Per Bylund – TALKS WITH PETRI
Per Bylund talks about the role of entrepreneurship in society, what’s wrong with economics, why prices are always rising and how to spend a year in Hawaii.
Per Bylund is a Swede in Oklahoma, USA, where he works as assistant professor of entrepreneurship in the Spears School of Business. He had careers in politics and as business consultant and systems developer before moving to the USA and starting a career in academia. He has also successfully failed as an entrepreneur no less than four times, experiences that he draws from when teaching students and writing columns for Entrepreneur magazine.
He is an author of two books, The Problem of Production: A Theory of the Firm (Routledge, 2016) and The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives (Lexington, 2016), and associate editor of the Journal of Entrepreneurship and Public Policy and the Quarterly Journal of Austrian Economics. A fellow of the Mises Institute, he is a frequent guest in its Economics for Entrepreneurs podcast. He is also actively discussing matters of the economy, entrepreneurship, and freedom on Twitter; follow him at @PerBylund.
(NOTE: The text may contain errors, misconceptions and even comical unintended contexts. Please use it only as a reference to the actual audio conversation from where it has been transcribed.)
Petri: Hi Per, how are you doing?
Per: I am doing well. Thanks for having me on.
Petri: Glad to have you! What do professors do in the summer?
Per: Most people would probably guess that we don’t do anything at all. And then we just hang out and enjoy time off. But if you’re in a research university you were probably working to catch up on research and trying to get your papers published and finalise the papers that are half-finished and so forth.
I would say research, that’s summer.
Petri: What are the topics on your mind at the moment in research-wise?
Per: I’m into theory and I do entrepreneurship theory. Primarily looking into what entrepreneurs do, what their function is in the market economy and so forth. I’m doing a lot of this boring pseudo bureaucratic stuff, which means I’m rewriting papers and restructuring papers. I’m just going through the texts and making sure that they’re precise enough that they’re all aligned to the conclusions that there are no tangents that I’m going out on and no additional topics, or I’m not covering any ground that is not necessary for the conclusion. It’s really boring stuff. it’s not thinking, and it’s not pushing the edge. It’s not breaking new ground. It’s just editing.
Petri: Besides the technical parts of it, what are the great ideas? What are the revelations?
Per: My big aim right now is to correct the field of entrepreneurship and put them on the right track again which is in a sense part of my other goal, which I use Twitter for and other writings, to get economics back on track to where it was before. To put it very briefly, economics has lost its way and they’re not studying…
Per: In the 1930s, I would say, around then.
Petri: Okay, can you elaborate a bit?
Per: Yeah. In 1936 John Maynard Keynes published his general theory, which created a revolution in economics and it shifted what people are studying and what they assume is the point of the economy and where the market is heading. It turned everything on its head and broke with pretty much everything economists had done since Adam Smith and other thinkers in the 1700s.
Petri: What about Karl Marx and Engel weren’t they already doing things beforehand? Why are you jumping to Keynes from Adam Smith?
Per: All of the 1800s, and that is actually my favourite century in terms of the history of thought. A lot of interesting stuff happened there. And even though it’s taught as a very boring century with just industry, but there was a lot of interesting stuff going on. And you’re right, Marx and Engels, Malthus was also in the 1800s.
Petri: I think he still is here with us almost like every week or every other tweet.
Per: True. And you could make the same claim about Marx. He’s also among us still. But in the 1800s, they were considered on the fringe and didn’t have much impact and there were very few of them. The mainstream of economics thought, all of those other guys, they were basically laughing at them and they were debating them and they were, Oh, you guys got everything wrong and that sort of thing.
But with Keynes, it was different because Keynes completely changed how economists do economics. But in a sense, he was following that what I call the dark side of economics with Malthus and Marx and Keynes.
Petri: You’re saying he was a populist?
Per: For sure, I think that was the point of what he was doing. To put it very briefly, the thinkers before him had thought of the economy as a system in and by itself.
It has some sort of harmony or at least some sort of order to it, not necessarily that it’s perfect or anything like that, but it has an order in a way that it works mechanisms and functions in itself. Which means if you want to refine something, you have to be very careful because if you’re just going for a quick change and not thinking it through, and you will cause a lot of unintended consequences. Politicians, of course, they always…
Petri: Sounds like a system or mathematics
Per: Yeah. But more of a social system. It starts with simple exchange and recognising that we exchanged voluntarily because we both think we’re going to be better off with what the other guy has. The cost to us, to what we’re giving up is just lower than the gain that we expect to get from it, subjectively speaking. From there with lots of exchanges, there are really no contradictions involved.
There could be outcomes to this process that we might not like but there’s nothing contradictory in the process itself. Of course, this limits what politicians can do, because they can’t really make this much better through simple means and just signing a law into effect. And then look at that they created a better future! It’s not that easy. And they really want to, when you have a business cycle, for instance, when you have a recession, they want to save people. And of course, people are better off in the short term, too.
They want to spend a lot of money, for instance. Thereby in a sense, they’re buying their votes, too. Because they’re more likely to get re-elected if they give people a check or two. If they don’t and they say things will work itself out. If they do something, whatever it is, they do, it doesn’t really matter.
But then they’re more likely to get re-elected and more likely to get glory and fame and so forth. Keynes in a sense produced a theory that facilitated politics. He turned everything on its head by saying simply that while in the long run, we’re all dead, which is a famous quote. The older economists, they were looking at the long run and seeing that well cost in the long run doesn’t make gains in the short term worth it because the cost can be so big if you affect the whole system.
Whereas to Keynes, it was more like we don’t really need to care all that much about the long run because what matters is the pain in the moment right now. Even if we cause more problems down the road, we can solve those when we get to them and with more short term action. Of course, that speaks to anyone who wants to change society.
Petri: And if you think about the politicians they are elected only for a few years, so that’s the perfect solution.
Per: Exactly. Whether he intended to provide politicians with power or if that was just what happened to be the outcome, who knows. I never met the guy, but that was what he did. He had a lot of supporters right away. Those who wanted to use government to shape society. They find those ideas attractive.
Petri: I think that was in the air for decades already. And that was probably the culmination of the thing. There was already the Federal Reserve in place and a lot of other steps.
Per: Absolutely, I’m not saying Keynes was the only one that came from out of nowhere and just changed everything. There was always this struggle but for whatever reason, we talk about the Keynesian avalanche because it’s just changed everything. And it came them buried, basically the old way of seeing the economy.
Something made his work a tipping point. And it was always the struggle between seeing the economy as a system in itself. And people back in the day, they even talked about the economic organism. So that’s how they saw it as something that where all the parts are part of a whole. And there are some balances and there’s some kind of harmony in order to the whole thing by itself.
They were a majority and most influential in economics until Keynes pretty much. They weren’t free market radicals or anything like that. They still saw that there are two spheres to society and one is the economic sphere and the other is the political sphere.
And if the political affects the economy too much we’re going to see very bad results, detrimental results.
Petri: Are you actually saying that the future doesn’t always mean that we’re going forward, it’s progress? In a way, we have been going backwards in economics since the 1930s.
Per: Yes, absolutely. Development happens along many axes. Of course, we have become a whole lot more well-advanced and sophisticated in terms of mathematical modelling and statistical analysis and things like that. But in terms of economic thinking, we have taken great steps backwards.
