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Abstract: This newly translated tribute to Ludwig von Mises was written by Hans Mayer on the occasion of Mises’s 70th birthday in 1951. It was published in the Zeitschrift für Nationalökonomie in 1952. In it, Mayer expresses a surprisingly favorable opinion of Mises as an accomplished scholar, despite some misgivings regarding the latter’s policy stance and the incorrect–in his view–characterization of the Austrian School as the ‘School of Liberalism.’
Author note: This text contains the complete version of an article, honouring Professor Mises’s scientific significance, that was requested from me by the Viennese daily newspaper Die Presse (see No. 896 of September 30, 1951), but that was printed only in very abridged form.
The translators wish to express their sincere gratitude to Dr. Karl Friedrich Israel, from Universität Leipzig, Germany, and Dr. Eduard Braun, from the Technische Universität Clausthal, Germany, for their detailed review of the early draft.
A distinguished personality from the scholarly circles belonging to the “Austrian School of Economics.” Prof. Ludwig Mises, celebrates his 70th birthday today, far from but not alienated from his homeland. Educated at the “Academic Gymnasium” in Vienna, where so many men of significant importance for the cultural and political life of Austria originated, Prof. Mises turned to economic investigations already during his legal and political studies at the University of Vienna, initially under the direction of Prof Grünberg’s research on economic history (the liberation of peasants in Austria), but very soon turning to the field of exact theory under the paramount influence of the teachings of Carl Menger, Böhm-Bawerk, and Friedrich Wieser, revolutionizing economic theory at the time. In this area, some difficult problems were still waiting to be solved and logically integrated into the new system based on the theory of subjective value. Above all, a theory of money was missing. This became one of the problems around which the scientific life work of Prof. Mises revolved. A second focus of his continued scientific interest laid in an organizational and sociological area: the analysis of the viability and performance of the different economic (structural) systems or organizational forms (the free market economy, the socialist planned economy, etc.). In both areas, Mises has strongly intervened in the scientific discussion of the most current issues through numerous publications. His habilitation thesis Theorie des Geldes und der Umlaufsmittel (1912, 2nd edition 1924) was undoubtedly a significant accomplishment for the period in which Knapp’s State Theory of Money caused confusion (not only amongst the “practitioners”), but it was also—especially in its historical and critical remarks—an excellent introduction to the theory of money. The pursued end goal of deducing the value of money in its ultimate origins from subjective evaluations, however, was just as little achieved by Mises as in later investigation by Wieser, Zwiedineck, and Aftalion in their Income Theories of Money. Still, it must be noted that Mises already ascribed a very significant influence to the amount of cash-balances held by the various economic agents when it comes to the formation of the “objective” value of money (i.e., the purchasing power of money), thereby long anticipating Keynes’s analogous remarks that were presented in a grandiose style. This is to be acknowledged, but it must not be overlooked that the respective size of cash-balances cannot be considered as an independent determining factor—by influencing the circulating quantity of money—for the causal explanation of the absolute value of money, for that reason alone that the size of the cash-balances is itself determined by the purchasing power of the monetary unit.
After a striking criticism of the classic “Banking Theory” (the theory of the automatic adjustment of the circulation of money substitutes to the demand for money) and with the severest rejection of any of the “controlled” inflations so often recommended and practiced in recent decades, Mises represents, with respect to monetary policy, and more specifically in what concerns central bank policy, the position—actually already stated in the most stringent form in the Statute of the former “Austro-Hungarian Bank”—that the central bank should confine itself to “cautious restraint in the issuance of means of circulation, in order to mitigate the disadvantages arising from changes in the purchasing power of money,” while dispensing with all tasks which do not serve to preserve the value of money (in particular those of a cyclical and socio-political nature). This procedure would be more beneficial to the economy than the “striving for the realization of an impossible ideal,” in the form of the complete stability of the value of money or, as it was recently represented in the literature (F. A. Hayek), of a “neutral money.” In this sense, Mises has also been practically successful as an (unofficial) adviser to several Austrian central bank presidents. In addition to the already mentioned habilitation thesis, Mises dealt with the problems of monetary theory and policy in other publications, in particular in the treatise “Die Stellung das Geldes im Kreise der wirtschaftlichen Güter” (in the series Die Wirtschaftstheorie der Gegenwart, vol. II, 1932) and The Theory of Money and Credit, 1934, but also in considerable parts of his Grundprobleme der Nationalökonomie, 1933, and Nationalökonomie, 1940.
In the second of the main topics dealt with by Mises, the investigation of the various forms of socio-economic orders, covered in his publications Die Gemeinwirtschaft. Untersuchungen über den Sozialismus, 1st ed. 1922, 2nd ed. 1932; Liberalismus, 1927; Kritik des Interventionismus, Untersuchungen zur Wirtschaftspolitik und Wirtschaftsideologie der Gegenwart, 1929; Socialism: An Economic and Sociological Analysis, 1936; Omnipotent Government, 1944, and Planned Chaos, 1947, the focus lies also in his critical analysis. Die Gemeinwirtschaft, written in the period of the political struggle for “socialization” after the First World War, contains an arsenal of arguments against “socialization” in any form—especially that of a totalitarian planned economy—that has yet to be surpassed in its completeness, but whose degree of effectiveness cannot be discussed here. Whatever is said against the rationality of a socialist economy in the extensive literature today, especially by his former inner circle of students, can already be found in a scientifically more precise form in Mises’s work.
In a positive sense, Mises advocates an individualistic, competitive economy, completely free from any interference or regulation by the state (which he calls “Interventionism”), as the ideal form of a national economy, i.e. “Liberalism” in the most extreme sense. And here his teaching starts to become unrealistic, and to the same extent to distance itself from the foundations of the “Austrian School” in its cognitive goal and method. It is understandable that the approval and opposition which his doctrine has found was determined less by scientific criteria than by membership to various political factions and economic interest groups. And equally understandable is the fatal misunderstanding in the judgment of wide circles, who are not accustomed to distinguish between scientific knowledge and confessions based on ideologies that, because this glorification of extreme liberalism, supposedly in the name of science, is espoused by a national economist who emerged from the “Austrian School,” the “Austrian School of Economics” is the “School of Liberalism”! But nothing could be further from the truth. For the theory of the Austrian School, like any exact science, is based on the recognition of factual connections and is therefore not bound to any ideological world-view and certainly not to any party-political axioms and postulates resulting from them.If one wants to make a postulate that is generally valid for the man of culture, then I consider the formulation that I myself have always advocated—and that is recently often quoted—as the most scientifically and ethically justifiable: “As much freedom as possible—as much commitment as necessary,” subject to the specific circumstances (e.g. war economy). In its doctrine of economic value, it has found new insights into the basic connections of all economies, which can be used as instruments for explaining the economic processes in every economic order. One of these economic orders is the free market economy, and it is to aspects of this order that the theory of the Austrian School first applied the newly found discoveries: to the derivation of the laws of the formation of the competitive price and of the monopoly price, to the analysis of supply and demand, the theory of production, the determinants of the distribution of national income, etc. (The gradual development of the theory from this basis to the changes arising in the course of economic activity in case of a restriction of individual economic freedom is in full swing). But this does not in the least imply that the “Austrian School” demands a free competitive economy as the ideal economic order. Nor does it mean that it limits its object of study—as Mises demands—solely to “catallactics” (the processes of the exchange of goods in the market economy). And if we are to speak of postulates, it must be pointed out that, in today’s discussion of economic policy, the alternative “extreme liberalism vs. totalitarian planned economy” is considered to be unrealistic and obsolete, and the problem is now seen—and rightly so—as a question of the appropriateness and reasons for determining the respective extent of freedom and obligation.
It was necessary to make these observations in order to dispel misunderstandings (unfortunately already widespread) about the nature of the theory referred to as the “Austrian School.” What Mises brings forward in the teachings recently outlined is outside the cognitive framework of the Austrian School, which deliberately leaves ideological questions to social philosophy. But this is not intended to detract from the evaluation of this highly personal achievement by Mises, which he presents with verve and consistency.
And with that, I have arrived at the personality of Mises as scholar and human being. It seems to me that this is the main feature of his character: absolute consistency in the pursuit of his scientific goals, unyielding rejection of all compromises (which sometimes almost led to intolerance towards foreign ideas), courage in the defense of his scientific convictions, which he was able to defend against numerous opponents (both in the problems pertaining to monetary theory and policy as well as in his sociological research) with the polemical sharpness and elegance acquired in the classes of Böhm-Bawerk. And—what has to be credited to him in particular: as one of the few among the not inconsiderable number of Austrian economists who, under the pressure of political circumstances (or voluntarily as the case may be), emigrated to the USA—where he has been a visiting professor at the University of New York since 1945—he has not been content to adapt passively to the new scientific milieu, but rather has always actively and successfully endeavored, in accordance with his convictions, to disseminate knowledge of the still far from exhausted theoretical edifice of the Austrian School and to work on its further development and utilization for the solution of current economic problems. That he will be able to do this for many years to come is the wish of his colleagues back in his homeland and at the same time of the University of Vienna, where he was a prominent teacher for so many years, on his 70th birthday.
Hans MayerZeitschrift für Nationalökonomie, Bd. 13, H. 3 (1952), pp. 513–16.
Benedict XVI: A LifeBy Peter SeewaldVolume 1: Youth in Nazi Germany to the Second Vatican Council 1927–1965Volume 2, Guardian of the Faith, Pope, Pope Emeritus 1965–the Present, is to be released in October, 2021. The entire text is available in Spanish as Benedicto XVI: Una vida (Bilbao: Ediciones Mensajero, 2020), translated by José Manuel Lozano-Gotor Perona and Juan Antonio Albaladejo Martínez. This review is based on the work as a whole.Published in English by Bloomsbury Continuum, London, 2020Translated by Dinah Livingstone
Peter Seewald has recently published an extensive biography of Pope Emeritus Benedict XVI, and the work is a masterpiece which, once begun, cannot be put down. Seewald writes with agility and brilliance. He clearly describes and links the life events and thinking of Joseph Ratzinger while placing them in the historical context of the evolution of humanity and the Catholic Church over the last century. Seewald, who began his career as a journalist, carries out this task in a very logical, truthful, and perfectly intelligible way and, in doing so, shows that he has become an accomplished historian. I would even venture to predict that this book will soon become a true classic and required reading for anyone who wishes to be familiar with and to understand the essence, history, and future path of the Catholic Church and the surrounding world in the twentieth and twenty-first centuries.
In addition, I believe the biography will be of special interest to all supporters of the Austrian school and lovers of liberty who, whether believers or not, persistently condemn the “fatal conceit” of statism. In fact, the dictatorship and imperialism of political correctness, the manipulation of the masses, and, in short, the deification of human reason that is behind and fuels the huge political power and social engineering binge gripping the modern world are denounced again and again and have been, so to speak, among the principal leitmotifs in the thought and work of Joseph Ratzinger throughout his entire life.
Seewald presents his subject as an extremely humble and good-natured person who is always open to dialog and willing to accept his adversaries, regardless of the attacks and biased manipulations he suffers. This quality does not prevent Ratzinger from defending the truth using the powerful reasoning of his own mind (or arrived at through prayer), such that “he could not remain silent when he saw things that had gone wrong.” In this sense, Ratzinger’s approach is in line with the motto of Ludwig von Mises, expressed in Virgil’s famous words: “Tu ne cede malis sed contra audentior ito. (‘Do not give in to evil, but proceed ever more boldly against it.’)”See Ludwig von Mises, Memoirs (Auburn, AL: Mises Institute, 2009), p. 55. Indeed: “In professional arguments, [Ratzinger] did not compromise.” I see this as the only acceptable position for a scholar who seeks the truth, and I have humbly tried to adopt it myself: With respect to theory and the search for truth, “take no prisoners.” Moreover, Seewald points out that in Ratzinger’s view, “it was disastrous to accept what is false, dishonest, or wrong or to buy success and public prestige by sacrificing the truth or by approving the prevailing opinion if it relied on untruth.” Thus, the fate of good, responsible men is to always “swim against the tide,” which clearly coincides with the destiny of liberty lovers who oppose statism in our day because it rests on the “fatal conceit” (in the words of Hayek), or the “hubris by which human beings self-importantly claim to become the autonomous creators of an earthly paradise” that can lead only to the self-destruction of the human being. Just as every libertarian views the history of humanity as but a record of the battle between freedom and the coercion and servitude characteristic of the state, Ratzinger ultimately views history as a record of the battle between faith and unbelief, between good and evil, and the latter is represented by all attempts by human beings to rise to perfection by their own efforts (via, I would add, the use of political power and social engineering), attempts doomed to disaster. Ratzinger does see the formidable nature of the forces of the Evil One, who I believe is particularly embodied in the state and in political power that rests on lies (and continually thwarts human freedom—our chief attribute—and the spontaneous order of the market and society). However, Ratzinger holds that the power of the Most High is always stronger than all other forces put together. The future is not to come, but to be made, and it is up to both us and God. Whatever happens, we will never see the triumph of the destructionism (to use Mises’s term) typical of statist socialism, which is among the main manifestations of the Devil’s constant attempt to destroy, through envy, the work of God and his main creature: the human being.
Seewald has written a biography filled with small details and surprising information about Ratzinger’s life. For instance, we read that his parents met and married thanks to an ad his father—an honest local police officer—placed in a Catholic newspaper in search of a girlfriend. We learn that Ratzinger does not like to reveal or celebrate his birthday. Seewald also writes about the great uncle and priest Georg Ratzinger, who was a delegate to the Reichstag in Berlin in the nineteenth century and fiercely opposed Prussian militarism and the “German nationalist mania for greatness” of Bismarck and his acolytes—a view which, incidentally, fully coincides with that of the leader of the true German liberals, Eugen Richter, whom Seewald does not mention. In addition, we read that Joseph Ratzinger, on the occasion of his seventieth birthday in 1997, was awarded an honorary doctorate by the University of Navarre. Also honored was the American economist Julian Simon, a member of the Mont Pelerin Society and a great Hayekian population theorist (whom I had the privilege of meeting before his untimely death). Moreover, Seewald writes in detail about the period during which Benedict XVI received his formal education. We find that his main calling was always scholarship, teaching, and research and that he never sought to get ahead or pursue a career in the Catholic Church, and thus, the author attributes to fate—that is, divine providence—Ratzinger’s continuous rise (a path he never deliberately sought nor predicted), which culminated in his being pope.
To a professor like yours truly, it is especially appealing and interesting to learn from Seewald and the documentation and numerous testimonies provided by students and considered in the book that Joseph Ratzinger has always been an excellent teacher who inspired his students. Blessed with an extraordinary memory and capable of writing with not only his head but also his heart, his main ability consists of making even the most complex theological matters look simple. Despite his humility, modesty, and high-pitched voice, he always spoke with confidence, knowledge, and contagious enthusiasm and even gave a poetic touch to his thoughts (such as when he explained that the Church receives and projects the light of Christ like the moon receives and projects the light of the sun). Like all good professors, Ratzinger has always acknowledged his debt to his main teachers and those thinkers who came before him and have most influenced his development, including Saint Augustine, Saint Bonaventure, Cardinal Henry Newman (whom Ratzinger himself beatified), the theologians de Lubac and von Balthasar, and the philosopher and political scientist Eric Voegelin (who, incidentally, was a regular participant in Mises’s Vienna seminar in the 1930s). That such a professor, whose classes were always packed when those of his academic colleagues were half empty, should be the object of all sorts of envy and university intrigues will not surprise anyone minimally acquainted with the workings of academic institutions. And Peter Seewald gives us a detailed description of all of these vicissitudes so the reader can understand the reasons behind the journey that led the professor of dogmatic theology Joseph Ratzinger to the Universities of Bonn, Münster, Tübingen, and Regensburg, before Pope Paul VI named him, in 1977 and at the age of fifty, Archbishop of Munich, and shortly afterward, Cardinal.
Perhaps nothing has done more to elevate Joseph Ratzinger than his participation as a young theologian acting as advisor to Cardinal Frings on the work of the Second Vatican Council. In fact, Pope John XXIII himself was very impressed with a key lecture given by Frings and remarked to him, “You have said everything that I’ve thought and wanted to say but was unable to say myself.” Slightly flustered, Frings answered, “Holy Father, I did not actually write the lecture. A young professor [Ratzinger] wrote it.” To this, John XXIII replied, “I did not write my last encyclical myself either. You just need the right advisor.” Though, at the Council, Ratzinger always fought for a reform and aggiornamento of the Church to help it escape stagnation, he later observed with great disappointment that the postulates contained in the Council documents and promoted by Ratzinger were manipulated and twisted by most of the media, which fed on a trend of “overwhelming progressivism that evaded the true faith and gave a blurred, journalistic view of the Council.” As an example, Ratzinger mentions a fellow “theologian who I knew had left the faith (he had told me so himself), someone who didn’t believe in anything, and yet, began to teach that his ideas about the Council represented authentic Catholicism.” The pain this caused Joseph Ratzinger (who is kindness personified) can be compared only to that he felt when many in the German-speaking theological world aligned themselves against him. Seewald explains and documents in detail the particularly destructive, manipulative influence of Hans Küng, viewed up to now as the golden boy of theology by the most hypocritical and self-righteous media outlets, which, led by Der Spiegel, have always used any excuse to criticize John Paul II, Benedict XVI, and in general, the Catholic Church. Joseph Ratzinger has always managed to endure this pain without the slightest complaint and with great fortitude, and following his elevation to the papacy, he even extended a warm welcome to Küng, who had just announced with trumpets his “enormous disappointment” over the result of the election that had made Ratzinger Pope Benedict XVI.
Seewald also offers us a brilliant, detailed explanation of Ratzinger’s great contributions to ecumenism and unity with the Anglican, Orthodox, and Protestant Churches, as well as his efforts toward the forging of a closer relationship with Jews and Muslims, always with an attempt to build bridges and emphasize more what unifies than what divides, “since all contain much that is true and holy.” However, as is logical, Ratzinger has never gone to the extreme of blurring the true Catholic faith or ceasing to defend it. Illustrative of this is the fact that on many different occasions and despite all of the manipulative media campaigns, both Jews and Muslims have stated that thanks to Benedict XVI, the Catholic Church’s relations with Judaism and Islam have reached a level of understanding and acceptance unforeseen in the history of the Church.
Another recurring topic of great importance to Ratzinger has been the close, inescapable relationship between faith and reason, since “great moral knowledge is just as reasonable and true as great knowledge in the natural sciences and in technology; natural law is moral law.” For faith without reason becomes fanaticism, and reason without faith becomes futile and destructive. In this light, Ratzinger’s critique of “liberation theology” is especially brilliant. This movement is a true twentieth century heresy with its roots in the thinking of western Marxist intellectuals, a tradition very far removed from Latin American culture and largely responsible for the defection of many South American former Catholics to evangelical churches. Elsewhere, I have given a detailed summary of Ratzinger’s brilliant, pertinent, balanced, and also devastating critique of “liberation theology.” See my review of volume 10 of the Collected Works of Joseph Ratzinger [Procesos de Mercado: Revista Europea de Economía Política 16, no. 1 (Spring 2019): 489–492]. The remarks it contains apply here as well.
In short, from the perspective of Benedict XVI, the Catholic Church has emerged and evolves as a true spontaneous order established and guided by Christ, an order constantly enriched by numerous community initiatives, and fueled and maintained by, above all, the “simple and straightforward” faith of many ordinary Christians. According to Ratzinger, what truly invigorates the Church is the faith of fishermen, “simple people,” those who are “poor in spirit,” who are truly blessed, as opposed to the “cold religion of academics,” who are always complicating things.
Seewald also discusses the emergence and evolution of various crises blown out of proportion and manipulated by the media and adversaries of Benedict XVI—for instance, the lifting of the excommunication of Holocaust denier Bishop Williamson, the Regensburg lecture (which was manipulated and treated as an insult to the Muslim world), and the so-called “condom crisis.” Prominent among these is the pederasty crisis in the Church, which was most forcefully condemned and effectively dealt with by precisely Joseph Ratzinger, as Peter Seewald shows in detail in his book. None of these crises explains the resignation—an unprecedented event in the Catholic Church—of Benedict XVI following eight years of very fruitful and intense papacy. Joseph Ratzinger has repeatedly justified his decision on the grounds of his poor health and loss of physical strength to continue, at nearly eighty-seven years of age, doing the vital work properly.
The figure of Pope Francis which emerges—at least between the lines—in Seewald’s book is quite intriguing. On the one hand, we read that a pope must make “statements that are clear and unconfusing, but also conciliatory, to avoid dividing the flock” and that he “must have a pleasant appearance, or at least not be ugly”(!). On the other hand, one deduces that, though it is still too soon to evaluate the papacy of Pope Francis, his two predecessors (one—John Paul II—already a saint and the other—Joseph Ratzinger—perhaps the most important and kind-hearted Catholic theologian in recent times) have been very tough acts to follow. In any case, it is unsurprising that Pope Francis risks ultimately being deemed a bluff for those in the more “progressive” wing when they see their bold expectations, always heightened by the media, come to nothing or almost nothing; or being deemed a destabilizing pope who, rather than unite, causes confusion and division in the people of God whenever he makes rash or easily manipulable statements. He may be seen as the latter by those in the more “conservative” wing of the Church and, in general, all who watch how the pope, in this difficult situation, often takes refuge in the more worldly, political, and thus, easier angles (“throw away” culture, inequality, the environment, the need for a “world government,” etc.). The book contains a very enlightening account of how Bergoglio was the preferred candidate of members of the so-called “Saint Gallen Group” of progressive clerics who, led by Cardinal Martini, Archbishop Emeritus of Milan, were ardent adversaries of Wojtyla and Ratzinger and conspired all they could to keep Benedict XVI from being elected. In spite of it all, Ratzinger’s deep kindness again surfaces when he repeatedly declares that his personal friendship with Pope Francis not only remains, but is becoming ever deeper.
Every work, no matter how good, inevitably contains a few shortcomings or surprising assertions which, as Marañón used to say, can make it even more attractive, like beauty marks adorning the skin of a lovely woman. There are few weak points to note in Seewald’s work. (Incidentally, it has been superbly translated and published in Spanish with so few misprints that I can barely count on the fingers of both hands the errors I found in the book’s 1150 pages.) However, it could be noted that, though Seewald clearly highlights the socialist nature of Nazism and the fact that the German Catholic Church brought together one of the most effective fronts against it (in stark contrast to Protestants’ traditional support of German statism from the time of Bismarck), he does not delve into the leading role the social market economy promoted by Erhard played in the Wirtschaftswunder, or German economic miracle (though Seewald does acknowledge that Ratzinger greatly admired Adenauer). Seewald also neglects to mention the magnificent speech Benedict XVI gave before the Bundestag on September 22, 2011, in which, following in the footsteps of Saint Augustine, he referred to any government not subject to Law as a “band of robbers.” (This was a real anarchocapitalist bombshell, since, as we well know, nowadays the main threat to Law—with a capital L—invariably comes from the government itself.) Moreover, I would have liked to know what influence Ratzinger had on John Paul II’s encyclical Centesimus Annus. (Seewald indicates that Ratzinger, as Prefect of the Congregation for the Doctrine of the Faith, painstakingly examined every encyclical.) This encyclical of John Paul II’s is very important, since in it, he clearly comes down on the side of capitalism as opposed to socialism, which he considers an intrinsically immoral system, a position which contrasts with a certain impartiality later expressed by Ratzinger on occasion. The same could be said of Ratzinger’s late concessions to environmentalism, though always stressing that human beings are also part of the natural environment which must be protected and that therefore, there is no greater contradiction than, for instance, defending animal species while accepting abortion. In addition, we could mention the also surprising revelations Seewald makes regarding Frings and Ratzinger’s nuanced “objection” to Paul VI’s declaring (as he did on November 21, 1964) the Virgin Mary the Mother of the Church. Apparently, Frings and Ratzinger reasoned that such a declaration might create a further, unnecessary barrier between Catholics and Protestants. Finally, there is the insufficiently explained reference to Ratzinger’s reformulation of his ideas on giving Communion to the divorced and remarried included in volume 4 of his Collected Works [Obras completas, published in Spanish in 2014].
Though the importance of this book justifies a lengthy review, it is now time to bring it to a close. Clearly, in an anarchocapitalist world, in which there are no states, nor politics, nor left nor right to flirt with, the Church will finally be able to break free and devote herself completely to fulfilling her fundamental mission: transmitting faith in Christ. For this vital mission, as the discerning Nicolás Gómez Dávila affirms in his Scholia to an Implicit Text, Jesus, the founder, left no writings, only disciples. Therefore, in current times as well, and in the words of Ratzinger: “Above all, that of which we are in need at this moment in history are men who, through an enlightened and lived faith, render God credible in this world... We need men whose intellects are enlightened by the light of God, and whose hearts God opens, so that their intellects can speak to the intellects of others, and so that their hearts are able to open up to the hearts of others.” The rest must be left to divine providence, which, as we know, always acts subtly, silently, almost imperceptibly, but, without exception, charitably and benevolently.
Madrid, December 20, 2020Jesús Huerta de Soto
Instead of succumbing to the zeitgeist, Rothbard moved it.
Original Article: "Why Rothbard Endures"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Williams’s impressive ability to speak on wide-ranging issues with unusual clarity derived from his steadfast commitment to the “economic way of thinking.”
Original Article: "'The E Stands for Excellence': A Tribute to Walter E. Williams".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
This show features a personal and revealing interview of Comic Dave Smith by Jeff Deist. It shows a side of Dave you haven't seen before—so don't miss it.
And be sure to follow Radio Rothbard at mises.org/RadioRothbard.
Libertarians know Michael Boldin as the founder of the Tenth Amendment Center, but he started out as a leftist promoting clubs in LA and other major cities. In this fun conversation, Michael explains his origins and how he ended up advising state governments on how to kick the NSA out of their backyard.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
[This interview with Jeff Deist and Hans Hoppe will appear in the upcoming issue of The Austrian (March–April 2020).]
JEFF DEIST: Your recent talk in Vienna mentioned growing up happy but poor, the son of East German parents who had been driven west during the Cold War by the Soviets. Can you elaborate on the lasting impact their experience had on you, in terms of how you view state power and its attendant evils? Are you in some ways still influenced by their “eastern” roots?
HANS-HERMANN HOPPE: The fact that my parents were both refugees, ending up in the West by the accident of WWII, driven away and separated from their original homes in Soviet-occupied East Germany, played a huge role in our family life. In particular the expropriation of my mother’s family and its expulsion from house and home by the Soviets, in 1946, as so-called East Elbean Junkers, was a constantly recurring topic at home and assumed even more importance after the collapse, in 1989, of East Germany and the following German “reunification.” My mother, as many other victims of communist expropriations, then sought and hoped for the restitution of her property—in which case I would have been set for life. However, as I already knew and correctly predicted by then, this was not going to happen. There was to be no justice. But my parents were shocked and outraged.
The numerous trips we took to visit various relatives in East Germany confirmed my parents’ judgment of the Soviet system. Shortages, waiting lines, empty stores, inferior products, and lousy services. All around controls, spies, and informants. Everywhere grey ugliness and decay. A prison wall built around the whole country to prevent anyone from escaping. And commie-proles droning on endlessly about the great successes achieved under their leadership.
Yet as a little boy and a teenager I did not understand the reason for all this mischief and misery. Indeed, the East German experience did little if anything to shake my own leftist convictions at the time. East Germany, I thought, was just the wrong type of socialism, with the wrong people at the helm.
Apart from their anticommunism, my parents, as most people of their generation, were highly guarded or even timid regarding political pronouncements. Germany had lost a devastating war, and the German population was subjected to a systematic, American-led reeducation campaign, a Charakterwaesche (character-wash), as I was to realize only many years later, of truly enormous proportions, which involved a complete rewriting of history from the victor’s viewpoint, essentially portraying Germans as congenital villains. This made it all the more difficult to finally discover the fundamental importance of private property rights and the evil of statism and so-called public property.
As far as any genuine “eastern” influences are concerned, I am skeptical. Far more important in any case was the fact that my parents were impoverished refugees who eagerly wanted to recover from their losses, get ahead in life, and instill their own will to succeed also in their children. (In fact, empirical studies later on demonstrated the comparatively greater professional success of refugee children as compared to their nonrefugee peers.) However, in the German context you may count my Protestant—Lutheran—upbringing and the character traits typically associated with it, i.e., the “Protestant ethic,” as described by Max Weber, as somehow eastern.
JD: You also mentioned your time at university, studying philosophy under the direction of left-wing critical theorist Jürgen Habermas. Although your political philosophy differs radically from his, discuss his influence on you and your development of “Austrian” class analysis. Is he purely a malign figure, or can we learn from him?
HH: Looking back, I can certainly say that Habermas has been a largely malign figure. He became Germany’s most famous and influential intellectual, and as such played an important role in Germany’s gradual but steady move leftward, both economically and culturally. Indeed, he can be regarded as the high priest of historical and political correctness, of social democracy, and of political centralization.
Nonetheless, my relationship with Habermas, while not close, was cordial, and I learned quite a bit from him, especially from his earlier works such as Erkenntnis und Interesse (Knowledge and Interest). (Since the late 1970s I essentially stopped following his work, as it was increasingly tedious and murky.) In any case, it was Habermas who introduced me to the Anglo-Saxon tradition of analytic philosophy and the philosophy of language. He helped me understand “methodological dualism,” i.e., that the study of objects with which we can communicate (and communicative action) requires different methods than those appropriate for the study of noncommunicative objects (and instrumental action). And contra all empiricist and relativist claims, Habermas always defended the notion of some sort of synthetic a priori truths.
As far as my work on class analysis and the theory of history is concerned, however, it owes nothing to Habermas, who had actually little interest in economics and political economy, but instead to my earlier study of Marx. I wrote the original paper on the subject for a Mises Institute conference on Marx, and I tried to show how, by only substituting State for Business Firms and Taxes for Wages, Marx’s exploitation theory and his theory of history would make perfect sense.
JD: Your speech titled “Coming of Age with Murray” in New York City two years ago reveals much about your personal relationship with the late Murray N. Rothbard. In fact you moved to New York primarily to work with him. Looking back, are you glad to have left Germany for America? Would your career and work look very different had you remained at a European university?
HH: Oh yes, that move was about the best and most important decision I ever made. Given my views at the time, i.e., my Misesian-Rothbardian outlook, an academic career in Germany, even if not entirely impossible, would have been extremely difficult, even with stellar academic credentials. I might have become depressed and given up. Certainly, without constant encouragement such as I would receive from Rothbard in America, I would have written less and then mostly in German, which no one but Germans read.
In the meantime, thanks to the growing influence and worldwide internet presence of the Ludwig von Mises Institute in Auburn, the situation has significantly changed. It is still difficult, but nowadays you can also have a successful academic career in Europe even as an Austrian (but you will have to write in English).
JD: Rothbard remains relevant and controversial today. Why is he so consistently misunderstood? Given your long history with him, both in New York and at UNLV, what do his critics fail to grasp? Was he warm and convivial as his supporters contend, or acerbic and mercurial as per his detractors? Does his work in social theory overshadow his work as an economist?
HH: Rothbard was a genius of the first order. He ranks among the greatest economists, but he was not and did not want to be a mere economist-economist. He was also a great philosopher, sociologist, and historian, and as such became the creator of a grand, integrated intellectual system. Anyone familiar with Rothbard’s entire oeuvre can only stand in awe before his achievement. But there also lies the problem. The sheer volume and the interdisciplinary character of Rothbard’s work makes it difficult for anyone but the most dedicated and talented student to give a full and fair account of his work. Moreover, especially economics, the centerpiece of Rothbard’s system, is a rather dry, technical field with very limited sex appeal. Much easier, then, for the envious, lazy, and talentless to engage in nit-picking. And easier still not to talk about Rothbard’s scholarly work at all, but reduce him to the libertarian activist (that he also was, if only in his spare time and for his own amusement).
As far as Rothbard the man is concerned there is something to both seemingly contradictory statements about his personality. You certainly did not want to become the target of one of Rothbard’s many written missives. As a writer, Rothbard could be merciless and devastating, ready to go in for the argumentative kill. On the other hand, as a person, in social gatherings, he was a softy: warm, convivial, charming, and entertaining.
JD: Rothbard frequently defended you and your work, charging critics with “Hoppephobia.” What did this mean to you as a young scholar? Why does loyalty and gratitude seem so scarce in academia generally, and in libertarian circles?
HH: If you write and take a clear and unambiguous stand on highly contentious issues, you should expect some heat. Otherwise, if you don’t like the heat, stay out of the kitchen. Given what I wrote or said in public (or the way I said or wrote it), I knew that I would be a controversial figure; and as a young man I took a good deal of delight from provocation and vigorous intellectual debate. Nonetheless, I had no idea how downright personal, nasty, and even defamatory and libelous some critics and criticisms could get. In such situations, then, Rothbard’s coming forward in my defense was a welcome relief and gave me a great boost of confidence. After some years in academia, however, I developed quite a thick skin and learned that many a critic and criticism were not worth my attention and best ignored.
As for loyalty and gratitude, it is necessary that a person recognizes and admits that he owes something to another person; that this other person has done something of value for him that deserves to be acknowledged. I tend to agree with your assessment of academia and certain libertarian circles as ranking rather low in this regard. And in both cases I suspect the prevalence of egalitarian ideas to be responsible for this outcome. The typical or “modal” libertarian, as described by Rothbard, is an egalitarian, respect-no-authority guy, with little knowledge of history and world affairs. He fancies himself to have come up with everything he has and knows on his own, as a self-made man, and as such thinks that he owes no one any gratitude or special respect.
The egalitarianism of academia, or more precisely that part of it that is principally concerned with writing and speaking (rather than doing, such as engineering, for instance), is of a different kind. Let’s call this group the intellectuals. Intellectuals generally suffer from an inflated ego. They consider intellectual work and hence themselves as more important than mundane or manual work and workers. In their eyes, then, the fact that they are all subsidized today and kept financially afloat by nonintellectuals is only how things should be anyhow. No need to be thankful for what is self-understood, as far as they are concerned. In this regard, intellectuals are elitists. Vis-à-vis each other, however, they are typically egalitarians. They all equally write and speak, and who is to say that this writing is better or more original than that. True enough, their salaries and their standing in academia may be quite different. However, such differences are solely the result of bureaucratic procedures and criteria that have nothing to do with truth or beauty. Nor does popularity matter as far as truth and beauty are concerned. No need, then, for an intellectual to ever feel less of an intellectual than anyone else.
JD: You mention sharing with Rothbard a profound interest in religion and the sociology of various faiths despite being an agnostic. Have you changed your perspective on Christianity and its influence on the West? Is the post-Christian West going to be a nasty and tribal place, contra the assurances of secularists?
HH: Whether you are a believer or not, there is no way of denying that religion has played a hugely important role in human history and that it is the West, i.e., the part of the world shaped by Latin Christendom in particular, that has surpassed all other world regions both in terms of its material as well as its cultural achievements, and that among its superior cultural achievements in particular is also the idea of natural human rights and human freedom. The Christian notion that each person is created in the image of God contributed to the uniquely Western tradition of individualism and was instrumental in abolishing, at long last, the institution of slavery within the Christian orbit (all the while it lingered on outside the West, even until today). And the institutional separation and jealous competition for social recognition and authority in the West between the Christian church and its hierarchy of popes, cardinals, bishops, and priests, on the one hand, and all worldly power with its hierarchy of emperors, kings, nobles, and heads of households on the other contributed greatly to the uniquely Western tradition of limited (as opposed to absolutist) government.
This happy, power-limiting arrangement began to crumble already in the sixteenth and seventeenth centuries with the Protestant Reformation and the Counter-Reformation following. Today, the various Christian churches are essentially appendices of the state. As such they promote even the mass importation of people of rival faiths into formerly Christian lands, thus further undermining whatever authority they may still possess in public opinion and strengthening at the same time the power of the all-secular, post-Christian state.
JD: Democracy: The God That Failed remains perhaps your best-known and most controversial book. Nearly twenty years later, give us your thoughts on the book’s legacy. Are you happy with its notoriety and impact, or do you wish your work on socialism, property, and ethics was better appreciated?
HH: Indeed, of all of my major writings Democracy has been the bestseller, and it is no exaggeration to say that the book in the meantime has exerted some notable influence in helping desanctify the institution of democracy (majority rule) in public opinion. Naturally, I am quite happy about this. The book has a certain “sex appeal,” if you will. It is interdisciplinary and not too technical, and it offers some new, original, and provocative theoretical theses and insights, combined with alternative, revisionist historical vistas and perspectives. It may be the only major work of mine a person reads and associates with my name. But then, I always hope, there may also be other people to whom it opens the door to some other, possibly more important if less sexy, works of mine.
JD: Both your fans and critics seized on a passage in Democracy arguing that individuals with goals and lifestyles at odds with a libertarian social order would be “physically removed” from that community. Since then you have clarified how this phrase functions as an adjective, not a verb. In other words, people at odds with the agreed-upon terms of a private community simply should live elsewhere, just as one town is physically separate from a nearby town. What are your thoughts about the controversy today?
HH: This harks back to your earlier question concerning Hoppephobia. The whole affair, most likely initiated by one of the usual left-libertarian suspects from the DC beltway, was a deliberate attempt to smear and malign me personally and with that also the program of a realistic or right-libertarianism first outlined in the book.
