically going to consume more, right? That's what the mainstream does. You know, like I have to consider various other things, my goals, maybe my goals will change, all sorts of things, right? So that you as a human being make make your own choices, right? But once you have chosen certain things, or you you have a goal, a plan, you you will need to find the logical means, right? This can be logically assessed, right? You know that in a desert, to quell your thirst, uh it's not it's it won't help you to have a lot of gold, right? You need water, right? So in other words, you need to to establish logical, uh logical things, logically, the means you require. But uh but the goals will be set by you, right? Not by some computer, not AI or anything like that. So the whole the so the whole thing is mainstream economics moved completely away from human beings. They describe robots, machines, a lot of uh unnecessary, crazy stuff. And then this is also confuses people because economics is not it shouldn't be c seen as a complicated subject, but most people are having second thought about well, they don't understand economists as such, and rightly so, because economists are talking all sorts of nonsense. They don't talk about logically uh uh about things about life. So Mrs. the Austrians, Mrs. Rosbach and Ayn Rand were talking about life. They were saying you want to be alive, you uh your your your ultimate goal is life, life preservation, to stay alive. And that's what uh Karl Menger, the founder of the Austrian School of Economics, was saying. Life is the primary goal. And then all the other goals are subsidiary to the life.

Brian "Ponch" Rivera: 59:16

So this this parallels with what we talk about with organizations. Uh we don't want to take an engineering approach to human systems, right? So that's that's what's happening in mainstream uh mainstream economics. There's a lot of engineering approaches, big brains trying to apply non-living approaches to that human system. That is fundamentally wrong in organizations. And and um this is again what we try to coach, and I think that's what John Boyd gave us, is we have to look at the natural sciences, natural intelligence to understand how living systems find creativity and thrive and survive. So fundamentally, I think Moose, that's why we're aligned on on what Mises Institute puts out and what Boyd puts out and what the the underlying science and emerging science tells us.

Mark McGrath: 59:59

Yeah, Frank, we'd we'd love to, I'm gonna share it on the screen for those watching. We'd love to so we uh are fans and recommenders of your your Substack and maybe close us out with telling us about your um about about AAS economics, the Substack. I mean, the the page is phenomenal, and for anybody that wants a good grounding and all this stuff, you have excellent resources and tabs and things to learn. So maybe walk us through that a little bit and we're we're gonna be making sure that our our subscribers are following up with this.

Frank Shostak: 1:00:32

Look, I I don't know what to say. I mean, all all I'm saying we're we're trying to convert or to convey to make the uh Austrian economics more applicable, in other words, that people could relate in in terms of their business decisions, in terms of thinking about issues which uh they call it economics, and uh and which we'll we're trying to provide them with uh with what we think are the the right tools to to ascertain uh what's going on. For instance, again, if if we go back to to Nvidia, let's say yesterday, right? Today the market was uh was cheerful because Nvidia's sales were and profit were above expectations. But that's that's beside the point. Nobody said anything that maybe Nvidia some maybe some saying they they bubble. Nvidia's bubble, but nobody says why it's a bubble. And uh we would actually articulate why it's a bubble and why why the strong performance yesterday, that the the results that doesn't say that there won't be co collapse. In fact, uh most of the collapses are happening. when least expected. We're in the midst of of the view that everything is great. We in the ne the new period of of uh of uh wisdom everybody understands things ever and the management is is right or whatever and but but that's uh that's precisely uh how the bust uh is catching people uh uh out of uh of of of guards and that's really what is happening Nvidia or uh anybody anything else right if it's it has to be out of the bubble because it couldn't be other way around and and just to give you just a simple illustration why it's a bubble for instance the money supply the way we are measuring uh year on year in uh in august twenty nineteen was uh minus 0.7 percent or uh close to zero let's say by uh february twenty one it's jumped to almost almost uh 79% year on year a massive increase right the people overlook all this right this created and because money supply affects activities with a time lag it's it doesn't affect instantly it takes it could take many years until it filters through right so the massive bubble was created during this period between August and February 21 right that's COVID right yeah covet uh covet right was a greatest mismanagement on behalf of the government people were were forced to sit at home and they were getting pa getting paid nobody was producing everybody was consuming right so capital was eaten up but this the official statistics doesn't show it because the official statistics is all corrupt in terms of GDP and all those things the way that they're presenting it. Well you you remember the the case that that the labor labor the the Bureau of Labor Statistics whatever they came with the figure that Trump didn't like. He fired this person.