Petri: Have you run into theories or maybe you have your own hypothesis why the mainstream failed? Why the mainstream economists flipped to the minority and then almost vanished?
Per: I’m not sure. There’re so many things that happened. This was during the depression between the two World Wars. That was a backlash against the enormous creation of wealth through industrialisation following the enlightenment. There were so many things at once. It’s a very interesting case because it completely changed how people perceive what they’re studying over the course of just a decade or two. I’m reading a book now by Stephen Kates who has done a lot of work on trying to interpret Keynes and figure out what Keynes was doing. His focus is this shift, and it focuses on Say’s law and different perceptions of what..
Petri: What’s Say’s law?
Per: That’s part of the story that Kates tells. That’s one of the things where Kaynes produced a strawman that is close enough to what people believe so that they accepted it. But with the strawman, he was able to undo it and ridicule it. Say’s law was actually never called Say’s law until the 1900s. It was the law of markets where economists understood that production proceeds consumption and that demand is constituted by supply.
In a market setting, I can demand, which means that I am willing and able to pay for a good and buy it at a certain price because I have already supplied something to the economy. I have purchasing power because I have already worked and earned the wage, or because I have already promised to work for someone else and was paid in advance or something like that.
Petri: It’s like the voluntary exchange we were talking about just a minute ago?
Petri: I provide you with something and you provide me with something. We’re contributing both and that enables us to do something.
Per: Exactly. And in the market setting, it’s very decentralised. What I’m producing is probably stuff that I never ever used myself, but since I’m producing it, I earn an income that I then can use to buy stuff that others produce. Even though I’m really selling entrepreneurship research and lectures, education, which I’m not much of a consumer of, not anymore anyway. That means I earn purchasing power so that I can buy food and a car and things that other people are better at producing. But Keynes rephrased this into supply creates its own demand, which of course is a little bit silly because if you think of the words, then simply producing something doesn’t mean that people demand it. Any entrepreneur knows that this is ridiculous.
Petri: That sounds a lot like Marx’s labour theory of value. You just do work and it has value.
Per: It wouldn’t surprise me if there is some connection there, too. It’s easy to make fun of that statement: supply creates its own demand because it’s so ridiculous. But it’s close enough to: you have to supply in order to demand. Of course, that also means that whatever I can demand is equivalent to the value I have contributed through my supply.
So there’s an equality there between my demand and my supply. Because I can’t demand more than I have supplied. It’s close enough but on the face of it, it’s ridiculous. People were willing to listen to it as well but he was able to debunk this strawman and that strawman is dead. And properly that I would say.
But, I don’t think anyone from the…just not the economists from the 1800s would agree with how Keynes put it.
Petri: Can we ever learn anything from history because it seems like every new generation is repeating the same mistakes? That’s why Bastiat was writing something in the 1900 century and then there was a hundred years later there was another famous person at this time in the US who wrote the exactly the same thing, Henry Hazlitt’s Economics in one lesson pretty much a hundred years later. And probably we need another Henry Hazlitt now to do the same thing and basically the same things are still with us.
Per: Good ideas should be repeated. But the problem now is that we are focusing so much on quick contributions, being fast and just adding to it that we don’t even take time to study the past. A part of the problem I have with the economics of today is that they don’t really consider anything worthwhile to read that is older than 10 years.
It’s the Whig theory of history, the assumption that whatever is now it incorporates all that was worth knowing that was done before and everything else was weeded out through this process. There is nothing and can be nothing historically that they learned that we don’t already know that isn’t already part of the most recent formulations of our science and our knowledge in any area. You’re just adding to it. You’re just improving it all the time. I think this just in some sense could be the case in strictly empirical research, simply because you just get more and more data and more and more refined data and then you improve more and more refined methods of interpreting the data and then you should get to better and better conclusions and then a superficial level that would work.
But that doesn’t work at all in the social sciences where everything is about human beings, acting and perceiving things and how they actually value things, where they are and dependent on their culture and their values and what they feel at the moment and things like that.
You can’t just collect data and think that’s going to hold forever. Because it never does.
Petri: What is the value of entrepreneurs in society? What are they contributing? Are they contributing anything?
Per: I like to say that they are creating our tomorrow. What entrepreneurs do is they ambition or imagine that they can produce something that will make people better off at some future point in time. And then they try to get there. And of course, along the way they learn where they’re wrong and where their rights and that can perfect those goods. But I think we have basically everything to be grateful to entrepreneurs for everything that we have and everything that we will have. Because without them, we wouldn’t act best just by repeating what we’re doing. We would probably lose a lot along the way.
Petri: Are they under-appreciated by the society?
Per: I think they are in some sense. There’s also the hype around entrepreneurship. That goes back to our discussion about Keynes a minute ago that what he did was instead of looking at the creation of value and the distribution of value that follows, which the classical economists did, his focus and all of macroeconomics’ focus today is just employment and making sure that there are jobs. And in that sense, we are recognising entrepreneurs as job creators. In that sense, they might be overvalued because I think creating jobs is not what they should be focusing on and it’s not really their contribution.
They’re undervalued and underappreciated in terms of their failures. Because we probably learn a whole lot more from those entrepreneurs who fail and thereby facilitate success by others than the entrepreneurs who succeed. If you ask entrepreneurs who have been really successful, pretty much everyone would say that they, Oh, it was luck.
They didn’t know much. And they just happened to be in the right place at the right time. And they didn’t really understand it, but they happen to do the right thing and things like that. That’s not necessarily accurate. It’s little too modest but there is luck involved but there’s also learning.
Very often a new idea is implemented by a number of people at pretty much the same time, but doing it in different ways. Most of them fail. Whoever is best at adjusting to and recognising why they failed would be able to incorporate that in their own solution and thereby avoid that mistake.
So everything that we have, all those disruptive goods and all those leaps forward that we take in technology and different types of services and in business models and so forth, they are really the result of a longer process, where a lot of entrepreneurs were weeded out because they didn’t get it sufficiently right. And I think we under-appreciate the failures, so to speak.
Petri: What is the market? What is the discovery process and the whole system? Basically, that’s what it is. You fail, if not now, later on, that’s the fate of every company in the market, there will be a time when they are no more. How does that whole thing work? That’s part of what you’re trying to figure out, isn’t it?
Per: That’s core to what I’m trying to do. And in the scholarly level, I’m trying to get all the bits and pieces to fit together and figure out exactly how it works. On a superficial level, we can all see that there is a trial-and-error process and those who do not work out they are weeded out quickly and the resources are made available to whoever is better at figuring that out, and thereby an evolutionary process. Most people can recognise it on that abstract level. But then the question is what exactly do entrepreneurs imagine and what distinguish these entrepreneurs from other people and what makes them take the plunge?
What makes them believe the world will be different and what makes them figure out what people might actually want? Because entrepreneurs create a lot of stuff but they are not the final arbiters. They are not the ones deciding whether it’s valuable or not. They probably and hopefully that what they’re doing is valuable, but at the end of the day they will only make a product or service available to people in general and then consumers are sovereign. They will say, Oh cool, I’m willing to pay a price for that. And I’m willing to pay enough of a price for that for you to cover your costs or they will not. And if they do not then the entrepreneur has failed.