Essentially, I did not say anything more controversial or scandalous in the short passage than that anyone insisting on wearing a bathing suit on a nude beach may be expelled from this beach (but be free to look for another one), just as anyone insisting on nudity may be expelled from a formal dinner party (but be free to look for another party). In my example, however, it was not nudes but homosexuals that figured. I wrote that in a covenant established for the purpose of protecting family and kin, people openly displaying and habitually promoting homosexuality may be expelled and compelled to look for another place to live. But in some “woke” circles, mentioning homosexuality and expulsion in one and the same sentence apparently leads to intellectual blank-out and a loss of all reading comprehension.
Ultimately, the entire smear campaign failed and even backfired, only increasing my own popularity and the influence of the book.
JD: At your Property and Freedom conference in Turkey you have spoken on the process of “de-civilization,” whereby positive law overtakes natural law under the domination of a monopolized state actor. Property rights and adjudication of conflicts fall under the grasp of this monopoly power. We like your conception of the opposite: a social order emerging from “justice principles,” taking the form of a private-law society—entirely voluntary—more in harmony with simple natural order. It sounds better and more reasonable than anarchism to ordinary people! Are anarcho-capitalism and resulting private “covenant communities” actually far less radical than commonly thought? Are they in fact outgrowths of natural law concepts that many people already accept?
HH: Indeed, yes, and yes again. Even if it appears to be little more than a shift in semantics, for the reasons you mention I have long preferred the terms “private-law society” and “natural order” to “anarcho-capitalism.” Because everyone is familiar with the basics of private law. From our everyday lives, we know what property is and implies and how it is acquired and transferred (and how not). As well, we know what an exchange, an agreement, and a contract are (and what is not to count as such). There is nothing difficult or especially demanding about the natural law of property and contract. Indeed, in many small villages people live by these laws, without the presence or pressure of any outside government police or judge. There is self-policing. Yet whoever polices is subject to the same rules as everyone else. And if need be, in the case of conflict, there is self-arbitration and self-adjudication. But whoever acts as judge or arbiter, too, is subject to natural private law.
The emergence of a natural order ruled by private law, then, is not difficult to explain. What is difficult to explain is the emergence of a state. Why should there be anyone, any institution, not subject to private law? Why should there be someone who can make laws? Why should there be an institution that can exempt itself from the rules applied to everyone else? Why should there be some policemen who cannot violate the law or some judges who cannot break the law? Why, indeed, should there be any ultimate and final judge, exempt from any and all prosecution? Certainly, all of this cannot be the result of an agreement or contract, because no one in his right mind would sign on to a contract which stipulated that in any conflict that might arise between you and me, you will always have the final word.
JD: Let’s turn to immigration. You propose contractual admission of immigrants, with sponsors (or immigrants themselves) funding a bond or liability insurance to pay for any criminal or civil cost imposed on existing taxpayers. Immigrants remain in their new home conditionally for an initial period, subject to revocation of admission for contractual violations. They do not receive “welfare”; citizenship and voting rights come much later. You refer to this system as satisfying the “full cost principle.” In many ways this is far more “open” than open borders proposals, because it requires no checkpoints or intake centers or vast border police agencies. It uses contracts and market forces to shape immigration, rather than political machinations. This seems far more humane and practical, yet you are assailed as anti-immigration. What explains this?
HH: As already touched upon, in some circles the mere mention of two words in one sentence—this time “immigration” and “restriction”—is sufficient to trigger a blank-out. No need to read any further and try to comprehend. First homophobe, then xenophobe. In fact, I have never met a serious advocate of “no immigration, period!” Nor have I ever taken a stand that could be described as anti-immigration. Instead I have always argued for the commonsensical approach of selective immigration.
Ideally, with all pieces of land and everything on them privately owned, there would be a huge variety of entrance requirements, i.e., of degrees, respectively, of openness and closedness. I have described this, for instance, in my piece “Natural Order, the State, and the Immigration Problem.” Airports, roads, shopping malls, hotels, etc., would be rather open, whereas residential associations, private retreats, clubs, etc., might be almost completely closed. In any case, however, all migration would be by invitation and invariably the full cost principle would apply. Either the inviting host or the invited guest or both jointly would have to pay the full cost associated with the guest’s presence. No cost could be shifted and externalized onto third parties, and the inviter and/or invitee would be held liable for any and all damage resulting from the invitation to the property of others.
If and as long as there is a state with so-called public property in place, as happens to be the case in today’s world, then the best one may hope for is an immigration policy that tries to approach this ideal of a natural order. You have mentioned some possible measures in this regard. But to advocate, under current conditions, the adoption of a “free immigration” policy—every foreigner can come in and move and stay around the entire country, no questions asked—is certainly no way to achieve this goal. To the contrary, it would make forced integration and cost-shifting ubiquitous, and quickly end in disaster. Only people devoid of all common sense could possibly advocate any such policy.
JD: In your exchanges with Walter Block about immigration, he argues that all government property ought to be subject to open homesteading by immigrants. Your response is often characterized as “taxpayers should own taxpayer-funded public goods.” But in fact your argument applies only in the context of Block’s argument, to disprove the notion that public property should be viewed as “unowned.” If we must have public property, state agents at least ought to act as trustees of that property on behalf of the taxpayers who fund it. Accurate?
HH: Accurate. Let me only add that in today’s world the sometimes mentioned “wilderness” of mountaintops, swamps, tundra, etc., is no longer truly wild and thus ready to be homesteaded. There is no inch left on earth today that is not claimed to be the “property” of some government. Whatever wilderness there is, then, it is wilderness that has been barred and prevented by some government, i.e., with taxpayer funds, from being homesteaded by private parties (most likely by neighboring property owners). If anyone, it is domestic taxpayers who are the legitimate owners of such wilderness.
And quite apart from this, even if some wilderness were opened for homesteading, it would be neighboring, domestic residents, who had been most immediately and directly barred from doing so before, who should have the first shot at homesteading, well before any distant foreigner.
JD: Hoppean argumentation ethics remains a subject of rigorous debate, most recently between (economist) Robert Murphy and (legal theorist) Stephan Kinsella. How important is a purely logical justification for human liberty, as opposed to Rothbard’s normative natural law arguments or Mises’s utilitarianism? Is the shared human experience of physical personhood the best starting point for arguments against the initiation of violence, i.e., arguments against the state?
HH: There are some questions that can be answered definitively by the performance of a simple experiment. For many others that is not possible. Sometimes we are satisfied with answers that sound plausible or appear convincing on intuitive grounds. But to the curious mind, some questions are of such great importance as to ask for more than just plausibility or intuition.
Transcendental arguments are designed to satisfy this desire for more, i.e., for logical certainty or ultimate justification. They are answers to the skeptic who denies that there is any such thing as ultimate justification and a priori truths. They try to establish, by means of self-reflection, what the skeptic must already presuppose as given and true simply in order to be the skeptic that he is, i.e., to make his skepticism possible. One has reached certainty about something, then, if one can show that even a skeptic must admit to it, if only in order to meaningfully express his very own doubt.
The ethics of argumentation is the answer to the ethical relativist, i.e., to any one person claiming—as a proponent vis-à-vis an opponent in argumentation—that there is no such thing as a rational or objective ethics.
In response to the relativist proponent it is essentially pointed out that by virtue of his own engagement in argumentation he has already effectively rejected his own thesis, because argumentation is an activity, a special, conflict-free form of interaction between a proponent and an opponent with the specific purpose of clarifying and possibly coming to a mutual agreement concerning some rival truth claims. As such, it presupposes the acceptance as valid of such norms or rules of human conduct as make argumentation itself possible. And it is impossible, then, to argue against and deny the validity of such norms without thereby running into a performative or dialectic contradiction.
The praxeological presuppositions of argumentation, then, are twofold—and we all know them from personal experience more generally also as the conditions and requirements of peace and peaceful interactions: first, each person is entitled to exclusive control or ownership of his physical body (that he and only he can control directly, at will) so as to act independently of others and come to a conclusion on his own. And secondly, for the same reason of mutually independent standing or autonomy, both proponent and opponent must be entitled to their respective prior possessions, i.e., the exclusive control of all other, external means of action appropriated indirectly by them prior to and independent of one another.
Rothbard immediately accepted my proof. In fact, he hailed it as a major breakthrough. As for the various criticisms I have encountered, I have not been impressed, to put it mildly.
JD: Are you generally optimistic or pessimistic about the future of the West? Do you think sclerotic, bureaucratic states will yield to happier and more decentralized political arrangements? Or do you think Washington, DC, Brussels, et al. will repeat the terrible mistakes of the twentieth century: aggressive foreign policy, unrestrained central banking, and political globalism?
HH: In the short and medium run, I am pessimistic. True, our living standards have gone up and technological progress allows us to do things not long ago thought impossible, but at the same time the coercive powers of the state have continuously expanded, and private property rights and personal freedom have been correspondingly diminished. The process of political and monetary centralization has proceeded unabated. Central banks create more money and credit out of thin air than ever before. Government debt and obligations have risen to exorbitant heights, so as to make some future default a virtual certainty. All the while taxes and regulations have brought economic growth to a standstill. It is clear, then, that a severe economic meltdown is in the making.
At the same time, throughout most Western countries the populations have been thoroughly dehomogenized by immigration policies favoring multiculturalism. And migration into the West by non-Westerners has been massively increased still as a fallout of the endless US wars and military adventures in the Middle East and elsewhere. Most Western countries now contain within their own native cultures large pockets and clusters of people of not just different, but rival and even hostile cultures.
Combined with a major economic crisis, this makes for an explosive mixture, the ingredients of a civil war.
It is amazing how the ruling elites have so far managed to keep the show running. But there can be no doubt that the day of reckoning must eventually come, and when it does I see two likely scenarios of how to escape the danger of civil war. The first one is the strong man variant, an authoritarian regime that tries to hold all things together by means of centralized, dictatorial powers. And the second variant is that of decentralization: of secession, separation, and disaggregation so as to approach the ideal of a natural order. Naturally, the second variant is the one favored by libertarians (and recommended by Mises). Yet to make this variant win, libertarians have to prepare the ground. The public must be educated about the economic and social advantages of small, competing political units, and it is necessary to find and nurture potential charismatic leaders for the various decentralist and secessionist causes.
JD: Finally, how does living in Turkey affect your perspective? Are old notions of East and West breaking down, and should we consider looking East for allies in the fight for civilization and property?
HH: As mentioned before and emphasized also by Mises, the idea of liberty is originally a Western idea, created by white Western males, and although it has lost some strength there, it is still most prominent and widespread in the West. That does not mean that it is restricted to the West or only accessible to Western minds, however.
If there is anything I have learned from living in various countries and from my many travels, it is that there exists far more sociocultural variety and variance on earth than the typical Westerner might imagine: not just the variety of different countries, but even more so the regional and local variations within each country. Almost everywhere you can find a few libertarians or classical liberals, and you should look out for them wherever they are, of course. But just as we must learn in our private dealings with other individuals how to distinguish between potential converts on the one hand and hopeless cases on the other, so as not to waste our time and effort to no end, so, and for the same reason, we must also learn in our search for allies how to distinguish between hopeful, less hopeful, or even hopeless countries, regions, and localities. And we must realistically recognize that different places offer hugely different and unequal prospects and potential in this regard.
TOM WOODS: This is the Tom Woods Show, and today I welcome Jeff Deist.
Everybody wants to know the sheer nuts and bolts of how somebody becomes Ron Paul’s chief of staff. I’ll tell a little story most people don’t know. About ten years ago, Dr. Paul was approached about doing an autobiography; he would have gotten a huge advance. There was big demand for it! But he just couldn’t believe people were interested in the details of his life. His heart wasn’t in it, so he decided to say no. I know you’re kind of the same way, but doggone it, Jeff Deist, there are some details I want to wring out of you!
You start off as a lawyer in California and have a successful career in the financial world, and then, somehow, you’re Ron Paul’s chief of staff, and somewhere along the line, you become an Austro-libertarian. This is not the normal career path for most people, so we are curious: what were you reading, who were your influences, who the heck were you?
JEFF DEIST: My background is pretty straightforward, although very lucky. I never went through a conservative or “liberal” phase. That is attributable to my father and my older brother. My dad had books like (F. A. Hayek’s) The Road to Serfdom in the house, which I read in high school. My brother Steve subscribed to Reason magazine way back in the 1980s, so I had his influence. Of course, some Ayn Rand books came into my possession, which I still have today in dog-eared condition. My mom was not so thrilled about my reading Atlas Shrugged due to Rand’s vocal atheism, worried it would rub off on me!
But my real love was literature, and I thought I would become an English professor.
TW: Oh my gosh, thank God we saved you from that.
JD: Ha! I particularly liked twentieth-century British satire—Evelyn Waugh, Graham Greene, Kingsley Amis. My plan was to become a university professor and teach literature. But at that point, in the early 1990s, I started to become aware of a PhD glut, especially in California. I was in graduate school in San Diego at the time and started to rethink my path. The idea of being a professor appealed to me, but I didn’t want to be poor or face dim job prospects.
So, at that point I decided to go to law school, which dovetailed with my interests in writing, rhetoric, and libertarianism. I thought I might defend people against the state. Regardless of whether a person is factually guilty of the acts they are alleged to have committed, the state has no moral, ethical, or truly legal right to prosecute them. And I ultimately chose tax law simply because I thought the taxpayer was always in the right. There is no such thing as a just tax. There is no such thing as cheating on your taxes, because the state has no defensible right to demand your money in the first place.
Luckily for me, during the same period in the early 1990s, I had a good friend, Joe Becker. Joe was a graduate student in the economics program at UNLV (University of Nevada, Las Vegas) because Murray Rothbard and Hans Hoppe taught there at the time. He had enrolled at UNLV entirely to study under them. So he invited me to drive up from San Diego occasionally to sit in on classes with Murray Rothbard, his professor. I drove up a few different times; Rothbard’s courses were always at night. He was very much a night owl, so he taught his graduate sessions and afterward they would all go to a little place way off the Las Vegas strip—I think it was on Maryland Parkway—a place called The Stake Out. It was a downscale, video-poker burger joint for the locals, and I think it’s still there, actually. Murray would come and talk to his students socially, and Hoppe would too.
I didn’t truly realize, the one or two times I met Rothbard, who and what he was. I knew he was a libertarian economist, but I was new to the term “Austrian economics.” At that time I was still very much a generic libertarian; ideas like legalizing pot and getting rid of taxpayer-funded stadiums were considered edgy. We still find that level of libertarianism today, and for the most part libertarians who aren’t rooted in economics are bad libertarians! They lack the framework and knowledge to truly understand the state, and I was no different.
Thankfully, through my friend I learned more about Rothbard and the Austrian school, and started reading heavier, denser material. In retrospect this was quite fortunate.
But Rothbard was not my first libertarian luminary; in fact, I met Ron Paul a few years earlier, in 1988. I was an undergraduate student when he ran for president on the Libertarian Party ticket. Dr. Paul had a campaign stop at a little Ramada Inn in Santa Ana, California. Back then it was not so easy to know about libertarian events, but I think my local San Diego group had a bulletin about it. The great activist Richard Rider was our leader, by the way. So I went and saw Ron Paul, and made some friends that I would stay in contact with for years. And I’ve known Dr. Paul since then.
But once I decided on law school, my intention was to be a lawyer and I never imagined doing anything else with my life. I fell into mergers and acquisitions (M&A), which is a very particular area of tax law—all the tax ramifications from buying and selling companies. There are a lot of complex tax structuring, due diligence, and cross-border international elements, and the Fed helped turn private equity M&A from a cottage industry into a behemoth. Starting in the 1990s with Alan Greenspan, and into the 2000s with Ben Bernanke, M&A activity went through the roof. Right up until the Crash of ’08, and of course with the reinflation of the debt bubble since then, M&A has been very active and lucrative. It was easy to have a job. You got a lot of calls from recruiters.
But I kept my old contacts from the Ron Paul world, and eventually a friend convinced me to come work in Dr. Paul’s congressional office. And when he left office in 2012, I prepared to go back to the M&A world. But having come to know Lew Rockwell I ended up coming to the Mises Institute instead. So that is the quick and dirty explanation of how I came to be sitting here, talking to you from Auburn today.
TW: I want to elaborate on your offhand remark that people who are not rooted in economics tend to be bad libertarians. Some people in the audience here might think, That can’t be right. Economics isn’t for everybody. But there are very few exceptions to this rule, and I have a theory why. When I think of people who are squishy in their libertarianism or more interested in appearing chic than being really principled, almost none of them are rooted in economics. In economics, we are looking at private property and the division of labor, and all these clear-cut things. It’s fundamentally nonaggression and peace, and these things flow naturally from economics. But some of the people sniping from the sidelines never talk about the Fed, for example. It’s always the same three or four lifestyle issues that won’t get them in trouble with the New York Times. It’s almost like they’re embarrassed to talk about the Fed because mainstream respectability is what these people crave. I think there’s something to what you said.
JD: First of all, in a sense, economics is everything. We’re talking about human action, so that encompasses things like family and relationships and charity. Economics is not just your job and your finances and your bank account and your stocks. It’s everything. Human action encompasses everything we do. There are choices and scarcity and trade-offs and incentives in everything we do; all of these concepts suffuse our lives. I think that unless you’re rooted in economics you tend to be malleable. You tend to flail around conceptually.
Take our current situation with Iraq and Iran. There is no fully rational distinction between foreign and domestic policy, for example. The same sorts of choices are involved in each. There is force or potential force involved in each, taxpayer funds involved in each—bureaucratic inefficiency, perverse political incentives, and so forth. So when we consider someone like Congresswoman Tulsi Gabbard, for example, well, she sounds good on war. She’s bad on issues like Medicare for All. But Medicare for All just means war at home. It requires aggression against domestic Americans. And the same analysis applies to cultural or social issues across the board. Libertarians who don’t have a firm grip on economics tend to be flighty and infirm in their understanding of many issues.
TW: What was it like to work in Ron Paul’s office, as compared to the office of Congressman Nobody down the hall? What can you share with us that people haven’t heard before?
JD: With Ron Paul what you see is what you get. Ron is not different behind the scenes. Most members of Congress are laughably mediocre in terms of what they’ve done in their lives; they’re mostly just self-important. It’s unbelievable. Even some of the staffers become self-important. They say DC is Hollywood for ugly people, where connections and status and hierarchy are so important. Who is the ranking member of which committee, who is the third assistant majority whip—these sorts of trivial things matter very much. It’s just endless.
Of course, Ron had no interest in any of that. His career was medicine, obstetrics, and he’d never run for office or held office before he was first elected to Congress in the 1970s. Most members of Congress started in local or state politics. They went to Tuesday-evening zoning meetings in their county for five years and then became a state rep. It’s all to build name ID and prepare to run for Congress. They are Tracy Flick types, for people who have seen the great ’90s movie Election. Members of Congress are the Tracy Flicks of the world, and Ron is nothing like that. He is just a genuinely nice, warm guy. He is very salt of the earth, and so is his wife, Carol.
Lots of moments stick out from his presidential campaign in 2012. Mind you, I didn’t work on his campaigns; I worked in his congressional office, two very separate things. But nonetheless, there was a CNN debate in the fall of 2011 held at Constitution Hall, which is owned by the Daughters of the American Revolution. It’s a very nice venue in DC. Ron was in town for congressional votes and attended this Republican primary debate. Of course, Mitt Romney was riding high at this point as the frontrunner in the primary. Wolf Blitzer happened to be the host, and this was going to be a big debate. I’m sure Romney arrived several days in advance and checked into some giant hotel suite with about twenty handlers. I’m sure he sat there in front of a mirror, testing out different phrases and figuring out which necktie he was going to wear.
Now contrast this with Ron: we’re still in the office about four o’clock. He says, “Well, I’m going to run home to my condo and then we’ll come back over. Why don’t you come with me?” Of course, Ron is wearing his same old suit and whatever tie; he doesn’t worry about these sorts of things. We go over to his condo in northern Virginia, which was very modest. He had bought this condo in the ’70s during his first time in Congress, and it just matched his unassuming demeanor. An hour or so before the debate starts, he is heating up some Campbell’s soup. He wasn’t worried because he thought that whatever they asked him, he would have a straightforward answer. He wasn’t going to shade his answers for a CNN audience any more than he would for a and hierarchy are so important. Who is the ranking member of which committee, who is the third assistant majority whip—these sorts of trivial things matter very much. It’s just endless.
Of course, Ron had no interest in any of that. His career was medicine, obstetrics, and he’d never run for office or held office before he was first elected to Congress in the 1970s. Most members of Congress started in local or state politics. They went to Tuesday-evening zoning meetings in their county for five years and then became a state rep. It’s all to build name ID and prepare to run for Congress. They are Tracy Flick types, for people who have seen the great ’90s movie Election. Members of Congress are the Tracy Flicks of the world, and Ron is nothing like that. He is just a genuinely nice, warm guy. He is very salt of the earth, and so is his wife, Carol.
Lots of moments stick out from his presidential campaign in 2012. Mind you, I didn’t work on his campaigns; I worked in his congressional office, two very separate things. But nonetheless, there was a CNN debate in the fall of 2011 held at Constitution Hall, which is owned by the Daughters of the American Revolution. It’s a very nice venue in DC. Ron was in town for congressional votes and attended this Republican primary debate. Of course, Mitt Romney was riding high at this point as the frontrunner in the primary. Wolf Blitzer happened to be the host, and this was going to be a big debate. I’m sure Romney arrived several days in advance and checked into some giant hotel suite with about twenty handlers. I’m sure he sat there in front of a mirror, testing out different phrases and figuring out which necktie he was going to wear.
Now contrast this with Ron: we’re still in the office about four o’clock. He says, “Well, I’m going to run home to my condo and then we’ll come back over. Why don’t you come with me?” Of course, Ron is wearing his same old suit and whatever tie; he doesn’t worry about these sorts of things. We go over to his condo in northern Virginia, which was very modest. He had bought this condo in the ’70s during his first time in Congress, and it just matched his unassuming demeanor. An hour or so before the debate starts, he is heating up some Campbell’s soup. He wasn’t worried because he thought that whatever they asked him, he would have a straightforward answer. He wasn’t going to shade his answers for a CNN audience any more than he would for a constituent in his office or speaking in front of a church group. It just didn’t matter. And for some reason I remember that night as an example of his lack of pretense.
People forget that he suffered professionally in a sense. He had to give up being a medical doctor. He ultimately sold the building he owned for his medical practice. He certainly made less money as a member of Congress than he did in his practice. And of course he was away from home most weeks, which he disliked. Family meant so much to him, and still does. So even when he disagrees with Rand (Paul’s son, Kentucky senator Rand Paul), the criticisms bother him a bit. He is protective of his family.
He probably won’t read this, and I won’t embarrass him, but his eldest daughter Lori, had some cancer scares over the last few years and happily is in remission. But her illness has been very tough for Ron and Carol, and drives home to me how much family and loyalty mean to him. The Pauls have five children, twenty-five grandchildren, ten great-grandchildren, and counting. Three of his five children are medical doctors, and I remember his son Robert explaining how their father insisted they all graduate without college debt. Ron’s story really is tremendous, and his family is his biggest legacy.
And along the way he managed to deliver four thousand babies, sometimes at three in the morning. His is quite a remarkable life, and it’s probably too bad he didn’t take someone up on that idea of doing a biography. Ron Paul’s life is an American story.
One more thing: people don’t understand his inadvertent skill as a politician. His country doctor personality and plainspokenness served him very well politically. It was hard for opponents to paint him as a radical, because he conducted his personal life as he did. He stayed married to the same woman for decades, didn’t much drink and never smoked, and focused on family and bicycling and his tomato plants. Carol came up with the idea of a cookbook for supporters, and it wasn’t calculating at all, but rather something she simply wanted to do. It became a great political tool. Texans responded to the Pauls as natural people, even if DC didn’t. He was, and is, disliked by the DC libertarians for precisely this, I think. He’s a natural, nonjudgmental person, and it shines through.
What we can learn from Ron Paul is some things can’t be faked. It’s important to be a kind and loyal person first. This problem is rife through the libertarian world—all politics, really—these sleazy people who aren’t very accomplished or loyal. Many things matter far more than whether someone has libertarian views. Personal relationships are infinitely more important.
TW: Here’s what I want to know about your time in Ron Paul’s office. Did anything ever make him truly angry, where he slammed down the phone or said “son of a…” Did you ever see that?
JD: Not really. I will say, he hates to wait. He’s an impatient person. He walks fast, he wants to get on to the next thing. He really hated when someone was late for a call or an interview. I think it comes from years of being a busy OB/GYN. He was used to going from patient to patient and sometimes driving backcountry roads in south Texas in the middle of the night to deliver a baby at some small hospital. There weren’t many OBs around. He was a very busy doctor and is used to being busy. This is not a man who slows down. He is in absolutely remarkable shape, turning eighty-five this year. In typical Ron Paul fashion, he had both knees replaced at the same time over a Christmas recess in the early 2000s. Stairs used to give him a little trouble before the knee replacements. But he’s in great shape now, still walking and biking vigorously. Some people are just wired that way, with a thinner body type and high energy. I’ve never seen him truly angry, but I’ve certainly seen him impatient.
TW: Was there anybody else in Congress you were able to work with somewhat cordially, so that it wasn’t entirely just enemy territory?
JD: Sure. Jimmy Duncan from Tennessee, now retired from Congress.
TW: Who, by the way, has been a guest on the Tom Woods Show a couple times.
JD: He represented Knoxville, Tennessee, including the University of Tennessee. His father held the seat before him. Mr. Duncan is a great and thoughtful guy, very antiwar. I remember him saying in his Southern drawl how he liked to read Antiwar.com and Justin Raimondo first thing every morning! And this is a conservative red-state guy. And the late Congressman Walter Jones was just an absolute sweetheart, a very kind and genuine guy. He was in the Pat Buchanan protectionist mode, but ultimately came around to be a very strong noninterventionist with regard to foreign policy. I would say Mr. Jones from North Carolina was Dr. Paul’s closest ally on the Hill, but he had lots of personal friends. People in Congress generally liked him, because I think they didn’t see him as competition for their committee assignments or whatever it might be, because Ron didn’t care. So, he had plenty of friends. Lobbyists left Ron alone and leadership left Ron alone more than in most offices. Most offices faced a lot of pressure to vote a certain way on amendments or procedural matters or appropriations when the outcome was uncertain. But they knew Ron would vote a certain way regardless of pressure.
So, for our office it was not an acrimonious or combative atmosphere. It was just a stupid atmosphere. Congress is not like House of Cards with Kevin Spacey. People want to think it is. It’s really just a bunch of self-important dullards. I mean, there are smart people in Congress, don’t get me wrong. But they are mediocrities for the most part.
Let me say something controversial. From the statist perspective there might be an argument for paying members of Congress $500,000 or $1 million so that you’d actually entice some accomplished or talented people. People who could actually make that kind of money, or much more, in another career. Don’t get me wrong. I don’t want better and smarter people in Congress, and I don’t want government run like a business! I do find it curious that the congressional salary—I think it’s $175,000 these days—is far and away the highest pay that average members ever made. They are not high-achieving people for the most part, and they certainly are not sacrificing more lucrative careers for the most part.
And of course, it’s gotten way worse since Ron Paul left at the end of 2012, both in terms of partisanship and the rise of social media. Today I see House and Senate staffers tweeting acrimonious things about a representative or senator. And that is definitely a change. Just five or ten years ago no staffer would have done that. The first rule is never get your boss in trouble. So the environment is even more political and poisoned today, with impeachment and celebrities like AOC (Alexandria Ocasio-Cortez), and the rancor surrounding Trump. I know Dr. Paul is glad to be out of DC.
TW: As we wrap up for today, give me your elevator pitch for why Ron Paul mattered in politics, even when his critics say he didn’t get many bills passed.
JD: First, I’m sure we don’t need any more bills passed in this country. Ron Paul saw politics as a platform, as a seat at the table of public opinion. He saw Congress as an opportunity to educate people and hopefully inspire them. Ron thought his job was to reach young people, not members of Congress. It was never a majority game or a legislative game. Political liberty may never carry 51 percent of the electorate. But a vanguard of 5 or 10 percent in any society can make sweeping changes and move things toward a tipping point. It’s a long game, not a game of electoral success or instant gratification. The state is a powerful thing—its allure and the arguments for it are powerful in a certain way. We shouldn’t kid ourselves.
I do think the Ron Paul Revolution brought the argument for political liberty to the fore, and to a degree, we’ve lost ground in recent years. For that reason alone, I think we owe him a tremendous debt of gratitude. He was a great recruiter.
But people don’t understand all the years he spent in the wilderness, being treated terribly by both parties and by the media. Sure, in 2012 he could go to the UC Berkeley campus and speak to five thousand kids, and he could go to the BYU campus and give the same talk to five thousand kids there. He had some great moments reaching people in 2008 and 2012 even though it didn’t translate into direct electoral success (although let’s not forget that he won a majority of 2012’s delegates in Iowa). He was touched by the support he received; it made him think the whole effort was worthwhile. But there were decades before, beginning in the 1970s, when Ron was alone in the wilderness. He was working to build connections in the sound money, Austrian economics, and libertarian communities. He was flying cheap Southwest flights and staying in cheap motels, hoping the local contact would meet him at the airport when there was no email or cell phones. He spent a lot of years speaking to small groups of ten or fifteen people, and he spent a lot of time away from home, before he ever became the Ron Paul we think of today. Obviously I’m biased, but Dr. Paul put a lot of blood, sweat, and tears into this idea of liberty over the years—and I think that we owe him for that.
TW: Yes, simple gratitude is in such short supply in so much of the libertarian movement. Simple gratitude. I agree with your point: when all is said and done at the end of your life, were you a good person? That’s more important than whether you were a doctrinaire libertarian. Thanks so much, Jeff.
Bob goes through much more scandalous and corrupt activities from Presidents Clinton, Bush, and Obama, and why Hillary Clinton has a much worse record on self-dealing than Donald Trump.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
David Gordon is a Senior Fellow with the Mises Institute who has a long history in Austrian economics and libertarianism. He talks with Bob Murphy about his personal story, including taking an undergrad class at UCLA with Hayek as his professor. Then they turn to philosophical issues in economics, and end with an analysis of the Strauss/Jaffa critique of libertarianism.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Includes an introduction by Jeff Deist. Recorded on November 9, 2019, in Lake Jackson, Texas. From the 2019 Ron Paul Symposium, "State Propaganda and the 2020 Election." See all lectures from this event.
Ludwig von Mises and his work remain incredibly prescient and relevant today. The world needs his voice more than ever, and our speakers celebrate Mises as a supremely vital thinker well-suited for today's challenges. Recorded in Los Angeles, California, on October 26, 2019.
[All lectures from the Supporters Summit 2019 are available here.]
Includes an introduction by Jeff Deist.
Ludwig von Mises and his work remain incredibly prescient and relevant today. The world needs his voice more than ever, and our speakers celebrate Mises as a supremely vital thinker well-suited for today's challenges. Recorded in Los Angeles, California, on October 26, 2019.
[All lectures from the Supporters Summit 2019 are available here.]
Ludwig von Mises and his work remain incredibly prescient and relevant today. The world needs his voice more than ever, and our speakers celebrate Mises as a supremely vital thinker well-suited for today's challenges. Recorded in Los Angeles, California, on October 26, 2019.
[All lectures from the Supporters Summit 2019 are available here.]
Henry Hazlitt, author, journalist, editor, reviewer, economist, has written or edited 18 books and countless articles, columns, editorials, and book reviews. He has gained renown in at least three areas: as a popularizer of sound economic thinking, as a critic of John Maynard Keynes, and as a contributor to moral philosophy. His Economics in One Lesson (1946), a long-time best seller, is one of the finest introductions there is to sound economics. His critique of Keynes,The Failure of the “New Economics” (1959), and his explanation of moral philosophy, The Foundations of Morality (1964), are valuable contributions to knowledge and understanding, to economic theory and the principles of social cooperation. Henry Hazlitt is a man for many seasons. His writings will live for generations.
Early Childhood and Youth Henry Stuart Hazlitt was born in Philadelphia on November 28, 1894, the son of Stuart Clark Hazlitt and Bertha (Zauner) Hazlitt. His father died when Henry was a baby. His first years in school were spent at Girard College, a school in Philadelphia for poor, fatherless boys.
When Henry was 9, his mother remarried and their fortunes revived. The family moved to Brooklyn, New York, and it was there, at Public School 11 and Boys’ High School, that Henry received most of his formal education. Henry has apparently always had a gift for writing. His high school English teacher recognized his talent and appointed him “chief critic” of his fellow students’ test papers. This was “not an entirely gratifying distinction,”Phrases within quotation marks attributed to Hazlitt are taken either from his autobiographical notes or from transcripts of interviews with him. Henry wrote later, for it did not endear him to his classmates.
When Henry finished high school, he entered New York City’s free-tuition City College of New York (CCNY), but was forced to drop out after a few months. His stepfather had died and he had to support his widowed mother.
An inexperienced high school graduate wasn’t worth much on the job market. The only work for which Henry was then qualified was as an office boy at $5 a week. He was fired from his first job after only two days. But that didn’t faze him. He simply went out and got another job.
At that time there were no legal obstacles to hiring and firing—no minimum wage with which an employer had to comply, no Social Security or unemployment taxes to pay, no income taxes to withhold, no restrictions on hours or working conditions. Any would-be employer could hire anyone who wanted to work. If the arrangement didn’t work out, the employer could let the employee go without penalty. Or the employee could leave, confident that he could easily find other employment.
Henry had a succession of jobs at $5 per week. When he learned that secretaries could earn $15 per week, he determined to learn shorthand and typing. For several weeks he attended a secretarial school. With his newly acquired skills, he could command $10 to $12 per week. But again none of his jobs lasted very long—he hadn’t yet found his niche. Finally he decided he wanted to be a newspaper reporter. He applied for a job and was hired by The Wall Street Journal.
The Journal at that time was much smaller than it is now, and it reported primarily Wall Street news. Hazlitt’s bosses at The Journal dictated editorials to him on the typewriter and reporters called in their stories to him over the phone. Gradually he learned through on-the-job training.
Although he still knew very little about economics or the market, he was assigned to be the reporter in charge of following a half dozen small companies. When he attended one annual meeting, he learned how very little he knew. The management voted unexpectedly to “pass” its dividend, that is to pass over or to omit it. Hazlitt assumed “passing” a dividend meant “approving” the dividend. Fortunately for him, however, when he turned in his report he used their term; he said the dividend had been “passed.” His on-the-job training proceeded apace; he promptly learned the investment definition of that word, and no one was the wiser.
The Journal at that time had a “By-the-Way” column, composed of brief quips about current events. Members of the staff were encouraged to submit entries anonymously. To collect payment if an entry was used (75 cents per published entry), the author turned in the carbon copy of his entry. With Henry’s gift for expression, he soon became a persistent contributor and in time almost doubled his income with what he received for his short, clever “By-the-Way” paragraphs.
Hazlitt’s Do-It-Yourself Education Henry Hazlitt was energetic, ambitious, and industrious. On-the-job training wasn’t enough for him. He was determined to get the education he had missed when he had to drop out of college. So he started his own reading program. He read about Shakespeare and the Marlowe controversy. He learned about evolution and the role of the state by reading Herbert Spencer. He began to read about economics and the stock market. In time, the depth and breadth of his reading gave him a broad liberal arts education. A book titled The Work of Wall Street made him realize the importance of economics and philosophical reasoning. From then on he read with a purpose—concentrating on economics. He read a couple of college texts. Although he lacked sophistication in economics, his natural good sense warned him to be on guard against socialist ideas.
One book he ran across while browsing in a library, The Common Sense of Political Economy (1910) by Philip H. Wicksteed, a British Unitarian minister, had a profound influence on him. Wicksteed had become acquainted with the Austrian School of Economics, the first school of economics to recognize that “value” is subjective and that market prices stem from the subjective values of individuals. This insight helped to shape Hazlitt’s intellectual development and led him to a firm understanding of market operations and the marginal utility theory of economics.
In addition to reading, young Henry also devoted some time every day to writing. He set out to write a book on a very ambitious subject, Thinking as a Science, and before many months had passed, it was finished. He submitted the book to five publishers, received five rejections, and got discouraged. Then a friend urged him to send it out once more. He did—and this time it was accepted by the well-known firm of E. P. Dutton & Co. In 1916, at the age of 22, Henry Hazlitt became a published author.
In 1916, Hazlitt left The Wall Street Journal and moved to the New York Evening Post, where he put his Wall Street experience to use writing “Wall Street Paragraphs.” He was working at the Post in 1917 when the United States entered World War I.
World War I Henry wanted to volunteer, as some of his friends were doing, but he couldn’t afford to do so. The Army paid only $30 per month, not enough for him to support his mother. Then the Air Force announced that it was offering enlistees $100 per month. Henry volunteered, only to discover that, in spite of their published offer, the Air Force paid enlistees no more than the Army did. But once in the Air Force, he couldn’t get out. Henry’s mother had a rough time financially while he was away.
The Air Force sent Henry to Texas, to Princeton for ground school studies, and then back to Texas for flying instruction; he didn’t get overseas. Hazlitt was still in Texas when the war ended.
A few days after the Armistice was signed, the New York Evening Post wired Hazlitt that his successor in writing “Wall Street Paragraphs” was leaving. He could have his old job back if he could be there in five days. Hazlitt took off almost immediately for New York by train, went directly to the office, suitcase in hand, and worked in uniform his first day back on the job.