Mark McGrath: 1:03:55

Well I I I think I think the other thing I think with one of the other things that I've learned of course through studying John Boyd but also really Austrian economics is sometimes it really does it transcends political party lines. So if you really understand economics in the classic sense and the way that that you teach Frank I mean it really does transcend political parties and political ideologies.

Frank Shostak: 1:04:17

Yeah look you know I mean I mean uh most uh politician players in the market you can call them political animals or not whatever but they they all mainstream they they were brought up on the great universities like Harvard, Yale, MIT they're all been brainwashed with uh polluted economics wrong economics, right? You know, like to give you just background, Mrs. I couldn't find a job in America, proper job, you know, such a great man. Rosbart for many decades was teaching in some kind of an unknown college in Brooklyn right until somebody discovered that this guy is a genius and and and gave him a position in Las Vegas right university. So put it this way great universities were shut the still still closed for great Austrian thinkers because the the dogma the the official dogma is that you have to anything you write today in official academic journals and economics you have to write uh heavy mathematics so don't misunderstand me that most Austrians are very good at mathematics like Rosbud uh had degree in maths also right many of them Mises was a mathematician his his brother was a mathematician uh all were Karl Menger was mathematician so they all knew uh what math maths is all about right but they realized that the methodology of natural sciences is not applicable to uh to economics to human beings came with this uh his uh uh statement that uh in economics we don't have uh on in human science we don't have constants because because we only got variables things are changing all the time why because we got freedom of choice we can change our mind but in in a in a mainstream economics they follow uh they follow the strict mathematics and also and and they're very proud of their mathematics but but that's that's all that's got nothing to do with economics. Yeah it's disconnected it's not always applicable to reality of the things that people are dealing with they they got the so-called game theories for instance right they're using uh or probabilities they're using right yeah which got nothing to do it's not applicable to economics right I remember when I was getting my master's degree in economics I had to have a discussion about George W.

Mark McGrath: 1:06:48

Bush's indifference curves versus Oprah Winfrey's indifference curves.

Frank Shostak: 1:06:54

Well uh you know like indifference curves cannot be part of the choice because either you chose one or two but you can't be indifferent between those two right so that's not it can't be part of the choice the theory of choices. But anyhow that's in subject for another discussion but all I can say that that the the mainstream economics as far as Mises and uh Rosbott were concerned is completely wrong.

Mark McGrath: 1:07:18

Misleading I mean it's got it describes something which doesn't uh I mean there there are you know I was on I was in the asset management world on Wall Street for over 15 years. I met less I I could count on two hands the number of Austrian economists that I met in all those years and I remember you know giving people a paper on the yield curve that an Austrian had written or or you know telling somebody to read human action right the one book that the Mises Institute the the collection of the trade cycle essays with Mises and and and Gottfried Habler and and and other and you would hand it to them and it was like you handed them like something that was written in Klingon. They wouldn't they're like I never learned this at Harvard I never learned this at Wharton I never learned this in in my CFA. Yeah well but then it's interesting to note too that a lot of people that don't they never really preached Austrian economics but they certainly inherently understood it like like a Warren Buffett for example I mean he understood that value was subjective and he understood how real real economics works even though he didn't talk that he did um and I think that there are some pretty astute managers out there that do get it and and and do look at it because just and this is this is what we would recommend to our subscribers and and our listeners is like get a differentiated view and and and use use the Austrians as a start you know so start with uh maybe Frank after this I'll ask you to rattle off some some books to start for people but if that differentiated lens you're never going to look at the Wall Street Journal or CNBC or or the news media you'll never look at it the same way again you'll always be able to see the the gaps and the mismatches that otherwise are going to get you're gonna get bulldozed and you're not gonna see those.