Petri: Do we have any secrets for those founders or people who actually have their own business and they building it? What have you learned with all your years in research and studying, can you say some of the things which are not so widely known?
Per: It really comes down to having the right a rule of thumb. That’s something I stress and have done in my columns for the Entrepreneur magazine and in podcasts and also in my teaching, is to really think about it in terms of value. Of course, entrepreneurs do this but they do this in terms of usually dollar amounts or euro amounts.
That’s not what I mean. What I mean is to think about it not as a production process from inputs and costs through production to offering a product with a price and then getting the sale, but exactly the other way around. What entrepreneurs often do and what they do wrong is that they envision a product, they calculate what the price would be to create this product of a certain quantity.
And then based on that to add a markup to cover their profits and then that will be the price. And then they go to the market and try to sell it. This is a great way of failing. That’s your goal and that’s how you should do it. But what I say is that you should do it exactly the other way around because the consumer is sovereign.
You should start by thinking how is this what I’m offering valuable to the consumer and what exact consumer is it? What type of demographic, what type of person, what type of situation will this be of value and how much? What type of price can you charge for this product so that this customer segment thinks that that’s a pretty good deal. I’m going to buy this thing because I’m going to get so much more out of it than the dollars or euros I spend on it. And then your job as an entrepreneur is simply to figure out that price and then keep your costs below that price.
And the difference between the two is your profit. That’s exactly the opposite of how we usually think about it. Most entrepreneurs would start with thinking that, Oh, I need to produce this product, or we’re gonna start a dry cleaner. And then they calculating the costs and then figure out the price based on cost-plus profit, and then they start advertising or open the shop or whatever. They should do it exactly the other way around.
That’s a very powerful rule of thumb. It’s a powerful way of avoiding mistakes that most entrepreneurs I fear are making.
Petri: Why is that? What you say makes sense and it’s simple enough to understand. Why is it not that you’re a billionaire telling that to everyone and we still see a lot of companies failing a lot of startups and even big companies doing it the wrong way? What’s the matter with people?
Per: Well, that’s a big question. Part of it is simply that they have not really been exposed to these ideas. Many entrepreneurs, especially serial entrepreneurs, just because when they tried and failed a few times, they get an idea of how to do things. But they don’t have the terminology.
They don’t think about it in an explicit way. But of course, now many of the tools that we use in teaching and so forth are based on finding the willingness to pay and things like that. They’re getting close to this. You mentioned big and established companies and why they do this wrong. The problem there is to a great extent the formal education because we teach them the wrong stuff. We are creating the problem and it’s a problem really that comes from seeing the economy as modern economics sees it in terms of equilibrium states. And then with existing supply and demand curves, and then all you need to do is figure out the price and then you keep the costs lower and things like that.
That’s not really how it works. I don’t think any large corporation can survive very long without innovating, without being entrepreneurial. It’s not really about managing what is but it’s about meeting the future and creating the future. Even if you are a huge corporation.
Petri: Are you saying that we came back to the same place with the discussion we had previously? It’s all about Keynes and the supply?
Per: In a sense, yes. This is larger than Keynes because Keynes was not the inventor of the supply and demand curves and equilibrium. That proceeds Keynes. This fascination with and wish to see the economy as a system that can be engineered and steered and directed and fine-tuned rather than an organism that works the way it works.
And what you can do is simply try to help it in some sense. As human beings, we really want to be able to get into the engineering and tweak things and perfect how it works and optimise the system and doing that creates a lot of problems if we’re thinking of society in terms of machines rather than as an organism.
Petri: Maybe that’s the real issue? It’s about power, being in control, understanding and having some kind of sense of control where there are some knobs and levers you can tweak and turn and things will turn your way, a system that works?
Per: That’s how we teach management that they are supposed to be the control centre of the corporation. And then you have labour units, we have capital units, us, machines, and so forth. And then you have inputs and you have outputs and all you need to do so maximise what is going on.
That’s what is taught if I simplify quite a bit and exaggerated a little bit. That’s what an MBA program is about. Training managers to become the control system of the corporation and make sure to just cut away the waste in the organisation. And they show that you just maximise that output in terms of a number of goods. Because you have already discovered what goods you’re selling and what goods you can sell at a profit.
You are excluding entrepreneurship, which is also what economics does, exclude entrepreneurship from the model, and then try to maximise it. That’s completely wrong. And one of my pet peeves is the cost-plus method for pricing, which is still being taught in MBA programs, which is exactly what I just talked about as being the wrong way of approaching it. Where you calculate the cost it would take to produce a good, and then you add your profit margin and that’s the price you’re going to charge. That’s the cost-plus method, which is exactly the reverse of what you should be doing even as a corporation.
Petri: You mentioned the regular way of teaching and also conducting business. It made me thinking about Taylorism and the 1900s and all that industrial revolution where you’re figuring things out and pushing out T-Fords and that era of production and running society.
Maybe we need a revolution in education as well?
Per: Well, yeah, probably. And you’re right. That’s Taylorism or scientific management where they basically just wrote down how much time does it take to stretch out your arm and how much time does it take to squat and lift this thing up. And then just calculate how many squats a worker should be able to do in 10 hours.
Then they organised as a business around those calculations. And if you didn’t reach those goals, you were not a good worker, so you should get lost basically. And I don’t think that management, the way we teach it today, is very far from it, at least not in the fundamentals. There’s a lot more knowledge and there’s a lot more psychology involved. There’s a lot more of seeing people and fitting skill sets and attitudes. There’s a whole lot more that we’ve learned about it but it really boils down to this knobs and levers and things like that, where you try to just maximise output in terms of the physical goods produced.
That as an Austrian economist that bothers me quite a bit. Because the economy is not about physical stuff. It’s not about producing goods. It’s about producing the value that goods provide to people. Any business should not really be about maximising the number of iPhones, but they should be making sure to produce the most valuable type of iPhone that they can find. That’s how you satisfy consumers.
That’s also how you can charge the higher price. That’s how you can make the most out of those scarce resources that we have as a society. It is about maximisation, but it’s about value maximisation and not the engineering type.
Should we want the next revolution in education, and yes, in social science, we need a revolution to get back to basics, back to the roots and recognise value, subjective value, consumer value, consumer satisfaction, and then go from there. And how do we get more consumer satisfaction out of this thing and recognise people as humans and not people simply as nuts and bolts and suppliers of labour and suppliers of money or whatnot else.
Petri: Is that why you tweet? One tweet at a time you’re going to make the world a better place and educate the masses?
Per: I hope that it’s the effect it has. I’m not sure Twitter it’s the right means for that, but that is how I use Twitter. I’m dedicating my account to commentary that’s aims at spelling economic illiteracy. Because there’s fundamental economic illiteracy. People, in general, have it but I don’t think it can blame people, in general, all that much because if you don’t have the interest and you don’t have the education and you’ve never sought to really understand something, then you can’t really blame them for not understanding it. But the problem is also that those who have the education and have attempted to understand that they’re using the wrong tools and they’re going about it the very wrong way.
In that sense, Twitter is doing exactly the same thing as I’m doing in my research. And my teaching is just aimed at a different audience you could say.
Petri: What is the one idea you found that really took off in Twitter or you remember maybe something from the past years that it’s like, wow, I probably did something here?