Hazlitt soon returned to his old regimen of reading and writing for his own education and edification. Before long he had written a second book, The Way to Will Power, published in 1922. At that time, Who’s Who had a policy of automatically listing any author who had had two books published by reputable firms. So at 28, Henry was a two-time author and his name appeared in Who’s Who.
Benjamin M. Anderson After Hazlitt returned from the Air Force, he continued his pursuit of economic understanding. Among other books on monetary theory, he read Benjamin M. Anderson’s The Value of Money (1917). Hazlitt considered that book “profound and original” and he learned a great deal from it. Anderson, then teaching at Harvard, later became economist with the Bank of Commerce and then with the Chase National Bank. When Hazlitt was financial editor for the New York Evening Mail (1921–1923), he occasionally interviewed Anderson in connection with articles he was writing, and the two men soon became friends. Hazlitt wrote the foreword to Anderson’s important work, Economics and the Public Welfare: Financial and Economic History of the United States, 1914–1946 (1949).
In The Value of Money, Anderson had reviewed a large number of writers, American and foreign, most of them rather critically, on the subject of money. But when he came to the Austrian economist Ludwig von Mises, he wrote that he found in his work “very noteworthy clarity and power. His Theorie des Geldes und der Umlaufsmittel [later translated into English as The Theory of Money and Credit] is an exceptionally excellent book.” This was the first time Hazlitt had heard of Mises, but he remembered his name and Anderson’s comment. Years later when Mises’ works became available in English, Hazlitt made it a point to read them.
A Career of Reading and Writing Throughout his life, Henry Hazlitt has spent most of his time at the typewriter and with books. From age 20, he wrote something almost every day—news items, editorials, reviews, articles, columns. By his 70th birthday, he figured he must have written “in total some 10,000 editorials, articles, and columns; some 10,000,000 words! And in print! The verbal equivalent of about 150 average-length books.” Hazlitt has also written or edited 17 books. (See the list at the end of this article.) His early works were literary and philosophical, his later books largely economic.
After leaving The Wall Street Journal, Hazlitt worked in various capacities—as economic commentator, financial editor, book reviewer, editorial writer, literary editor, columnist, and editor—for five different newspapers including The New York Times (1934–1946), a monthly financial letter, and three magazines, including Newsweek (1946–1966) for which he wrote the “Business Tides” column. In 1950, while still writing for Newsweek, Hazlitt and John Chamberlain became editors of the newly founded biweekly magazine, The Freeman, predecessor of this journal. (See the note at the end of this article for a list of the publications with which Hazlitt has been associated.) After he left Newsweek in 1966, he became an internationally syndicated columnist.
Hazlitt’s reading and studying over the years to satisfy his own intellectual curiosity spanned a broad spectrum of subjects. His vast reading, especially when he was a literary editor and book reviewer, is evident in The Anatomy of Criticism (1933), in which he discussed the critic’s role, the influence of the critic on the public, and the influence of the times on the critic. Hazlitt’s prodigious reading and prolific writing throughout these years were preparing him for the important contributions he was to make to the understanding of economic theory and social cooperation.
As a result of Hazlitt’s various assignments writing about financial and stock market news, his interests had been gradually directed toward business and economics. He read many books on economics, and he became knowledgeable as an economist. But he did not write a book on the subject until 1946.
The New York Times As a patriotic gesture, The New York Times had made a promise not to fire anyone during the Depression. This proved a very costly promise to keep. It meant for one thing that The Times did no hiring for a couple of years. By 1934 they were in dire need of someone who knew economics. Thus, in the midst of the Depression, Hazlitt was hired by The Times as an editorial writer.
The Times was then being run by Arthur Sulzberger, son-in-law of the fairly “conservative” publisher and controlling owner, Adolph S. Ochs. Management seldom interfered with Hazlitt’s editorials, although Ochs’ daughter, Mrs. Sulzberger, would occasionally call Hazlitt and suggest some “leftist” idea. Hazlitt would explain, “The trouble with that, Mrs. Sulzberger, is …” She would reply, “Well, you know best.” Thus, The Times pretty much published what Hazlitt wrote—at least until 1944. More about this later.
Mises and Hayek Hazlitt is proud of his role in helping to introduce two economic giants to readers in this country—Ludwig von Mises, leading spokesman for the Austrian school of economics for many years, and Friedrich A. Hayek, also an Austrian economist, Mises’ protegé, and Nobel Prize Laureate in 1974.
As mentioned above, Hazlitt first heard of Mises through Benjamin Anderson’s The Value of Money. Years later when Hazlitt came across Mises’ Socialism, he reviewed it in The New York Times. His review appeared in the January 9, 1938, Book Review Section: “[T]his book must rank as the most devastating analysis of socialism yet penned. Doubtless even some anti-Socialist readers will feel that he occasionally overstates his case. On the other hand, even confirmed Socialists will not be able to withhold admiration from the masterly fashion in which he conducts his argument. He has written an economic classic in our time.”
Mises was then living and teaching in Switzerland. As a courtesy, Hazlitt mailed a copy of his review to the author and the two men exchanged a couple of brief letters. Two years later Mises came to the United States to escape the strife of World War II. Hazlitt was one of Mises’ few contacts in this country and Mises telephoned him. To Hazlitt, Mises was a “classic,” an author from a previous era. Mises’ call, Hazlitt recalled later, was almost as much of a surprise as if he had heard from such a legendary economic figure as Adam Smith or John Stuart Mill.
In 1944, Hazlitt reviewed F. A. Hayek’s The Road to Serfdom in The New York Times. As a young man in his native Austria, Hayek had come to know Nazism firsthand. In England where he was living and teaching just before the start of World War II, he observed the same interventionist trends that he had seen on the Continent. In 1944, in a devastating critique of Nazism, The Road to Serfdom, he warned the British that they were heading down the same path.
The book stunned academia and the political world. Hazlitt’s review, featured on page one of The Times’ Book Review Section (September 24, 1944), compared Hayek’s The Road to Serfdom to John Stuart Mill’s On Liberty. Hazlitt described it as “one of the most important books of our generation.” The University of Chicago Press had printed only 3,000 copies, and when the book made the best-seller list the publisher’s stock was soon exhausted, and they had to begin reprinting right away.
Bretton Woods When John Maynard Keynes’ scheme for the International Monetary Fund and the International Bank for Reconstruction and Development (World Bank) was under discussion in Bretton Woods, New Hampshire, The Times offered to send Hazlitt to the conference. But Hazlitt saw no reason to go. He was opposed to the discussions. He said he could learn more by reading about them than he could by going there and talking with participants. Besides, if he stayed in New York he could also write editorials on other subjects. So he didn’t go.
While editorial opinion across the nation was largely favorable to the Bretton Woods discussions, Hazlitt was criticizing them. His editorials were the only “sour note.” When it was announced that 43 governments had signed the “marvelous” Bretton Woods Agreement, Sulzberger called Hazlitt to his office. “Now, Henry, when 43 governments sign an agreement, I don’t see how The Times can any longer combat this.”
“All right,” Hazlitt said. “But in that case I can’t write anything further about Bretton Woods. It is an inflationist scheme that will end badly and I can’t support it.” After that Hazlitt wrote no more editorials on the subject for The Times. However, Hazlitt was also writing a Monday column for the paper’s financial page, and there he continued to criticize Bretton Woods. At that point, Sulzberger suggested he might include a line at the end of Hazlitt’s Monday column: “The opinions of Mr. Hazlitt are not necessarily those of The New York Times.”
“You can do that, Mr. Sulzberger. But,” Hazlitt warned, “one consequence of such a disclaimer will be that, if you don’t print a similar line on other columns, the assumption will be that they are necessarily in agreement with the views of the editor of The Times.”Sulzberger understood Hazlitt’s reasoning and dropped the idea.
Economics in One Lesson For some time Hazlitt had been mulling over the possibility of writing a “little book” on the fallacies of short-run economic interests. He discussed the idea with Mises, by then a close friend. He also told Harper’s editor for economics books about his idea. The editor offered to publish the book when it was written. The New York Times, for which Hazlitt was still working as an editorial writer, agreed to give him every other day off without pay to write the book. Economics in One Lesson was the result.
To Hazlitt, writing that book “came so easily,” he said later, “that I couldn’t take it very seriously.…“[W]riting these chapters was almost like writing daily editorials.… It took … about three months of alternate days off.” On the in-between days he was thinking about the book. “That meant one and a half months of actual writing.”
Reader’s Digest published two excerpts before the book’s publication, and the book promptly became a best seller. Hazlitt had suggested that the print run be increased to satisfy the additional demand anticipated from the Reader’s Digest publicity. Yet the publisher printed only 3,000 copies. The first week the book was out it was fifteenth on the New York Times best-seller list for non-fiction; the second week it was fourteenth, and then the third week it was seventh, disappearing from the list altogether in ensuing weeks—there just were no more books to be sold. After some time, when it had been reprinted and was available once more, it began to sell again, although it didn’t make the Times list again.
Writing Economics in One Lesson may have come easily to Hazlitt, but its impact has been enormous. It has been translated into eight languages. By 1977 it had sold 50,000 copies in hard cover, 700,000 in all editions, and it still sells at the rate of a few thousand per year, attracting new readers to economics with its delightful style and its simple explanations and illustrations of economic fallacies.
Economics in One Lesson is clearly Hazlitt’s most popular book. It established him as an economic journalist par excellence, the modern counterpart of the Frenchman Frédéric Bastiat (1801–1850), author of The Law. H. L. Mencken was quoted on the book jacket of the first edition as saying that Hazlitt was “the only competent critic of the arts … who was at the same time a competent economist, of practical as well as theoretical training, … one of the few economists in human history who could really write.” The book has introduced countless individuals to sound economic theory.
Harper & Brothers published the first 1946 hardcover edition of Economics in One Lesson. Harper arranged for later paperback editions, and kept the book in print until 1974. Then, without telling Hazlitt, it let the book go out of print and canceled the contract with the paperback publisher.
When Hazlitt learned this, he approached Harper and asked about reprinting in paperback. They hesitated but said, “If you bring it up to date, we’ll publish a new edition in hardback.” Hazlitt revised the book. Still “they dilly-dallied,” Hazlitt said, and didn’t publish it in either hardback or paperback. According to Hazlitt, “They said they didn’t think it would sell in paper. Hazlitt believed their real objection must have been ideological, since the book had been selling several thousand paperback copies a year. In time Hazlitt obtained the rights to the book, and in 1979 Arlington House put out a paperback edition.
Hazlitt left The Times for Newsweek about the time Economics in One Lesson came out. In Hazlitt’s view his situation was improved; his “Business Tides” columns in Newsweek would be signed; he would no longer be writing anonymously.
Critique of Keynes Hazlitt had been impressed with John Maynard Keynes’ The Economic Consequences of the Peace (1919) when it first came out. At that point, Hazlitt took everything Keynes said as “gospel.” But in 1923, Hazlitt read Keynes’ A Tract on Monetary Reform. By that time Hazlitt had done a fair amount of reading in monetary theory and could recognize economic errors when he read them. He was “appalled” by how “bad” a book it was and from that time on, Hazlitt “distrusted every statement Keynes made.”
B. M. Anderson commented to Hazlitt later that when Keynes discussed the quantity theory of money in A Tract on Monetary Reform, “he even states that upside down.” Which he did! The actual reason prices go up is that the government prints new money and distributes it to people who spend it. As the spenders compete for goods and services by bidding against other would-be spenders they make prices go up. Yet Keynes had said that when prices go up, the government must print more money to keep pace with the prices. The great German inflation was then raging (1923) and this was precisely what the German authorities were saying, that there was (as Hazlitt later paraphrased the Germans’ position) “no real inflation because the present volume of currency … had actually a smaller purchasing power than the former volume of currency because the depreciation per unit was greater than the multiplication of units.” Keynes agreed with the Germans “that it was necessary for them to keep printing marks to keep pace with the rising prices.”
Whether Keynes’ success was due to personal charisma, his prestigious positions with the British government, or to the “scientific” sanction his works gave politicians to do what they wanted to do anyway—that is to spend without taxing—is immaterial. The fact remains that from the 1930s on Keynes’ influence was enormous. And through it all, Hazlitt continued to be amazed by Keynes’ growing reputation.
In Economics in One Lesson, Hazlitt demolished various Keynesian programs in a rather low-key manner. Then in 1959, in The Failure of the “New Economics,” he critiqued Keynes’ major work, The General Theory of Employment, Interest, and Money (1936) in detail, citing chapter and verse. The Failure of the “New Economics” (1959) is much more scholarly than Economics in One Lesson, its market narrower, but it is by no means less important.
To refute each Keynesian error, Hazlitt expounded sound economic theory in a way academia couldn’t ignore. John Chamberlain, who reviewed the book in The Freeman, tided his review, “They’ll Never Hear the End of It.” The dean of the Department of Economics at a leading university questioned Hazlitt’s credentials for critiquing the noted Keynes. Mises came to Hazlitt’s defense. Hazlitt, Mises responded, was “one of the outstanding economists of our age,” and his anti-Keynes book was “a devastating criticism of the Keynesian doctrines.”
Moral Philosophy Henry Hazlitt was a personal friend of Mises. But he was also a student of Mises in the sense that he carefully studied his work. He attended Mises’ seminar at New York University quite regularly for several years. Although Hazlitt was himself an economist and author of note by then, he said about the Mises seminars that he always found that “no matter how many times I would go, no matter how often I heard in effect the same lectures, there would always be some sentence, some incidental phrase that threw more light on the subject.”
One remark by Mises which impressed Hazlitt was that questions of morality and justice always refer to social cooperation. Hazlitt agreed. But he thought the statement needed elaboration. This was a subject close to Hazlitt’s heart, for he had longed to write a book on ethics since he was a youngster.
As he pondered the subject he was struck by the insight of a statement by Jeremy Bentham (1748–1832): “Legislation is a circle with the same center as moral philosophy, but its circumference is smaller.” This idea became the theme of Hazlitt’s book on ethics, The Foundations of Morality (1964).
In this book, Hazlitt sought to unify law, ethics, morality, and manners, and to show their relation to social cooperation. Following Bentham, Hazlitt presented law, ethics (morality), and manners as three aspects of the same thing. “[B]oth manners and morals rest on the same underlying principle. That principle is sympathy, kindness consideration for others. … Manners are minor morals.” Law, he maintained, might be called “minimum ethics” with “the same center as moral philosophy.” Ethics and morality cover more territory than law; they have a “far wider sphere [than law]. … Morality,” he wrote, “certainly calls for active benevolence beyond that called for by the law.”
In The Foundations of Morality, Hazlitt discussed the literature on ethics and morality throughout the ages. And he described the way ethical and moral principles had been put into practice. He pointed out that the moral codes of many religions are similar and consistent with peaceful social relations. Yet their differences, as well as the cruelty and suffering inflicted on men in the name of organized religion, raise doubts as to the reliability of religious faith as a guide to ethical conduct.
Thus, Hazlitt offers a utilitarian basis for morality. The moral philosopher, he writes should seek a “foundation” for morality that does not rest on a particular religion. “[I]t is not the function of the moral philosopher, as such,” Hazlitt concludes, “to proclaim the truth of this religious faith or to try to maintain it. His function is, rather, to insist on the rational basis of all morality to point out that it does not need any supernatural assumptions, and to show that the rules of morality are or ought to be those rules of conduct that tend most to increase human cooperation, happiness and well-being in this our present life.”
Summing Up In the course of his career, Hazlitt met many of the great and near great. As has been mentioned, he knew the economist, B. M. Anderson. He knew H. L. Mencken personally, and it was Mencken who recommended that Hazlitt succeed him as editor of American Mercury in 1933. Hazlitt was a frequent guest on the radio, debating face-to-face such socialist luminaries as former Vice President Henry A. Wallace, the late Secretary of State Dean Acheson, former U. S. Senators Paul H. Douglas and Hubert Humphrey. He is a Founding Trustee of The Foundation for Economic Education. He was, of course, a close friend of Mises and Hayek, but he also knew well all of the important personages in the libertarian/conservative movement—Leonard E. Read, Isabel Paterson, Rose Wilder Lane, John Chamberlain, William F. Buckley, Ayn Rand, Lawrence Fertig, and others.
Over the years, Hazlitt perfected a clear and lucid writing style. Writing so many editorials and short columns disciplined him to express himself succinctly and simply. Even his most important and profound books are composed of short, easy-to-understand chapters. Everything he writes may be read with pleasure and profit.
Throughout his career, Hazlitt has been an advocate of a minority point of view. He has been a constant critic of government intervention, inflation, and the welfare state, and he wrote books attacking them. His anti-Keynes, anti-Bretton Woods editorials, first published in The New York Times, also appeared later as a book (From Bretton Woods to World Inflation, 1984).
Hazlitt has spoken out repeatedly and untiringly in behalf of the freedom philosophy, limited government, free markets, and private property. At a banquet in 1964, honoring him on his 70th birthday, he spoke of the freedom movement and his part in it:
Those of us who place a high value on human liberty … find ourselves in a minority (and it sometimes seems a hopeless minority) in ideology. … We are the true adherents of liberty. … We are the ones who believe in limited government, in the maximization of liberty for the individual and the minimization of coercion to the lowest point compatible with law and order. It is because we are true liberals that we believe in free trade, free markets, free enterprise, private property in the means of production; in brief, that we are for capitalism and against socialism. …
I will confess … that I have sometimes repeated myself. In fact, there may be some people unkind enough to say I haven’t been saying anything new for 50 years!
And in a sense they would be right … I’ve been preaching liberty as against coercion; I’ve been preaching capitalism as against socialism; and I’ve been preaching this doctrine in every form and with any excuse. And yet the world is enormously more socialized than when I began. …
Is this because the majority just won’t listen to reason? I am enough of an optimist, and I have enough faith in human nature, to believe that people will listen to reason if they are convinced that it is reason. Somewhere, there must be some missing argument, something that we haven’t seen clearly enough, or said clearly enough, or, perhaps, just not said often enough. A minority is in a very awkward position. The individuals in it can’t afford to be just as good as the individuals in the majority. If they hope to convert the majority they have to be much better; and the smaller the minority, the better they have to be. They have to think better. They have to know more. They have to write better. They have to have better controversial manners. Above all, they have to have far more courage. And they have to be infinitely patient. …
Yet, in spite of this, I am hopeful.… [We are] still free to write unpopular opinion.… So I bring you this message: Be of good heart; be of good spirit. If the battle is not yet won, it is not yet lost either.
Henry Hazlitt’s Journalistic Career 1913–1916—The Wall Street Journal1916–1918—New York Evening Post1919–1920—Mechanics & Metals National Bank (monthly financial letter)1921–1923—New York Evening Mail (financial editor)1923–1924—New York Herald (editorial writer)1924–1925—The Sun1925–1929—The Sun (literary editor)1930–1933—The Nation (literary editor)1933–1934—American Mercury (editor)1934–1946—The New York Times (editorial staff)1946–1966—Newsweek (associate & “Business Tides” columnist)1950–1952—The Freeman (co-editor)1952–1953—The Freeman (editor-in-chief)1966–1969—Columnist for the international Los Angeles Times Syndicate
A Bibliographical Sketch Thinking as a Science (New York: E. P. Dutton & Co., 1916; 2nd ed., Los Angeles: Nash Publishing Corp., 1969)
Thinking clearly and logically is the secret of learning, Hazlitt says. He offers the reader many ideas for developing his powers of thinking—by concentrating, talking, and keeping a notebook handy to jot down ideas. He recommends books on how to reason and think.
In Hazlitt’s 1969 epilogue, he said if he were to revise the book he would further stress, among other things, the importance of language, perseverance, learning what has already been discovered, and writing. “Good writing is the twin,” he wrote, “of good thinking. He who would learn to think should learn to write.” Again he recommends books.
The Way to Will Power (New York: E. P. Dutton & Co., 1922)
After asserting that there is no such thing as the “Will,” young Hazlitt proceeds to offer a sensible guide for developing “will power”—by choosing worthy goals, aiming at them with determination, and developing good study and work habits.
A Practical Program for America, ed. by Henry Hazlitt (New York: Harcourt, Brace & Co., 1932)
When this book was published, the economy was in the midst of depression and Franklin Delano Roosevelt was governor of New York and had not yet run for President. Hazlitt was then editor of The Nation, from which these essays were taken. Except for Hazlitt, the authors were all looking for ways to improve the economy by amending national legislation. Hazlitt advocates free trade and recommends the repeal of all barriers to trade.
The Anatomy of Criticism (New York: Simon & Schuster, 1933)
Written at a time when Hazlitt was doing many book reviews, this book presents his philosophy of criticism. The discussants in a trialogue, a three-sided conversation, present their rationales for criticizing books, novels, poetry, paintings, sculpture, and the like. After discussing the relative merits of seeking objective standards, or relying exclusively on a critic’s subjective values, the discussants recognize that certain standards evolve on the basis of tradition, public opinion, ideas, ethical and moral views, and so on.
A New Constitution Now (New York: Whittlesey House/ McGraw-Hill Book Co., 1942; 2nd ed., revised, New Rochelle, N.Y.: Arlington House, 1974)
Hazlitt deplores our constitutional checks and balances that divide power and authority and make it difficult to assign responsibility. He prefers a parliamentary form of government with executive and legislative powers combined more or less as in the British cabinet system, not fully developed until well after our Constitution was written. With no fixed period of office in a parliamentary form of government, the people may throw the “ins” out if they are dissatisfied. Hazlitt suggests various changes in the franchise, the make-up of Congress and the Supreme Court, methods for amending the Constitution, and so on. He quotes John Stuart Mill, Walter Bagehot, James Bryce, and other thinkers.
In 1974, when Hazlitt revised this book, he dropped some of the minor reforms he had suggested in order to concentrate on his advocacy of a parliamentary form of government. With a parliamentary form of government, popular disaffection with an administration at any time would require it to face the electorate promptly. Then if the voters expressed a lack of confidence, that administration would fall and have to relinquish control. Hazlitt contends that this would have saved us the “nightmare” of Watergate and Richard Nixon’s near-impeachment. Control would have passed from Nixon’s hands without a serious crisis. Whether or not one agrees with Hazlitt, his views are worth studying.
Economics in One Lesson (New York: Harper & Brothers, 1946; Pocket Books, 1948; special edition for The Foundation for Economic Education, 1952; revised and updated paperback, New York: MacFadden-Bartell Corp., 1962; Westport, Conn.: Arlington House, 1979)
An economic “classic.” The role of an economist, Hazlitt says, is to consider not only the consequences of an action that are “seen,” but also its “unseen” consequences. Hazlitt proceeds to analyze the “unseen” consequences of various government programs such as legally-fixed minimum wage rates, price controls, government spending, and the like.
Will Dollars Save the World (Irvington-on-Hudson, N.Y.: The Foundation for Economic Education, 1947)
After World War II, when the productive machinery of the warring nations was in a shambles, the world clamored for U.S. grants and loans. But, Hazlitt points out, the harm had been done not only by enemy bombing but also by inflation and economic controls. Hazlitt gives 17 reasons why Marshall Plan dollars will not save the world.
To restore production, radical policy changes must be made to repeal government interventions. “The supreme irony is that the only country in the world today that is really producing anything—and for whose goods the rest of the world is therefore clamoring—is almost the only country that does not have government production ‘targets,’ but merely turns out goods in the volumes and proportions determined by supply and demand, free prices and free profits.” (p. 53) Hazlitt outlines a positive program to restore production in the devastated countries.
The Great Idea (New York: Appleton-Century-Crofts, 1951; rev. ed., published as Time Will Run Back: A Novel About the Rediscovery of Capitalism (New Rochelle, N.Y.: Arlington House, 1966; Lanham, Md.: University Press of America, Inc., 1986)
A fictional account set in the future when the entire world is under a single Communist dictator. His only son, Peter, heir to the dictatorship, had been raised by his mother who opposed Communism. When Peter’s father dies and he takes over, he encounters problems due to central planning. Conservatives in the Politburo oppose changes. But with the support and advice of one sympathetic Politburo member, he succeeds in introducing private property, free market prices, competition, and freedom of opportunity. Step-by-step they dismantle the controls. Fighting erupts between the two factions and there is a mild love story. A delightful way to learn some economics. The ending of the 2nd edition is modified slightly to make it somewhat more optimistic.
The Free Man’s Library (Princeton, N.J.: D. Van Nostrand Co., 1956)
An annotated bibliography of books that Hazlitt recommends to gain an understanding of the philosophy of the free market, limited government, private property system.
The Failure of the “New Economics”: An Analysis of the Keynesian Fallacies (Princeton, N.J.: D. Van Nostrand Co., 1959; Lanham, Md.: University Press of America, Inc., 1983)
John Maynard Keynes’ The General Theory of Employment, Interest and Money (1936) became the “gospel” on which practically all post-depression economic instruction has been based. Yet even Keynes’ followers found it “a badly written book, poorly organized … not well suited for classroom use.” (Paul Samuelson, quoted by Hazlitt, p. 2.) Moreover, when Hazlitt analyzed it, he was “unable to find in it a single important doctrine that is both true and original. What is original in the book is not true; and what is true is not original.” (p. 6) Nevertheless the book has had a tremendous influence. Hazlitt, therefore, proceeded to do something that had never been done before, to critique the Keynes book, chapter by chapter, on the basis of subjective, marginal utility (Austrian) economic theory.
The Critics of Keynesian Economics, ed. by Henry Hazlitt. (Princeton, N.J.: D. Van Nostrand Co., 1960; Lanham, Md.: University Press of America, Inc., 1984)
In the course of writing The Failure of the “New Economics,” Hazlitt encountered several noteworthy articles that criticized Keynes’ ideas. This anthology of the best of those includes essays by such well-known economists as B. M. Anderson, Arthur F. Burns, F. A. Hayek, W. H. Hutt, Frank H. Knight, and Ludwig von Mises. As if to underline Keynes’ lack of originality, two papers by pre-Keynes critics—Jean Baptiste Say (1767–1832) and John Stuart Mill (1806–1873) are included.
What You Should Know About Inflation (Princeton, N.J.: D. Van Nostrand Co., 1960; 2nd ed., with statistics and tables updated to 1964, D. Van Nostrand Co., 1965)
Hazlitt defines inflation as an “increase in the supply of money and credit.” (p. 1) A general increase in prices, he says, is “made possible … only by an increased supply of money.” (p. 6) To dramatize the unreliability of governments to “manage” money and maintain its value, Hazlitt quotes 12 denials by Chancellor of the Exchequer Sir Stafford Cripps that the British government would devalue the pound (pp. 22–24), denials made during the 20 months immediately prior to the British government’s September 18, 1949, devaluation. Hazlitt then proceeds to attack one inflationist fallacy after another.
The Foundations of Morality (Princeton, N.J.: D. Van Nostrand Co., 1964; 2nd ed., Los Angeles: Nash Publishing, 1972)
“[M]orality is older,” Hazlitt says, “than any living religion and probably older than all religion.” (p. 352) The role of the moral philosopher, therefore, is not to proclaim or maintain any particular religious faith. “His function is rather, to insist on the rational basis of all morality.” (p. 353)
Hazlitt sees a common denominator in law, morals (ethics), and manners. Manners are “minor morals”; they rest on the same principles as do morals or ethics—sympathy, kindness, consideration of others, (p. 75) Law is a “minimum ethics,” a circle with the same center as moral philosophy, (p. 69)
Hazlitt covers a great deal of material in this book. He reviews the classical literature on morality and ethics, and examines the teachings of the various religions. He discusses social cooperation and the need for general rules. The moral philosophy he sets forth is “utilitarian … [i]n the sense that all rules of conduct must be judged by their tendency to lead to desirable rather than undesirable social results.” (p. xii)
Man vs. the Welfare State (New Rochelle, N.Y.: Arlington House, 1969; Lanham, Md.: University Press of America, Inc., 1983)
The welfare state encompasses a mix of popular government interventions. In this book Hazlitt analyzes many of them—government spending, social security, progressive taxation, foreign aid, price controls, negative income taxes, planning, guaranteed employment—and he describes their devastating effects on incentives, savings, investment, and production.
As a warning of what can happen, he points to Uruguay, a “welfare state gone wild.” He writes also of Herbert Spencer’s prescient warning of “the coming slavery” (1884) due to Britain’s incipient government intervention. In his final chapter, ‘What We Can Do About It,” he recommends among other things that persons on relief be denied the vote so long as they remain on relief.
The Conquest of Poverty (New Rochelle, N.Y.: Arlington House, 1973; Lanham, Md.: University Press of America, Inc., 1986)
“The history of poverty is almost the history of mankind.… [U]ntil about the middle of the eighteenth century, mass poverty was nearly everywhere the normal condition of man.” (pp. 13, 178) Attempts to alleviate poverty by government welfare and poor relief failed wherever and whenever tried—in Rome, in England, in France, in Germany, and in the United States. The “conquest of poverty” is a product of the capitalistic system which protected private property and enabled people to “save and invest their savings in industries producing goods for the masses.” (p. 214)
The Inflation Crisis, and How to Resolve It (New Rochelle, N.Y.: Arlington House, 1978; Lanham, Md.: University Press of America, 1983)
Part I incorporates several of the more important chapters of What You Should Know about Inflation. In Part II Hazlitt analyzes and criticizes additional inflationist fallacies. Here are some of the chapter titles: “What Spending and Deficits Do,” “What Spending and Deficits Do Not Do,” “Where the Monetarists Go Wrong,” “Inflation and Unemployment,” “The Specter of ‘Unused Capacity,’” “Indexing: The Wrong Way Out,” “Why Inflation Is Worldwide,” “The Search for an Ideal Money,” “Free Choice of Currencies.”
From Bretton Woods to World Inflation: A Study of Causes and Consequences (Chicago: Regnery Gateway, 1984)
Hazlitt’s New York Times editorials, written at the time of the 1944 Bretton Woods Conference, form the nucleus of this book. Hazlitt pointed out then that the International Monetary Fund (IMF), established at Bretton Woods, would be inflationary, hamper world trade, and retard economic recovery. Hazlitt was distrustful of any state or bank, including the IMF, which was empowered to issue paper money. Also included in this book are several later articles by Hazlitt which amplify his 1944 conclusions.
The Wisdom of the Stoics: Selections from Seneca, Epictetus and Marcus Aurelius. Edited and with an introduction by Frances and Henry Hazlitt (Lanham, Md.: University Press of America, 1984)
In the course of Hazlitt’s lifelong studies, he was impressed by the philosophy of the Stoics. Mrs. Hazlitt, Frances, researched their writings. Stoicism, founded by Zeno (c. 320–250 B.C.), a Phoenician, the editors write in their introduction, “is one of the permanent philosophies of life.… an indispensable element in any rational philosophy.” Stoicism deals with the good and virtuous life. This book is a collection of aphorisms by three great Stoics from vastly different backgrounds. Seneca (c. 4 B.C.–65 A.D.), born in Spain, studied in Rome, gained favor, fame, fortune, then the enmity of Emperor Nero and was ordered to commit suicide. Epictetus (c. 55–130 A.D.), an ex-slave, became a favorite of Nero’s, received his freedom, and later was expelled. Marcus Aurelius (121–180 A.D.) was an Emperor. The maxims assembled here offer guidance to everyday living and are suitable for daily reading.
November 28, 1992 marked the 98th birthday of the noted author and economist Henry Hazlitt who has served with great distinction as a Trustee of The Foundation for Economic Education since FEE was founded in 1946, and whose personal papers and library are now housed at FEE. To mark his 95th birthday in 1989, Bettina Bien Greaves, a member of the Senior Staff of FEE and long-time admirer of Hazlitt, wrote this essay.
In a fitting act of reciprocity, Tom Woods has Bob Murphy on his show for episode 1307 (which originally ran in December 2018), much like Bob had Tom on his show for episode 1. Bob explains how he got into Austrian economics and libertarianism.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
JEFF DEIST: The last time the Mises Institute interviewed you was way back in 2001, for what was then called the Austrian Economics Newsletter. That interview discusses how you met Ludwig von Mises and read Human Action at a very young age.
PAUL CANTOR: Yes. My brother was studying with Sylvester Petro at NYU Law School and Petro was a friend of Mises, and a kind of disciple, and the only labor law professor who didn’t like unions. Anyway, he had his students read Mises and that way it filtered down to me. My brother’s eight years older than I am and so I started reading Mises. I definitely read Human Action. I know I read Socialism. I think I read The Theory of Money and Credit.
I had a friend in high school who was interested in it and we both got interested in reading Mises. At one point, he said, “let’s call him up,” as kind of a dare. “If he’s in the Manhattan phone book, we’ll call him up.” I can’t believe we did this, but Mises was very gracious about it, had us come to his office and talk to us, and then invited us to join the seminar. So, this would be fall of ’61, my senior year in high school. I actually would have been 15 at the time. I didn’t turn 16 until the end of October. I attended, I think, every meeting of the seminar for the fall and the spring semester and it was a wonderful experience.
I have vivid memories of Mises to this day. He was always impeccably dressed. He had manners which I would now describe in retrospect as Viennese courtliness. I didn’t know what a Viennese gentleman looked like, at the time, but having since been to Vienna, I can recognize the way he carried himself. He was always elegant, and I remember his sparkling eyes, which struck me very much at the time. He was 80 when I met him, but he had the eyes of a young man. They still sparkled and he was obviously the most intelligent person I’d met in my life to that point. And to this day, he remains certainly one of them, one of the best teachers I’ve ever seen. He was utterly lucid. What I admired most about him was his steel trap logical mind.
I was kind of peculiar at the time, my favorite reading was Euclid’s Elements. So, I absolutely loved logical arguments and axiomatic ones. That’s one reason I think I was attracted to Mises’s praxeology and his axiomatic approach to things. I think that comes across as very foreign to a lot of people, but to me, it seemed natural and the right way to approach things. He would, quite honestly, talk most of the time in the seminar. He would take questions, but he was so fluid in his presentation that I think people hesitated to interrupt them. Murray Rothbard, who was one of the students, he certainly did interrupt, and he and Mises had a good teacher-student relation. I think Mises enjoyed being challenged by Rothbard. I once had occasion to sit next to Mises, right next to him. I came in late. I normally, as a little kid, wouldn’t have dared to do that, but it was the only remaining seat. I was quite struck. He had one 5 x 7 index card and he had just a series of little notes and clearly he had outlined what he wanted to cover, but he basically just could speak essentially off the cuff or present his ideas in a way that was very comprehensible to everybody in the room, including a little kid from high school.
JD: And this clarity of thought impressed you, even though he wasn’t speaking in his native language?
PC: Yes, and I’m sure by then — this is 1962 — that he was utterly comfortable in English. He did have a distinct and somewhat heavy Viennese accent, but fortunately, here is where my brother came to my aid again. He had a friend whose parents immigrated from Vienna and so I’d heard that Viennese accent a long time before I met Mises. So, I was tuned into it.
JD: You read Human Action at 14 or 15?
PC: Yes, I would think so. I was kind of a child tragedy. … I guess I should say prodigy, but I just read too much as a kid. My parents had to throw me out of the house: “Go out and play.” I just loved books. I was the same in literature. I was reading things like Dante’s Divine Comedy at that time. I just loved books.
JD: Did Mises intimidate you, or did he take account of your tender age?
PC: Well, you know, he was inevitably intimidating by the mere fact that he was Ludwig von Mises and I recognized his stature and his genius. He was in no way intimidating personally. He was very genial and in retrospect, I’m struck by the fact that at age 80, he was still interested in young people and being able to teach them. I realized that was an incredible privilege I got there, to be able to sit in on this seminar. He was not an argumentative person in the sense that he liked to get into arguments. He just would present his views logically and he basically relied on the logic of the arguments to carry the day. So, he never tried to intimidate anybody. There was no way, I would say, that he tried to exert his authority. His authority rested solely on the power of his arguments. So, again, I wasn’t taking this as a course; I didn’t interact with him in that sense, as a student, and I don’t think I ever spoke up once in the seminar, but occasionally, I’d talk to him after class and I remember that with some fondness and he had a good sense of humor. He was a relatively small man, so he wasn’t physically intimidating. He had a quiet voice, but again, he did carry himself with great dignity and in that sense, he didn’t want to mess around.
JD: In this same period you met Henry Hazlitt and Friedrich von Hayek at Mises’s seminar. Give us your impressions.
PC: Again, I hesitate to use the word, “meet.” I mean, Hazlitt was at virtually every meeting in the seminar. He usually sat next to Mises. Again, I’m not sure I ever spoke to him. I’m sorry to present myself as such a wilting violet. Again, he was exceedingly well dressed. These things make an impression on a 15 year-old from Brooklyn. And he did speak up and I knew very much who he was, reading his Newsweek columns in those days and I had read his famous books, at that point, including, for example, his book on Keynesian economics.
Hayek showed up only once and I, in some ways hesitate to get into this, but I will. I do remember vividly that he got into an argument with Murray Rothbard and it’s a kind of funny story. People who have heard me tell this story have said that what I didn’t know was that Hayek was hard of hearing at this point and that probably provoked this confrontation. But basically the seminar was on international economics and the issue of foreign exchange came up and the gold standard. Murray made a hypothetical argument, in which he said, “if I could convert these dollars to gold.” Somehow Hayek thought that Murray thought that you could convert dollars to gold in 1962. We were meeting down right off Wall Street in Lower Manhattan and I do remember this, that Hayek pulled a $50 bill out of his pocket, and he said, “take this, the Federal Reserve Bank is two blocks away, go get me gold for this.” Nothing really came of this and in retrospect, I think it was just Hayek mishearing a hypothetical as a statement of fact.