Frank Shostak: 1:09:02

Well Mark, you know like for me one of the greatest writers in economics was Henry Hazlitt Henry Hazlitt yeah economics economics in one lesson. That's so if if a person can grasp what's what Henry Hazlitt said that's enough.

Mark McGrath: 1:09:20

Henry Hazlitt was one of the people that fought to get Mises a job at Manhattan at NYU. Exactly so Henry Hazlitt's interesting that you mentioned him because that there there's an example of how of how these ideas at one point were pretty common because Henry Hazlitt had a column I think in Newsweek I mean he was a well known he was a well known writer and his book Economics in one lesson uh basically takes it says law right yeah exactly the broken window fallacy you know but but but what's nice about the Andrew Hazlitt he uses simple common sense basically and that's it you know and because he his principle was one plus one equals two if you're getting two and a half you must be doing something wrong.

Frank Shostak: 1:10:06

That's that's you know so so it's like again Ayn Rand Ayn Rand says at the moment you have uh logical error whatever you have to stop and and and check your assumptions that's all and uh so Ayn Rand was she was great in terms of thinking in terms of methodology and uh she and epistemology that's really what now what's needed.

Mark McGrath: 1:10:33

So one of her inner circle wrote a great paper on gold and freedom and his name was Alan Greenspan where did he go wrong? Well he he he wanted to become uh uh he took advantage of idiots and he wanted to become an important person you know I I I remember when he would test he would testify before Congress and Ron Paul would start quoting him him because he had written all this when he was part of Ayn Rand I forget what she called it like she had a circle the name for her circle yeah and and uh he Ron Paul would start quoting Greenspan to Greenspan about what he had written about gold and freedom and and and money and connected to a gold standard in his uh like use his own words against them.

Frank Shostak: 1:11:19

Yeah look you know I mean the the the the the those people look I I cannot I I I I I I I'm not I'm not basically supporting uh Greenspan for what he what he did but he basically wanted to succeed something but which is wrong the way he did it but uh but the the the whole environment until now in America I think is getting worse because people are more and more attracted the young generation towards socialism. Yeah this is really sad. I mean a person like Bernie Sanders became so influential you know like oh Alexandra or Cortes or whatever the name it's terrible I mean but even uh Trump himself I mean the the this is nobody in among the politicians trying to push for free free market for wealth creation yeah that's that's the set stuff not now none of them even knows the meaning of wealth that's that's the problem well I think the other thing that's interesting about the Austrians is that they actually do have a theory of capital. Well some of the Austrians but the to me the only guy who articulated properly this whole theory of capital or the capital story was of course Bombaer Menger Mizes and Rosbutt that's it I I'm not a fond of Hayek I'm sure Hayek was a great man but Hayek had the tendency to compromise he wanted to breach the mainstream with as Austrian economics you know in a subtle way.

Mark McGrath: 1:12:52

Yeah I mean we we write a lot about Hayek there's a lot of synergy with Hayek but I certainly understand your your sentiment on that that that you know there there is some times where he's kind of an errant on his like mostly like Joseph Schumpeter for example like there's there's a lot of things that Joseph Schumpeter was brought up in that or like Oscar Morgenstern they were brought up in the in the classical but then they went in a different direction that kind of kind of they end up debunking themselves.

Frank Shostak: 1:13:17

Well like like for instance you also find in uh among the free marketeers the biggest disaster is the the Chicago school yeah like Milton Friedman and others see that as a free marketer is he's basically wants to wants to create created rules for the central bank to exist. He didn't say close the central bank or whatever he was a smart guy did a lot of interesting stuff but uh Miz made a pronouncement about him that he is a very dangerous for the free market.