Per: Well, it’s funny because it’s actually those fundamental theoretical assumptions that seem to take off. Before I started tweeting, Twitter I understood as this really fast-paced, short commentary. And back then it was 140 characters.
Petri: When did you start?
Per: I signed up very early. But I didn’t do anything with it because I couldn’t figure out why I would just basically spew out my emotions.
Because that’s the only thing you could do in 140 characters. You could tell someone that they were stupid or I love you, but that’s basically what you can do. And it’s not really a platform for discussion. But then after meddling with it a little bit and well, probably years, but figuring stuff out I noticed that I think it was Marc Andreessen, the founder of Netscape, the browser, and he’s a venture capitalist now in…
Per: Exactly. I think he coined and started the tweetstorm concept where you write…it’s an argument or narrative or information in several tweets following each other.
I started doing that too, and those seem to be taking off. It’s a great way of teaching you humility because when I tweet something that I think is super clever and fits in one tweet that usually does not take off at all. But then I write down what I know about value or pricing just like we talked about how you should be go about pricing something.
And it turns out to a tweetstorm of 25-30 tweets. And it’s really economic theory. So it’s really dry and boring that usually takes off. So it’s much easier, apparently, at least for me, to write a theoretical mini-treatise on Twitter and have people react to it and retweet it and share it everywhere.
But it is for me to be clever about what I’m writing.
Petri: What you’re saying is that if you have an idea, you should, previously you just write an article. I think that’s what Mark Andreessen did as well. He was blogging, he was doing posts. He had a blog before, and then he started to do the Twitter and tweetstorms.
Now you just chop the article in sentences and you post them for the attention span of five seconds people. And, there you go.
Per: I guess that is pretty much it. A major difference is that when I do it in the form of tweets, I write it differently than if I write a longer text. I write a lot of columns and articles and things like that for different websites. And I’ve been doing that for a very long time.
And when I write those I think about them very differently when I’m writing them. It’s something I noticed myself. When I write something as a tweet it’s much more of an argument. It’s intended to be much more punchy in some sense, it’s more to the point. I have to explain things in very few words. Whereas in an essay or a blog post I can take a full paragraph but I don’t get a full paragraph on Twitter.
I’ve been fortunate enough to be associated with Mises Institute. They have published several of my tweetstorms as articles. They take the tweets, edit them a little bit and they post them as an article on the website. And it’s very interesting when I read those and those other articles that I’ve written as articles for the same website.
And I see them basically side by side, how different they are in tone. And how I’m expressing things. Obviously, I’m doing something different but I have no clue what I’m doing differently.
Petri: Are you also discovering, developing your ideas and finding new things and is it helping in your work?
Per: Absolutely. Otherwise, I probably wouldn’t be able to continue doing this. But that’s really how I use writing in general. That’s how I use teaching in the classroom. People would probably assume that as a professor of entrepreneurship with a PhD and all this stuff, you would enter the classroom and you would talk to students and they would open their brains for this information that I throw at them.
And they would learn it and regurgitate on an exam and that’s it. That’s education. But I teach more as a discussion format. And of course, it’s about teaching them what I know that they do not know yet because otherwise what’s the point of education. But it’s also, I learned a lot about how they respond to certain ideas and how I express them and how they understand certain expressions based on their own unique background and everything like that. Twitter is exactly the same way that I get a lot of pushback from both people who follow me and agree, and people who are simply antagonistic and they hate what I stand for or whatever.
They’re basically there to punch holes in whatever I say. Some of them, they’re just nasty people and they just want to tell me I’m a dick. But others, when they actually address the ideas, I try to discuss with them and push back a little bit and explain what I meant. Then ask what they meant and everything.
And those new perspectives are super important to understanding what you yourself think that you already know. I’m learning a lot through tweeting these things and teaching them as well.
Petri: Who are the people we should follow who are talking about entrepreneurship and maybe economics and these important things?
Per: That’s a good question. Most people don’t really use Twitter for that purpose. You can really learn something from anyone who is expressing ideas, trying new takes and is open for different perspectives. I follow a lot of Austrian economists who comment on articles and comment on other people’s comments and so forth. That is very interesting and I learn a lot about the Austrian take on things.
Petri: Can you, can you actually briefly explain what this Austrian thing is? And, can you name a few people you’re following as well?
Per: Sure. Austrian economics is one of the marginalised schools of thoughts in economics. When we enter a classroom and learn economics that’s the mainstream view. It used to be the case that economics had several different schools of thought with different approaches and a little bit different theories.
Economics is not like that anymore. But if you study sociology, they will start with a dozen different schools of thought at you with different stories and different explanations for social phenomenon. Economics attempted to optimise, I suppose, maximise by getting rid of different ideas because that’s waste.
Australian economics is one of the three main schools of thought after the 1870s. And the 1870s was a very important decade in economics. Because that’s the turn from classical economics from Adam Smith through Ricardo, and you mentioned Marx before, and then in 1870s it was the marginalist revolution where this new idea that things are valued on the margin.
It’s not a matter of how many eggs are bought and for how much money in total but how much an egg is worth to you. The first one is worth more than the second one and so forth. The more eggs you have, the lesser the value of losing one. And by analysing everything on the margin it opened up a lot of new types of questions that could be answered. You could answer questions that had been asked before that they couldn’t find answers to. Austrian economics was one of the three. it started at the university of Vienna through a book by Carl Menger who was a professor at the university of Vienna, which was basically the Harvard back then.
He wrote Principles of Economics, starting with subjective value and talking about how we value things subjectively, on the margin. Since then it’s been a school of thought that has made a lot of noise. It started and was very active in many of the big debates in terms of economic ideas.
There was a big debate on socialism for 30 years in economics from 1920 till the end of World War II. There was a big debate on what is capital and how important is it? What are the implications? There was a big debate with Keynes on employment and business cycles. And in all of these debates, the Austrians were on one side and some others were on the other side.
It’s been more or less dead schools since economics became this one school and everything else is marginalised. There are still Marxists around but other than Marxists and Austrians there are really no marginalised schools. Austrian economics has a little bit of a resurgence in the past decade or so, but it’s still a small school without any influence.
Petri: So why are you in the margin?
Per: Where am I?
Petri: I’m just trying to play a bit with the words, there’s the marginal revolution and why you are in the margin at the moment. You’re not in the mainstream. I think this is a segway where we can also go a bit deeper. How did you find the Austrian economics and economics in general?
Because you didn’t start as an economist and theory student, you were doing things. You were a startup founder as well. And before going there, I think it’s curious and interesting to know why you are not part of the mainstream?
Per: I think the main reason why Austrian economics is not a part of the mainstream is that Austrian economics used completely different methods and Austrian economics does not think that math and statistical analysis are of any kind of worth in terms of producing theory.
It really goes back to a philosophy of science in the past hundred years or so. If we’re studying the social world, which we are, of course, we are studying the economy. Then Austrians would claim that what we’re really talking about is how people subjectively value things and people’s subjective value could have whatever psychological rationales or origins.
But how they act is explained on how they see things, which is an obvious point. But it also means that if they value things differently suddenly if they shift their valuations, for whatever reason, their actions will change as well. It’s behavioural in a very fundamental sense. Therefore you can’t use math because if you measure that a certain number of people bought potatoes instead of meat at a certain time. That doesn’t tell us anything at all about how much people will prefer potatoes to meat at a different time or different people. Because they will make different valuations depending on the situation they’re in.