But it made a big impression on me, just to see. I didn’t know how important Murray was going to grow up to be, but he definitely was the most vocal of all the people in that room and again, the one who would actually directly challenge Mises on some points. But, in any case, that’s my encounter with Friedrich Hayek. The one other thing I told people is that, I may have been reading something into this or projecting, but it did strike me that Mises and Hayek were still in a teacher-pupil relationship, even though one was in his 80s and one was in his 70s. Hayek was the more famous of the two, at that point, but I sensed the dynamic between them was that Hayek would defer to Mises. So, that’s my one comment.
JD: They were born about 18 years apart, almost a generation then. So you were a young, precocious kid who happens to rub elbows with these great economists. But you decide to go off to Harvard and study English literature.
PC: It’s actually not as simple as that, but precocity was my problem, and I was precocious in a lot of different fields. Honestly, I went to Harvard because of astronomy. That’s what I dreamed of. I wanted to be an astronomer originally and I read Harlow Shapley’s Of Stars and Men and he was at Harvard and I had to go to Harvard. But meanwhile, I discovered Shakespeare, actually, when I was about 9 years old when my mother took me to some Shakespeare plays. But by high school, I was taking Shakespeare very seriously. I wrote my high school senior paper on King Lear, studied the plays, reading A.C. Bradley and I’d fallen in love with Shakespeare. And I do remember this at the time, and this is going to sound a bit strange, but I looked at Human Action and said, okay, here’s economics. This guy, Ludwig von Mises has done it. And like I said, I don’t want to seem to denigrate every Austrian economist since Mises, but my reaction was, I don’t see where I could contribute in this field and I’ll invoke the law of comparative advantage here and say, I thought I was doing some interesting stuff on Shakespeare.
But I must say, I always regretted that I had this great training from Mises and had not put it to use, so I am very happy, in retrospect, to realize I was able to find a way to apply Austrian economics to literature. It all began with the Mises Institute’s tenth anniversary essay contest, I wrote and submitted an essay on Thomas Mann, his story, “Disorder and Early Sorrow and the German Inflation,” and won the contest. And from then on, I’ve done a lot to show how Austrian economics can be applied to culture. So, I feel now that I did not put to waste this privilege I had to study with Mises. And in a curious way, I like to say, I have opened up a new front on the war against socialism and left-wing economics and it’s appropriate in the sense that the battleground has increasingly turned to culture. Socialism lost the economic argument against capitalism, although there are an awful lot of people running for office these days who don’t seem to be aware of that fact. But really, culture became the last refuge, not just of scoundrels in general, but scoundrels on the Left. So, I feel I’ve been able to make a distinct contribution putting together what I’ve learned of Austrian economics with what I’ve learned about literature and more generally, about culture.
JD: I think you absolutely have. In the old interview I mentioned you have a great quote: “People come to literature because they’re trying to learn something about the world.” So literature and economics have that in common.
PC: Well, it’s true, although there’s not been much good economic criticism on literature going way back. I mean, most of the criticism that takes into account economics, is Marxist. So many of the literary critics in the twentieth century, especially the ones known as the New Critics, grew out of Southern agrarianism and so, they thought that the whole world of the market is debased, and we shouldn’t even talk about such things. So, it’s an interesting case where I think the hard Left and I’ll call it the hard Right, I mean, basically don’t understand the role of commerce in culture.
JD: But as you say, it’s a mistake to cede literary criticism to the Left.
PC: Oh, absolutely. And even more so in a way, pop culture criticism. I mean, that’s another thing that I began to realize in the 1990s, that the Left had a monopoly, not just on the criticism of literature, but now film and television and all the popular arts. That also came from a tendency on the Right, to have a disdain for commercial culture and especially this whole sort of T.S. Eliot-style critic, who just looked down upon movies — certainly on television — and I realized that was a huge mistake because the future was in movies. Well, the past was already in movies at that point, but I began to realize in the 1990s that the future of art was in television and I’ve been vindicated in that judgment, even though colleagues would tell me, “oh television, I don’t watch television,” or “I don’t own a television.” At this point, I would feel like saying, “well you don’t own a pair of glasses, so you don’t read?” But in any case, I sensed they were missing out on what the future would be and especially the future for young people. And again, there was this deep irony that people who were speaking out in favor of capitalism, when it came to culture, thought that commerce could only debase culture. Quite frankly, the most viable argument with capitalism, by the 80s and 90s was a cultural one. The claim has been “okay, so capitalism does better for your bodies, but it corrupts your soul.” And that’s what I wish to argue against. I don’t take single-handed credit for this, but I think I’ve had some important role to play, in the fact that libertarians and conservatives have turned their attention to popular culture and realized it’s an important battleground for ideas.
JD: There is an aesthetic critique of capitalism on the Left. Markets produce lowbrow art, crass consumerism, and so forth. Capitalism cares nothing for beauty. Aren’t these progressive articles of faith, coming mostly from the Left?
PC: Oh, no, no. I mean, it is, but it’s not the only way. Again, you just have to look at a whole tradition of conservative thinking largely associated with T.S. Eliot, and New Critics like Cleanth Brooks and Robert Penn Warren. They were called Southern agrarians and they looked with contempt on the North and its industrialization. The reason they were called agrarians, they wanted to go back — perhaps they’d never left — to a nineteenth-century way of life, based on the farm. They were very anti-urban and these people are thought of as conservatives, but they have great contempt for modern popular culture.
Now, there’s a lot that’s contemptible in popular culture, but my point is always that there’s a lot contemptible in any culture you’ll ever find. In retrospect, we single out the great achievements of any given culture and forget that every culture has had its trash. I mean, we now look back at the nineteenth-century novel and we see Dickens and Jane Austen and George Eliot and the Brontë sisters. But it was estimated there were 40,000 Victorian novels and 39,800 of them are terrible. We don’t read them anymore, we know nothing about them and they’re the equivalent of the worst television show you could ever find. It’s the same for Shakespeare’s theater. We go back and look at Shakespeare’s plays and it’s an unrivaled achievement in cultural history and we can add in the best plays of Ben Jonson and the best plays of Christopher Marlowe and a few more. But the bad stuff is unspeakably bad. The worst play I’ve ever read from the period is Robert Daborne’s A Christian Turned Turk and if you want to see something as bad as the worst TV show you’ve ever seen, read it. Its highlight is a live circumcision scene on the stage and it’s as gross as anything you see in television today and it’s presented comically, by the way. So, we have an illusion of time that we look back at the past and we only remember and sometimes only have the highlights of the period. At any point in culture, there’s a vast spectrum from the lowest to the highest. When we look at the world today, we shouldn’t be looking at these dumb reality shows we have on television or the dumb sitcoms. You look at Deadwood and you look at Breaking Bad and these are masterpieces and they will be viewed as such hundreds of years from now. And again, most people who used to condemn popular culture, did it with no knowledge of what it was. “I’ve never watched television, but I know it’s bad.” You know, it’s a strange notion, as if this is a matter of media. There are just as many bad books as there are bad television shows. You just have to walk into Barnes and Noble and see that. And people act as if the book is this high medium and television is this low medium. I will take the best show on television against the worst book in Barnes and Noble any day of the week. It’s not as if books are inherently superior to television shows. It’s just that again, we have this illusion that a lot of great books have been written, but they’re completely outnumbered by the bad books written.
We kind of forget how low the medium of a book can go and people were warning against books. It was one of my most amazing discoveries that around 1830, there were all these things being written. “Books are harmful for you. Children shouldn’t be allowed to read books.” Part of it was, they’re not doing their chores because they’re reading a book and of course, a lot of it was the standard thing, there’s too much sex and violence in books. People always say that about any medium. But then, there’s actually a sermon by Matthew Arnold’s father, Thomas Arnold, the head of Rugby School, who gave a sermon saying, oh, these books, they’re brought out in installments and our students, they just can’t wait for the next installment and it’s ruining their week. They’re not doing their schoolwork because they wanted to find out what happens next in The Pickwick Papers. That’s just the argument made about television serials and I was quite surprised. I always assumed that books were attacked on their content, but the book was actually attacked as a medium in the early 1800s.
JD: Books were going to ruin the youth.
PC: And that was not by Marxists. That was by conservative moralists.
JD: You mentioned Dickens, who wrote popular serialized novels and wasn’t afraid to make a buck off it.
PC: Yes, he was quite proud to make a buck off it. And in my book, Literature and the Economics of Liberty — which I co-edited with Stephen Cox — I have a long essay on the serialized novel as an example of how commerce improves culture. The very fact that the novels were serialized meant Dickens was continually getting feedback and he would change the plot. If the number of installments sold jumped up, he would look and see, oh, this character is the reason, the people really liked Little Nell, I have to write Little Nell more into the story. That’s supposed to be the horror of professors of aesthetics. This is supposedly a corrupt procedure — an author giving in to his audience. But my point is, that the audience often has the wisdom of crowds and can send an author in a good direction and Dickens’s career is a good example of that and we see that in modern television series. In fact, many producers of shows pay attention to what the audience is saying. I’ve seen this most recently in this disastrous last season of Game of Thrones, where the audience was clamoring for a redo. They want the last season done over because it was so bad, and I think the audience is right. So, again, there’s a kind of aristocratic pretension to a lot of aesthetic criticism that takes the point of view that only an elite can determine what culture should be like and there’s something that could be said for that. I’m not going to attack the elites in the Renaissance who helped produce the paintings of Leonardo and Raphael and Michelangelo, but on the other hand, the record of commercial cultures is quite impressive and defensible as we’ve seen in fields such as Italian opera, Victorian novels, now in television, certainly in the movies, that artists who’ve appealed to a general public have not always done lousy works of art. I’m one of the few people to argue that in fact, in many cases, their art has been improved by paying attention to the audience. I would say, for example, with contemporary music, one of the reasons it’s so bad and unlistenable is that composers end up in universities where they’re cushioned from the marketplace. They’re paid a salary and therefore, the more harsh and dissonant and incomprehensible their music sounds, the better they are judged to be and that’s how they get their grants and draw in their salaries. They have no concern whether anyone will want to listen to their music, especially now that they can’t even think that a consideration is that people should enjoy the music, that they should come out whistling a nice tune, for example, or enjoying pleasant harmonies. And so, as a result, we’ve got music that’s unlistenable and we’re forced to hear that this is the great music of the day. In my view, anyone who’s a serious composer has to go into writing movie music now, where they can get away with writing something that people would actually want to listen to.
JD: Mises makes this point in The Anti-Capitalistic Mentality. Who’s to say art should never mix with commerce? What government bureaucrat is in a position to judge what people consume as entertainment? Mises believed in consumer sovereignty.
PC: Yes. I will say, Mises seemed to have had very elite cultural taste and I don’t think he was making the argument that this popular art would actually be great.
JD: Right.
PC: I think he was just saying that we have no right to tamper with it. Maybe I’m wrong, but I think I’ve taken the argument a step further by saying that in fact, what’s dismissed as lowbrow art, is not uniformly so. You will find diamonds in the rough and indeed, that’s the nature of all culture.
JD: You’ve never been afraid to consider the merits of pop culture. Your seminal book in libertarian circles is The Invisible Hand in Popular Culture. You have a new book as well. Talk about both.
PC: OK. Let me start with the new book. It’s called Pop Culture and the Dark Side of the American Dream: Con Men, Gangsters, Drug Lords and Zombies. And it’s got a picture of Walter White from Breaking Bad in his underwear carrying a gun, on the cover. In fact, there are two Walter Whites in an effort to emulate Andy Warhol’s Elvis double portrait. This book actually is an attempt to carry on what I was doing in The Invisible Hand in Popular Culture and I must say, I start from the premise that the American Dream is a reality. The book is about the dark side of the American Dream, which implies that there is a bright side. This isn’t one of those books that just tries to trash the American Dream. I think it is real and that America has lifted more people out of poverty and to success than any other country in history and if other countries now are doing bigger numbers, the reason is they’re imitating the United States in its best respects. But I was interested in the fact that the public is interested in the dark side of the American Dream. And again, we have a long tradition in popular culture in what are called Horatio Alger stories, which is a very popular genre in the nineteenth and twentieth-century success stories. America loves the success story; America loves happy endings. We speak about Hollywood endings, how the story’s supposed to come out right and for a long time, Americans were fascinated with books, and then movies, and even TV shows that show people, as we say, achieving the American Dream. That’s having your own business, often a family business, securing the economic future of your family, getting the children a good education and again, that’s a very archetypal American story.
At the same time, though, Americans have been fascinated with what happens when that story goes wrong and some of the most famous books and movies in American culture have shown the dark side of the American Dream. The Great Gatsby is a wonderful example of this. Citizen Kane would be another, and I have in effect, five case studies in my book. I begin with Mark Twain’s Huckleberry Finn, then do the films of W.C. Fields, then I do The Godfather, parts one and two. And then Breaking Bad, and I end largely with the Walking Dead. But in general, with apocalyptic narratives in modern television. I begin with Huck Finn because this is an American classic, everyone thinks of it as this rosy story. We picture Mickey Rooney or Elijah Wood playing Huck Finn. But Huck Finn is a very, very dark book. Murders occur in it; lynchings occur in it and a great number of con men are in it, especially this “duke” and this “king” who go around bilking people along the Mississippi. And what I realized in studying and trying to account for the dark side in what ought to be a very bright book, is that America professes to be the fresh start nation, the nation that gives people a fresh start, a new beginning in life. Just forget about anything that happened in the Old World, you’re in America now. The slate is blank; you can become whatever you want to become. But, if America’s the fresh-start nation, it’s also going to be the false-start nation, that you can’t expect everybody to make it. In fact, what Twain examines is how much the good side of America blends over into the bad side. For example, identity is very fluid in America. It’s one of the great things about America. We don’t have a rigid class system. Anyone can become whoever he wants, but that means America is also the land of con men. It’s where people can masquerade. Huck Finn as a novel is just filled with people masquerading, including Huck Finn himself, who masquerades as Tom Sawyer for much of the book and the reason he can is he’s with Tom Sawyer’s relatives who live several states away and they’ve never seen Tom Sawyer. And America is this incredibly mobile nation with a fresh start around every corner and that’s great and in a way, that’s the heart of American entrepreneurship. You can build yourself up from nothing. But the flip side of that is the con man and a lot of this book turns on the easy movement from the con man to the entrepreneur and perhaps back. And what’s interesting there, from where I begin in the book is that although I’ve turned to the dark side, in some ways, you still see the bright side there.
For example, in The Godfather, it’s the nightmare tale of American immigration. American immigration is at the heart of the American Dream; it’s one of the greatest things that America offers, that you can come to this new land and prosper. And what that means, though, is that sometimes immigrants have a hard time, they encounter prejudice, they’re not given a chance and so, they swerve off into crime and that’s certainly the story of Italian-Americans, also Irish-Americans, and Jews in terms of Prohibition and other areas of crime. They were denied legitimate outlets and access to legitimate business, and so they sought out some shady outlet in business. But that can be flipped to understand that these people actually were enterprising. Norman Podhoretz wrote a very interesting essay about The Godfather novel, I think it was specifically on crime and the American Dream. I don’t know if I buy this argument entirely, but he said that by this point, the 1970s, capitalism was so despised in intellectual circles and in the media circles, that the only way you could get away with celebrating an entrepreneur in a book was by taking a gangster, and showing this criminal as a successful businessman. He saw The Godfather as the descendant of the old Horatio Alger stories. He thought people are actually fascinated by the virtues of Vito Corleone and in many ways, his virtues are the traditional American virtues. He’s a family man, he’s a hard worker, he’s trying to improve his family, he takes chances.
In that sense, these criminals are entrepreneurs, and this is an issue that comes up with the Drug War in Breaking Bad as well. In fact, there is a sequence in Breaking Bad where Walter White, the hero, as I call him, is talking with his brother-in-law, Hank, the DEA agent. Hank is brewing his own beer and Walter says to him, “you know, in 1930, you would have been doing something illegal.” And they get into a long discussion about the morals of whether something’s legal or illegal and whether it’s just something that the government is determining. I like the fact, especially since the book focuses on The Godfather movies and Breaking Bad, that I’m able to focus on those issues. The Godfather chapter has an epigraph from Frank Sinatra and I can tell you that when I was in English graduate school, I never dreamed I’d write a book where a chapter would have an epigraph from Frank Sinatra and it’s a wonderful indictment of Prohibition and everything that was wrong with it. So, again, these stories allow me to take up some very serious issues — libertarian issues — and I try to show how many of the problems that these works deal with are actually created by the federal government in the first place.
JD: You choose to write books for popular consumption, instead of writing academic journal articles like many professors.
It’s much easier to publish on popular culture, as I found out after I was approached to do my first popular-culture book, Gilligan Unbound. Steve Wrinn, who was then with Rowman and Littlefield, approached me with the idea. I basically never intended to get into the pop culture criticism business. I kind of did it first as a joke. I wrote a piece on Gilligan’s Island and wrote something on The Simpsons. I’ll never forget, the BBC was interviewing me for the 400th episode of The Simpsons and somehow, my background came up and this BBC interviewer says, “You’ve written a book on Hamlet. Why are you writing about The Simpsons?” And I said, “because when I wrote my book on Hamlet, you didn’t even dream of interviewing me on the BBC, but the minute I write on The Simpsons, you interview me.” He didn’t like that answer, actually.
JD: Great answer.
PC: By the way, I have never taught pop culture. I have never taught a course on pop culture in my life. I lecture on it at colleges and universities, but sort of outside the normal academic framework. I don’t believe in carrying coals to Newcastle — that phrase will mean nothing to the current generation — but I don’t believe in teaching a course on popular culture, to students who are thoroughly immersed in pop culture. I found when I wrote on it and lectured on it outside of regular classes, that students really could respond to it and I’d be struggling to find if they’d read even one Shakespeare play, but they could quote every episode of The Simpsons back at me. So, I found I was having productive discussions and they were about serious issues. You can talk about the decline of the family in American life from watching The Simpsons. You can talk about the role of the federal government when you look at the FBI or the IRS episodes of The Simpsons. So, I felt I actually had a kind of leverage that I could speak to students about interesting subjects and they would respond, and I thought that was good. So, I pursued it more than I would have otherwise.
JD: Give us your thoughts on the state of the humanities in higher education. We read about university administrations cutting humanities budgets, that nobody wants to major in English or history or philosophy anymore.
PC: Well, it’s certainly true. I will not attempt to cite numbers because I don’t have them accurately, but the enrollment in English departments is falling everywhere to the point where I am told that some major English departments now have majors in double digits.
JD: Wow.
PC: Yes. And triple digits were typical in my department — the UVA English major is still in triple digits — but the number is significantly lower than it was 10 years ago. And whole departments are disappearing around the country. Some of the languages, German departments, for example, are under pressure. Comparative literature departments are under pressure, and there’s no question that it’s happening. There are many reasons for it and people in the humanities will complain that it’s a result of the increasingly mercenary nature of students, that they want to study in undergraduate business schools or study economically useful subjects like economics or political science. But my answer to that is the problem is internal, that humanities departments wouldn’t be losing as many students if they still had something high minded to offer students. There’s a reason why students might gravitate toward practical subjects. After all, most colleges and universities are now advertising themselves on the idea that you will boost your income by going to college and the more they choose to raise their tuition, the more it seems imperative to students to get some payback for their money. But what the liberal arts — especially the humanities — used to have to offer is great books, great paintings, great music and you could make a deal with students. Yeah, this stuff ’s tough. It’s not easy to understand a J.S. Bach fugue, and it’s not easy to read Joyce’s Ulysses and it’s not easy to comprehend Michelangelo’s Sistine Chapel. But at the end of the effort, you will be a better human being and you will feel it; you will feel uplifted from having encountered this and you will see your life change. I mean, as recently as last week, I got an email from somebody who had been listening to my Shakespeare lectures online and said, “The lectures have changed my life.” And that’s what you want to hear as a teacher. But, it’s very difficult now that the humanities have become a species of what is known as grievance studies in the world. Now, you turn to literature, not because it’s uplifting, not because it’s in any meaningful sense “great,” but you regard literature as the expression of identity. Most of the time, it’s the expression of a bad identity. Most courses will concern themselves with whether a given author is sexist or racist or classist. The idea is to treat the artist negatively, as politically incorrect, and that gets old very quickly.
Part of the benefit of reading these works is that they take us to a very different time and place. I remember from the start, reading books because they were about a different world. I wanted to learn about Aeschylus, and I wanted to learn about Homer. I did not want to read books about a middle-class Jewish neighborhood in Brooklyn. And people were writing that.
People would say to me, “you’ve never read a novel by Philip Roth?” And I’d say “no, I lived that, I don’t need to read a novel about it.” And it’s kind of shocking that I’ve never read a book by Philip Roth. But you know, I’ve read novels by Franz Kafka and by Dickens and by Dostoyevsky, and it’s a whole different world and I find that more interesting. And that’s what we’ve lost the sense of. I noticed the favorite and most complimentary adjective my students have of a book is, “it’s relatable.” And that’s what they’ve been taught, to relate the book to — quite frankly — the little circumscribed narrow world that they grew up in. By contrast, I’ve always looked to literature to be eye opening, to take you some place you’ve never been before.
So, it’s one thing to complain that money making is exerting its magical charm on students. That’s a natural impulse, so you need something to counteract it. But now, if you really are running down most of the literature of the past and showing its limitations, well why bother to read it? And in fact, with many of my colleagues and throughout my profession, literature is seen now as a means to social justice. That’s how we have to use literature. We have to read literature to know how prejudiced and outmoded the world is and how we have to move beyond it. But if social justice is the goal of reading literature, why not just take courses in social justice? Why not take courses in the social sciences, if the goal of literature is the economic improvement of the masses. Go take a couple of economics courses and I think that’s what’s happening. In effect, literature departments have lost their comparative advantage. What they did best and what they could offer to people is to show these masterpieces in the history of human culture. These are the peaks of human achievement; these are what we look up to. And again, this is Bach’s St. Matthew Passion, this is Michelangelo’s Sistine Chapel. These are jaw-dropping things in the world, and it used to be that college would introduce people to that. Now, it doesn’t anymore and that’s why I think the students are voting with their feet. I think the mistake my colleagues have made is, they thought they had a captive audience, that we’ve been given the Western heritage and people want access to it and students will always come to our courses because we’re English professors or we teach German literature, or whatever.
But if you don’t teach that heritage, you lose the one thing that was getting students in the seats. I don’t think that’s actually sunk in to my colleagues and we seem to have fallen off a cliff in the past two years. I asked two classes this year if they’d heard of T.S. Eliot. These are English majors and not a single person in the class had heard of T.S. Eliot. Now, I’ve always thought T.S. Eliot was a tad overrated, but I won’t get into that. Still, he’s certainly one of the most important poets of the twentieth century, and to think of an English major who’s never even heard the name T.S. Eliot! You know, about three years ago, they had never heard of Matthew Arnold. Again, I can kind of understand that. He’s from the 1800s, but it’s really amazing, I had a class where no one had heard of Beethoven and it was so funny because I was teaching a play by Friedrich von Schiller and I understood none of them were going to have heard of Friedrich von Schiller. I said, you know, you’ve never heard of him, but of course, you know his poetry. And they stared at me and I say, “Freude, schöner Götterfunken, Tochter aus Elysium,” quoting the “Ode to Joy” at the end of Beethoven’s Ninth Symphony and I knew they weren’t going to understand the German, but my joke was going to be, you know: “That’s Beethoven’s Ninth Symphony.” And they stared at me. They’d never heard of Beethoven’s Ninth Symphony and I said, you have heard of Beethoven, haven’t you? And they said “No, who’s Beethoven?” And if it weren’t for Chuck Berry’s, Roll Over Beethoven, they probably wouldn’t have a prayer of figuring it out. I mean, I was stunned and in fact, I’m really annoying my students now because whenever I bring up a new subject, I feel I have to ask them, “Have you heard of X?” and they are thinking, “we have good educations, we’re college students.” But if you haven’t heard of Beethoven and you haven’t heard of T.S. Eliot it’s really amazing. You can’t teach if you don’t have reference points. I used to build my whole introductory course on comparative literature around T.S. Eliot’s The Waste Land. I assumed they all know this poem and they love it, and it’s this great poem. I basically said, “take this course and you can understand this poem.” It quotes from Shakespeare’s The Tempest and it quotes from Dante, it quotes from Richard Wagner. To understand this poem, you’ve got to go back to the past and understand all the things Eliot understood. Well, now they don’t even know who Eliot is. I’ve lost my little trick to get them interested in the course. So, I am really seeing even greater decline in what my colleague E.D. Hirsch calls cultural literacy in students and it looks to be getting only worse. Because that’s the other thing, that we’re now in a kind of cycle of forgetting. For a while, I could get great discussions going on Breaking Bad. As recently as three years ago, my class on tragedy was faltering and I said, well, if you don’t understand what a tragic hero is, let’s talk about Walter White and we had the best class all semester, but now they don’t catch Breaking Bad references.
JD: It’s been a few years since that show ended.
PC: Yes, it’s ancient history, but they live so much in the present and I don’t want to sound like an old fogey. Let me try to sound a bit like a young fogey. In many ways, the students are impressive. They are computer literate in a way I am not and that is impressive. That’s a talent, it’s a skill, it gives them a lot of access to information and even at times knowledge and I don’t want to underestimate that. I often look at a website and I don’t know which button to click and the student says, “Well of course, you click the one on the lower left hand in the corner that’s blinking” or something and I don’t want to be like some ancient medieval colleague who said to students, “I know they’ve got this thing called print now, but you learn to copy that manuscript by hand, it’s the only way to preserve a text. This print thing, it’s just a passing fad” and I’m sure if I’d lived in Gutenberg’s time, I would have said something like that to my students, so I try to be careful to avoid that. But still, you can’t help but notice these blank spaces in their minds and they are kind of unpredictable. You know, you can still refer to Stalin and Hitler, for example. For some reason, they still know who they were, and that they were not nice people, but other moments in history have really blurred for them. It’s funny, they get things out of order in history. Here’s an example: there is a recording of Alfred Lord Tennyson reading The Charge of the Light Brigade. It was one of the first recordings ever made of a poet reading and I was talking to a student about this and he said, “When did Tennyson live, around 1950?” And I kind of looked at him and I realized, he thought sound recording dates from 1950, not from Edison’s phonograph of the 1870s. So, the fact we have his recorded voice meant, to this student, that Tennyson must havebeen born after 1950. And again, they know at some point there was a poet named Tennyson (although some of them don’t even know that). They know at some point, sound recording was invented, but which century these two things happened in, and in what order, escapes them. And this was one of my best students! And again, it’s not their fault, they’re getting badly educated, so I try to be gentle with them and conceal my shock. The students are good-hearted — they really want to learn, but they’re just not being taught properly.
JD: Well that’s why the Mises Institute exists. Thank you, professor.
Featuring Mises Institute founder Lew Rockwell, with Mark Thornton. Recorded at the Mises Institute in Auburn, Alabama, on 18 July 2019.
JEFF DEIST: Patrick Newman, I’ll start with the same question I asked Joe Salerno in his interview: how does a kid from New Jersey end up deciding to get a PhD in economics?
PATRICK NEWMAN: That’s a great question. I got interested in Austrian economics and libertarianism around the time of the Ron Paul Revolution. During the fall of 2008 and the financial crisis, I was a senior in high school and everything really clicked. I started going on mises.org. Immediately, I ordered Human Action, and Man, Economy, and State and began reading them. By my second year of college, I transferred to Rutgers University in New Jersey where ironically, Joe Salerno got his PhD. I actually had one of his professors in class. I decided that I wanted to become an economics professor. I was really interested in reading and writing, and once I found out that you could make a living doing that, I said “yeah, that sounds great for me. I’d love to do that.” I was really wanting to continue reading Austrian economics, economic history, libertarianism as much as I could and if you can get paid for that, then so much the better.
JD: You read Human Action and Man Economy, and State in your teens?
PN: Yes. I was 18 and I was reading those my freshman year. As a freshman I went to Loyola Maryland. Ron Paul came to speak in February of 2010. He was promoting his End the Fed book. Naturally, I went. There were about 400 people there and afterward, Dr. Paul was signing books. I went up to him and he signed my book. I still have the book with the ticket. I told him “hi, I’m very interested, I’ve read all these books, Human Action and Man, Economy, and State.” And he says, “well, you’re ahead of everyone else at your age.” I think “great, I’m off to a good start.” I was reading those books, my freshman year of college and senior year of high school, and they really clicked.
JD: Pretty rigorous stuff for a young person! At some point you decided to pursue an academic career and obtain a PhD from George Mason University. Tell us about your experience. Was Rothbard part of your focus? What was the topic of your thesis?
PN: I wrote on monetary history, continuing some stuff that I worked on as a Mises Institute Research Fellow. I was a Fellow at the Mises Institute during the summers of 2012–2013 and that was when I was an undergrad. Rothbard was always a big part of my time at GMU. I always took the Rothbardian line and tried to argue it as forcefully and eloquently as I could. I was grateful to have Larry White as my dissertation advisor, and I worked on a lot of Austrian business cycle theory. The papers I worked on included one paper on the Panic of 1873, another paper on the Depression of 1920 to ‘21 and then a third paper on 1920s monetary policy. On all three of those I took the Rothbardian position.
In the 1920s paper, I defended Rothbard against Friedman as sort of the Austrian view of how the Federal Reserve was expansionary in the 1920s. This was against the monetarist view of Milton Friedman and Anna Schwartz. And yes, I continued my studies of Rothbard at George Mason. One day they had a Rothbard Reading Day and I argued forcefully for Rothbard and even on the other reading days we had, I still argued forcefully for Rothbard’s position.
JD: Not too many PhD programs or candidates have a Rothbardian focus.
PN: Yes, you can count them on one hand and, you know, depending on how you go, you can count them on one finger, a few fingers, at least in the United States.
JD: In correspondence with Dr. Salerno you used the term “meta-mentor” to describe your view of Rothbard. Please explain.
PN: Well, I never met Murray Rothbard. I was born in 1991. He died in early 1995. So, I wasn’t quite up there with my intellectual development yet.
JD: So you didn’t meet him as a toddler (laughs).
PN: No, he never responded to my letters. By far, he’s the biggest intellectual influence on my life. I read all his stuff. I’m very interested in how he approaches both theory and history and I’ve always sort of viewed him as a meta-mentor because one, I view Joe Salerno as a mentor and he mentored Joe Salerno, in that case, he’s a meta-mentor.
Rothbard died when I was a kid, so he’s almost like an Obi-Wan Kenobi-like mentor. He’s over my shoulder, especially because I was working in the archive, either with Man Economy, and State, the fifth chapter, The Progressive Era, and Conceived in Liberty. I was literally having to read his handwriting and sort of proceed there. So, you can naturally develop a feel for the guy that especially is unique because you never met him and you know you’re very influenced by him. Basically, all the research I’ve ever done has really been taking something that Rothbard spoke about and then trying to explore it further. I use it in my research topics or how to approach something through Murray Rothbard.
JD: You’ve spent quite a bit of time here at the Mises Institute going through Rothbard’s personal papers, his letters, his correspondence, his notes, his marginalia, even some of his audio recordings. Did it ever seem voyeuristic? Do you think he would mind having his private thoughts examined decades later?
PN: Yes, definitely. You’re in the archives reading his draft papers. You’re reading letters. You definitely get a feel from his personal correspondence of what he’s thinking, what he intends for someone, in particular. It’s kind of hard especially for younger people such as myself to comprehend, I mean, he never used a computer. He never used the internet, so back in the day when you used to send things through snail mail, you would write to someone and then two weeks later, they get back to you and then you keep the letter. So what I was doing was the equivalent of if you died and someone was reading your emails or your text messages or your Facebook messages. Granted, those are much shorter, but you definitely get a perspective of the person that you might not get through other means. You think “oh, this is how Rothbard is viewing this problem,” or “this is how he’s approaching that.” And especially when, in his letters, he talks about academic and intellectual matters, I thought “wow, he never even discussed this anywhere else.” And I end up thinking, “oh, this is what he thinks about this. I was always wondering if he ever spoke about that. Thank goodness he wrote this little letter and that it survived.” Unless you knew him and you spoke to him personally, you never would have ever figured that out. You never would have gotten that from him.
JD: You spent many hours inside his head, almost like a biographer.
PN: Exactly, definitely.
JD: You know where I’m going with this leading question! Have you ever thought about writing a comprehensive Rothbard biography?
PN: Yes, I have. I’ve thought about that, definitely. I’ve even thought about a preliminary title and how I would approach it. Yes, I’ve definitely thought about that.
JD: You might want to talk to Guido Hülsmann first! What did all this time spent with Rothbard’s letters and papers tell you about the man himself, apart from his work?
PN: Well, that’s a good question. He’s definitely the radical libertarian. He always took the radical view and he always viewed it as “well, no one else is doing it, so I have to do it.” He kind of viewed himself as taking the radical position. You can clearly see that in his theoretical work, but you also see how he writes. He’s radical, and he’s also very knowledgeable, the attention to detail is quite astounding. If you look at Conceived in Liberty, the first four volumes, and then you’re working on volume five — and this is especially true of The Progressive Era — he just names names and he had such a tremendous ability to sort and collect information and then process it. It’s one thing to take his Rothbardian story or approach and build off of it, but it’s another thing to construct it, entirely, which is quite remarkable. So, the first thing I would say, he’s always radical and the second thing, he’s very knowledgeable, and the third thing is — and this is one of the things that attracted me to his writing: he was always a very good writer and he could always be funny. His writing is interesting. It isn’t dry. In his personal letters and his rough drafts, even with Conceived in Liberty, there were times that I was chuckling or — with Rothbard — cackling, kind of, because you could just tell he knew how to grind gears and he knew how to get his point across. And always with joy, you could tell that he had fun with what he did.
JD: Was he the intransigent prickly guy some of his critics allege, or the sweet generous guy underneath it all?
PN: He could be both. I think, as someone who has enormous respect and even agrees with him: he could be very kind and helpful to people, but he could also — when he disagrees with you — sometimes do a demolition job on you. He could do it in writing or in an argument, he would just be exhaustive in taking someone down. He definitely had a wide and broad vision but he was always helpful — extremely helpful — and friendly to people who wanted to help that vision. But you also have definitely a “my way or the highway” type of deal, which is just part of the man. He had his system and he seemed to think “I don’t want imperfection in the system and I want to do it my way,” and thank goodness he did that.
JD: You edited The Progressive Era, another of Rothbard’s posthumous books. One goal was to disabuse us that progressivism was rooted in benevolent, well-meaning reforms. We needed a clear-eyed, Rothbardian understanding of the period, marked in fact by a very unholy marriage of big business and big government. Are you happy with the book? Do you think it poked a hole in the progressive mythology?
PN: Yes, absolutely. One of the things that actually led me to decide I wanted to become a professor and do all of that was, in the summer of 2010 and 2011, I was working at various manual labor jobs that showed me how fortunate I was to be in college. I was getting a college degree. While working I would always listen to Rothbard’s audio lectures on the Progressive Era. Just the way he would go through everything and he would name names and he had this whole grand story. I thought, “wow, that would be great if he wrote something on that.” With The Progressive Era book, that was certainly what I tried to do. He wrote this manuscript in the late 70s and then he wrote later essays and then he also used the manuscript in class in the 80s and he kept building on it. That was what I tried to do when I combined everything and tied the story together through editorial footnotes. There’s only so much you can do, obviously.
I wish he’d finished the full book because that would help with the narrative, but yes, I’m happy with The Progressive Era, with what I did and in terms of that project. Certainly, the goal was to make the book showcase Rothbard’s skills as an historian. This was not only his thesis on the Progressive Era, but also sort of a jumping off point for researchers, such as myself, to use it and to build off of it, which is something I’ve already done, particularly regarding Sherman Antitrust or the 1906 Meat Inspection Act, or the Federal Trade Commission. Would I have changed some things about the finished book? Yes, maybe some things, but overall, I’m very happy with it, with what I did and how I did it — with the approach, the style, the editorial style. I think it’s a great book.
JD: Boy, did he name names! And dates. Rothbard’s a real historian, giving us granular detail. But he also wanted to be a synthesizer, and present a systematic method of thinking about history. No economist would dare do that today, especially in another field.
PN: He wanted to do that with everything and not just with the Progressive Era. With American history, including the Progressive Era, he had a whole narrative, a whole range of economic analysis. This included the Austrian critique of competition, political parties and ethno-religious historians and all of this stuff. He definitely had in mind a sweeping narrative and I think it’s remarkable. Hans-Hermann Hoppe has remarked on this: when you look at Rothbard’s writing, it can be very systematic and it’s almost like it flows from this whole overarching story. And you read it and then when you talk to him or in my case, when you listen to his lecture, say on the Progressive Era, he’s all over the place. And it’s funny because that’s how I wanted to become a professor. I thought, “I want to be like that.” You can’t, unfortunately, do that any-more, but I still want to be like that. But yes, you could tell that he had this whole theory in his head, this whole story, not just for the Progressive Era, but for American history. The term is “gestalt,” totality, and he definitely had that in his work.
JD: Conceived in Liberty, including the long lost 5th volume you recently edited, could serve as the overarching narrative of colonial America. Instead, we’re stuck with books like Howard Zinn’s People’s History, which unfortunately is assigned widely in schools.