Mark McGrath: 1:13:47

I remember hearing uh somebody was saying that nobody could give a defense of the free market orally better than Milton Friedman but at the same time he was an orthodox Keynesian.

Frank Shostak: 1:13:57

Absolutely I mean he he basically when he talks about money supply all the time was talking about money supply money transductivity he basically perverted the whole theory there you know that the whole thing is is incorrect as far as Austrians are concerned. But he he he would he would he he basically his theory was a black box theory he never had he never has like Austrians had a proper theory. When I say Austrians I mean Mizesian and Rosbaldin. No I mean um I hope you can accept the flattery but you would be in my opinion one of the deans of Austrian economists of today well you know well we'll we'll still we'll still pop you up a little bit but like who who are some of the other um like I guess I think of Jesus de Soto in Spain is is putting out he's done a lot on this de Soto yeah he's a he's an interesting guy I mean look most people uh when when there is certain level they they their ego is just is running out ahead of them right and that's the problem right yeah so that Mises wasn't like that was quite humble guy Rosbutt was humble I don't say it's good or bad but uh but you know like you know like that they were quite forceful in in terms of ideas they're like like once they reach the conclusion that one plus one equals two you couldn't really move them and tell them it's two and a half right but those other guys that they're quite flexible for instance there's a tendency to follow the data also among the Austrians like some of them will wrote articles and I don't want to say the names that the time preference could be negative. In other words interest rates if you have negative interest rates it's it's logically correct right uh which which we had we had negative interest rate but but if you follow theoretically you know that you cannot have negative the only way you can have negative interest rate if the central bank tampers with the financial market so you know so so first of all you have to have a theory which is like a map a guide to you to what's right what's wrong and then you can you can start to analyze why things are happening despite the theory says something else. If the map says that tells you that in order to reach the point B you have to from A to B you have to go a certain way that's fine. That's really what you have to do right but if you decided to go a different do different route without consulting the map you have a problem and that's what theory is theory is just a map that tells you what's right or what's wrong. And that's why it has to be logically scrutinized and once you logically have scrutinized all that and and you satisfy it then you can continue to analyze the data but what what you have today data is published people are just talking about the they're discussing the data without any framework of thought they'll tell you ah the GDP gone up what's great for the economy. Why it's great maybe it's bad.

Mark McGrath: 1:17:06

Yeah if you torture the if you torture the data it'll confess to anything.

Frank Shostak: 1:17:10

That's right but but but the point is that they they rely on correlations of course but the the point is that data doesn't talk and that's why you need to have a epistemology and the Mrs has shown that you cannot get any idea from the data by looking at the data. You have to have a theory beforehand.

Mark McGrath: 1:17:30

That's what a priori it means I um we're we're gonna send people I mean because boom and bust is something that we talk a lot about and and everybody knows the Great Depression of the these and and Rothbard wrote a great that book America's Great Depression has one of the best descriptions of the boom bust cycle I think that that are available. Everybody forgets the Great Depression what is it of 1920 or 1921? Nobody even knows it because the government didn't well no the one before that after the first world war where the where the government didn't do anything and it was over like really fast and it was over organically from people, entrepreneurs, people doing their own thing.

Speaker 3: 1:18:08

I forget the year I want to say it was like 20 or 21 yeah probably yeah you're probably right.

Mark McGrath: 1:18:16

And then we know then like the you know with the gold window still being closed and that still has a a pretty profound effect on price signals. Sure well Frank we want to thank you for taking the time and staying up with us from across the sea and uh we're gonna send everybody to AAS Economics because again on on Substack there's very few that not only give you a grounding in authentic Austrian economics but also to show application how you can actually start looking at markets and you guys do a really good job of giving us a view into markets through an Austrian lens that that I think is extremely helpful. So thank you very much for uh taking the time.

Speaker 1: 1:19:00

Yeah thank you yeah