You can’t really use math and statistics to explain what is actually going on. In terms of the theorising on the economy, it has to be deducted from first principles. You create a system of understanding of the economy logically based on this recognition of subjective value as a determinant in the sense of action.
Then based on this, all students see the economy, as you mentioned before, the market as a process and not as a system or a machine that is just running. It’s a process that is evolving over time and there are more discoveries and it pivots to, it suddenly goes in different directions. And no one could really have foreseen this but entrepreneurs are creating it consistently.
The other view would be to just say that no math and statistics, that’s the way to go. And we just need better measurements and better, more refined instruments to figure out exactly, how people prefer things and what to produce and so forth. And that’s what mainstream economics has done.
That’s also why they have excluded the entrepreneur from their theories. If you study economics, if anyone ever mentions the entrepreneur, what they mean is basically the creation of the new small businesses. And they don’t mean imagining new products. They don’t mean disruption, they don’t mean creation because everything is just production. The meeting of supply and demand and maximising the system and so forth.
Austrian economics is pretty influential in the study of entrepreneurship and also in management. For that reason that it sees the economy as a dynamic process that evolves over time and changes and reflects consumers, valuations and consumers’ wants, and entrepreneurs are competing with each other, trying to figure out how to best serve consumers.
It’s a very different view of the economy overall that is very similar in some sense to how it was viewed before Keynes reconnected to that discussion. In a sense, it has survived a Keynesian avalanche but barely since it’s so marginalised. It views the economy as this almost harmonious system. There is an order to it that it’s not planned from above. It’s an order that comes out of people interacting and trading for to benefit themselves. But they can only do that in a market setting by producing gain for other people. That’s basically what entrepreneurs are doing.
Fundamentally, they produce goods that they think will be of benefit to consumers. And if they’re right they’re actually benefiting consumers, they can earn a profit from doing that. There’s no contradiction there that feels a bit like Adam Smith’s invisible hand at the core of the market process.
Petri: Are you saying that it’s a natural choice for an entrepreneurial-minded person who is used to building things and doing something by oneself and not being part of bigger machinery? If you like building things and you’re a system builder Austrian economics is for you.
Per: I think so. In my experience, entrepreneurs with experience have from how the economy works and how damn hard it is to figure out what people want to buy and especially what people will buy. In a sense, they discover Austrian economic theory by doing it and they discover that doing certain things will not work and that does not ever work.
But what does work is thinking about it in very Austrian terms, they just lack the language. Entrepreneurs, in general, would gain a whole lot by studying Austrian economics. And I’m actually involved in a project, Economics for business. It’s trying to translate Austrian economics theory to something that anyone can understand and that speaks to entrepreneurs, provides them with a little more terminology. And puts words to things that they know tacitly, that they haven’t been able to express in clear terms, but that they actually do know but they have not come across. There’s a lot that can be gained from practical entrepreneurs and theoretical Austrians getting together and becoming friends.
Petri: They are like practical economists?
Per: That’s exactly it. It goes back to Austrian roots because Carl Menger was really a journalist writing on about the economy. He was writing about finances. He was writing about the economic phenomenon and so forth. That’s how we figured out how things exactly worked.
And from there, he started producing a theoretical framework for how to understand the whole economy based on that understanding. It comes from practice. Even though it’s formal theorising it is not empirically driven. It’s not running databases with empirical data like mainstream economists are doing, but it’s understanding what are the actual motivations of people in the economy. And then from there deriving truths about the structure in the economy.
Petri: Getting back to the other part of the question, how did you, a young guy from Sweden playing with the Commodore 64, find yourself in the US many decades later?
Per: That’s a long story and it’s sad in the sense that I was not all that interested in how things actually work or I didn’t have a theoretical interest in the economy or anything like that. And I entered the realm of Austrian economics as unfortunately most people do today that is through politics and especially through getting involved in or at least getting exposed to some form of libertarian-leaning political activism. That was it for me, too.
I was involved in a political party in Sweden where I had some kind of knee-jerk conservative view. I was somewhat opposed to meddling too much with the economy and the thinking that people should be able to earn their own living and start businesses and not be taxed to death, which was basically the case we’re talking in the seventies and eighties in Sweden.
Those are the heyday of Swedish welfare statism and taxation. It was not hard to end up thinking that maybe businesses are being taxed too much. And then from there, I was exposed to all these libertarian or semi-libertarian arguments. And I thought they were nuts, but it’s very logical. If you accept parts of it after a while the ideas just grow on you. You can’t really do anything about it.
I think the human mind wants to see the world without contradictions because there are no contradictions naturally. If you adopt one view in one case and adopt some other view in another case, and they’re contradictory, there’s a cognitive dissonance there that is causing frictions in your thinking.
It gives you a headache in some sense and your brain wants to get rid of it. You need to find a way of bridging the two ideas or finding a principle where you can find a solution to both. Libertarian thought is similar to Austrian economics theory in the sense that there’s one basic principle and then all of the conclusions as derived from that principle, it’s just deductive thinking.
Then I was a standard conservative teenager with somewhat free-market ideas. And then I happened to be exposed to more of those ideas. In college, I left for Honolulu and studied there for a whole year.
Petri: Was that your first choice to put the Swedish taxpayers’ money in good use and go surfing?
Per: I was a very serious student. I was studying at the international business school in Jönköping, Sweden. They took this international part very seriously. They wanted all students to spend this one semester abroad. The Swedish welfare state being very generous offered funding for tuition and so forth and even travelled back and forth once a semester and insurance along with that it…
Petri: That was a really good deal.
Per: Yeah, they paid you as well. They pay you to study in Sweden. And they’d pay you the same amount when you study abroad, but it’s adjusted for the standard of living and stuff like that.
It was a really good deal. I got the opportunity and I applied immediately for a few universities in Australia, California, and Hawaii. I wanted to get to the sun and the ocean, I suppose. There was this private university in downtown Honolulu, Hawaii Pacific University.
They responded right away as soon as I submitted my application, they sent me a FedEx package with information and things like that and called me and whatnot else. I applied and I left. It was a great year and I happened to sign up for two economics courses the first semester and I was there late.
I had no idea how the American higher ed system works and that you’re supposed to put together your own weekly schedule with lectures and things like that. Much like high school is in Sweden, but with the choice of which courses to take, and a lot of the courses were not available anymore because I was late. I did find economics courses where I could take two courses by the same professor. So I figured that might be a good idea. I signed up for those and I had no idea who he was, of course, but he ended up pushing me over the edge in free-market thinking and even introduced me to Austrian ideas, even though I had no clue what those were. He pushed me over the edge in terms of the economy, helping me see the economy as an organism and seeing that there is order to it and harmony to it. That we easily can wreck if we’re not careful.
Petri: Do you remember was there a fundamental moment or some turning point where that happened?
Per: He provided the arguments. He’s a very good teacher. Whatever you say, he takes the opposite view and he presented several different views, several different types of answers to all questions. He just supplied me with arguments from both sides and just some of those seemed much more accurate to me than the other ones.
I remember very clearly one lecture where… There wasn’t turning point, but it was one where I stood out and it was one where he was presenting different schools of macro-economic thought. He put them on the board and I’ve learned now many years after that, he put the Austrian, monetarist, Keynesian, and Marxist schools up there.