PN: Yes, I agree completely. I think this book coming out makes it timely, given the change in how people view history, the whole lens of political correctness. The book is a product of the 60s and 70s, and you realize this is how American history used to be. I find it a more convincing narrative. It might not be the most politically correct or the least offensive narrative, but at the end of the day, it’s just the most correct, period. So yes, I think a book coming out on the Constitution that was written in the 60s, is like a type of time machine. It’s very important. It’s very interesting, too.
JD: We should mention Rothbard’s other historical works too. The Betrayal of the American Right, The Panic of 1819, America’s Great Depression, A History of Money and Banking in the United States, and his unfinished An Austrian Perspective on the History of Economic Thought were all very serious historical works. He was a bona fide historian with a résumé longer than many fulltime academics.
PN: Yes. For his dissertation, Rothbard wrote on the Panic of 1819 and was influenced by Joseph Dorfman. The resulting book, called The Panic of 1819, is something that’s cited to this day by mainstream authors. It’s actually just incredible that someone’s dissertation written in the 1950s is still cited. I can’t get people to even read my own dissertation and mine was published a couple of years ago. He was a true American, he was a true historian, especially an American historian, and he could be very theoretical.
He would write these enormous theoretical works, treatises like Man, Economy, and State, and at the same time write a multi-volume history of early America. And like you said, if you were to ask someone, “oh, prominent historian, what did you do?” You’d maybe find out they were known for writing a five-volume history from Jamestown to the Constitution — and that’s it. You can put a period. Yes, they might have published some book reviews, and maybe a couple of other papers.
But with Rothbard you’d say “oh yeah, by the way, he also wrote numerous other books and countless articles. He’s definitely an historian.” And something else that should be emphasized: out of all the Austrian economists — out of Mises’s students as well as some of the people like Hayek or Lachmann or Kirzner and so on — Rothbard, he was also one of the most empirical. We see this in the massive amount of history he did and that’s something that’s very important. He not only knew how to develop the theory, but also apply it and I actually think that’s quite a unique gift, especially at the beginning when you have to actually develop the edifice, so to speak.
JD: You mentioned the late Joseph Dorfman, who was a mentor to Rothbard at Columbia, a Russian immigrant, and an expert on the history of economic thought. Was Dorfman almost as large an influence on Rothbard as Mises?
PN: That’s a good question. I thought about that and I definitely think he was very influential with Rothbard. One thing is that Rothbard was always very grateful to Dorfman because of all the details and historical facts Dorfman provided. In Rothbard’s historical work, you see this, especially regarding certain American periods. As with the Jacksonian period, Rothbard was influenced by Dorfman in work on other eras. Actually, in the 60s when Rothbard was writing Conceived in Liberty, he attended a conference and he spoke about economic thought. He had to comment on Joseph Dorfman, and he was an invited speaker to that event. I don’t know too much about their personal relationship and how that continued, but I think he was very influenced by him. He applied, basically, Mises’s theory of history and then used Dorfman’s intense attention to details and facts.
JD: Dorfman presumably influenced Rothbard to examine the power elite’s motiva-tions and reject sanitized versions of history?
PN: That was something Dorfman was big on and Rothbard definitely took that from him. I actually think — I have to dig back into that — in his lecture on the Progressive Era, I know he mentioned that. He says people have a life and you’ve got to look at how that influences their work. He might have mentioned Dorfman’s name, but I’d have to look into that. Dorfman’s big book The Economic Mind in American Civilization was a five-volume series published in the 40s and 50s and Rothbard is influenced by that, particularly with his American history regarding the ideas on people. You can see this in Rothbard’s History of Economic Thought. The style of Dorfman, definitely that was visi-ble, in my opinion. He explicitly gave thanks to Dorfman in the introduction to those books.
JD: This project, resurrecting the final 5th volume of Conceived in Liberty, was a doozy. It’s subtitled The New Republic, and covers 1784 to 1791. I understand Rothbard wrote the book longhand, on yellow pads, and then used a dictating machine to record it. The tapes were destroyed, so you faced the task of deciphering his handwriting—something even Joey Rothbard and Lew Rockwell couldn’t do. Describe how this project developed.
PN: That’s a good question. I was a Mises Institute Research Fellow during the summer of 2013 and this is right around when the archives are starting to take shape, and one afternoon I asked Dr. Salerno if I could look in there. Barbara Pickard, the archivist, was there. I thought “hey, there would be good paper ideas in there, some history stuff.” So, I started to go in there, started to work in there, sifting through boxes. The only way I can describe it is when you’re a kid in a candy store, this is like the same thing, it’s the closest you can get to meeting your Mark Maguire, your Barry Bonds. And you’re going to see all this stuff that no one else has seen and you could spend all day in there, all night. I’ve done that.
I first saw some pages developing the unpublished fifth chapter of Man Economy, and State on production theory and developed that over the next couple of years. Some of the other things I saw in 2013 were some chapters of The Progressive Era, as well as the fifth volume of Conceived in Liberty. When I looked at the fifth volume of Conceived in Liberty, I thought, “whoa, what is this hieroglyphics stuff going on here?” But I had an idea. I thought, “okay, I think there’s definitely something there for each of those big projects.” So, you first work on the Man, Economy, and State chapter. Then you go to The Progressive Era, then you go to Conceived in Liberty, so it’s kind of like each step of the way, you’re going to a harder and harder project. Most of The Progressive Era was typed. He did have some marginalia I had to add in, if I could figure out how to read that. But the fifth volume of Conceived in Liberty, that was something with which you had to try to figure out the handwriting. There were some typed pages, but when you get to Shays’ Rebellion, it was only handwriting and I just hit an immediate wall. I thought “this is not going to work.” And I was ready to throw in the towel because I wasn’t making any headway. I remember even talking to the Mises Institute book editor Judy Thommesen about this saying, “hey, this might not work out.” But, she said “don’t give up yet.”
In the beginning it was rough going. Barbara was even helping me with the first part of the handwritten manuscript. I had to go back and forth and look at what I was reading. There were times I just worked through the night. Finally I thought, “alright, I’m starting to get into this, highlight each word and then write it out.” And then I’d have to go back and say “alright, now what do the other words say?” I’d go over the context and finally see what it said and I just started to get a better feel for how he was writing. Then I could read whole sentences. The biggest thing is, not only do you not necessarily know what he’s writing, but you also have to figure out his point of view. And as you’re reading you’re having his-tory unfold and then you read it better and you don’t need to write out as much. By the end, it was like “translating” a book. It was about a solid four weeks of just hell. I mean, I loved every minute of it. It was great, but it was tough work. I would go to sleep and I would literally see the words in my sleep — the hieroglyphics — and trying to figure out what he meant. At the end of it, you did it and you’re thinking, “wow, I did it.” And now, at least with the writing, I can look at it. I can still look at it and I’m very comfortable reading it, but it was definitely a process. It was a fun struggle, I think that’s the way I’d put it.
JD: Did you ever have to construct a sentence and hope it was right?
PN: You had to, definitely. There were times I’d have to go back and look at the words and have to construct a sentence or revise it. In some of the places, he actually wrote his ands as plusses. There was lots of shorthand. But I don’t know how his hand could take it. We’re talking literally 600 pages of front-and-back handwriting. I don’t know if he ever developed carpal tunnel syndrome. He must have used an icepack when he was doing this. But, sometimes you have to edit sentences or kind of reconstruct them a little bit. Obviously you couldn’t do it as much as he did it because it’s his work. What’s remarkable was how little of it, in the structure, I had to edit. He handwrote a book with footnotes and block quotes. He would have, “see this article.” Some of the pages, parts of it were torn, so you had to stitch it in. It wasn’t just purely like transcribing. There was some editorial work involved.
JD: Can you give us a teaser or a surprise, something people might find interesting about the book, to whet our appetite for its release?
PN: Definitely. Rothbard takes a view of the Constitution that, ironically, some Founding Fathers — some neglected ones — took. Namely, that it was basically a conspiracy and sort of a bloodless coup. That was the word he used, the phrase he used, where he moved from the Articles of Confederation to the US Constitution. A lot of times this is just presented as: “Well, the Articles didn’t work, so these well-intentioned Founding Fathers write up a new Constitution and then this all takes us naturally to the Washington Administration.” But Rothbard definitely takes a view where he says “no, it was a kind of conspiracy, a sort of coup, where you’re having these people trying to institute a stronger government to enhance their own power and privilege, at least for themselves and the various sorts of factions they represent.” He goes through that and it’s a really a fascinating view of how a state forms and how one state takes over another. He definitely goes with the conquest theory of the state as opposed to the contract theory, as if it were all a voluntary formation of the new state. Some of the stuff he goes through was new to me. I had to look through all the books that he used. I bought and I read them just to try to get the context that he was going through and even some more recent books, just trying to look at the larger context of what he was talking about. I think the best part of the book is when he goes through the ratification. I believe it’s the fifth part of the book, and it’s fascinating. He breaks down all the states and who he’s rooting for, like Patrick Henry of Virginia, who is definitely a neglected Founding Father. He also covers George Clinton of New York and the anti-Federalists associated with him and the Clinton political machine, particularly Abraham Yates. Rothbard goes through it all and it’s really a fascinating part. It’s a topic that no one else has written about or very few people have written about.
JD: In Rothbardian history there are still heroes and villains, just not who we thought.
PN: Yes, exactly. He has heroes and villains and he tries to give people their just due. He definitely tries to provide a new look at people who have been overlooked by history and he thought that was an important thing to do. He was always very humble, but I think he knew in his writing, like he was himself getting overlooked. That was probably why he has somewhat of a harsh view of academics. He might have thought, “these people, I could have done what they did, but I decided not to do it.” So, he may have been thinking about some of these neglected historical figures, thinking, “these people, they made the right choices, at least back in the day. They weren’t perfect, but they made the good choices and they’ve kind of gotten overlooked.” He definitely has that view of bad people and a lot of times, the bad people are the bad people who we were taught, are actually the good people.
JD: Does the 5th volume of Conceived in Liberty work as a standalone book, for those who haven’t read the earlier volumes?
PN: Right. It can definitely be a standalone. The main reason why I say that — and certainly not to give myself too much credit — in the introduction, I go through an overview of the first four volumes. So, to someone picking it up, they’re certainly not going to get all of the detail, but you can read the introduction and you can say “oh, okay, this is where we are.” You definitely don’t need to read the first four volumes. Now you certainly want people to read the first four volumes. But, you don’t need to read the first four volumes. I certainly would like people to, but you get brought up to speed, so to speak. It was one of my initial goals to make sure it could be read as a standalone volume. The last volume was published in 1979, and 40 years later a lot of the original readers are dead. To get people back into the series, you’d want to at least read the introduction in the beginning.
JD: We’re minting PhDs in economics, even Ivy League PhDs, who know nothing about the history of economics. Rothbard knew so much about both the history of economic thought and American history. How did his historical knowledge manifest itself in his economics?
PN: That’s a great point. Hyper-specialization is a huge issue where you only concentrate on a certain field. Academics especially sort of shun synthesizing. Academia pooh-poohs it. It’s really unfortunate and, ironically, I also think that’s why most people don’t read. Most academics don’t read most academic papers because in order for them to get published, they have to be writing on increasingly minute and specialized things where you can get some sort of new data or new source for research. But, Rothbard in his history writings, was able to switch between theory and history and he was able to apply it to, like you said, the economic thought regarding his economics. He was able to — when drawing on the Austrian edifice — remark on things like the Marshallians or Chicago school or Keynesians. He drew on that history, as well. He also could just draw on his massive array of historical knowledge when developing theory, he always had that in the back of his mind. I’m not saying you need to use the empirical analysis to develop the theory, but he definitely had that — at least I imagine that’s how it was — in his mind. He really was like a political economist. He built off of philosophy, political science, economics, history, you name it. And that shined through all this work. He’s combining all sorts of disciplines together.
JD: Like Hayek, Rothbard is arguably not best known as an economist. He refused to stay in his lane, and wrote on history, political philosophy, ethics, you name it. Do you think spending so much time writing outside economics injured his reputation as an economist?
PN: Oh, absolutely. He knew that, and I’ve seen some great letters where he talked about it. He says, “sure, I could have had a better career by just sticking to certain things or sticking to my discipline, or sticking to non-controversial topics. I could have worked at the Hoover Institution or Heritage.” But then he concluded, “I don’t want to do that. That wasn’t what I thought was right and no one else is naming names and criticizing certain people. So, I took it upon myself to do that.” It definitely hurt him, and I think this is what some of his detractors necessarily don’t appreciate that he had to lay a lot of ground for the initial Austrian movement. This was also true for libertarianism in which people were able to jump on later. But just imagine a world with no Man, Economy, and State, no America’s Great Depression. Austrian economics and libertarianism would have taken a very different turn. I don’t think there would have really been any Austrian revival. Libertarianism, I don’t think would have been as big. He took a lot of bullets, but it was for the long run, so to speak, instead of short-term gain.
Bob shares an interview he did on C. Jay Engel’s podcast, Austro-Libertarian, where they discussed Doug Henwood’s critique of MMT that ran in the socialist publication, Jacobin magazine. Henwood’s article was an excellent summary of the academic roots of MMT, and thus supplements the pragmatic discussions (from the perspective of Warren Mosler) that have recently been featured on The Bob Murphy Show.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
By popular demand, Bob explains some of his major disagreements with the views Warren Mosler expressed back in Episode 18 ("Warren Mosler Defends the Essential Insights of Modern Monetary Theory (MMT)"). At that time, Bob was just having a friendly discussion, not a debate; but, in this episode, Bob explains where he thinks Mosler went wrong.
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Sponsored by Steve and Cassandra Torello.
Featuring David Gordon ("Hoppe and German Philosophy"), Mark Thornton ("Hoppe as Textbook Writer"), Stephan Kinsella ("Hoppe on Property Rights"), Thomas DiLorenzo ("Hoppean Political Economy vs. Public Choice"), Jörg Guido Hülsmann ("Hoppe as Mentor"), Joseph Salerno ("Hoppe and the Art of Economic Controversy"), and a response from Hans-Hermann Hoppe.
The Austrian Economics Research Conference is the international, interdisciplinary meeting of the Austrian School, bringing together leading scholars doing research in this vibrant and influential intellectual tradition. The conference is hosted by the Mises Institute at its campus in Auburn, Alabama, and is directed by Joseph Salerno, professor of economics at Pace University and academic vice president of the Mises Institute.
Austrian economist Peter Klein talks with Bob about his unusual (for a Rothbardian) career path, including his time working for the Council of Economic Advisors to Bill Clinton. They discuss Klein’s work on entrepreneurship, and how his views differ from those of Israel Kirzner.
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Nelson Nash is the developer of the Infinite Banking Concept (IBC), which uses properly designed whole life insurance policies as a cashflow management vehicle. Although Bob (along with Carlos Lara and David Stearns) has worked closely with Nelson over the years in building the Nelson Nash Institute, this interview focuses on some of Nelson’s charming stories about learning to fly and being mentored by FEE’s founder, Leonard Read. The conversation then turns to the pernicious role that commercial bankers have played in history, and how IBC allows individuals to secede from that evil system.
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Bob brings on MMT superstar Warren Mosler to explain—not to debate!—his understanding of Modern Monetary Theory. After summarizing Mosler’s interesting background, the two discuss the assumptions behind MMT and its implications for economic policy.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Alex Tabarrok is a professor of economics at George Mason University and co-author (with Tyler Cowen) of the very popular blog, Marginal Revolution. Bob and Alex cover a wide range of topics, including his early experience with Rothbardians, the brief window when economics blogs were the center of discussion, problems with the FDA, how a kidney market might work, and why Bitcoin is not as secure as some of its fans believe.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Joe Salerno is Academic Vice President of the Mises Institute and one of the world’s leading economists in the Rothbardian tradition. He discusses his intellectual roots, as well as his scholarly work on money and banking. But Bob also asks Joe to recount some of his funny adventures with Murray Rothbard.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
David Gornoski is the creator of ANeighborsChoice.com, a media platform that tells the stories of victims of State violence and which provides healthy alternatives to a violence-based society. David hosts the Orlando-based “A Neighbor’s Choice” radio program on WFLA 93.1 FM and 540 AM. Much of his work is an application of René Girard’s mimetic theory.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Bob gives the context for his children’s book, The Three Lads and the Lizard King. He covers a wide range of related issues, including Jim Carrey’s Illuminati “warning” (?), nonviolence, and the sovereignty of God.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Standup comic and host of Part of the Problem Dave Smith joins Bob to talk about the theory and practice of comedy. They also discuss Dave’s discovery of Austrian economics, hypocritical leftists, the exasperating Tucker Carlson, and how the birth of his daughter led Dave to God.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
[This article appears online for the first time and is reprinted from The Alternative: An American Spectator (February 1975), where it appeared under the title "Ludwig von Mises."]
It is said that a number of years ago, when Bill Buckley was at the beginning of his career of college-speaking, he once wrote two names on the blackboard and thereby nicely dramatized the point that students in his audience were being presented with only one side of the great world-forming debate between capitalism and socialism. The name of the defender of democratic socialism (I think it was Harold Laski, possibly John Dewey) was recognized by most of those present. The name of Ludwig von Mises was entirely unknown to them. Needless to say, the situation has not basically improved since then (unless perhaps in the sense that most college students would now recognize the name of William F. Buckley, Jr.). How has it been possible that the great majority of economics and social science students, even at elite American universities, are completely unfamiliar with Mises? Even the New York Times, in its notice at the time of his death in October 1973, termed Mises "one of the foremost economists of this century," and Milton Friedman, though from a completely different tradition of economic thought, has called him "one of the great economists of all time."
But Mises was even more than a great economist. Throughout the world, among knowledgeable people—in German-speaking Europe, in France, in Britain, in Latin America, in our own country—Mises was famous as the great twentieth century champion of a school of thought which could be said to have a certain historical importance and a certain intellectual respectability: the one that began with Adam Smith, David Hume, and Turgot, and included Humboldt, Bentham, Benjamin Constant, Tocqueville, Acton, Carl Menger, Pareto, and many others. Offhand, one would have thought that this acknowledged position alone would have entitled Mises to being presented within the "pluralistic" setting of left-liberal Academe.
And then there were Mises' scientific achievements, which were extraordinary. For example, it is conceded on all sides that in the whole discussion revolving around the viability of a system of central economic planning, Mises played the key role. Quite possibly the great intellectual scandal (still unadmitted) of the past century has been that the vast international Marxian movement, including thousands upon thousands of professional thinkers in all fields, was for generations content to discuss the whole issue of capitalism vs. socialism solely in terms of the alleged defects of capitalism. The question of how, and how well, a socialist economy would function, was avoided as taboo. It was Mises' accomplishment—and a sign of his superb independence of mind—to have brushed aside this pious "one-just-doesn't-speak-of-such-things," and to have presented comprehensively and arrestingly the problems inherent in attempting rational economic calculation in a situation where no market exists for production goods. Anyone familiar with the structural problems with which the more advanced Communist countries are continually faced and with the debate over ''market socialism,'' will perceive the significance of Mises' work in this field alone.
How then can we account for the fact that those who managed to take a Laski and a Thorstein Veblen—or even a Walter Lippmann and a Kenneth Galbraith—seriously as important social philosophers somehow could never bring themselves to familiarize their students with Mises or to show him the marks of public recognition and respect that were his due (he was, for example, never president of the American Economic Association)? At least part of the answer, I think, lies in what Jacques Rueff, in a warm tribute, called Mises' "intransigence." Mises was a complete doctrinaire and a relentless and implacable fighter for his doctrine. For over sixty years he was at war with the spirit of his age, and with every one of the advancing, victorious, or merely modish political schools, left and right. The totality and enduring intensity of his battle could only be fueled from a profound inner sense of the truth and supreme value of the ideas for which he was struggling. This (as well as his temperament, one supposes) helped produce a definite "arrogance" in his tone (or "apodictic" quality, as some of us in the Mises seminar fondly called it, using one of his own favorite words), which was the last thing academic left-liberals and social democrats could accept in a defender of a view they considered only marginally worthy of toleration to begin with. (This would largely account, I think, for the somewhat greater recognition that has been accorded Friedrich Hayek, even before his greatly deserved Nobel Prize. Hayek is temperamentally much more moderate in expression than Mises ever was, preferring, for instance, to avoid the old slogan of "laissez faire." And it is hard to imagine Mises making such a gesture as Hayek did in dedicating The Road to Serfdom "to socialists of all parties.")
But the lack of recognition seems to have influenced or deflected Mises not in the least. Instead, he continued his work, decade after decade: accumulating contributions to economic theory; developing the theoretical structure of the Austrian School (which one may read about in Murray Rothbard's very lucid and intelligent little book, The Essential Von Mises); and, from his understanding of the laws of economic activity, elaborating, correcting, and bringing up to date the great social philosophy of classical liberalism.
Now, within the classical liberal tradition, distinctions may be drawn. One very important one is between what may be termed "conservative" and "radical" liberals. Mises belonged to the second category, and on this basis may be contrasted to writers, for instance, such as Macaulay, Tocqueville, and Ortega y Gasset. There was very little of the Whig about Mises. The vaunted virtues of aristocracies; the alleged need for a religious basis for "social cohesion"; the reverence for tradition (it was somehow always authoritarian traditions that were to be reverenced, and never the traditions of free thought and rebellion); the fear of the emerging "mass-man," who was spoiling things for his intellectual and social betters; the whole cultural critique that later provided a substantial foothold for the attack on the consumer society—these found no place in Mises' thinking. To take an example, Tocqueville, in Democracy in America, at one point cries out: "Nothing conceivable is so petty, so insipid, so crowded with paltry interests—in a word, so anti-poetic—as the life of a man in the United States." Whether or not this judgment is true, Mises would never have bothered to make it. As a utilitarian liberal, he had more respect for the standards by which ordinary people judge the quality of their own lives. It is highly doubtful that Mises felt any of the qualms of liberals like Tocqueville at the Americanization of the world. (In fact, their attitude towards America would be a good rough criterion for categorizing a classical liberal as "radical" or "conservative.") Mises, then, was radical liberal, in the line of the Philosophical Radicals and the men of Manchester.
All the elements of radical liberalism are there: first of all, and most basic, his uncompromising rationalism, reiterated gain and again. (Symptomatic of Mises' avoidance of everything he would consider mystical and obscurantist in social thought is the fact that, to my knowledge, he never in all his published writings once mentions Edmund Burke except in the context of someone who, in alliance with writers like de Maistre, was ultimately a philosophical opponent of the developing liberal world.) There is his utilitarianism, taking the end of politics to be not "the good," but human welfare, as men and women individually define it for themselves. There is his championing of peace, which in the tradition of those nineteenth century liberals most closely identified with the doctrine of complete laissez faire—Richard Cobden, John Bright, Frédéric Bastiat, and Herbert Spencer—he bases on the economic substructure of free trade. And, more surprising, there is in Mises a basically democratic concern and, in an important sense, an egalitarianism, such that this requires special comment.
Mises' fundamentally democratic and egalitarian outlook is not, of course, to be understood in terms of belief in some innate equality of talents or in equality of income (about both of which so much nonsense is now being written and, more often, spoken). When Mises discusses the great question of the equality of human beings in society, he does not have in mind a future fantasy utopia, where each will absolutely count for one and none for more than one, but rather the empirical conditions under which human beings have hitherto found themselves in various societies. What have actually been the conditions of class, status, degree, and privilege in the history of mankind, and what difference does capitalism make? The history of pre-capitalist societies is one of slavery, serfdom and caste- and class-privileges in the most degrading forms. It is history made by slave-owners, warrior-nobles and eunuch-makers, by kings, their mistresses, and courtiers, by priests and other Mandarin-intellectuals—by parasites and oppressors of all descriptions. Capitalism shifts the whole center of gravity of society ("The World Turned Upside Down," as Lord Cornwallis' troops played at Yorktown). In the hackneyed but true and sociologically enormously important statement: every dollar, whether in the possession of someone totally lacking in the social graces, of someone of "mean birth," of a Jew, of a black, of someone no one ever even heard of, is the equal of every other dollar, and commands products and services on the market which talented people must structure their lives to provide. As Marx and Engels observed the market breaks down every Chinese Wall and levels the world of status and traditional privilege that the West inherited from the Middle Ages. It is the battering-ram of the great democratic revolution of modern times. (This is what is behind the continuing American Revolution that Revel talks about in his Neither Marx Nor Jesus, although he appears to be too superficial to be able to identify it.) Mises maintained that the pseudo-revolution which socialism would bring about would be much more likely to lead to the re-emergence of the society of status and the redegradation of the masses to the position of pawns, to be planned for by an elite which would assign itself the title role in the heroic melodrama, Man Consciously Makes His Own History.
As for as the caliber and quality of Mises' thinking goes, my own view is that he is able to penetrate to the heart of important questions, where other writers typically exhaust their capacities on peripheral points. Some of my favorite examples are his discussions of ''worker control" (which promises to become the preferred social system of the Left in many Western countries), and of Marxist social philosophy (which Mises deals with in a number of his books, most extensively and trenchantly in Theory and History, pp. 102–158). As an illustration of the power of Mises' thought, however, an example of greater interest to conservatives might be his clarification of the relationship of Christianity to capitalism and socialism.
That there is an intimate relationship between commitment to a free society and faith in Christianity is a view commonly found among American conservatives, and one that is usually argued for in the vaguest and most general terms. The thinking embodied in writings along these lines could, it seems to me, be tightened up immeasurably by a reading of the brief section in Mises' Socialism dealing with "Christianity and Socialism." For although the social philosophy implied in the Gospels is "not socialistic and not communistic,'' Mises asserts that the Gospels are of no help to the free society either being "indifferent to all social questions on the one hand, full of resentment against all property and all owners on the other.''
It was Christianity's very lack of close involvement with any particular social system that was in part responsible for its phenomenal success: ''Being neutral to any social system, it was able to traverse the centuries without being destroyed by the tremendous social revolutions which took place. Only for this reason could it become the religion of the Roman Emperors and Anglo-Saxon entrepreneurs, of African Negroes and European Teutons; medieval feudal lords and modern industrial laborers. Each epoch and every party has been able to take from it what they wanted, because it contains nothing which binds it to a definite social order." Interestingly, this is the same conclusion which Tocqueville finally reaches in his preface to The Old Regime and the Revolution, where he despairs of Christianity's being of any particular value for the free society, because "the patrimony of the Christian faith is not of this world."
Christianity, moreover, could sometimes be harmful to the free society. Mises, who had witnessed the rise to prominence of a ''Christian social thought'' and Christian social movements that tried to distance themselves equally from socialism and from horrid laissez faire, underscored the continued warfare of the churches against liberal institutions in terms which some may find surprising: "It is the resistance which the Church has offered to the spread of liberal ideas which has prepared the soil for the destructive resentment of modern socialist thought. ... It is not as if the resistance of the Church to liberal ideas was harmless. ... In the last decades we have witnessed with horror its terrible transformation into an enemy of society. For the Church, Catholic as well as Protestant, is not the least of the factors responsible for the prevalence of the destructive ideals in the world today. ... "
Finally, Mises contrasts the ethical achievements of Christianity over two thousand years with what capitalism has accomplished in a couple of centuries: ''Compare the results achieved by these 'shopkeeper ethics' with the achievements of Christianity! Christianity has acquiesced in slavery and polygamy, has practically canonized war, has, in the name of the Lord, burnt heretics and devastated countries. The much abused 'shopkeepers' have abolished slavery and serfdom, made woman the companion of man with equal rights, proclaimed equality before the law and the freedom of thought and opinion, declared war on war, abolished torture, and mitigated the cruelty of punishment. What cultural force can boast of similar achievements?"
What emerges from these pages is by no means a free-thinking attack on Christianity per se: Mises, perfectly content with his own personal rationalist and scientific world-view, looking on all forms of "fanaticism" with an almost French irony and skeptical detachment, could not be less interested in any individual's profession or religious faith. But, as a historical and sociological matter, the notion that Christianity is particularly useful to proponents of a free society (in reason, of course, and not as a propagandist's trick), and the naive Sunday preacher's idea that it is synonymous in actual practice with all elevated ethics, are rendered completely untenable.
We appear to be entering an age of increasing "social" concern on the part of the Christian churches: as an example, after centuries of (at best) utter indifference to mercantilist-created poverty, to imperialism, overpopulation, and other causes of world wars, Roman Catholic bishops meeting at a synod in Rome have expressed their deep concern over "structural" injustices in the international economy, including multi-national corporations and the world monetary system. While some Christian theologians engage in "dialogues" with Marxist theoreticians, others are desperately anxious to prove the relevance of their creed to current problems through all sorts of activism and "witnessing." Perhaps most significantly, in the spring of 1973, a Vatican publication expressed its profound admiration of the society that is being built in China, and noted the similarity of many of its values and aspirations to those of Christianity and the social teachings of the popes. In particular it praised that filthy anthill for its "devotion to the mystique of disinterested work for others, to inspiration by justice, to exaltation of simple and frugal life[!], to rehabilitation of the rural masses, and to a mixing of social classes." Thus, we may be seeing before our very eyes the accommodation of organized Christianity to the next social system, the emerging world state-socialist order. In any case, over forty years ago Mises provided us with a perspective on the situation: Christianity existed for many centuries before capitalism; it may well outlive it. And not only is there no reason to assume any intrinsic connection between the two, but the Christian churches in many ways prepared the ground for the twentieth century's almost unanimous intellectual condemnation of the capitalist system.
No appreciation of Mises would be complete without saying something, however inadequate, about the man and the individual. Mises' immense scholarship, bringing to mind other German-speaking scholars, like Max Weber and Joseph Schumpeter, who seemed to work on the principle that someday all encyclopedias might very well just vanish; the Cartesian clarity of his presentations in class (it takes a master to present a complex subject simply); his respect for the life of reason, evident in every gesture and glance; his courtesy and kindliness and understanding, even to beginners; his real wit, of the sort proverbially bred in the great cities, akin to that of Berliners, of Parisians and New Yorkers, only Viennese and softer—let me just say that to have, at an early point, come to know the great Mises tends to create in one's mind life-long standards of what an ideal intellectual should be. These are standards to which other scholars whom one encounters will almost never be equal, and judged by which the ordinary run of university professor—at Chicago, Princeton, or Harvard—is simply a joke (but it would be unfair to judge them by such a measure; here we are talking about two entirely different sorts of human beings).
Finally, for the serious reader of politics and social philosophy who has never studied Mises my advice would be to make the omission good as soon as possible: it will save a lot of otherwise wasted effort on the road to truth in these matters. The Free and Prosperous Commonwealth or Bureaucracy would be a good place to start; or, for those with a special interest in twentieth century history, Omnipotent Government; or his Socialism, which remains for me the finest book I have ever read in the social sciences. Considering the absolutely critical place America has in Western civilization today, it would truly be a tragedy if a few establishment professors succeeded in keeping intelligent young Americans from acqainting themselves with the rich heritage of ideas left us by Ludwig von Mises.
Gene Epstein, former Barron’s economics editor and founder of the Soho Forum, joins Bob for a lively discussion covering a variety of topics. Gene explains that his mother, a card-carrying member of the Communist Party, had an FBI file and was responsible for Gene’s original position as a democratic socialist. It was only through his reading of Murray Rothbard’s Man, Economy, and State that Gene became a free-market libertarian. Gene recounts his experiences teaching economics and working on the New York Stock Exchange, and shares examples of the abuse of economic statistics as detailed in his book Econospinning. Finally, Gene offers Bob some advice for his upcoming debate with Tom Woods.
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After World War II, the "Old Right" was derailed by an interventionist group of anti-communist crusaders—and Libertarian ideas went by the wayside. Here, Murray Rothbard tells the sorry tale from the inside.
Narrated by Ian Temple.
Download the complete audiobook (16 MP3 files) here. This audiobook is also available on Soundcloud, Apple Podcasts, Google Podcasts, and via RSS.
Professor Carmen Dorobăț grew up in Romania—too young to remember Ceaușescu, but deeply aware of what socialism did to her country. Fortunately, she discovered Ludwig von Mises during her university years and found her passion for economics. She joins Jeff Deist to discuss how Mises's work and legacy paved the way for her and an entire generation of younger scholars.
David R. Henderson underwent a personal odyssey in his discovery of free-market economics. David tells Bob the story of his recruitment by Harold Demsetz, and how David ended up at UCLA during its glory days. The conversation turns to David's time on the Council of Economic Advisors to Ronald Reagan, as well as David's unusual position as a professor at the Naval Postgraduate School while he was a columnist for Antiwar.com.
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[Originally printed in the journal Procesos de Mercado: Revista Europea de Economía Política 14, no. 2 (Autumn 2017).] 1. Personal Life and Career 1.1 Early Life
Prof. Jesús Huerta de Soto Ballester is one of the leading Austrian School economists in the contemporary era. On December 23, 1956, Huerta de Soto was born in a devout Catholic and business family in Madrid, Spain. As early as 1928, his grandfather Jesús Huerta Peña started running an insurance company called “ESPAÑA S.A”. In 1954, Jesús Huerta Ballester, father of Huerta de Soto, began running this enterprise with Huerta Peña. After two generations of painstaking efforts, the business reached a considerable size and strength and grew into one of the most important companies in the insurance industry in Spain. The growing business environment and classical liberalism played a significant role in shaping Huerta de Soto, and led him to become an insightful Austrian School economist. In 1972, 15-year-old Huerta de Soto read Milton Friedman’s Capitalism and Freedom from the book collection of the library of his libertarian father's library.Huerta de Soto (2016). This is the first libertarian book that Huerta de Soto read. Some time later, by chance, Huerta de Soto also read Ludwig von Mises’ Human Action at the age of 16.Huerta de Soto (2010a). After that, he became a convinced libertarian. In the autumn of 1973, with the help of his father Huerta Ballester and other passionate scholars, Huerta de Soto started to participate in the seminars of Austrian Economics that took place every Thursday in Madrid. The participation in these seminars provided Huerta de Soto a unique and excellent opportunity to explore the thoughts of the Austrian School and the errors of Keynesian Economics and the Chicago School.Huerta de Soto (2015), pp. 11
Huerta de Soto soon showed his interest and talent in law and economics, and the relatively well-off family made the young Huerta de Soto fully devoted to his academic research. He obtained his bachelor degrees in both law and economics from Complutense University of Madrid (UCM) in 1978, and one year later he began working as an assistant professor of Political Economy at the Faculty of Law of the UCM. With a recommendation letter from Prof. F. A. HayekIbid, pp. 11. and the support of his family, Huerta de Soto went to study at Stanford University from which he obtained his MBA in 1983. During this period he deepened his knowledge on Austrian Economics, especially on the capital theory and on the theory of the market process. During his studies in the USA, with the help of his friends from the Institute of Humane Studies, Huerta de Soto met Murray Rothbard, one of the best students of Ludwig von Mises. Together they discussed the most controversial and exciting topics in economics.Ibid, pp. 11. When remembering this story, Huerta de Soto said that knowing Rothbard was “possibly the greatest intellectual experience.”Translated from Ibid, pp. 11. The original text in Spanish is “posible la gran experiencia intelectual”.
1.2. Academic Career and Contributions to Liberty
When Huerta de Soto finished his studies at Stanford, he went back to Spain. Once back in Spain his thesis Private Pension Planning;Ibid, pp. 12. The original title of the thesis in Spanish is Planes de pensiones privados. was awarded King Juan Carlos International Prize of Economy. His thesis discussed how to articulate a private pension system and its relative advantage compared to that of the government. One year later, based on his thesis,Huerta de Soto (2017). he obtained his Ph.D. degree in law from the Complutense University, and his doctoral thesis Private Pension Planning was published. During his tenure in the law faculty of Complutense University, Huerta de Soto continued studying economics and shorty after was awarded his Ph.D. degree in economics. In 1992, based on his economics thesis, The Controversy over Socialist Economic Calculation,Ibid. The original title of the thesis in Spanish is La polémica sobre el cálculo económico socialista. and other academic works, the 36-year-old Huerta de Soto published his famous book Socialism, Economic Calculation and Entrepreneurship,The title of the book in Spanish is Socialismo, cálculo económico y función empresarial. See Huerta de Soto (1992). which demonstrates the impossibility of socialism. The historical and academic background of the debate on the economic calculation problem of socialism of the 1920’s between the Austrian School and the Neoclassical School, served as a starting point. Huerta de Soto’s bookHuerta de Soto (2010b). soon became the Austrian School reference book for the study of the socialist economic calculation problem. In his book he systematically and comprehensively discusses the impossibility of socialism from the perspective of entrepreneurship and the nature of socialism.
The 1990s was one of the peaks of Huerta de Soto’s academic career. In 1998, his other great book, Money, Bank Credit, and Economic CyclesHuerta de Soto (2006). (a systematic analysis of business cycles and free banking theory) was published. Dr. Jörg Hülsmann believes that this book was “the first Misesian treatise on money and banking to appear since [the] publication”Hülsmann (2000), pp. 86. of Mises’s original work Theory of Money and Bank CreditMises (2013). in 1912, and is “the most comprehensive analysis of fractional-reserve banking and of business cycles in print,”Hülsmann (2000), pp. 88. and considers that “[a]ll serious students of these subject matters will have to become acquainted with it.”Ibid.