And then just some basic ideas that they stood for, and then he asked us. In the class, there were people from many different countries. He asked where people thought their countries fit in terms of economic policy. Are they Austrian? Are they monetarists, Keynesian or Marxists? There were several other Swedes in the class. In this university, there were over 400 Swedish students. Which tells you a little bit about people’s choices when someone else pays.
Petri: Did you speak any English there? It’s basically just another campus of Swedes?
Per: I decided early on that I was not going to spend time with other Swedes because I was going to be learning from Americans and from others. So not speaking Swedish was a goal. I met some of them, but I didn’t hang around with them. I didn’t go to the parties and things like that.
But the funny thing is I actually shared an apartment with two Finnish guys. I ended up in a hotel room as soon as I got there that the university arranged for new international students and they paired me with a guy from Helsinki. And then he met another Finnish guy. And as that month expired, we found an apartment by the mountains and just outside of Honolulu, where we shared an apartment for that full year. They stuck around and got degrees there, I think.
I stayed for only one year. I guess they could speak Swedish in the sense that Finnish people can speak Swedish, very reluctantly a few words.
Petri: Only after some Absolut.
Per: Exactly, or Finlandia. We spoke English most of the time which is probably a good thing when you’re in the US.
During that lecture, the other Swedes they raised their hands when this professor mentioned Keynesian public policy, and I saw several similarities with Marxist policy. I raised my hand when he said Marxism, which made all the other Swedes look at me like I was some nut. They were probably more accurate so that Swedish policy was more Keynesian than Marxist.
But it was definitely the case that there were Marxist influences on Swedish policy. Especially, having grown up in the seventies and eighties, there was plenty of at least Marxist rhetoric in Sweden. I’m not sure they actually implemented a whole lot of it, but the rhetoric was definitely Marxist. That’s one of those things that I remember from studying in Honolulu, where I was like, Hmm, I am obviously a little more radical in my views of things than I thought.
Petri: Then you put together a website or you were already doing some web development as well?
Per: As soon as I graduated in ’99, I graduated with a master’s in informatics. It’s systems development with business orientation and that was in ’99 and I was in Honolulu ’96-97. During those couple of years, I was trying to figure out how a society based on my fundamental principle of individual liberty how that could possibly work.
Because I had no freaking clue how that would work. Then I took the plunge. I forced myself because I found the solution to how to do this in ’98. And then I started the website anarchism.net in ’99 where I started posting stuff. It was in the early days of the web for politics and these kinds of movements.
My intention was to post a lot of books so that people could read them and be a library and a gathering place for people with an interest in radical liberty. And read the old thinkers, learn from that stuff and there was also a discussion forum and things like that where people were hanging out. Quite a lot of people, a lot of activity and debating ideas.
And this is the same as I use Twitter for now but in this case it was ideology. It was more for a discussion and figuring out arguments pro and con different issues, figuring out the best way of expressing yourself and things like that.
And that’s what the website did for many years. It was leading from the beginning anarcho-capitalist and then as I developed my own political thinking it turned into agorism and then into general anarchists. Then I published books, whatever I could find, and put them on the website.
I think many of them are still there, so you can read them. Of course, nowadays no one reads books in the browser anymore. That’s not interesting.
Petri: But you can still donate money. At least, a $3 pin you can also purchase as well. I just went to the website and it’s still up there. I don’t know whether the Paypal actually works but there’s a button to pay.
Per: It does. I actually got an order for a pin months ago now. I ordered hundreds and hundreds of pins, and I still have a few, so you can order them. I should probably take that down because it’s a lot of hassle for fulfilling those orders.
Petri: It was a bargain, even the shipping was included. Packing and shipping included in the three bucks.
Per: It’s worldwide shipping. It’s not enough money to even put it in a padded envelope. I put it in a regular envelope and then put two sheets of paper around it with some tape hoping that the postal office will not destroy the pin while in delivery. Otherwise, the pin would be a whole lot more, but I think we ordered those pins must be almost 20 years ago. I think they paid themselves off.
Petri: Talking about memory lane, you wrote a thesis called Micropayments on the internet criteria for micropayment systems. You were saying that cash and change, those funny metal things in your pockets, those are needed for the media having micropayments for purchasing articles and stuff.
Has anything changed in all those 20 years?
Per: Surprisingly little. You’re talking about my master’s thesis in informatics. We actually won a prize for the best thesis in systems science or something like that that year. My co-author and I, we tried to figure out how would a system for micropayments on the Internet work. What would be required for it to be both feasible technologically speaking and economically so that people would actually adopt it and use it.
Because that’s back when everybody was talking about, Oh, in the future, everybody will pay per article when they enter websites for newspapers. And you would pay for just looking at picture and things like that. You would have to find a way to charge one penny or two pennies or something like that for each thing.
And then the volume would just make it up and cover all your costs and things like that, but no one had figured out how to do it. And that’s still the case. After that PayPal has come and gone and now we have all these cryptocurrencies and I guess they could work, but yeah.
The only solution I guess is that people nowadays are not afraid to enter subscription services like they used to be. The millennial and younger generations don’t mind subscribing to stuff whereas I was very reluctant to sign up for stuff like Spotify, for instance, because I wanted to own my music.
I would rather buy a CD and rip it and have the MP3s in my hard drive than pay a monthly fee and set up lists and things like that because I would lose them as soon as I chose a different service for that. I didn’t want to lock myself in but now subscriptions have become so ubiquitous and so common that people sign up for paying a monthly fee for pretty much everything.
In that sense, micropayments are not as necessary, but I think we still need some kind of system for that. It’s amazing how we wrote and defended that in early 1999 and things have not really moved since then. Technology is so much better. Softwares are so much better.
There’s so much more commerce online. It’s not really, we don’t have a micropayments system and we’re still struggling with the same issue. What we have instead is watching movies and so forth online. You’re either an Amazon Prime member or you’re subscribed to Netflix, and that’s pretty much what you do.
Petri: I don’t think it’s a technology issue at all. I think there’s friction there. There’re a few things. We love Amazon Prime because you don’t pay per package, because you hate that. It’s the same thing that you just prefer the purchase where there’s free delivery, even though you know it’s within the price, but you just hate to pay for the packets shipping.
Another thing is that while you’re subscribing for something you’d paid it once, and then you can forget that you are paying. But each and every click, each and every article you do it. It’s like you’re bleeding every time you just like, do I need it? I’m paying for that and there are mental and psychological costs involved and they are higher than the pay it once a month and forget it.
Per: Yeah, I think you’re right, but there should be other ways of doing it. There have been some attempts where you sign up for one service and you pay money into an account and then whatever you do, they just take a few cents or whatnot and send it to the service you’re using. But it’s still something, you’re right. There’s something holding you back from using this type of services. It’s also a crowding out phenomenon. You can’t really charge per movie when there’re so much already included in Prime. So why would you then buy single movies and watch them once when there’s so much that you have already paid for and then you get so much more. Even though you can rent movies on Amazon, but that’s a whole lot more expensive. It’s not really micropayments, five or six dollars.
Petri: Funnily enough at exactly the same time, in the early two thousands late nineties, Steve Jobs was doing something. He was unbundling albums. You could buy songs with 99 cents per piece. You could basically combine things instead of from a bulk of having the full album type of subscription, or it’s not really a subscription, but a package deal if you just wanted the hit song and not the rest.