Professor Huerta de Soto makes every effort to cultivate younger generations of Austrian School scholars. In 2000, he became a full-time professor of Political Economy at Rey Juan Carlos University in Madrid (URJC),Huerta de Soto (2017). See http://www.jesushuertadesoto.com/curriculum-vitae-en/teaching-activities. continuing his systematic teaching of Austrian School Economics which he began in the 1980s at Complutense University. Prof. Huerta de Soto currently also serves as a doctoral director. In 2004, Huerta de Soto founded the journal Procesos de Mercado,Ibid. See http://www.jesushuertadesoto.com/curriculum-vitae-en/other-achievements. which is the first contemporary Austrian Economics’ academic journal in Spain. Austrian economists all around the world, especially the Spanish speaking young scholars, enthusiastically submit their articles to this journal, regarding it as a good place to improve their academic research and to communicate with other researchers.
During Huerta de Soto’s academic and teaching career, he inherited the life insurance company that his grandfather and father had operated for many years, and gradually he has become a fruitful and steady entrepreneur. In 2005, after 51-years working for the company, Huerta de Soto’s father Jesús Huerta Ballester retired and became the Honorary President of the Company.España, S.A. (2012). The management of the company was then transferred to Huerta de Soto.
That same year, with the assistance of Huerta de Soto, Spain established its first libertarian-economic institute, Instituto Juan de Mariana, building a bridge between the Spanish speaking countries and libertarians all around the world. The Instituto Juan de Mariana has been heavily influencing on the Spanish speaking libertarians.
In pro of the new generations of Austrian School economists, in September 2007 Huerta de Soto founded the Official Master in Economics of the Austrian SchoolThe title of the master’s program in Spanish is: Master Oficial en Economía de la Escuela Austríaca. See its official web page: https://www.urjc.es/universidad/facultades/facultad-de-ciencias-de-la-comuni-cacion/909-economia-de-la-escuela-austriaca. at the Rey Juan Carlos University in Madrid, and started working as its director and coordinator. This program is the world’s first master program on the Austrian School of Economics. Since then, Huerta de Soto has been cultivating young Austrian scholars and students from undergraduate to doctoral students all-around the world at Rey Juan Carlos University. Every Thursday night Professor Huerta de Soto’s economics seminar takes place. Libertarians and Austrian scholars from all around the world, as well as influential people in the areas of politics and business, from both Spain and Europe, attend his seminars and courses. The participants enjoy his passionate and unique style when giving his lectures. He has inspired some of his students at URJC to become Austrian scholars, including the professors of the Master in Economics of the Austrian School, such as Miguel Ángel Alonso Neira, Philipp Bagus, Juan Ramón Rallo, and others. Young students can also choose these professors as directors of their master and Ph.D. theses. Other students have become entrepreneurs, and others are contributing in many ways to the libertarian movement.One example of Huerta de Soto’s outstanding students in the libertarianism movement is Dr. Wolf von Laer, who is the current CEO of Students for Liberty, and received his master degree in Economics from the Austrian School at Rey Juan Carlos University.
Professor Huerta de Soto has also contributed to the global libertarianism movement by donating his publications and his collections of Austrian School works. In Spain, he has given thousands of books to the Instituto Juan de Mariana, Students for Liberty (SFL) and other research institutions and movements related to the Austrian School and libertarianism. Many young Spanish people, who have become libertarians and followers of the Austrian School by reading Huerta de Soto and by listening to his speeches, are devoting themselves to the libertarian movement as Austrian scholars, journalists, editors, and entrepreneurs. Now, every year, thousands of young Spanish people participate in SFL activities through conferences, meetings, and dinners. The books of the Austrian School of Economics have also appeared in leading libraries and bookstores in Spain because of the effort of Professor Huerta de Soto and his disciples. His followers continue to express their views through media and academic journals, extending the influence of the Austrian School and libertarianism to the public and to academia. The idea of libertarianism and market economy is becoming more and more of a concern within the Spanish people, especially the younger elite.
As Spanish is also one of the main languages in Latin America, these libertarian activities supported by Professor Huerta de Soto have also been introduced into that region through donations of books, correspondences, online courses and other means. A variety of research institutions, student movements, conferences and other activities on the Austrian School and libertarianism continue to flourish in Latin America. In Guatemala, the great disciples of Huerta de Soto, represented by Gabriel Calzada, are teaching Austrian School Economics at the libertarian university, Francisco Marroquín University (UFM).The name of the university in Spanish is Universidad Francisco Marroquín. The UFM has become one of the roots of the Austrian tradition in Latin America, and has started researching with George Mason University, the Mises Institute, the Cato Institute, the Foundation of Economic Education (FEE) and other prestigious libertarian educational institutions and think tanks. Even in the dictatorship of the Communist Cuba, by the efforts of Professor Huerta de Soto and other liberty fighters, the real economic knowledge and classical liberal ideas have gradually broken through the ideological fence.Constanza Huerta de Soto, personal communication in Students for Liberty Madrid’s activities, October 8, 2016. Some Cubans expressed their desire to know more about the essence of communism, capitalism and the Austrian School Economics, and Huerta de Soto generously sent the related books as gifts.Ibid. After reading the books, these Cubans were enlightened by the impossibility of the socialist economic calculation and the need of building a true free society in Cuba.Ibid.
Professor Huerta de Soto’s enthusiasm in academia and libertarianism has changed the fate of countless people, especially many young students. Both the perseverance of Huerta de Soto and his disciples’ academic research are particularly noteworthy in the expansion of libertarianism in Spain and Latin America. Huerta de Soto not only pursues his personal success in business and the development of his own academic knowledge, but also the benefit of all people around the world, especially the young generations, who seek to understand and construct a free society through their creativity and entrepreneurship.
In 2009, Huerta de Soto’s third scholarly work The Theory of Dynamic EfficiencyHuerta de Soto (2009). was published, which developed the definition of dynamic efficiency in economic science. His books and papers have been translated into at least 21 languages and have been published all around the world. In the next section, Huerta de Soto’s academic contributions will be reviewed.
We consider that Huerta de Soto has made three great theoretical contributions: the systemic understanding of the theory of the impossibility of socialism, the theory of bank credit and economic cycles, and the theory of dynamic efficiency. Based on MisesMises (1998). (the thoughts of entrepreneurship, the critics of socialism and the understandings of the methodological and theoretical problems of Neoclassical Economics), RothbardRothbard (1998), pp. 3-26. (the theories of natural law in banking issues), and HayekHayek (1988). (the theory of the social evolutionary process and spontaneous order), he has become a worldwide reference on the Austrian School of Economics. With his deep understanding of both Austrian Economics and Neoclassical Economics, Huerta de Soto has innovatively outlined the systematic and comprehensive theories of the Austrian School. His greatest academic challenge has been inheriting the Austrian traditions and at the same time breaking new academic ground for the future; which are vital for the development of the Austrian School and are particularly important for young scholars to have a comprehensive understanding of the economic science.
Huerta de Soto is also significantly contributing to the development of the Austrian School in China, by helping young Chinese scholars to study Austrian Economics. Because of his support and invitations, at least six young Chinese libertariansThe young Chinese libertarians who have come to Madrid to study with Professor Huerta de Soto, since 2012, are the following (in order of the time they arrived in Spain): William Wang, Yang Zhou, Jason Li, Tyler Xiong, Chao Pan and Isla He. After reading and watching the materials of Austrian Economics online, a young gentleman, Alan Bi, who had just graduated with a bachelor’s degree of trade at the Complutense University, joined the Chinese libertarian group in 2015, and is now organizing the weekly seminars of Austrian Economics for Chinese students in Madrid inspired by what Huerta de Soto and other Austrian scholars have done. have come to study under his direction in the Master in Economics of the Austrian School since 2012. Three of them continued their Ph.D. research in economics deepening their knowledge on the Austrian School. Additionally, with the help of Professor Huerta de Soto, a series of works on the Austrian School have been published in China, including his book The Austrian SchoolHuerta de Soto (2010c). and his three-other major academic books: Socialism, Economic Calculation and Entrepreneurship; Money, Bank Credit, and Economic Cycles; and The Theory of Dynamic Efficiency. He also maintains regular communication with the Chinese Austrian scholars, following the development of the Austrian School in China, and providing help and guidance to the Chinese scholars. Huerta de Soto’s theories on socialism, free-banking, and dynamic efficiency are being widely disseminated among Chinese libertarians, and are becoming the focus of study, analysis and discussion of the Austrian School in China. With the guidance and help of Professor Huerta de Soto, more and more articles from the Chinese scholars on the application and extension of his theories have been published in China and abroad. On behalf of the Chinese scholars studying Huerta de Soto’s academic works, we are very grateful for his selflessness and generosity. In this way, Professor Huerta de Soto’s ten recommendations for young students are spurring us forward:
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Be enthusiastic. Enthusiasm is the inner psychic energy that moves us to act to achieve our goals. What do we do when we don’t feel enthusiasm? Act as if we are enthusiasts, and we will be enthusiastic.
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To persevere.
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Always act the best you can. Put the principles before the seemingly useful or practical.
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Never worry about anything. Worrying means you are wasting time.
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Learning languages (English). Learning English is as important as academic study.
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Being aware of what is happening in the world.
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Properly balance professional, family and cultural goals. The family side includes family and friends and the cultural side includes physical and spiritual culture (art, travel, history, etc.).
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Be a good entrepreneur.
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Have a critical spirit. Ludwig von Mises said, “Tu ne cede malis sed contra audentior ito.” (Do not give in to evil, but proceed ever more boldly against it).
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Having an excellent, serious and ethical behavior in all areas in our lives. If we ever act badly we must recognize the error, try to solve the damage caused by it and go ahead with all the advice we have learned.González (2011).
For decades, Huerta de Soto has devoted significant effort to academia, business, and the libertarian movement in Spain and in the international society. His modest, professional and serious attitudes towards the thoughts of economic schools, his hard work in the insurance industry, his care and guidance to students, his deep love of freedom, and his selfless, sincere and enthusiastic contribution to liberty has already become a milestone in the history of the Austrian School and libertarian movement, inspiring the revival of the Austrian school and classical-liberalism. In the next section, we will focus on the main academic achievements of Professor Huerta de Soto.
- Theoretical Contributions of Huerta de Soto 2.1. Theory of the Impossibility of Socialism
One of Huerta de Soto’s greatest academic contributions is his theory on socialism. He redefines socialism by introducing the concept of entrepreneurship, and makes a synthesis of the economic calculation problem of socialism based on the previous Austrian scholars. He also contributes to the theory of different types of socialism and the theory of impossibility of computerized central planning.
2.1.1. Entrepreneurship and Why Socialism is Impossible
In Human Action, Mises defined entrepreneurship in a broader sense as “acting man exclusively seen from the aspect of the uncertainty inherent in every action,”Mises (1998), pp. 254. which means that the entrepreneur has to take the risk of uncertainty in the future as a result of his entrepreneurial decision. Mises also believed that entrepreneurship is the driving force of the whole market system. He said,
"[I]t is impossible to eliminate the entrepreneur from the picture of a market economy. … In eliminating the entrepreneur one eliminates the driving force of the whole market system."Mises (1998), pp. 248.
Inheriting Mises’ definition of entrepreneur, Huerta de Soto creates two related definitions on entrepreneurship, in the broad and the strict sense. The broad sense is equal to human action. He argues that by bearing uncertainty, “[E]ntrepreneurship actually coincides with human action. In this respect, it could be said that any person who acts to modify the present and achieve his objectives in the future exercises entrepreneurship.”Huerta de Soto (2010b), pp. 15. And human action is “any deliberate behavior or conduct”; “In acting, all men seek to accomplish certain ends which they have discovered are important to them.”Ibid, pp. 16. Based on Israel Kirzner’s strict definition of entrepreneurship as the function of alertness,Huerta de Soto comments on what Kirzner has contributed to the concept of entrepreneurship. He says, “Kirzner holds that the exercise of entrepreneurship entails a special alertness; that is, a constant vigilance, which permits a person to discover and grasp what goes on around him”. See Ibid, pp. 16. For more about Kirzner’s theories of entrepreneurship, see Kirzner (1973, 1979, 1985). Huerta de Soto defines that being an entrepreneur means trying to find a profitable market opportunity and the information for this end through a dynamic market process; thus entrepreneurship “consists basically of discovering and perceiving (prehendo) opportunities to achieve an end, or to gain a profit, and acting accordingly to take advantage of these opportunities which arise in the environment.”Ibid, pp. 19.
As Huerta de Soto points out, “[i]t is impossible to grasp the concept of socialism without a prior understanding of the essence of entrepreneurship.”Huerta de Soto (2010b), pp. 15. Based on the analysis of entrepreneurship, Huerta de Soto defines the characteristics of information as subjective, creative, tacit, practical, and dispersed.Ibid, pp. 10. He further defines socialism as “any system of institutional aggression on the free exercise of entrepreneurship,”Ibid, pp. 49. and aggression or coercion by means of “all physical violence or threats of physical violence which another person or group of people initiates and employs against the actor.”Ibid, pp. 49.
Huerta de Soto also systematically reviews the historic debate between the Austrian School, represented by Ludwig von Mises, and the Neoclassical Economics represented by Oskar Lange.For more details about the background and arguments on the economic calculation debate between Austrian School and Neoclassical Economics, see Ibid, pp. 99-172 (Chapter 4 to Chapter 6). In the great debate on the economic calculation problem, Mises and other Austrian School Economists demonstrated that it is impossible for any coercive social institution to make economic calculation. Huerta de Soto concludes why socialism is impossible, as an intellectual error, it is impossible to coordinate “social behaviors via a system of institutional coercion against free human interaction.”Ibid, pp. 254. He argues that if there is no freedom to practice entrepreneurship, and if the decision is made arbitrarily and coercively, the subjective information necessary for rational economic calculation cannot be created, nor “is it possible for economic agents to learn to discipline their behavior in terms of the needs and circumstances of [other social coordination].”Ibid, pp. 254.
2.1.2 Different Types of Socialism
Huerta de Soto also connects the theoretical definition of socialism with its various types in real world.Prof. Huerta de Soto’s accurate illustrations of different types of socialism in the real world provide our Chinese scholars with a good tip to expound upon another two typical types of socialism: authoritarian socialism (威權社會主義) and Chi-nese socialism (中國特色社會主義). Both types of the socialism believe that a political dictatorship, irrespective of whether it is a political party or a personal dictatorship, would be good for the civilization that it rules. Chinese Socialism, which is mainly applied in the ruling communist countries like Mainland China or Vietnam, is more aimed to maintaining the dictators’ coercive power and benefit through dis-inter-vened entrepreneurial activities. However, Chinese socialism does not dynamically see the market process as the best way to coordinate the needs of different individ-uals, but rather, statically sees it as a stratagem to maintain the political power and economic benefit of the crony elites. Under Chinese socialism, the entrepreneurship of individuals is limited to commercial activities. One could think that with regard to the conditions for exchange, individuals can’t blame political coercion. The truth is that the political coercion of Chinese socialism also extends to commercial activi-ties, by violating property rights and creating discoordination and distortion for individuals in the exercise of their entrepreneurship. Not only does he mention the typical and well-known Soviet-type socialism (“real socialism”Ibid, pp. 77-78.), democratic socialism,Ibid, pp. 78-79. social engineering,Ibid, pp. 80-82. and syndicalist socialism,Ibid, pp. 83. but also the conservative or “right-wing” socialismIbid, pp. 79-80. and Christian or solidarity-based socialism,Ibid, pp. 82-83. which are usually ignored by the conservatives in western countries. He argues that conservative or “right-wing” socialism is “institutional aggression … employed to maintain the social status quo and the privileges certain people or groups of people enjoy”;Ibid, pp. 79. thus, he sharply criticizes that “conservatism is an obscurantist doctrine which completely overlooks the manner in which social processes driven by entrepreneurship function, and specifically, the problem of the ineradicable ignorance which envelops all leaders.”Ibid, pp. 80. Further, Huerta de Soto also points out that some spiritual socialists, like Christian socialists, are in favor of “systematic, institutional use of coercion to modify” Ibid, pp. 82. the “immoral” or “unjust” results of human action. He argues that the development of our civilization relies on the social process of human interaction in which many people are far away from knowing each other, and thus pursuing morally superior goals per se is immoral.Ibid, pp. 82-83.
2.1.3. Computer and Central Planning
Another contribution of Prof. Huerta de Soto’s theory of socialism is the theory of the impossibility of computerized central planning. One common fallacy related to computer science is that many people believe that as the technology of computers develops so fast, one day computers can completely receive, create and transmit all the information, making it possible for central planners to deal with the information problem. On the contrary, Huerta de Soto clearly illustrates that though computers can help people manage information better, as information is “practical, dispersed, and tacit,”Ibid, pp. 59. individuals would entrepreneurially generate “progressively deeper and more detailed”Ibid, pp. 59. information by their entrepreneurship, making it harder for central planners to handle more informatio. Ibid, pp. 59. Huerta de Soto illustrates that it is not only the development of computer science that makes it more difficult for central planners to deal with information, but the nature of computers, as manmade machines, “will never be capable of acting or exercising entrepreneurship,”Ibid, pp. 59. and “will never be able to create new practical information from nothing, to discover and seize new profit opportunities unnoticed up to that point.”Ibid, pp. 59. The reason why computers cannot act as a human being to deal with information is that the information itself is “entrepreneurially discovered or created” by acting men;Ibid, pp. 60. thus computers can “only be used to manage articulated, formalized, and objective information.”Ibid, pp. 60. Huerta de Soto, therefore, distinguishes two related but different concepts, knowledge (subjectively created by human being) and data (objectively stored by computers), successfully refuting the fallacy that computer science can make socialist calculation possible.
2.2. Theory of Bank Credit and Economic Cycles
The second great and original theoretical contribution of Huerta de Soto is his theory on bank credit and economic cycles, especially the theory of free-banking laws, the clear demonstration of the business cycle, the theory of distortion on entrepreneurs created by fractional-reserve banking, the application of the theory of the impossibility of socialism in the banking system, the critiques on fractional-reserve free-banking, and his policy suggestions on banking reform.
The study of monetary theory not only involves the content of political economics but also various other subjects such as law, ethics, and mathematical statistics. Huerta de Soto has a thorough grasp of the above subjects, achieving mastery through a comprehensive study of monetary issues.
2.2.1. The Distinction between Loan Contracts and Deposit Contracts in both Economics and Law
Huerta de Soto starts by reviewing how Roman law defined banking credit,Huerta de Soto (2006), pp. 1-36. and points out that it is necessary to clarify two different types of financial contracts, loan contracts and deposit contracts, which are often confused by the modern banking system. For the loan contracts, Huerta de Soto defines two sub-classifications. The first is the loan of use, “in which case only the use of the lent item is transferred and the borrower is obliged to return it once it has been used,”Ibid, pp. 1. and the second is the loan for consumption, “where the property of the lent item is transferred.”Ibid, pp. 1. No matter what the specific classifications of loan contracts are, both “entail the transfer of the availability of the good, which shifts from the lender to the borrower for the duration of the term.”Ibid, pp. 4. In the perspective of economics in deposit contracts,For more cases of 100 percent gold dollars, see Rothbard (2001). Though we do not agree with Rozeff’s view on being against 100 percent reserve, his argument of whether if it is proper to call an institution that cannot issue loans but only keeps deposits a bank, should also be discussed. He said, “[a] proper bank would … hold all deposits intact and become a 100 percent reserve-storage or safety-deposit bank, although to call such a business a bank under these conditions is something of a misnomer because such a so-called bank makes no loans.” See Rozeff (2010), pp. 497. exchanging present goods for future goods is not allowed, as goods should always be available for the depositor. However, in the loan contracts, the situation is the contrary — there is always a transfer of availability from the lender to the borrower.Ibid, pp. 15. After the above theoretical demonstrations, Huerta de Soto provides an amazing historical review of how bankers and politicians violated the legal principles of both loan contracts and deposit contracts from ancient Greece and Rome through the 20th century, especially how the violations happened in Europe.Ibid, pp. 37 to 114. Thus, we can conclude that, “throughout history central banks have emerged not as a result of the spontaneous, evolutionary free-market process, but as a consequence of deliberate government intervention in the banking sector.”Ibid, pp. 647.
2.2.2. The Demonstration of Business Cycles
Huerta de Soto demonstrates two types of economic cycles, the cycles in voluntary saving or in the free banking system,Ibid, pp. 313-346. and the cycles triggered correspond to credit expansion of the central banking system.Ibid, pp. 347-384. The latter, which the current government central-banking system, can cause more severe and systematic problems than the cycles in voluntary saving and the free-banking system. Based on Austrian Capital Theory,For more information about Austrian Capital Theory, see Böhm-Bawerk (1890), Garrison (1990) and Kirzner (1996). Huerta de Soto demonstrates the stages of the business cycle which are created by central banking. In the first place, though entrepreneurs have made incorrect market decisions, the central bank still creates more credit and grants it to entrepreneurs, causing a decrease in the interest rate. As more credit has been invested in the market, the prices of capital goods and the prices in the stock market will rise, and productive structures will also be lengthened artificially. This leads to more workers being hired in capital-good fields because of the artificial growth in productive structures. As the money in the market and the production of capital goods seems to be promising, the wages of workers will also rise; the “[m]onetary demand for consumer goods begins to grow.”Huerta de Soto (2006), pp. 506. Then the Ricardo Effect occurs and “capital equipment is replaced by workers.”Ibid, pp. 506. The collapse of the boom emerges: the demand decreases, while costs, interest rate and prices all rise, marking the start of the depression. Capital-good sectors suffer heavily from accounting losses, and more workers will be fired in capital-goods industries. At this stage, entrepreneurs find that they have made many poor investments, and liquidate the erroneous investment projects. Some enterprises will go bankrupt and suspend their payments due to the malinvestment plans. As entrepreneurs are not able to repay their credits, banks will also face bankruptcy, thereby squeezing their credit to avoid more mistakes. The crisis makes the productive structures shorter and the economy gradually enters recovery, and the increase in voluntary saving can recover.
2.2.3. The Theory of Distortion on Entrepreneurs caused by Fractional-reserve
Huerta de Soto points out how artificial credit expansion distorts entrepreneurship in a fractional-reserve banking system. He states, “While the expansion lasts, people’s capacity for work is pushed to the limit and their entrepreneurial spirit becomes corrupted,”Ibid, pp. 457. and they focus on short-term goals based on the credit expansion instead of long-term goals and frugality. This also discourages entrepreneurship of the “society’s youngest, most innovative and dynamic generations.”Ibid, pp. 458. And as businessmen, intellectuals and other economic agents and social elites take it for granted that the artificial credit expansion and the boom and recession are natural economic phenomena, government will support more pro-credit-expansion policy to meet the satisfaction of the above popular opinions. Thus, credit expansion has become an “old story [that] repeats itself.”Mises (1998), pp. 578.
2.2.4. The Application of the Theory of the Impossibility of Socialism to the Banking System
Huerta de Soto also applies his theory of the impossibility of socialism to the Austrian Business Cycle Theory. First, he demonstrates that the central banking system is against traditional monetary legal principles, causing social discoordination. Through central banking, entrepreneurs will be misled by inaccurate information and by the privileges authorized by the state. Some entrepreneurs would even irresponsibly make their decision of investment due to the cheap artificial credit.Huerta de Soto (2006), pp. 651. As Huerta de Soto points out, even if we suppose that the decision makers of central banks are not corrupted to give privileges to some bankers (we have to admit that it rarely happens as the decision making of the central banking system is based on coercion of political power), central banking still faces the problem of not being able to create and carry out sufficient information for serving the financial system.Ibid, pp. 656 to 657. Huerta de Soto says,
"[T]he central bank is obliged to make an unceasing effort to collect an extremely vast quantity of statistical information on the banking business. … For such information is not only extraordinarily profuse; but what is more important, it is also subjective, dynamic, constantly changing, and particularly difficult to obtain in the financial sector. Hence it is painfully obvious that the central bank cannot possibly acquire all the information it would need to act in a coordinated manner, and its inability to do so is one more illustration of the theorem of the impossibility of socialism, in this case applied to the financial realm."Ibid, pp. 656 to 657.
2.2.5. The Critiques on the Fractional-reserve Free-banking Theory
According to Huerta de Soto, the fractional-reserve free-banking theory (FFT) has six fallacies. The first fallacy is that it assumes that the demand for money in fiduciary media is exogenous to the fractional-reserve free-banking system (FFS).Ibid, pp. 679. In fact, it is the credit expansion per se in FFS that causes the demand of fiduciary media, distorting the productive structure and causing the economic boom and the recession.Ibid, pp. 681. Thus, the demand for money in fiduciary media is an endogenous variable in FFS. The fundamental error, which FFT makes, “lies in a failure to reflect that public demand for credit depends precisely on banks’ inclination to lend.”Ibid, pp. 683. The second fallacy of FFT is the monetary equilibrium formula of the FFT’s equilibrium theory. Like Neoclassical monetary theory, the FFT also uses equilibrium formula; however, the monetary equilibrium formula can only deal with the last stage of the social and production process. On the contrary, the Austrian methodology says that there is always a dynamic entrepreneurial process and tendencyIbid, pp. 685. to reach equilibrium in monetary issues, but that the equilibrium is never actually reached.Ibid, pp. 685. New credit issuers will make errors as they have to face the uncertainty of the new demand for credit; thus, the equilibrium theory and formula of FFT are false.Ibid, pp. 685 to 686. The third fallacy of FFT is that it ignores the microeconomic effects but over analyzes the macroeconomic effects triggered by FFS. Ibid, pp. 688. Huerta de Soto points out that FFT focuses on analyzing the equation of exchange of the general price level, as monetarists or Keynesians do.Ibid, pp. 689. But as price and production structures have been distorted, the newly issued credit will never be immediately and directly sent to the people who value and prefer them more in a fractional-reserve system, making the equation of exchange impossible.Ibid, pp. 689. The fourth fallacy of FFT is the confusion between the concept of saving and the demand for money. FFT claims that money balance is equal to “savings”. However, Huerta de Soto illustrates that there are only three ways in which economic agents can employ their money: spending on consumer goods and services, spending on investments, and holding them (hoarding)Murray Rothbard also gives a specific explanation on hoarding. For more information about hoarding see Rothbard (2016). as cash balances or fiduciary media.Huerta de Soto (2006), pp. 695. Thus, savings (investment) and money balance are two different concepts and “a rise in the balance of fiduciary media may very well depend on a drop in investment spending, … which makes it possible to increase final monetary expenditure on consumer goods and services.”Ibid, pp. 695. “Under these circumstances an individual’s savings would drop, while his balance of fiduciary media would rise.”Ibid, pp. 695. Additionally, FFT confuses note or depositing bank issues with financial assets. Financial assets can be issued as loans for consumption and investment, but a bank note or money is a present good different from financial assets.Ibid, pp. 696. Having a cash balance “says nothing about the proportions in which the economic agent wishes to consume and invest”. The fifth fallacy of FFT is that it per se doesn’t match empirical evidence. Huerta de Soto points out how FFS has caused economic booms and busts in at least two countries; in Scotland from the 18th to the 19th century and in Chile after the middle 19th century.Huerta de Soto points out that, before the establishment of the fractional-reserve free-banking system in 1853, the financial sectors were stable in Chile, and there was no systematic economic recession, see Ibid, pp. 704. The sixth fallacy of FFT is that it excludes legal considerations. In fact, the legal considerations are as important as economics to understand the banking system.Ibid, pp. 706. Furthermore, FFT even confuses the difference between the two different contracts in the traditional legal principles. Huerta de Soto also points out that FFS can not only cause economic recessions, but also result in externality problems,Huerta de Soto (2006) does not use the word externality in his demonstration of the harm of fractional-reserve free-banking system to the third party and to public order, but we think that using the word externality would make his claim stronger and more clearly demonstrate that the issuance of credit through a fractional reserve system (even a free-banking one) also invades the monetary property rights of the third party. According to Huerta de Soto’s theory of the harm of a fractional-reserve free-bank-ing system on the third party, Rozeff’s argument for supporting a fractional-reserve free-banking system is false. Rozeff claimes that “[p]eople themselves [have the rights to] decide what kinds of property rights they want and find acceptable in bank accounts”. According to the legal principles in monetary contracts presented by Huerta de Soto, one does not have the right to decide anything that is a violation of another individual’s property (i.e., the value of the third party’s currency). For more about Rozeff’s false arguments, see Rozeff (2010), pp. 498. as FFS disrupts the public order and harms third parties’ property rights. Ibid, pp. 707-708.
2.2.6. Policy Suggestions on the Reform of the Banking System
Three policy suggestions on the banking system are made by Huerta de Soto. The first proposal is “complete freedom of choice in currency.”Ibid, pp. 736. He argues that currency choice is also an evolutionary process according to the monetary regression theorem.Huerta de Soto says “[w]e should also remember Mises’ monetary regression theorem, according to which the price or purchasing power of money is determined by its supply and demand, which is in turn determined not by its purchasing power today, but by the knowledge the actor formed on its purchasing power yesterday. At the same time, the purchasing power of money yesterday was determined by the demand for money which developed based on the knowledge of its purchasing power the day before yesterday. We could trace this pattern back to the moment when, for the first time in history, people began to demand a certain good as a medium of exchange.” See footnote 35 on Ibid, pp. 737-738. Mises also explained the regression theorem, stating, “[t]he theory of the value of money as such can trace back the objective exchange value of money only to that point where it ceases to be the value of money and becomes merely the value of a commodity. … If in this way we continually go farther and farther back we must eventually arrive at a point where we no longer find any component in the objective exchange value of money that arises from valuations based on the function of money as a common medium of exchange; where the value of money is nothing other than the value of an object that is useful in some other way than as money… Before it was usual to acquire goods in the market, not for personal consumption, but simply in order to exchange them again for the goods that were really wanted, each individual commodity was only accredited with that value given by the subjective valuations based on its direct utility.” See Mises (2013), pp. 120. In applying Mises’ regression theorem to digital coins, Tucker (2014) believes that Bitcoin matches the regression theorem, as its original value of use is based on the payment network. More about monetary regression theorem, see Mises Wiki (2016). The free-banking currency reform can be practiced more easilyIbid, pp. 739. if people themselves, who have specific and first-hand information, decide which kind of currency units they prefer and want to adopt.Ibid, pp. 737. With currencies having been chosen spontaneously by people in a long human history as gold, silver, etc.,Ibid, pp. 739. Here we must emphasize, that many people who declare that Huerta de Soto only prefers gold as monetary unit, misunderstand and have perhaps not read his claim seriously. Huerta de Soto has never stated that gold is the only monetary unit which we should accept, on the contrary, his point is that any monetary unit which has been spontaneously accepted throughout history, like gold or silver, can be used as a valid substitute for current monetary currencies. In footnote 37 on Ibid, pp. 739-74, Huerta de Soto expresses his understanding of the function of silver as a unit of currency in human history. He says, “[s]ilver could also be considered a secondary, parallel metallic standard which, if economic agents should wish, could coexist with gold at the fluctuating exchange rate determined by the market. Furthermore we must recognize that the decline in the use of silver as money was accelerated when nineteenth-century governments established fixed exchange rates between gold and silver which artificially undervalued the latter.” it is not reasonable to artificially and constructivelySee footnote 36 of Ibid, pp. 738. adopt a new monetary unit.Ibid, pp. 739. Besides, Huerta de Soto also argues that any new currency, like electronic currency, should match the traditional legal principles, that do not allow the systematic economic cycle and recession. Under legal principles, the current currency could be retroacted to the early money accepted spontaneously and evolutionarily, like gold and silver.See footnote 35 of Ibid, pp 738. His second proposal is to establish a free-banking system with 100% deposit, which can avoid economic discoordination caused by the fractional-reserve system.Ibid, pp. 740. According to subjective value theory, individuals know their best monetary preference; thus, in the free-banking reform, people can make better choices between different types of banks than the state.Ibid, pp. 740. In addition, private banks should be reformed completely into free institutions without any state intervention.Ibid, pp. 740. His third proposal is “the obligation of all agents in a free-banking system to observe traditional legal rules and principles, particularly a 100-percent reserve requirement on demand deposits.”Ibid, pp. 742. He argues that only following the traditional legal principles of deposit contracts can we avoid economic discoordination caused by FFS.
2.3. Theory of Dynamic Efficiency
The third great theoretical contribution of Huerta de Soto is his theory of dynamic efficiency. Not only does he review the initial definition of efficiency in history, pointing out the wrong and static definition made by Neoclassical Economics (influenced by mechanical physics), but he also provides the dynamic definition of efficiency from an economic science perspective. Additionally, Huerta de Soto originally contributes to the theory with the relationship between dynamic efficiency and ethics, and he also calls for more academic studies in the approach of dynamic efficiency.
2.3.1. The Review of the Original Definition of Efficiency in History
Huerta de Soto reviews the original definition of efficiency in history, covering both the static and dynamic parts. In ancient Greece, Xenophon defined static efficiency as “the sound management of the available (or ‘given’) resources, to prevent them from being wasted.”Huerta de Soto (2009), pp. 2 Xenophon also defined dynamic efficiency as “the effort to increase one’s goods by way of entrepreneurial creativity; that is, by trade and speculation, more than the effort to avoid wasting the resources already in one’s power.”Ibid, pp. 3.
2.3.2. The Wrong and Static Definition of Efficiency by Neoclassical Economists Influenced by Mechanical Physics
As Huerta de Soto points out, Neoclassical Economics has only developed the definition of efficiency in the static part, but not in the dynamic part. He illustrates that Neoclassical Economists use the same methodology as mechanical physics, replacing “the concept of energy with that of utility”Ibid, pp. 4. and applying “the same principles of conservation, maximization of the result and minimization of waste” to economics.Ibid, pp. 4. Thus, this static definition of efficiency of Neoclassical Economics excludes the real and creative part in human action through which human beings are pursuing efficiency. Huerta de Soto criticizes that “the influence of mechanical physics eradicated the creative, speculative dimension which belonged to the idea of economic efficiency from its very origins, and all that remained was the reductionist, static aspect, which focuses exclusively on minimizing the waste of (known or given) economic resources.”Ibid, pp. 4. Huerta de Soto also criticizes that instead of accepting the dynamic aspect of efficiency present in the human action, welfare economics only understands efficiencyFor more information about welfare economics, see Feldman (1991) and Rothbard (1977). in a static sense influenced by mechanical physics. He says,
“[T]hese standards focus solely on one of the two aspects of economic efficiency, namely the static aspect, which entails the presumption both that resources are given and constant, and that the fundamental economic challenge is to avoid wasting them. Furthermore, when, for example, a company, social institution or entire economic system is to be judged, such criteria completely ignore its Dynamic Efficiency, understood as its capacity to foster entrepreneurial creativity as well as coordination; in other words, the entrepreneurial capacity to seek, discover, and overcome different social maladjustments.”Huerta de Soto (2009), Ibid, pp. 8.
2.3.3. The Dynamic Definition of Efficiency in Economics
After the profound rediscovery of the original definition of dynamic efficiency in history and after analyzing the fallacies of the static definition of efficiency in Neoclassical Economics, Huerta de Soto goes on to define what is the correct definition of dynamic efficiency as an economic concept: creativity and coordination driven by human beings’ entrepreneurship.See part 2, Theory of Impossibility of Socialism in this thesis. From this dynamic perspective of efficiency, we can understand more deeply and clearly how human beings work efficiently: not only preventing the waste of the ‘given’ sources but using entrepreneurship to create and coordinate means to realize their goals. Huerta de Soto points out that “the truly important goal is not so much to prevent the waste of certain means considered known and ‘given’ (the prime objective from the viewpoint of static efficiency) as to continually discover and create new ends and means, and thus to foster coordination while accepting that in any entrepreneurial process new maladjustments will always appear and hence a certain amount of waste is inevitable and inherent in any market economy.”Ibid, pp. 10-11. He also points out that as the ways to prevent waste can be discovered by entrepreneurial creation and discovery, the dynamic perspective of economic efficiency also incorporates the static concept of efficiency in economics. He says,
“[F]or the same entrepreneurial force which propels dynamic efficiency through the creation and discovery of new profit opportunities is precisely the one which achieves the highest degree of static efficiency humanly possible at each moment by coordinating pre-existing maladjustments.”Ibid, pp 11.
2.3.4. Dynamic Efficiency and Ethics
Huerta de Soto’s other great and original contribution is the connection made between the ethics of property rights and dynamic efficiency. The ethics of property rights and dynamic efficiency have not been put in connection by many economists, or others simply believe that the connection between ethics and economics has been already stated in welfare economics: productions can be transferred into social welfare if we find out the “optimum optimorum”Ibid, pp 10. in the condition of given and static sources. Huerta de Soto points out that the ethics of property rights is both the necessary and sufficient condition for dynamic efficiency. This is the necessary condition because obviously if people cannot own the products that they have created for themselves, they no longer have the incentive to seek for profitable opportunities. He states,
“[B]ecause to impede the private ownership of the fruits of each human action is to remove the most powerful incentive to create and discover profit opportunities as well as the fundamental source of creativity and coordination that propels the system’s dynamic efficiency.”Ibid, pp 21.
The reason why the ethics of property rights is also the sufficient condition of dynamic efficiency is that, if property rights can be respected or protected, entrepreneurs can continually create and coordinate resources that are needed in production. Huerta de Soto further argues, “[g]iven the vital drive which characterizes all human beings, an environment of freedom in which they are not coerced and in which their private property is respected constitutes a sufficient condition for the development of the entrepreneurial process of creativity and coordination which marks dynamic efficiency.”Ibid, pp. 21.
Based on Hayek’s theory of spontaneous order,For Hayek’s theories of the relationship between spontaneous order and tradition, see Hayek (1988), pp. 66-88. Huerta de Soto also points out that some existing institutions have already been maintaining and enhancing the entrepreneurial creativity and coordination throughout history, arguing that “certain social institutions carry major significance in transmitting and encouraging the observance of these personal moral principles which, by their very nature, cannot be imposed by force but are nevertheless of vital importance to the dynamic efficiency of society.”Ibid, pp. 22. As a devout Catholic, he also emphasizes the function of religion in the promotion of dynamic efficiency. He argues that by practicing sexual morality through religion or some traditions, people would have a better self-discipline, which is “of crucial importance to the successful working of the social process of creativity and coordination, and to its fostering dynamic efficiency in society as well as possible.”Ibid, pp. 22-23. He says,
“Religion plays an important role in the life of an economy. It transmits from generation to generation certain patterns of behavior and moral traditions that are essential for the rule of law, which makes economic exchange possible. For example, if contracts are not kept, society can fall apart. Religion, not the state, is the primary means for imparting to us a sense of our obligations to keep our promises and to respect the property of others.”Ibid, pp. 274-75.
2.3.5. Call for More Studies on Dynamic Efficiency
As Huerta de Soto points out, there are many fields that could be enriched by the dynamic-efficiency approach: taxation theory; the theory of regulation, interventionism and antitrust legislation; the economic theory of development; macroeconomics and monetary theory; the economic analysis of law, legal regulations and social institutions,Ibid, pp. 28 to 29. etc. In The Theory of Dynamic Efficiency, Huerta de Soto has used the theory of dynamic efficiency to analyze socialism, to develop the theory of free market environmentalism, the theory of liberal nationalism, the libertarian theory of free immigration, the theory of crisis and reform of social security, the critical note on fractional-reserve free-banking, the ethics of capitalism, and the strategy to implement free market reforms. These profound, abundant and original theoretical contributions provide us with an excellent foundation and clues for further studies both in theoretical and applied parts of economics. Especially for the younger generation of economists, who should continue investigating on the concept of dynamic efficiency.
- Conclusion We have reviewed the biography of Prof. Jesús Huerta de Soto, a successful entrepreneur, a profound Austrian School economist, and a tireless fighter for liberty. We also reviewed his original and significant academic contributions to the theory of socialism and entrepreneurship, the theory of bank credit and economic cycles, and the theory of dynamic efficiency. What we as young scholars should learn from Prof. Huerta de Soto, is how to be as entrepreneurial as we can in our research and to be as passionate as possible in our engagement with the ideas of liberty, helping us contribute to the scientific research and attracting more and more people to the philosophy of libertarianism.Tyler Xiong provided thoughtful suggestions on the structures of this article and his help is greatly appreciated.
Steve Landsburg went to Chicago to do his graduate work in mathematics but was intrigued by the economics taught by Milton Friedman, George Stigler, Gary Becker, and other luminaries. We discuss the essence of Chicago price theory, the time when Steve was picketed by campus feminists, how Steve can climb aerial silks like Batman (while Bob looked more like the Penguin), and puzzles from his new book.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
JEFF DEIST: One issue discussed recently at our Supporters Summit is whether we’re winning or losing. So two questions: Who is “we,” and are we winning?
LEW ROCKWELL: Well, the “we,” fundamentally, is everybody who believes in civilization, who is opposed to what’s been going on ever since the French Revolution, when the Left came to total power and set up a totalitarian state. This includes some, but not all libertarians, and many conservatives as well — but certainly not neoconservative warmongers.
Are we winning or are we losing? Both. We’re winning in some ways but losing in others. More and more young people on campuses are attracted to us. When they look at their professors — I’m talking about the smart, good kids — the professors might as well have signs flashing on their foreheads that say “liar, liar.” And the young people come to us because they want the truth and they want no baloney and they want no PC and they want a hard rigorous course of study and that’s what they get from us. On the other hand, it seems that much is going downhill, but this has always been the case throughout all of civilization. It’s always been a fight, and I think that we can win this fight, but we all have to work very hard. We have to educate ourselves, educate others and it’s possible to win, but it’s going to be a close run thing.
JD: Is some part of “we” on the Left? Is a Dennis Kucinich or a Caitlin Johnstone or the late Alexander Cockburn part of us?
LR: Yes. Caitlin Johnstone is a very interesting writer. She mostly says what’s true, although once in a while she falls from grace. Alexander Cockburn was tremendous. I think he was largely on our side. He was, for example, pro-gun and anti-green, which is very unusual on the Left. There are certainly left-wingers who are anti-war, who are anti-imperialist. They’re with us on those issues and it’s not necessary that people agree withus on everything.
We welcome people who simply are anti-war and anti-imperialist, even if they’re wrong on economics or wrong on the state. If they agree with us on foreign policy, we have a foothold to convert them to libertarianism, though success is by no means guaranteed. It is possible that they can come to see that the institution that’s causing the imperialism and fighting the wars is also doing horrible things domestically that violate individuals’ rights. So, absolutely, we should reach out to everybody who’s interested in anything that we’re doing. There was a former LP presidential nominee who phrased it this way: there’s a train headed out of the station, heading for total freedom and people are welcome to hop on the train with us, ride just a certain distance, and then get off if they wanted. We’re glad to welcome them.
We have great inspiration from Mises and Rothbard and many other great men and women throughout the centuries who’ve defended our ideas, and it’s important to study their works. It’s important to fight every day the people like George Soros, who, in the guise of promoting the “open society,” want to bring about the destruction of Western civilization. We’re facing what Tom DiLorenzo, following Mises, called “destructionism” in his excellent talk at our recent Supporters Summit.
JD: Over the years you’ve talked about the Mises Institute and its role. You’re also the proprietor of LewRockwell.com. How do you see its role, and what prompted you to start it?
LR: I started LewRockwell.com in 1999. The basic idea originated earlier when Bill Clinton was fighting his wars and bombing Serbia. I’ll never forget, one day he announced the bombing of Serbia, and also hosted a conference at the White House for young people to promote the message that we don’t use violence when we differ. He was advocating peace in the high schools, while at the same time his policies led to mass murder abroad.
I started sending out messages about the wars to all the people on my email list. Then I copied the Drudge Report, a tremendous site. LRC has never reached Drudge proportions in terms of its readership, but I wanted every day to bring people news and opinion about what was going on in the country, about wars and the government, and make it available on the site. I’ve always seen LRC as an adjunct to the Institute and I’m amazed it still exists. It’s a financial struggle to keep it going, but I think it’s very much worth doing. I’ve had many young people write to me and say, “LRC has changed my life.” They read it. One gentleman at our Supporters Summit said, “I read LRC every morning after I say my prayers,” a very sweet thing to say. So, I think it’s had a good effect. It can have an even better effect and I must say I get a lot of joy out of doing it and talking about religion, talking about economics, talking about foreign policy, talking about domestic policy, talking about the state, all the ideas we’re interested in. But at LRC I do it in a simpler and less scholarly way than the Mises Institute does.
JD: But people don’t only need alternative economics and politics. They need alternative news, alternative history, and alternative views on healthcare. You don’t shy away from those things.
LR: No. We run many healthcare articles that oppose big pharma, oppose big medicine and tell people there are alternative ways to do things. I must say revisionist history is probably the most popular thing that appears on LRC. People just love it when we talk about what really happened in World War I and World War II and the Civil War. The government always wants to lie and give people a phony view of what happened. Revisionist history is simply history as it actually happened. It’s very important to present that view and it’s fun to do it. I hear from people who are outraged that I would say that Franklin Roosevelt was responsible for the bombing of Pearl Harbor in order to secure America’s entry into World War II through the “back door.” But the evidence is clear on this topic and we have done a few podcasts on it. John Denson does a great job on historical podcasts. You’re right that this is a very important part of what LRC does.
JD: During the last presidential election some people saw LRC as pro-Trump. Give us your thoughts on Donald Trump today.
LR: Well, I was for Trump as against Hillary, although I didn’t myself vote. I don’t vote since your vote makes no difference whatsoever. It’s a useless thing, unless the election were to be decided by one vote. Despite its irrationality, voting assumes the role of a sacrament for the government. I enjoy not partaking of that sacrament.
I thought that Trump’s campaign was quite wonderful in that it was pro-peace and anti-establishment. He said many great things, but unfortunately, few of the programs he spoke about have come about in practice. I still think, though, that we’re better off than if Hillary had been elected; and for that reason, I publish pro-Trump articles. I also publish anti-Trump articles, because he has done so many bad things in terms of the military. Despite this, though, I still argue that he’s better than Hillary, I also enjoy the fact that he drives the Left up the wall. And he does talk about immigration, even though he’s done very little about it, whether because the courts won’t allow him to do so or because his anti-immigration rhetoric is insincere. Who can tell? He also talks about PC, like immigration a subject that needs to be considered in a negative light. Needless to say, I’m disappointed in him. However great my disappointment, though, there is no telling what Hillary might have done — my surmise is something far worse than what we now have.
JD: You mention PC. One criticism leveled at the Mises Institute, and at LRC, is that PC isn’t real or isn’t a problem. It’s a figment of privileged white male paranoia.
LR: To say that PC isn’t real strikes me as nonsense. People who say that are invariably violent advocates of political correctness. The universities today have in the humanities been taken over by the Left, following the plans set forward by Antonio Gramsci’s “march through the institutions” and the cultural Marxism of the Frankfurt school. And so, we have to oppose PC. One of the reasons students come to us is that they’re sick of the PC that they encounter these days, from the elementary grades through graduate school. They want a different view and we offer that to them. By and large, they like it. We do have our enemies who are PC-types, including many so-called libertarians.
But, I want to say it’s fun to fight them and we have to tell the truth about who’s doing what to whom; according to Lenin this is the key question in politics. We have to prevent people from doing bad things to us. We must fight the good fight. When I see the support for Trump’s anti-PC stance, I realize that it will count very much in our favor that we oppose PC. More and more Americans hate the guts of these PC people and they’re right to do so.
JD: On a related note, talk about the modern American political Left: the Bernies, the Elizabeth Warrens, Ms. Ocasio-Cortez, Antifa, and the rest. Give us your rundown.
LR: Antifa is, of course, a very violent and dangerous group. They’re paid by George Soros and his ilk to hit people in the head with bicycle locks who are saying things they don’t like. I would hate to think that we’re going to end up in street fights, but this is what these people want. Ocasio-Cortez impresses me as a joke, not somebody really to be worried about. Bernie Sanders is a socialist. Does he actually want to take the means of production and nationalize them and have the government run everything? He says he doesn’t but I suspect he does. In every country that has tried this policy, it has led to the destruction of wealth and the spread of poverty. This is what Mises called destructionism, and it really is the goal of people like Bernie, and Elizabeth Warren, whom I find especially irritating, by the way, because she’s a phony Indian.
Moreover, their ideology is becoming increasingly detached from reality. I’ve run into young people who actually deny that Stalin killed 40 to 60 million people. They say it’s just a myth. So, it’s important that we teach about what happened in communist countries and the amount of poverty and social destruction that took place — and we must demonstrate that communism really is the worst economic and political system ever to exist. It really did horrendous damage wherever it was in power, whether it is Mao and his followers killing tens of millions in China, or the tens of millions of people who were killed in Russia and Eastern Europe under the Soviets. And then there’s Cuba and Cambodia.
Young people don’t know what socialism is, and even its advocates can’t define or describe it. We support the free market, and, as Mises kept reminding us, it’s our job to fight a war for the truth, a war both fun and invigorating to engage in. There is a dangerous situation in Europe, in Latin America, and in Asia, as well. On the other hand, we did see the Soviet Union collapse, and Eastern Europe and China become much freer. But, I’ve had people from China tell me that, it’s so interesting how they’re moving away from communism just as America’s moving toward communism. And of course, it’s true.
JD: And you actually have (American) Indian ancestry.
LR: Yes, I’m a one-eighth descendant of the Abenaki, a tribe of New England and Canada. They were driven out, mostly from New England, by the British, and are an official tribe in Canada, though not here. If they had oil on their land, I’d probably own part of a gambling casino, assuming official recognition in the US! Needless to say, I didn’t use my part-Indian ancestry to gain an advantage in college admissions or employment. But as for the non-Indian Elizabeth Warren, it seems to me that she’s an evil woman, a real socialist who favors total state control.
JD: Give us your thoughts on the modern political Right in America, the Nikki Haleys, the John Boltons, the Mitch McConnells, the Fox News audience.
LR: I was glad to see Nikki Haley resign. Unfortunately, Trump praised her as the greatest thing since sliced bread. She’s of course horrendous. I don’t know why she resigned and I don’t believe her statement that she just wanted to take time off. Something has happened, but I do not know what it is. She’s entirely controlled by the neocons, our biggest enemies on the Right. These are former left wingers, for the most part Trotskyites, who during the Vietnam War and after, moved into the conservative camp, calling themselves neoconservatives. This term cannot now be spoken, but that is what they are. It’s a relatively small, smart, effective, and wealthy group that runs the American Right, as well as most of the people in Congress.
They don’t run Ron Paul, needless to say, as well as a few others allied with him. Are they better than the Democrats? Well, they were all for Kavanaugh, not a good guy, but probably better than anybody the Democrats would bring into power. And also it’s important to see the feminists defeated. So, I’m glad he was confirmed but I think the American Right, except for the people in our sector, are by and large trouble.
Judge Napolitano is a great force for good on Fox. And so is Tucker Carlson. Most of the Fox people, unfortunately, are neocons, like the Republican Party and the conservative movement generally.
The conservative movement has been really bad ever since Bill Buckley, who set out with money from the CIA to establish National Review. Various CIA agents also became editors of the magazine. They were determined to destroy the Old Right, and Buckley pretty much crushed it for a time. He wanted to have a pro-war right wing and the Old Right was anti-war, in particular as regards Franklin Roosevelt’s war in Europe and in the Pacific. Buckley was very talented, very smart, very well-funded, very charming. He succeeded in doing horrific damage. But once he passed away, he entirely disappeared. It’s a good thing to remember that, for most of us, our footprints in the sand are soon washed away. But, with Buckley, it seemed, not even a wave was needed. He just was gone. I think he has no effect anymore beyond the fact that the remaining neocons, whom he backed, have taken over the right wing.
While there are good people in the right wing, notably the paleocons, and the paleo libertarians, most of the right wing presents us with a problem, the neocons most of all. Murray Rothbard, an effective and wonderful writer in all areas, was especially good at combatting them. I urge everybody to read what he had to say about the neocons. It arms you for the battle.
JD: There are parallels here because Buckley had his great purge of the Old Right and the John Birchers and such. There are people within libertarian circles who would like to purge anyone who doesn’t accept a whole host of progressive cultural precepts.
LR: I do think that there are some student organizations that make a big point of this that may be having an effect on the students they attract, but we just have to fight it.
In this respect, they follow in the footsteps of Buckley who was extremely effective at purges. I knew him slightly. He was extremely smart and charming — a concert-level harpsicord player, by the way. He knew a great deal about music and many other topics and was a very effective worker for the CIA. He’d been a CIA agent and I think remained one for the remainder of his life. As they say about the KGB, I think we can say about the CIA too, you never cease being an agent. Once in, you’re always in. People often think that he purged the John Birch Society because of Robert Welch’s book, The Politician, saying that Dwight Eisenhower was a communist. (Murray Rothbard, by the way, liked that book very much. He said if only Welch had said that Eisenhower was an agent of the Rockefeller conspiracy rather than the communist conspiracy, the book would have been just great.) But, that’s not why they purged it. They purged the Birch Society because they came out against the War in Vietnam and to all these people, war is the key issue. They love war, they want war, they profit from war and this was why they got rid of all the anti-war people in the Old Right. But thank goodness Murray and many others didn’t disappear. Their ideas are back and there is a real right-wing, anti-war movement. It’s a small movement, but it’s real. It’s effective and the neocons hate it, and we have no love lost for them.
JD: You had interactions with Ayn Rand along with Buckley. Any thoughts or recollections about her?
LR: She was, of course, very smart, an autodidact. She was brilliant, extraordinary and again, entirely self-taught. She was tremendous. I had a chance to be in a room with her at a private home after she had spoken at the Ford Hall Forum in Boston, where I saw her several times. As she had very short legs, she sat on the couch with her legs curled under her. Everybody was invited to ask questions but I was a teenager and found her extremely intimidating. I remember her basilisk stare. I thought, “There’s no way I’m asking her anything.”
But, what can we say about somebody who comes from Russia and becomes a bestselling novelist in a second language? That alone is a tremendous achievement. She also got all her supporters to read Mises and Hazlitt. By and large, she had a good effect, but she had her problems. She hated Christianity and wanted to destroy it, but still she was an aid to our side. And it’s interesting that she was not always pro-war. She was not pro-World War II, for example. Unfortunately, she later became pro-war in some ways, especially against the Palestinians.
JD: Give us a personal recollection of the first time that you met Ludwig von Mises: his presence, how he carried himself, what he was like in person.
LR: Neil McCaffrey, the grandfather of our faculty member Matt McCaffrey, was the head of Arlington House Publishers, the only company that would publish conservative or libertarian books. Neil was brilliant, saintly, and scholarly. He was a very great family man, a very serious and knowledgeable Catholic, and was sound on Austrian economics. For example, most conservative Catholics agree with the earlier view of the church that usury is bad. He was just terrific in explaining why interest rates are necessary to a successful capitalist society. He called me into his office one day and said, “How would you like to be Ludwig von Mises’s editor?” I, of course, said I’d be thrilled. So, I talked to Mises on the phone once or twice, and much more frequently to Margit von Mises, who as Murray Rothbard said, was a one-woman Mises industry. We brought three of his books back into print. We also worked on a monograph never before published. When these books came out, Leonard Read held a reception at FEE [the Foundation for Economic Education] in honor of their being brought back into print.
I loved Leonard Read, an important man in my life and a great man in libertarianism for his founding of FEE and for all the work that he did when he was there.
FEE in those days was a mansion with a wonderful dining room. I went into the dining room, entirely empty except for Ludwig and Margit von Mises, who sat at the other end of the room. I thought to myself, “Do I dare go over there?” Of course, I had to. Mises was extremely impressive, very articulate and brilliant. As Murray Rothbard said, a gentleman in his clothes and in his manners. He was everything I might have hoped he would be. He wore a beautiful suit and his tie, his shirt, his hair, indeed everything about him, were impressive. He just was an extraordinary man. I would guess that his bearing was not unusual in pre-war Vienna, but it was rare in this country and the chance to talk to him for about 40 minutes was an experience of a lifetime. And his wife, Margit, who’d been both a play translator and an actress, had just a tremendous ability to present herself.
JD: Of course, she lived many more years after he died.
LR: Yes, she did.
JD: And you had a much longer relationship with her, a close relationship.
LR: Well, she was very much an old-fashioned lady. I remember a time when people thought that she needed somebody to stay with her. And so, a friend brought a female graduate student from NYU over to her. In very short order, she called him and she said, “I don’t want that woman here.” He said “why not?” She said, “she’s not a lady.” And he said, “what do you mean she’s not a lady.” She said, “She came out of her room in a bathrobe, not dressed.” She was unbelievable. Once she was going to Alpbach, a place in the Austrian Alps that she and Ludwig had visited as a couple. She went downtown to get her ticket from Lufthansa — she always flew Lufthansa — and as she entered the revolving door, caught her foot and was thrown to the ground. She got up, and bought the ticket, returning to her apartment, though bruised and battered. She was then in her 90s, and although any other woman that age would have had a broken hip, she was able to make the trip to Alpbach. All her life she was dedicated to her husband. She wanted to make sure that all his books were in print, translated into as many languages as possible. She was very strict and very sweet. She loved to have Mardi and Pat and me over to have tea. She would make hors d’oeuvres and serve sherry. It was a small apartment, but just a wonderful place. I had the chance to be there many times, and talked to her many other times as well.
When I took her to the Russian Tea Room, her favorite restaurant, and told her that I wanted to start an institute, asking her to be the chairman, she accepted. She was excited about it, but in looking at my résumé, which she had asked to see, she saw that I had had a number of jobs. She said, “I want to make sure you’re going to stick with this for your whole life.” And I told her I would agree to do that. She was an active chairman, somebody I regularly consulted. She was really brilliant and dressed beautifully. She was a tremendous presence and as I said, she was an actress. She too was from an earlier and a better age and it was a great honor of my life to know her and to work with her.
JD: You were close with Murray Rothbard for many, many years, and he was your biggest intellectual influence. What don’t people know about him as a person?
LR: Milton Friedman, who like Murray was very smart, was extremely arrogant, Murray was the opposite. He was a very sweet and kind person. The only thing that would upset him and even outrage him was somebody selling out, but if somebody was moving in the right direction, even though they still held many wrong views, he was very tolerant and very eager to help. If he saw just a spark of intellectual curiosity or ability, he was like a man pumping air into the fire in the stove to get the heat going. He didn’t just stick to people on his level — obviously. Except for Mises, there was nobody on his level. Basically, he knew everything. We say that about David Gordon and David does know everything, but Murray knew everything more than David. If you were in his apartment and you were talking about some particular point he’d say, “Lew, check page 216 of this book in this bookcase.”
He and his wife, Joey, were very close. He called her “the indispensable framework,” in the dedication of one of his books and she was indeed. She was very smart. Margit von Mises said, “Murray, you’re responsible for the fact that Joey didn’t get a PhD.” She could easily have gotten a PhD, but she decided to dedicate herself to Murray. I could have pointed out to Margit that she had also made a similar choice to Joey’s: “You dedicated yourself to your husband and she’s dedicated herself to her husband.”
JD: And that’s viewed as a bad thing today, of course.
LR: Oh my gosh, it would be considered an evil thing. Joey had a Master’s degree in history. Her hobby was Wagnerian opera, about which she was an expert. Murray would have her read everything he wrote before it was published and sometimes she would say, “Murray, you don’t want to say that.” He had a wonderful home life. I remember once being in Las Vegas and when I came into the dining room, the table was covered with about two feet of academic papers. I asked Murray what this was. He’d been to the Western Political Science Association convention, not one of the high-level meetings. He picked up every single paper there and went through them all.
Despite the vast range of his reading and writing, he wasn’t an academic hermit. He loved sports, for example, the Olympics in particular, about which he knew everything. If you were to talk to him about a particular event, he might say, “Well really, this guy’s nothing like the 1924 champion.” He loved basketball, especially the UNLV basketball team.
Because they were willing to publish him, he wrote articles for probably more than 100 tiny periodicals that nobody’s ever heard of. He was always happy, always cheerful, always optimistic, and never down. Mises, by the way, I was told by Murray, was never down and never let anything that had happened to him get to him. Murray said the only note of regret he heard from Mises was in talking about a former student of his, now a professor at Columbia, Mises said that it must be a wonderful thing to be a full professor at Columbia. By contrast he had a horrible position at NYU where he was no more than a visiting professor for so many years. The dean there — John Sawhill, who later was one of Nixon’s energy czars — would actually tell students not to take his courses and would put him in the worst, dampest classroom at the worst hours. But Mises never complained about it and I never heard Murray complain. The only time I ever heard him say a word of regret, was when he was talking about David Hackett Fisher who had written Albion’s Seed at the time. Murray said, “Imagine, Fisher has 16 graduate students researching stuff for him.” So, obviously, Murray would have loved it if he had had that, but, he had to do everything on his own. Imagine what he would have achieved if he’d been in a regular university with PhD graduate students.
Murray was extremely funny. You weren’t in his presence for more than a few minutes or even seconds before you were laughing out loud. I remember when we had a very funny professor who gave a great talk against feminism. I said, “Murray, he’s a standup comedian.” He replied, “Do you notice any similarities between him and me?” And of course, they were both Jewish and from New York.
Murray grew up in a building where Arthur Burns lived. Burns himself was described as having a very high-pitched, W.C. Fields voice without the humor, and he didn’t like Murray, even when Murray was a child. He was on the Columbia economics faculty, though not on Murray’s dissertation committee. Murray’s committee passed his PhD, which was later published as a book: The Panic of 1819, even today considered the definitive work, often cited by people in the mainstream, on its topic.
Burns claimed it wasn’t good enough. Murray, probably correctly, thought Burns had it in for him and it delayed his getting his PhD for several years. Burns was such a powerful personality in the economics department that by opposing Murray, he was able to prevent him from getting his PhD, even though not on his committee. It wasn’t until Burns went to Washington when Eisenhower made him chairman of the Council of Economic Advisers, that Murray got his PhD. Joey said that when she was meeting Murray for a date, when he thought that Burns was going to prevent him from ever getting the PhD, she found him sitting down and crying on the curb. But he was soon back to being his normal optimistic self, and I never saw him as anything else.
The Volker Fund, gave him a job of reviewing important books in history, economics, and other areas and we have all of the extraordinary papers he wrote for the Fund. There are great academic papers on important books, both good and bad ones, and Joe Salerno and Patrick Newman are going to publish more of these papers. Some of them we’ve already published, in collections edited by Roberta Modugno and David Gordon. We still have vast numbers of unpublished papers.
JD: And his personal correspondence.
LR: His letters are the most extraordinary I’ve ever seen. Almost every letter is a paper and yet they are fun and interesting. In fact, his personal correspondence will require many volumes when it is edited and published. I know David would like to do that and he’d be, of course, a great editor.
JD: Rothbard and Mises were very different in temperament. Talk about their relationship.
LR: When I asked Murray if he would be part of the Institute, and told him Margit had given me permission to start it, he clapped his hands in glee. He thought it was one of the greatest things he’d ever heard about. He loved Mises and when he would give a speech about him, he would tear up at the end. Mises was in essence a loveable person. He didn’t suffer fools gladly in Vienna, people say, but in this country, he was just sweet, interesting, happy to help anybody who wanted to learn and happy with his position at NYU. He was never paid by NYU, never got any kind of health insurance or that sort of thing from NYU. He had wonderful people who put up the money for his salary and thank goodness for that. Mises taught there for many years. His seminar included Murray Rothbard, Ralph Raico, Ronald Hamowy, Bettina Greaves and many other important people. The late Robert Nozick, in a speech at the 100th anniversary of the birth of Mises, talked about why the people at NYU hated Mises. He said that one of the reasons was that Mises attracted smart, achieving people from the outside world — businessmen, financial people, Wall Street people, and others of significance to audit his classes.
Nozick said that regular professors have never seen anything like this and they hated Mises and were envious of Mises for doing that. What an honor it is to do our best to carry on his legacy, Rothbard’s legacy, Margit von Mises’s legacy, Joey Rothbard’s legacy.
And just one word about David Gordon and Murray. I remember a breakfast with David and Murray at Mises U in California, and when David walked in, I saw Murray’s face just light up and it was at that moment I realized that really David was Murray’s son. I mean, he was the son that Murray would have loved to have had and, of course, he’s carried on Murray’s legacy exactly as a great son would do. But, he was a joy to Murray. They talked on the phone every day.
As for me, I miss him every day and what an honor and what a delight it was to know him.
Bob talks to Jeff Deist, president of the Mises Institute and former chief of staff to Ron Paul. In addition to discussing the prospects for liberty, Bob and Jeff talk about Jeff's past as a tax attorney, and the corrupting role of low interest rates. Jeff also reveals that Congress is a lot more boring than you think.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Bob brings on his other podcast co-host for a lengthy but lively discussion. They discuss Carlos' move from Mexico as a young boy, his story about JFK, his lawsuit against the Marines, his career as a workout consultant, his meeting Nelson Nash, his discovery of Austrian economics, and his PowerPoint presentation for bankers. Bob and Carlos end their discussion with the provocative topic: Who runs the world?
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
In this inaugural episode, Bob hosts libertarian hero and legend Tom Woods. They discuss nerdiness in junior high, Tom's doctoral dissertation, his conversion to Catholicism, public speaking tips, and much more.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
JEFF DEIST: Tom, you grew up in Boston. Your dad was a blue collar guy and also a Teamster. So, tell us a little bit about him and your childhood.
TOM WOODS: He was a Teamster for 18 years, and worked as a forklift operator in a food warehouse for a grocery chain that no longer exists. I wouldn’t say he was a Reagan Democrat because he was never a Democrat. He was a blue-collar Reagan Republican. That was the kind of household I grew up in. My father had very strong political opinions.
At that time he had not finished high school. He was very self-conscious about not having a high school diploma, so he spent a lot of time reading about a wide variety of topics. You could talk to him about a great many things and he would have something intelligent to say. He wound up going back to get his GED when he was in his 40s.
On politics, he was the one who introduced me to the evils of communism and the merits of low taxes and things like that. It was fairly conventional Republican stuff, but for all that, if it hadn’t been for him telling me those things, I could easily see myself having fallen into conventional leftism. And why not? If you have poor people, why not give them money, and if you have some problem, why not appoint regulators to solve it? It all seems so simple. He challenged that narrative in ways that were very productive for me.
JD: Isn’t that interesting how America used to have blue-collar-working-class guys who were well read in poetry or history or philosophy? Now, even people with advanced degrees don’t know as much.
TW: It is kind of funny. I took a bit of that from him in that when I went off to school I was planning to be a math major, but I wanted to know many other things, so I took a wide variety of courses. That was actually what ended up getting me out of studying math. I noticed that all the other math students did nothing but math — even in their spare time they read books on number theory. I didn’t think I could compete with people like that. So I decided maybe history, which is what I was doing in my spare time anyway, perhaps ought to be my main concentration.
My favorite example of my father’s desire to learn everything he could is: one day I found him reading Candide by Voltaire. I said, Dad, enough’s enough here. You don’t have anything more to prove. Nobody wants to read Candide. You can stop now.
JD: I know you’ve mentioned that you’re of Armenian ancestry. Was he an Armenian immigrant?
TW: No, it’s my mother who is Armenian (though not an immigrant), which is why our last name is just plain-vanilla Woods.
JD: Now, do you think that they were pleased with your studies? It sounds like they were pleased that you went to Ivy League schools and became a traditional PhD.
TW: I think so. By the time I got out of Columbia, it might have seemed a bit quixotic that I was going to try to break into academia, given the strikes I had against me, but certainly the way it’s all worked out, it’s hard to second guess it. You know, Jeff, I have somewhat unconventional views on a number of topics, so it would have been a little bit more difficult to get a hearing without those kinds of credentials. I know in our movement it’s become fashionable to say you don’t need to go off to college or grad school. In some cases you don’t, but for me, I just don’t know that I would have been able to crack into what I was trying to crack into if I hadn’t had that kind of a pedigree.
JD: Tell us a little bit about your neocon stage, at least as an undergraduate or a young man.
TW: Well, I guess under the influence of my father, I definitely considered myself a member of the Republican Party. I watched the entire Democrat and Republican conventions, at least the portions that were televised, when I was 12. Twelve years old, and I watched the whole thing. I remember vividly Jeane Kirkpatrick delivering her Blame America First speech and I thought, boy, isn’t she right? They’re always trying to blame America first! So, the very kind of juvenile thinking that makes me crazy today, well, now you see why it makes me crazy: because I’ve been there. I was that guy. I hate to see a mind go to waste like that and I want to bring people back from the brink.
By the time I went off to school, I was kind of a middle-of-the-road Republican. I thought we did need some social spending and I definitely had all the hawkishness. The year I got to college was when the Persian Gulf War of Operation Desert Shield and Storm took place. I was so on board for that. And I accepted every neoconservative excuse and explanation. I likewise favored all the neoconservative domestic policy proposals, the school vouchers, and heaven knows what else. So I guess I was in that camp.
Yet early on I felt uncomfortable with that war. I was in a left-wing environment. Cambridge, Massachusetts, is a left, left, left-wing environment. And there were protests against American imperialism everywhere. Part of me thought: these stupid lefties, they just don’t understand anything. But another part of me thought: I just can’t cheer the way my fellow Americans are cheering over our victory against Iraq.
I thought probably a lot of the people in the Iraqi military were just, you know, half of them had no option and there they are. I had no grievance with these people. And although you are allowed to feel sorry sometimes for women and children who die, you are forbidden by the logic of war to feel sorry for the soldiers on the other side. They’re the enemy and they’re dehumanized. But they were human beings and they were fathers and husbands, and now these people’s lives, people who lost these folks, they’re now widows and orphans. I just didn’t think I could listen to Bob Hope’s jokes and watch the little American flags being waved and cheer for that. Something just didn’t sit right with me.
I’ve told this story before. I went in to see my European history professor. I knew he was a left-liberal and I thought, maybe he’ll give me some insight into this (I had heard he supported the war). I thought, well, if even a left-liberal supports the war, I must just be missing something. It was Charles Maier (his wife was the late Pauline Maier of MIT; she wrote some great books in American history). He told me to go read the cover story in the New Republic magazine in favor of the war and that that should satisfy me. So I did. But something still just wasn’t right about it. And so I didn’t stay a neocon all that long, I’d say by ’92 to ’93, I wasn’t sure I could keep doing this.
JD: And then at some point, presumably in your conservative reading, you came across an ad or somehow found out about the Mises Institute and Mises U.
TW: That’s right. It was some libertarian magazine. Maybe it was Reason magazine. Honestly, I don’t know. I saw an ad for Mises Institute’s Mises University program and I thought that sounded great: a week where I could really learn hardcore free-market economics. I didn’t really know much about the Austrian school at that point and, after the experience of being in Cambridge and on the Harvard campus for those years, I was becoming radicalized in a good way. I was thinking: I don’t want to be a middle-of-the-road anything. I want to either be one thing or its opposite. And I know the thing that I want to be the opposite of: the craziness I see here on this campus. I want to be the opposite of that. So, it made me hone and sharpen my positions and really think clearly.
JD: But, what’s interesting is, if we look at someone like you or Anthony Gregory or Brian McClanahan, most historians ... you guys are the exceptions. Most historians almost willfully take no interest in economics.
TW: I don’t know why. I found economics to be such an exciting field. It really does teach you how the world works and what’s going on beneath the surface of the headlines. It teaches you the forces at work beneath those headlines. And it makes clear thinking possible.
And of course, if you’re looking at history and you don’t understand economics, then what are you going to do? Are you just going to repeat what the textbook says about the Great Depression? Well, how do you know if the textbook is right? Just because it’s the textbook? What kind of thinking is that? It’s deeply irresponsible not to know economics, especially if you’re going to be in history.
JD: What happened when you met Murray Rothbard?
TW: I had introduced myself to him to discuss my senior thesis. Murray was very interested in the Old Right. It wasn’t really a movement, but it was a group of individuals in the ’40s and ’50s who were anti-New Deal and anti-intervention. And I did my senior thesis on that. He had written about it; he had been part of it. He lived it. Our shared interest in it made it a good entry point for a conversation.
I remember asking for reading suggestions and he’s giving me all these obscure sources and I’m jotting them down. It was amazing the time that he was willing to spend with some shmuck like me. Maybe because I was at an Ivy League school, he thought that there was a decent chance I’d wind up in academia, and that this topic, far from a mere curiosity for me, was something I might run with later.
Although Rothbard taught in Las Vegas, he always kept his apartment in New York and went back there whenever he could. And so, over the Christmas break in 1994 to 1995, Lew Rockwell told me Murray would like to see me. I was in New York, too, getting my PhD at Columbia. I was living on 113th Street at that time and Rothbard lived on 88th Street. I could have walked to his apartment.
So Lew gave me his number. He said I should call Murray and arrange something. And the way I’ve often put this, Jeff, is that it was like when you’re calling that girl to ask her out and you’re afraid that once you get her on the phone, you’re going to go tongue tied or your mind’s going to go blank and you’re going to forget what to say. I got a sheet of paper and wrote out everything I was going to say to Rothbard so I wouldn’t look like an idiot. But of course, he puts you immediately at ease — before I could say anything on my sheet, he’s talking about current events and the like.
So we arranged to meet. I told him I’d be going to Massachusetts for the Christmas break, but that when I got back I’d be delighted to get together. So, we arranged for me to see him in maybe the first week or two of January, which meant he had already died by the time we would have been getting together.
JD: Now, at some point along your academic path, you’re getting your PhD. Surely you considered becoming a traditional tenured professor somewhere.
TW: Yes, I did. I was going to be awarded the PhD one-third of the way into an academic year, though. So, I’d have two-thirds of an academic year with no job. I decided I had to go on the market without a PhD, because the alternative was to sit around for two-thirds of a year with no income.
The problem was, going on the job market without a PhD in 1999, I might as well have been trying to jump to Mars. That wasn’t happening. The market was absurdly competitive: I applied for a position at Syracuse, and they had 350 applicants. Now, what are they going to say to some kid who doesn’t have his PhD yet, but assures them he’s about to get it, like they haven’t heard that a million times? So it was brutal. I was on the job market against people who had had two books published. At that point I was just about to turn 27 years old. I mean, come on, this is ridiculous.
I wound up getting a job at a two-year school thinking: all right, well, this is at least a job where they’ll take me. I could get a salary there, and then once I get the PhD, I’ll go back on the job market and I’ll go somewhere else. But for now I need the income.
I did get a job at a community college and I did get the PhD, but then inertia set in, and I liked the fact that I could teach survey courses there. I am so not interested in teaching the social history of the 1920s. That would just bore me to death. Whereas here I could teach big survey courses in US History and Western Civilization. I got a nice travel allowance. I had a better salary than almost any professor I knew of. I had so many good things going for me that I kept putting off when I was going to move to another institution. I just kept putting it off. I didn’t need to move. I liked the opportunities that I had. And because the college where I taught was a two-year school, there weren’t a lot of other faculty members who were publishing. And so, there wasn’t as much politics and there wasn’t, well, I’ve written this left-wing book you all have to like. They all liked me because I was friendly and because I published anything at all. I mean I published more than the rest of my department put together. And so, they just liked the fact that I was doing anything, so I thought, this is a lot better than probably what I would have to deal with in a lot of other places.