Per: Right. And that makes sense. Very often why would you buy a whole album when there’s only one good song on it. Very few albums that have lots of good songs.
Petri: Those are like micropayments but not exactly.
Per: You’re right.
Petri: Why is everything getting so expensive?
Per: Yeah. That’s a deeper question than most people might realise. It’s also something that I did discuss quite a bit. This issue with inflation and deflation. If you ask people, they would say that, yeah, of course, things get more expensive all the time, but it’s always been like that. Prices always rise.
Petri: Has it always?
Per: Well, as far as we can remember as individuals.
Petri: You mean like last week?
Per: Well, yeah, you got a point there. I mean for decades anyway, and at least since 1971, it’s been the case and probably longer…
Petri: …or 1913.
Per: Yeah around there, too. That is also a cut-off point. It’s interesting because if you then pushed back a little bit and say, with competition wouldn’t you expect prices to fall?
With innovation and productivity increases don’t you expect costs to fall? Businesses can lower the price even more to sell more. Yeah. Okay. So, why are prices rising? And I mean in understanding the economy as an Austrian would understand it as an evolutionary process where you discover more and better ways to serve consumers and produce more value at lower cost things should always fall in terms of price.
Prices should always go down much like they have in computers and so forth. Where computers today are dirt cheap compared to computers a couple of a decade or two ago. The computers now are so much better, too. Why is that? It’s because there is a whole lot more money in the economy than before.
It’s a way of implicitly, secretly taxing people.
To print whole lot more money and I mean print figuratively because we don’t actually print bills a lot more and more because everything is so digitalised now. The reason we don’t see falling prices is because we are or the central banks are creating a lot of money all the time so that there’s more money than goods.
And then that affects the price and it’s more than the official inflation rates. And we can talk about how much they change how they’re measuring inflation. They’re talking about the price level at the same types of goods have a level of price. And if that level of price goes up, you have inflation. If that level of price goes down, you have deflation.
The natural order of things would be deflation causing prices to fall. And the official inflation rate is how much it increases from that measured price level. While the real inflation in price would be between the new lower price that we would have got and the higher price we actually got. The difference between there is just much higher than the official inflation rate. That difference is because we’re pumping out new money.
Petri: Who is benefiting and why are we doing that?
Per: Simple answer is a Keynesian economic thought.
Petri: The economists are cashing all the money? Is that what you’re saying?
Per: They are at least providing the theory to prop up that system.
Petri: Who is banking the money?
Per: Many, but the banking sector and the government, for starters.
Unfortunately, economic theory has adopted this view that money is neutral, so it doesn’t really affect many things. It’s basically just a numeraire when you’re trading, but it has no effect on things.
Austrians believe differently, and so did the classical economists before. When you’re creating new money, it enters the economy in a certain place. It’s not the case that we all get half a per cent more cash overnight when they print more money but it enters somewhere and it enters typically through the banking sector.
One way it’s done here in the US is that whenever you get a mortgage to buy a house, that’s not money that the bank has. But you apply for the loan and if they think that the house is worth enough and that you will be able to pay the interest rate and whatnot, they’ve just hit a couple of buttons on their keyboard and they create the new money in the bank account of the seller of the house. That is new money.
That is obviously entered somewhere. In this case, in the seller’s bank account. That doesn’t affect prices because that’s just more money in his bank account, but that means that he is richer than he was before. And it doesn’t really change a whole lot more.
In this case, you have someone buying the house who has debt but that doesn’t affect them yet. This is really new money being created. When the Fed in their quantitative easing…
Petri: What does that mean in layman’s terms, in bananas and apples?
Per: It’s a term that really comes from the Keynesian thought as well thinking that there are liquidity problems. Quantitative easing is simply adding more liquidity to the economy. They’re printing a lot of money. From the great recession with this what they call quantitative easing, what they’ve done is simply add about $60 billion a month to the economy.
This sounds like a great idea. If it had been wealth that would be fantastic, but it’s not wealth. It’s not stuff. It’s not real. It’s just money in bank accounts. Banks add this and it falls into some people’s hands. And they use them. And they are able to buy more stuff than others because they have a lot of this new money.
That will bid prices up because suddenly there’s more demand for whatever it is they’re buying. And then they will become richer, relatively speaking, those who sell those things and whatever they buy in turn that will bid up prices in the next industry. So this goes as a ripple effect through the economy changing prices. For people change their behaviour with as these prices change and at the end, most prices will have adjusted to this new level of the money supply.
But some people, those on fixed incomes, for instance, their incomes have not adjusted. They’re losing because they have income in old money, those worth more, I can buy more stuff with fewer dollars, and they have costs in new money. The prices are higher, so they are made worse off.
Whereas those who get the money first, they’re made a better off.
One way of simplifying this is to say that when you’re adding more money to the economy this way you are taking money from Main Street, that is from rural America, basically, or rural any country.
Small mom and pop stores, regular folks, that sort of situation and giving it to Wall Street. All the banks, when they get new money, where does it end up? It ends up in finance. It ends up in new loans to the whatever hip industry there is and, so forth.
We saw after the .com bubble burst there was a housing bubble created because that’s where the money went. You had housing prices soaring and you had it in some of the worst places like Las Vegas, you had bartenders quitting their job because they could flip houses instead.
You could make a whole lot more money just buying and selling houses. Because house prices were going up so fast because it was a lot more money and went into housing for many different reasons. There was so much more money available for mortgages and so forth. People were upgrading their houses or buying houses and things like that, which meant contractors were starting to build more houses because there was a whole lot more demand for houses. We just started building a lot more houses. And with these prices increasing all the time, you would have these bartenders who don’t know anything about real estate but they saw what was an obvious opportunity. They started buying a house and they flipped it.
A couple of months later they sold it and made tens of thousands of dollars in between. And then they expanded. They bought two houses and they expanded. And they could get a whole lot more money until it ends. Prices do not increase anymore and then the housing bubble burst.
Petri: Why did that actually happen? Did the long-term just arrive and that’s the end of the game?
Per: This is the Austrian theory of the business cycle. This boom that we saw then in housing and that we’re seeing now in finance, those booms are really unsustainable artificial booms. Because they’re not booms because people’s preferences are suddenly for houses. Or now for financial instruments and stocks, but they are caused by creating credit by creating new money and that new money ends up in those sectors of the economy.
It means that you have to have a lot more investments using this new money in those industries but that’s not really an expectation. It’s not that entrepreneurs have shifted from other areas of the economy to instead invest in houses. They’re investing in houses as well. They’re using this new money to outbid entrepreneurs who are producing other things because there’s so much new money and the interest rates on mortgages are artificially low and so forth.
They seem like they are much more profitable than they otherwise would, but we’re creating all these new houses. There’s really not a lot of people interested in buying them. And they’re also out-competing other entrepreneurs buying resources from other parts of the economy. Those resources are directed towards those houses people haven’t actually said that they want.
It’s a cluster of entrepreneurial errors caused by this new money. It makes it seem like there is an opportunity, but there’s not really. You can still make money off of it before the burst, but it will burst because there is no actual demand for those things.
And it was using resources for building houses that should be used and would have been available in other types of production. They can’t all be concluded. You can’t finish all those production processes. Businesses will start going bankrupt and that causes ripple effects, too. Because when one business goes bankrupt, that affects their suppliers and will no longer get paid and it affects competitors too and so forth.
Everything in the economy is connected. All of these huge changes, they create structural problems. The Austrian business cycle theory is a theory of the full cycle. Whereas most other so-called business cycle theories are theories about the crash.
An Austrian would start with saying there’s an artificial boom that leads to the crash. The crash is just a correction going back to what is actually real. The boom is imaginary, it’s artificial. The way of avoiding business cycles and all the problems with recessions and so forth would be first to not cause the boom.
You can still have economic growth. You can have sustainable economic growth and you can have even pretty fast economic growth but it should be directed by what consumers are likely to buy. Not through artificial profit opportunities created by new money. If you look at other theories, they would just study the crash.
And they will just assume that, yeah, boom, that’s great. We need more booms because of economic growth. And then why do we have a burst? Why do we have this crash? And Austrians would say that that’s starting half white. You can’t ever understand what is going on if you start with just a crash, because there’s something leading up to the crash.
And if you start with the crash, I see nothing wrong with an artificial boom that led to it. Then your solution might be as it often is to just print more money and create a new artificial boom on top of the first one to solve the problem in the moment, not to looking ahead and not thinking about whether this might actually be to hire or a bigger crash later on. And Austrians would be warning everyone that building a new artificial boom on top of the other one to solve the problem it’s just kicking the can down the road and creating a bigger problem. It’s not going to solve anything.
Petri: Which is pretty much the discussion we had one hour ago about the political cycles and short-terminism.
Per: Exactly. One way of putting it is that if you’re out in the winter and it’s really, really cold and you’re freezing, one way of solving it in the short term would be to pee in your pants. Because that will make it warm and nice. And you get relief, no pun intended. You can say, okay, well maybe I will get colder later on, but that’s a later problem.
That’s in the future. Nevermind that because it feels warm right now. And I was really cold. Of course, since you’re wet, it’s disgusting too. But since you’re wet, you’re going to be even colder in a little bit, because it’s cold outside and you’re still outside. You’re not solving the problem. You’re just kicking the can down the road. It’s a snowball effect that the problem is getting bigger each time.
It’s definitely a political problem like you mentioned for the short-terminism. The problem is also that if you’re trying to solve the short term problem with an adding another short term problem on top. Does it have to be bigger and bigger to cover all the errors and all of the problems caused by the first one?
Because it’s still crashing. Which means since you’re going to end up with a huge crisis on your hands and that’s where Austrians are right now, seeing that with the stock exchanges the rally with the soaring indices and everything recently. That’s because the federal reserve and other central banks have been creating a whole lot more money and it ended up in the financial sector.
Why? As a result of fixing the real estate boom that turned into a bust that caused the great recession, which is now what 12-13 years ago, which was a “solution” to the .com bubble in 1999-2000, which was caused equally by the artificial boom, and cheap money through creating new money.
We are in the midst of this snowball rolling down the hill, just getting bigger and bigger, and it might soon get out of hand.
Petri: I hear the singing by all the central banks in harmony. Probably we are now in a global setting.
Per: Exactly. They’re propping up each other, too. It used to be the case when we had the Great Depression, central banks were dealing in gold and, gold is actually real. People then if they had banknotes they could go to a bank and say I want gold instead.
And you can use it for jewellry and in computers and whatnot assets, it’s something real. It’s a commodity money. In some sense today, there are no currencies that are backed by anything at all. Central banks, they have baskets of other currencies to be able to control the exchange rate. But all currencies are simply backed by all currencies.
And that, in a sense, is just a scam. It comes close to the whole it’s just a numeraire thing. Because it’s not something real. It’s just, as long as we trust that money can buy stuff, we will use to buy stuff and people will accept it. But as soon as people stop trusting it, it’s going to be worth exactly what a piece of paper with a lot of ink on it is worth, which is almost nothing. That’s a huge problem. If we have a depression-like crisis again, I’m not sure I want to see what happens.
Petri: We would actually go very deep in this discussion but I think this is probably a topic for another day.
What is your favourite word?
Per: Well, yeah, that’s a good question.
I wonder if it could be something like think maybe.
The reason I said think is my most favourite is that my least favourite word is feel. That’s because over the past decade or so it’s become common to say when you’re answering a question, you don’t say like you used to before that I think that. But this is the answer.
You said you feel like it is an answer and I couldn’t care less. I don’t really give a damn what you feel. When I ask a question, I want the answer, not your feeling. And I think that is a huge problem in our day and age, that people suddenly rely on emotions so much more than their mental capacity.
We’re turning our backs on the enlightenment. And that scares me a lot because…
Petri: I think that explains a lot as well. It’s just like the gut feeling, you know?
Per: Right. Exactly. And I mean, going back, if we rely on emotions and feelings, rather than thinking things through in facts and logic, we’re going to get back to mystical beliefs and why not which burnings, and you have just knee-jerk reactions and you have mobs and so forth.
Petri: This is the time to remind that we are only halfway through 2020.
I guess we march on with the questions and not just dwell on more to that point.
What turns you on creatively, spiritually, or emotionally?
Per: I would say new thinking, new thoughts, new perspectives, new ways of seeing things.
Petri: What turns you off?
Per: Knee-jerk reactions.
Petri: What is your favourite curse word?
Per: Yeah. I wonder if I actually have one, it’s not the one that I use. Maybe it could be bollocks or blind me or something like that. Something very British.
Petri: What sound or noise do you love?
Per: The splashing of waves. That’s something I really like, it’s very calming and soothing. I grew up by the ocean and I was sailing a lot with my family when I grew up. I just loved the ocean. The splashing of waves is a fantastic sound.
Petri: What sound or noise do you hate?
Per: I don’t know.
Petri: What profession other than your own would you like to attempt?
Per: I know when I was a kid, I wanted to be an author. Which I know is a little odd, most young boys want to be something like a police officer or a firefighter or something. I wanted to be an author, but I’m still hoping to be one, one day.
Petri: Aren’t you already?
Per: Yeah. But it’s not my main thing. I mean, yes, I have written books and yes, I have two books under contract, too. And, I’m writing a lot of stuff but I wanted to make that my main thing. Do only writing, and write what I want to write. Whereas publishing and research it’s writing but it’s going through a peer-review process and everything like that.
You have to rewrite everything according to other people’s directions. I want to elaborate on my thinking and on my ideas and doing that for books has been really rewarding. And I want to do that full-time if possible.
Petri: What profession would you not like to do?
Petri: If you could be a co-founder of any startup in any era, which one would you choose?
Per: I would choose something in the future for sure. Something exciting, but I don’t really know what startups are going to be in the future.
Petri: Any final words for the audience?
Per: Study Austrian economics. Learn to think about the world. That’s what I’m trying to do. I’m trying to learn about the world and figure out how things work.
Petri: Can you recommend some website or someplace to start?
Per: One place to start would be the Mises Institute, mises.org. That is actually the world’s largest economics website. They have the most materials posted, and also the most traffic of all economics oriented websites in the world and practically everything on that site is for free. They have articles and they have commentary. They have videos, they have podcasts, they have books and everything is on there. That’s a good place to start.