But eventually I wound up going down to the Mises Institute and then at that point I realized, I don’t think I want to go back. I like this situation where I just decide what I’m going to do every day and I do it. Now, you have to be productive to make that work, but when I was at the Mises Institute, I was basically putting out a book a year. I had 33 Questions About American History, I had Who Killed the Constitution?, I had We Who Dared to Say No to War. I had Meltdown, I had Nullification. Well, that’s actually more books than years I was there. I was just producing like crazy and I liked that. I preferred that to academia, even though I enjoy being in front of an audience; I enjoy teaching things. But I really like waking up in the morning and choosing what I do and knowing it’s always going to be something I love doing.
JD: But have you had enough time in your career to look back and think about how if you had gone the traditional route and been a tenured PhD somewhere just teaching, just like Murray Rothbard and Mises, far fewer people would know your name? Far fewer people would have read you or been influenced by you because you would be writing for academic journals nobody reads.
TW: Yes. I just don’t want to do that. I don’t see what the attraction to that is. I understand the value of it, because there are some academic articles and books that have really advanced our knowledge. Rothbard wrote a lot of popular articles, but his scholarly piece on air pollution, for example, I wouldn’t want to live in a world where that hadn’t been written. I’m just saying that for me, I got to a point where I felt like I had written all the academic books and articles I felt like writing, and now I actually wanted to convey the ideas to the public. Especially because I felt like one of my talents is explaining complicated things. I’ve been able to do that since high school, in fact, even earlier than that.
When I was in second grade I met a kindergartner in my school. I myself had attended kindergarten in a different town. I was appalled to learn that students were not being taught simple arithmetic in kindergarten where I now lived. This was an outrage to me. And so I sat her down and I taught it to her myself.
By high school I reached a point where I would be the guy the coach would come to who had three athletes who were about to flunk out of the team. And I would teach them math successfully because I could explain complicated things.
That’s what I like about what I’m doing here in reaching a popular audience. The academic audience already gets the complicated things, but I want the average Joe, too, to understand where the business cycle comes from. And that, more than anything else, is the feedback I’ve received over the years. Listeners and readers say, “I didn’t understand this stuff (or find it exciting) until you explained it to me.”
Sometimes I’ll bring a guest on my show and say, “All right, I’ve invited you on so we can explain” some complicated thing. But in the comments, everybody is saying, “You know, next time you want to explain some complicated thing, just do it yourself. People in academia are so lost in their own jargon and lexicon, they have no idea how difficult they’re making things on the ordinary Joe.”
JD: Let’s talk about your books. It’s interesting because in your books we see your metamorphosis from a historian. I think today you’re better known as a libertarian scholar and a scholar of economics. How did that happen?
TW: The first couple of books I wrote were a little bit more on the obscure side. In 2004, I had a book called The Church Confronts Modernity. That was a big feather in my cap because Columbia University Press published it and it got extremely favorable reviews in the most important academic journals in those fields: history and theology. I was very, very pleased with that. It becomes slightly more difficult for my critics to pretend that I’m some crank. Yeah, I’m a crank with an Ivy League university published book that’s reviewed very favorably in all the major journals. Try again.
Up to that time, I had written for some libertarian outlets here and there. I gave my first paper ever, actually, at a Mises Institute conference in 1998 on the presidency. But I wasn’t widely known. But then The Politically Incorrect Guide to American History came out and that generated some controversy. It really was the breakout book for me. To this day, there are plenty of libertarians out there who swear by it.
The fashionable libertarians didn’t care for it because I refuse just to repeat 88.7 percent of the standard narrative of American history and dissent from only the other 11.3 percent. I think the standard narrative is all wrong on major things. I don’t mean they get the names and the dates wrong. I mean the way it’s interpreted and understood is all wrong and the cause-and-effect relationships are all wrong. Certainly that’s true with the New Deal and the Depression and the Fed and all that. So I took some heat for that book, but who cares? It was a New York Times bestseller for 12 weeks.
JD: Is that series published by Regnery?
TW: Yes. They ended up making a whole series of Politically Incorrect Guides. That had all been contingent on the success of mine: they said if mine had bombed, then they were going to cancel the series, but if mine was successful, they would do a series.
JD: One of your most stressful books to write because of time sensitivity was Meltdown, and it’s the book you’re best known for.
TW: Yes, Meltdown was also a New York Times bestseller. The problem was, it was a book on the financial crisis, but it had to be brought out quickly because well, every-body and his brother was going to write a book on the financial crisis and all those people were going to be more famous than I was. So the publisher said: yours will have to be the first book out for this to work.
My book immediately before Meltdown had been published by Random House, but I went to Regnery with this one because I knew they had the ability to turn a book around fast if they wanted to. And I said, I want to write the free-market answer to what caused the financial crisis.
Initially they rejected the proposal. And I went back thinking, “Yeah, maybe nobody would want to read that.” And then a few days later I said to myself, “No, hold on a minute, stop that, this is a good idea.” And I went back to them and said, “Wait a minute. I love you guys, but you’re dead wrong about this. This is going to sell.” And they accepted it the second time. I’ve never heard of that happening. I mean, the gall of me to go back a second time!
They accepted it but they said: the advance is going to be pretty modest. I said I didn’t even care because I’d just earn the royalties outright from the sales. And I was right. Meltdown was on the New York Times bestseller list for 10 weeks. A book on the economy! That’s hard to get people to buy.
And yeah, what they initially said to me was: you’ll have to write it in three weeks. I said, are you kidding me? You want me to write a book in three weeks? I credit the Mises Institute, frankly, with giving me the knowledge and the training so that I could turn a book like that around quickly because I did have the core knowledge. Obviously I had to research the contingent facts of this particular case, but the model of what makes an economy collapse like this, I already knew. So, I came back with: I can do it in five weeks. So we settled on four weeks. I had a month to do it.
It was horrifying, Jeff. It was a horrible, horrible project. I didn’t enjoy one bit of it. But you can’t argue with success. I was already doing pretty well because of the success of other books, but this thing, the publicity went nuts.
This was a turning point for me. I used to go to events and some attendees may have read a few of my articles. But after Meltdown it went berserk. After Meltdown and speaking the previous year at Ron Paul’s Rally for the Republic, that huge event with many thousands of people at the Target Center in Minneapolis — the combination of those two things had amazing results.
For instance, I remember being at CPAC (the Conservative Political Action Conference) 2009 and standing there with Dan McCarthy of The American Conservative. We were having a little chit-chat in the room our event was going to take place in before people were allowed in. Then the doors were opened and people came in and Jeff, it was the most bizarre thing. I was mobbed with people who wanted to have their picture taken with me, who wanted me to sign something. And eventually I just looked over at Dan and said, what’s happening here?
And that’s basically what now happens every time. It’s weird because I walk down the street and no one knows who the heck I am. Occasionally somebody will say, hey wait a minute, you’re Tom Woods. That does happen and my kids get a kick out of it. But in these circles, that is what happens to me wherever I go. Meltdown started that.
JD: Like it or not, you are a bit of a new media figure in the same sense as like a Stefan Molyneux and maybe not as big, but in the sense of a Jordan Peterson. Talk about that. You’ve sort of transitioned from these books into podcasts and other more popular content. But it’s all mixed up with what we’re going to call new media.
TW: Yes, it’s true. Who could have guessed that I would be a podcast host, given that nobody knew what a podcast was not too long ago? And now I can’t imagine my life without it. That’s how my day goes. I start the day by interviewing some interesting person, or by just talking into a microphone for a while. It’s a weird feeling to say to myself, in effect: I have a topic I feel like talking about today, so I’m going to turn this microphone on and speak into it, and later today tens of thousands of people will listen to what I said. That’s weird to me.
JD: If you had a live audience of 1,000 people for a speech, that would seem thrilling.
TW: Of course. I have had that from time to time, but that’s rare. It’s hard to get people to come out for an academic speech — or even a non-academic speech. It does happen, but it’s hard. I do five episodes a week and I have a lot of people who say they just listen every day. It’s part of their routine. They get in their car, they turn their device on, there’s a new Tom Woods episode and off they go to work.
I’m glad to be able to do that. I feel like most of these episodes teach people valuable stuff. They will be able to defend themselves better after they’ve listened to my episode. We cover everything under the sun. And I’ve been on TV, but I lived out in Kansas for a long time. If you’re not living in Manhattan or some central place like that, it’s just not going to happen. They don’t always want to have people on via satellite. Plus there would be times when I would actually be invited onto a show and I would not even want to do it because it would mean two days of travel.
So I’ve gotten to this point not because I was on Glenn Beck, but just through, frankly, elbow grease and also the help of the Mises Institute and Lew Rockwell and getting exposure there. And Ron Paul, of course. I had some connection with him and he’s been very kind in spreading the word about what I’m doing.
JD: As Austrians and libertarians, we sort of had to create our own media, right? If you were Tom Woods 30 years ago, you wouldn’t have these platforms available.
TW: It’s amazing. It’s true because the media wants the debate to occur between different varieties of social democrats. What possible reason would they have to feature somebody like me, except to take a few of my sentences out of context and ridicule me?
These days, by the way, you can even have fun if some-body tries to do that to you. I recommend that when major media come to you for an interview, you say, “All right, but I just want you to know, I’m going to be recording our conversation and if what you publish is not an accurate reflection of what was said, that’s going to be my next day’s podcast episode. Everybody will hear everything I said and they’ll compare that with what you wrote.” So even though it’s still not an even playing field between the New York Times and you, it’s a lot more even than it used to be.
JD: I want to go back to some of your books about Catholicism. You weren’t born Catholic. You’re a Catholic convert, but clearly Catholicism’s had a big impact on you. You’ve written a lot about the church itself, but you’ve also written about the intersection between church teachings and economics. Why all the Catholicism in your work? What motivates this?
TW: Well, each one has its reasons. When I published that book with Columbia, that is an outgrowth of my doctoral dissertation. When I set out to write that, I wanted to write something that had never been covered before. That really is what you’re trying to do in a dissertation: advance your field in some way, make an original contribution. But it’s hard to find subject areas where nothing’s been said because everything’s been said about everything because there’s so much subsidizing of higher education.
So I was looking at the Progressive Era and I wanted to know why were there no critics of the Progressive Era in my textbook. What I found is that Catholics were saying: there is something wrong with John Dewey and his views on education, and there’s something wrong with William James and his views on philosophy, and so on.
And moreover, totally missed in most tellings of the history of the Progressive Era is many progressive intellectuals were saying, “Look, we all know religion is dead and nobody believes in that anymore, but at the same time we need some kind of ethical system that can bind us all together. So we’ve got to derive some kind of new secular ethic. It has to be an ethic that’s based on non-dogmatic thinking where we emphasize flexibility and open-mindedness.” So I wrote about the Catholic response to this sort of stuff. No one had written about this before. The Journal of American History said, wow, this invites further study, what Woods has dug up here. I found that very interesting.
I also wanted to write a dissertation that I wasn’t going to hate every minute of. I knew I couldn’t write a libertarian dissertation. That’s just not going to happen. This was the next best thing.
With Catholic social teaching, I had to write The Church and the Market because there was just so much nonsense written in that area. I needed to explain how you can be a hardcore Misesian and a Catholic. Plus, every single thing these self-proclaimed defenders of Catholic social teaching were recommending was going to make the lives of the poor worse. So I had to write that book because those people were making me crazy.
I also wrote a little book on Catholic liturgy because I prefer the old Latin Mass — not just for the language, but for the whole ritual. So I had to write a little book called Sacred Then and Sacred Now because when that Mass became more widely available under Pope Benedict XVI, I didn’t want a whole bunch of barbarians showing up and ruining it — by demanding that they stand in the sanctuary and do the biblical readings or distribute Communion or whatever. So I wrote this little history of it, complete with a step-by-step guide.
And then I guess the other one was How the Catholic Church Built Western Civilization.
JD: A pretty bold title.
TW: It is. I love bold titles. A lot of the ideas that go into making the West what it is come directly from the Catholic church. Naturally a great deal come from classical antiquity, but even there they were often filtered by the church. I also think that the history of the church and science is so badly misreported, that that needed to be covered as well. The Church’s role in history has been so badly misunderstood and mangled — I’ll put it this way: you’d have a better chance of learning Austrian business cycle theory from Paul Krugman than you would Catholicism from the standard account that you get on television. So, it’s all part of the same thing: when there is a conventional wisdom that is fundamentally at odds with what I know to be true, I can’t stop myself until I write a book about it. I suppose part of the reason that I’m on Twitter so much is that I’m not writing books these days, so that instinct to go after error is coming out in rather less productive manifestations.
JD: But even the whitewashed version of history that left-progressives rail about still posits a Protestant work ethic and Yankee ingenuity. That’s what built America, not those Catholics with all their kids.
TW: Yes, I get that. And by the way, I’ll just say I totally understand and am not in any way upset about nineteenth-century Protestants who said: we don’t want all these Catholics moving in and transforming our society. I totally sympathize with that. I wouldn’t call them “bigots.” I would say, “Sure, why would I want to do that to you? You have your society with its mutual under-standings and longstanding ways of living; why would I want to barge in and take that away from you? I’ll find some other place to live, and maybe we’ll get to know each other and these fences between us will melt.” But I’m not the sort to say, “They were such bigots in the nineteenth century because they weren’t dying to spend time with people like me!” How self-centered is that — as if their worth and moral standing derive from whether they wanted me to move in. That’s just narcissism. I totally understand how they felt. That’s normal.
Learn more about Tom Woods at TomWoods.com.
Almost twenty-five years after his death, unpublished material by Murray Rothbard is still being released. Professor Patrick Newman, editor of The Progressive Era, is hard at work on the long lost fifth volume of Conceived in Liberty—Rothbard's epic history of colonial America.
How did one man write so much, and what can he still teach us today? Don't miss this terrific talk from a leading Rothbard scholar.
Presented at the Mises Institute's 2018 Supporters Summit in Auburn, Alabama. Recorded on September 28, 2018.
JEFF DEIST: You are German, but not from a big city in Germany.
GUIDO HÜLSMANN: That’s correct, a small town.
JD: Did your small-town upbringing influence your career and outlook?
GH: I think so. The town where I went to high school in those years had the highest communist voter percentage in all of Western Germany. And this presence made itself felt also in the school, not necessarily among the teachers, although there was at least one communist, but especially among the student body. We always had very engaged discussions, sometimes heated discussions about policy issues. I still remember that I actually gave my first public talk at the age of 15, in the context of the rearmament debate. All communists were against it and since the communists were against it, it must have been the default position for any other human beings. So, they didn’t find any older people to stand up to them, and I was ignorant enough and had enough personality to do this. So, I did it at the age of 15 and that was my first experience.
JD: You didn’t go through a leftwing phase as a young man?
GH: Not very much. I was flirting with some leftwing ideas when I was at the university.
JD: You decided to go to Technical University in Berlin, and studied engineering rather than economics.
GH: After school, I spent one year in the military for mandatory service, so I had a lot of time to give it some thought. There were two options for me at the time. Either I could become an airline pilot or do something with the economy. As far as the economy is concerned, either it would have been business law or engineering with complementary economic instruction. I knew that I was interested in this because I took a class in economics while in the military. In the evening, there were various activities, and one of the things you could do is take classes. And I took a class on macroeconomics. It was Keynesian style macroeconomics, not as technical as what was taught at the university, but it gave me some introduction and I found this very interesting.
JD: Then you pursued a business degree, at Toulouse in France?
GH: Yes, that’s because we had an exchange program between the Technical University and the Toulouse Business School. They offered a major in business-related research, which was designed for all those kids whose parents had sent them to the business school and who were unhappy there and were really aiming to do more intellectual sort of work. The professor who was running this program, was an economist and he accepted me as his student and it allowed me to actually spend most of my time in the second semester of that year on economic research.
JD: After business school you returned to Germany for a PhD in Berlin. Living in France turned you into an aspiring Austro-libertarian?
GH: Or so it seems. I had joined the Austrians in France, out of all places. My research director in France realized that I was interested in liberal ideas and alternative ideas. So, he had me read Hayek and a book by Rothbard that had just been published in France. This is how I got in touch with the Austrian ideas. I was not immediately won over, but I found this very interesting. What did convert me really was Ludwig von Mises’s Theory of Money and Credit. It was not a religious experience, but it very strongly impressed me and convinced me that this was an approach that was much more realistic, powerful, and pertinent than anything else I had seen in economics and prompted me to take this as a starting point for my own works. That was when I returned to Berlin, at the beginning of my doctoral studies.
JD: And you returned to France in your professional career. Today you’re at the University of Angers and run the economics program there for both masters and doctoral students. Many of your students know you by reputation and seek out an opportunity to study with you, much like Rothbard at UNLV.
GH: It’s a great privilege for me to have students who do not just want to get a doctorate with anybody, but who want to study with me, so I can pick those students. Moreover, of the students that I had as undergraduates in Angers, I think there was only a single one who stayed and became my doctoral student and this is a young man who came from Austria to study with me in France. The [undergraduate] students that we have, usually they do not have really a strong interest in economics and if they have an interest in economics, they usually have great emotional difficulties with Austrian economics, not so much on methodological grounds, but because the political conclusions are very libertarian and this is very irritating to most young people in France.
So, as a consequence, the people who are doing a doctorate with me, they come from all kinds of places, only one quarter are French students. Most others come from abroad.
JD: Let’s talk about Mises the man. You’re probably best known for having written the definitive biography of him. Tell us how the project came about, and your recollections of struggling with it as an academic economist thrust into the role of biographer.
GH: It came into being because Lew Rockwell asked me if I would be interested in writing a Mises biography. That was in January 1997. Lew and I had met in Auburn, Alabama, at the Mises University in 1995. He had seen some of my writings that I had published or presented in English. He was convinced that I had sufficient knowledge of Austrian economics and he knew that I, of course, was a German native speaker and also I was speaking French. So, all of this was very helpful to engage in this kind of work.
Now, why did he seek to commission a Mises biography? Well, because thanks to the collapse of the Soviet empire, the secret archive in which the Mises documents, the prewar Mises documents were hosted, had become known and were available. The news had spread to the US and Richard Ebeling had traveled to Moscow to look at these papers, the first Austrian economist who had his hand on this material, and Lew thought it would be worthwhile to have me also do this kind of research and write a Mises biography.
JD: Mises was not a man who liked to talk about himself. And his own memoirs were unsatisfactory in this sense, the sense of getting to know who he was.
GH: Absolutely not.
JD: Did that come through to you as his biographer? Was it like pulling teeth?
GH: Yes. I was fortunate that this prewar material existed. I’m sure if Mises had had a hand on this — if he could have determined what survives into the mix and not — most of the stuff that is interesting that sheds light on Mises as a person, would have been destroyed. I’m absolutely certain about this because you wouldn’t find similar writings in his postwar material. He was very discreet about these social relations. And having that sort of material, it’s not much, but certainly, his correspondence with his mother, his correspondence with Margit, whom he later married, then some exchanges with other people that shed a little light on Mises the person would probably have vanished if he had a choice in this.
JD: How long did it take you to complete the project?
GH: From start to finish, about 10 years, a little more than 10 years — from January 1997 to September of 2007.
JD: Obviously the Mises Institute promotes the work of our namesake. So we were not an impartial publishing house, and you were not an impartial biographer — although certainly honest and thorough in your assessment of him. Did you have to defend the book against reviewers claiming it was hagiographic?
GH: There were many reviews of the book I think, almost 40 reviews, but only one of them accused me of being a hack, a sycophant who distorted reality in the light or to the benefit of a certain ideology. What is true, of course, is that your own conceptions, methodological conceptions, political conceptions, they color the kind of questions that you ask, they color the selection of material that you present, this is unavoidable. But the scholarship, of course, goes beyond this because the point of scholarship is to assess facts always, all the known facts, and to do justice to the material as far as we can. There are constraints, of course, because your knowledge that allows you to interpret and to assess any material is limited. So, given this, I would say it was an honest effort at scholarship and it was appreciated by most people. I wanted to provide a service, by presenting this material, this quite massive amount of material, I mean there’s more to be seen and more to be investigated about Mises and some people have already started doing this. And there is a service in bringing all of this together and presenting it in a coherent way, relating the scholarship of Mises’s writings to the context of his times and his other activities. And that’s what I’ve tried to do, however imperfect, but it has been done.
JD: His memoirs are fairly pessimistic, having seen the Habsburg Empire collapse and the rise of both communism and Nazism. He also wasn’t treated well by academia, either in Europe or upon his arrival in the US. Fast forward to 2018, and I wonder if he would think the intellectual atmosphere for his work and for Austrian economics generally is much more favorable than during his lifetime?
GH: Absolutely. It’s thanks to his courageous stance, which has inspired many others as well, but there are few economists of his standing who have resisted in the way that he did and his own courageous stance has inspired many other economists and intellectuals who were not necessarily Austrians, and who didn’t become Austrians. Think, for example, of somebody like Milton Friedman. Milton Friedman received a Nobel Prize in economics for some of his technical research, which none of his many admirers outside of economics know. He’s best known to the large public for his popular works, Capitalism and Freedom and so on. Now, these works are very strongly inspired by the Austrians. Of course, he had a different methodological take. But his vision of the operation of the market is inconceivable, is incomprehensible, I would say, if you don’t have the knowledge of Austrian economics as a background. And that’s one of the reasons why today I think people have difficulties understanding and appreciating Friedman if they don’t know the Austrians because he appears as somebody who just professes libertarian value judgments. He was quite clever in the way he presented his arguments, but you don’t see the overall edifice on which it stands.
JD: Do you think Mises’s reputation and work benefitted indirectly from Friedrich Hayek winning the Nobel Prize in ‘74, although Mises died a year earlier?
GH: Well, I don’t think that this raised much interest in Mises. As you know, very often there is the implicit hypothesis in assessing anybody who is the pupil of anybody else, if the pupil gets a great prize, they’ll say well, the pupil is actually greater than the master, so probably everything that the master has produced is in one way or another in the work of the pupil. Now, that’s certainly not the case with Mises and Hayek and I explained this in my book. I have also stressed that the foundations on which these two men were reasoning was somewhat different, not in all respects, but in multiple respects different. So, you still can gain a lot of insight by studying Mises separately from Hayek. Hayek was never as accomplished an economist as Mises. He turned away from economics relatively early on and focused more on questions of general social philosophy and the transformation of society and of politics and so on, which was a subject that Mises did not touch upon very much. There is if you wish some sort of division of labor as far as economic analysis is concerned. It’s clear that Mises was two or three levels higher than Hayek and the same thing was true for Murray Rothbard. Rothbard was not quite as good an economist as Mises I would say, but certainly much, much better than Hayek. So, you could not dispense with Mises and Rothbard just by reading Hayek.
JD: Do you think Mises is the most formidable and influential economist who never received a Nobel?
GH: It’s a difficult question.
JD: Political, in a sense.
GH: There is a very strong political dimension to this. One funny fact that I always emphasize when it comes to the Nobel Prize is that no economist has received the Nobel Prize after having expressed himself very strongly against central banks. Hayek opposed central banks vigorously after 1974 with choice in currency and the denationalization of money. So, this alone would have probably made life for Mises very difficult, but then also you have to consider that the Nobel Prize in economics was created in 1969. Mises died in 1973. So, realistically, there was just a five year window in which he could have gotten the prize. He was clearly one of the outstanding economists of his time. The committee in the first few years awarded the prize to privileged people who have made technical contributions and also to the application of mathematical methods in economic analysis, which from an Austrian point of view were, by and large, superfluous and sterile, so that they don’t really help us to increase our knowledge, but this was the hope at the time.
Allow me this additional comment, even if he had obtained the Nobel Prize, would this have helped his reputation? Would it have helped Austrian economics? Marginally, yes, but Mises stands very much on his own legs, so Mises doesn’t need a prize to attract readers to his works. He has produced works of such outstanding quality and of perennial value, that he doesn’t need a Nobel Prize. How many people today are reading Paul Samuelson [who won the prize in 1970]? Even his textbook is now in an edition that has been so much transformed that it’s completely dissimilar to the initial version published in 1948. Mises, on the other hand, is still read, and actually with the exception of Friedman and one or two others, there are no Nobel Prize winners in economics who are still read today.
JD: His first full length work is Theory of Money and Credit. This was quite a book for someone so young, just over 30.
GH: Yes, he was 31.
JD: He applies the concept of marginal utility to money, and thus improves upon Menger. It’s a bold book, and prescient. Do you think it’s his biggest achievement, in some sense?
GH: Oh yes, definitely. It’s a book of astonishing quality. Joseph Schumpeter at the time was even younger when he produced something similar. Schumpeter’s book was brilliant in its exposition of complex material, but I would say it was a typical Schumpeter. It was very brilliant and it was clear that this person had comprehensive knowledge of the literature that he was addressing. But, essentially, it’s wrong. Schumpeter’s Theory of Economic Development is wrong in the main assertions. It’s like John Maynard Keynes’s work. It’s intriguing, there’s also new vocabulary and so on, but essentially wrong. As Henry Hazlitt has said once in his discussion of Keynes’s general theory, there’s nothing in this book that is both new and correct. So, there are some new things that are there but they are not correct and there are correct things that are not new. What Mises did was something else. He produced a book that did not just contain new and solid insights on specific questions, such as the nature and origin of business cycles. He produced a great synthesis. Or, to use a metaphor, he did not just add a new top floor to Menger’s edifice. Adding an additional layer would have been a nice contribution, but an ordinary one. Any talented pupil can stand on the shoulders of his teacher and then add a little something on top and these additions then completely depend on the solidity of the grounds on which you build. But, Mises did something else. He not only built on Menger, he integrated his new insights with the entire literature on monetary economics and the debates on monetary policy in the nineteenth century. He used Menger’s edifice as a framework, and then he solidified its foundations and proceeded to build an entire basilica on top of it. It was an enormous achievement.
JD: When we go back and read it now, about 106 years in hindsight, there are still passages that are absolutely relevant.
GH: Oh yes, definitely. A classic piece of literature, a classic text, it is a masterful exposition of a subject. This is the first criteria and the second one is, it’s still relevant for us today. And definitely that holds for all of Mises’s texts. The reason why it’s still relevant for us today is not of his own making, it’s especially because the mainstream in economics has so thoroughly decided to neglect it, to not read Mises, to not absorb him, so the major economists of the twentieth century have not done what he had done at the beginning of the twentieth century. Economists have become increasingly moronic, increasingly ignorant, not only of classical economics and all the literature of the nineteenth century, but also of the great contributions that were made by Mises and several others in the 1920s and 30s.
JD: So let’s jump to the interwar period, he writes and releases Nation, State, and Economy; Liberalism; Bureaucracy; and Socialism during this prolific period in his life. All of these remain foundational, and beyond pure economics.
GH: I agree.
JD: Let’s talk about Liberalism first. He says that we can distill the entire liberal program down to one word: “property.” “Neoliberalism” was still a new concept at the time. What do you think Mises would think about what “liberalism” has become, both conceptually and politically?
GH: Well, he saw it coming. He saw it coming in the postwar years and all the different strands of neoliberalism were already present. The difference between neo-liberalism and classical liberalism can be defined exactly around this one word that you mentioned — “property.” In classical liberalism, private property is the starting point. And in neoliberalism, it’s something that is a technical option for the arrangement of social affairs in ways that are most conducive to whatever, some other variable, justice or efficiency or whatever you might call it. Mises saw this, how this played out in the aftermath of World War II and he saw where this reasoning eventually leads: to more interventionism. You cannot even define liberty in a social context without reference to private property. And the same thing holds true for economic reasoning. Neoliberalism has abandoned this starting point. It focused on other criteria in the light of which you are trying to justify property. It’s an abortive attempt.
JD: Fast forward to his biggest book, Human Action. It is really a culmination of a lifetime of work. It’s a synthesis of his entire body of thought and work. Should we give more weight to Human Action than his earlier writings because he evolved and synthesized things into a full treatise?
GH: Yes, I think so. It’s certainly a combination of a life-time of reflecting on all these questions. Moreover, for Mises himself, economics is the science of relationships, so it’s the science of how all different aspects of human life, all different markets, all different activities, all different spheres in which we are making choices, which we act, and how they relate to one another. So, for this reason alone, Human Action is unavoidable. It’s the embodiment of Mises’s thought and I would also say on virtually all questions of detail, we find his most mature thinking on these pages. You can argue on one or two occasions, it’s not of course, perfection, like no human work can be perfect, but you can raise the question, is it better than how he had put it in previous works? Then you can argue on one or two things.
JD: You don’t find a lot of gross contradictions in his work over the years.
GH: No. I mean, usually what you find is that in previous works, he had lacked the necessary nuance or he had given in too much to the opposing argument and so he would set the record straight in Human Action, for example, as far as money is concerned. But then, for example, there are other questions, but these pertain more to discussions of policy issues such as immigration where you might say, well maybe he had a different point of view in previous writings which was more adequate. But, clearly, as I said, in virtually all cases, we find in Human Action, the most mature, the most nuanced statement of his own ideas.
JD: Especially Part I of Human Action, which is more philosophical. What strikes me about reading the book, and his earlier work, is the fearless approach to philosophy, sociology, and ethics, fields beyond economics. Today the trendy word is intersectionality, where academic disciplines come together, but he certainly felt capable of addressing the bigger picture beyond his academic confines. Today academics are criticized if they wander too far from their chosen specialty.
GH: Yes, that’s right, it is especially strong in economics. But, the truth is that the way young economists are trained today, they are turned into morons because all that they learn is to mimic the natural sciences. They learn how to apply econometric methods to datasets, and of course in order to do this you don’t really need any training in economics. You can come from any natural science. You can come from engineering, you can come from mathematics, you can come from physics, it doesn’t matter, as long as you know a little bit about mathematics and applied mathematics. You take one or two years of classes in econometrics, you’re there. Anybody can do this. You don’t need any knowledge of economic literature, you don’t need any knowledge of economic history, you don’t need any acquaintance with praxeological analysis, the logical analysis of human action, which we find in classical economics and in Austrian economics.
You don’t need any of this because all that you do is to look at data and to apply methods that people from all other walks of scientific life would and could apply if they had no idea what economics was all about. This is the work of a moron. Unsurprisingly, these people typically have great difficulties engaging in interdisciplinary or multidisciplinary work with scholars from the social sciences, and also with philosophers and jurists.
JD: Let’s discuss his cultural outlook. Certainly he viewed himself as a cosmopolitan, someone without a parochial perspective. He certainly was an anti-nationalist and a democrat, especially in the context of national socialism and what was happening in his beloved Vienna. But he also eschewed universalism, and advocated for self-determination and secession as safety valves for democratic overreach and state tyranny. And he did not necessarily accept the left-cultural elements of society often associated with cosmopolitanism.
GH: You can get the impression that Mises had a left liberal orientation, if you start from the context of his time, which was in general, much more conservative, much more Christian than the world that we live in today. And of course, relative to that world, in many respects, you could say, he was a progressive. He pushed progressive policy items and for example, in his promotion of women doing research, he was one of I think the first research directors of a female doctoral student in economics at the University of Vienna and, all of this of course, we would associate today with progressive policy. But of course, we need to keep in mind that Mises himself, when he discussed feminism, said feminism is a force of progress to the extent that it’s part of the general classical liberal movement, which tries to give greater precision to the definition of property rights. But as soon as it steps beyond this, it becomes a force of destruction, it joins socialism, a generally destructive movement. So, this is what we cannot sway from for Mises, both the starting point and the conclusion, is always the validity of property rights. If property rights are respected, they lead to social outcomes that are greatly at odds with what present day self-styled progressives or left liberals or whatever you want to call them, would like to see, at least that is my impression.
JD: You mentioned earlier Mises’s era of “high theory,” and sometimes he is attacked as being too stubbornly laissez-faire, too intransigent and philosophical for his own good. But he spent 25 years in the Vienna Chamber of Commerce, involved in the minute day-to-day workings of Austrian fiscal, monetary tax, and regulatory policy. He didn’t live in an ivory tower at all.
GH: Exactly. His ideas were not just a kooky conception of somebody who is out of touch with bricks and mortar. He is today very famous as the theoretician of economic science as an a priori science, but that doesn’t mean that he came to learn economics through a series of syllogisms. He learned from the analysis of economic policies, in the brewery, in agriculture, in clothing production and so on. All these fields where Austrian entrepreneurs were very active and very successful in those years and where their endeavors were hampered by government interventions. As Mises relates in his memoirs, at the beginning, he was convinced that interventionism was based on sound reasoning But then he had second thoughts. He said, “how does this square with what I observe in practice” and he was led to question the logic of the basic reasoning behind the interventions. And then he came to realize that in fact the exact opposite was true. It’s not because of government interventionism that the living standard of workers in Austria had increased, it was the exact opposite. It was capital accumulation and the activities of entrepreneurs that created more wealth in the country and thereby increased the living standards of the population. And what the government always did was just to redistribute existing wealth while creating disincentives for the creation of further wealth, so it was actually impoverishing by nature. It was certainly surprising for him at the beginning, but Mises was the sort of fellow who, once he understood something, he would cling to it and he would not give up. If you wanted him to give up, you really had to demonstrate to him where he was wrong. But nobody could demonstrate to him where he went wrong with his reasoning. And he would not give in just because it’s unfashionable, it’s unpalatable, because that doesn’t show that he’s wrong.
JD: Let me ask you about the Austrian school itself. There were deep divisions within the original Austrians. Some people claim that so-called “American Austrians,” who also have deep divisions, represent a bastardization of the old true Viennese school.
GH: Well, there’s no doubt that the American Austrians were essentially a Misesian school. Then, especially after Hayek received the Nobel Prize, the Hayekian blend of Austrian economics gained in importance, but during the 1950s and 1960s and even the 1970s, when Austrian economics spread in the US, it was essentially a Misesian movement and it’s true that this is what sets it apart from Austrian economics as it was known in the nineteenth century and then in the early twentieth century. So that is correct, but that of course, doesn’t mean that this Misesian economics is not a pure outgrowth of Austrian economics. It was certainly not the only direction Austrian economics could take. For example, the works of [Friedrich von] Wieser took it into a very different direction. But undoubtedly it is a representative, a very faithful elaboration of the original Mengerian ideas. Of course, it’s not perfect and not complete, and there probably is some truth in all branches of Austrian economics. But then again, we have to state as a matter of fact that no other branch of Austrian economics has produced works of the quality that we find in the Misesian branch, works such as Human Action and Man, Economy, and State. No other branch.
JD: Let’s talk a bit more about you. You’re probably best known for your work in monetary economics, focused on money and banking. Is this because you’re an Austrian, you naturally gravitated toward money as opposed to other areas of specialization?
GH: Well, it is what attracted me at the time to Austrian economics and is certainly one of the areas in which Austrians are most different from all other branches of economics. It’s still an area where Austrians need to be heard today, where they need to stress these things that we have inherited from Menger and from Mises on money. So, it’s very important, but also difficult, especially for young academics. If you want to become a professor, then working in monetary economics is an uphill battle because you are so much outside of the mainstream that you cannot get published in any of the mainstream journals.
JD: Whereas someone like Peter Klein focuses on entrepreneurship, where Austrian views are perhaps less radical than they are when it comes to central banking, for example.
GH: Correct. But of course, we still need to have people who are thinking and writing on these issues and also developing Austrian economics and money and banking, even though it’s difficult to make a career in that respect. But then also, I consider myself to be a generalist, so I’ve dabbled into various other fields of economic analysis, which, of course, are always related and it’s easier to do this from an Austrian point of view because you see how these different things are related. I’ve written on the methodology of economic analysis, like equilibrium analysis and counterfactual laws, I’ve written on interest theory, on business cycle theory, on capital theory, on financial markets, on uncertainty theory and interest rates, on secession, on Catholic social doctrine, and various other topics.
JD: Your book The Ethics of Money Production is really fantastic from my perspective. I enjoyed it very much and think it’s very lay friendly. Why is it dedicated to the late professor Hans Sennholz?
GH: Hans Sennholz was an important Austrian monetary economist who kept up the flame after Mises. At the time, when I published the German edition in 2007, Sennholz was still alive. So, I wanted to dedicate the book to a living economist. I dedicated my doctoral dissertation to two dead persons and did not want to turn this into a tradition. And then Hans Sennholz best represented the kind of monetary economics which I considered to be foundational for my own analysis. He actually died soon thereafter.
JD: Well, he died having read it! One of the points that you make is that money has civilizational and cultural elements. Its provision and regulation is not simply a matter for technocratic bankers. Central banks affect every part of life, with enormous ramifications for society. How do we do a better job of making this point to average people?
GH: I think this point can most easily be made with people of a certain age. It’s very difficult to have this discussion with younger people. It’s not something that they’ve lived through themselves, but if you talk to people who are 50, 60, and older, they have seen the cultural decay and they conceive it to be problematic. There are very few people who are 70 years old who would say, all in all, American society has taken just a great turn in the past 30 years, very few. Most people are unhappy and they would just say, well, that’s just how things are. And some would say that the decay comes from capitalism, there’s too much freedom, so we need to rein people in and we need to pursue a more conservative policy agenda. This is where we can, as Austrian economists, provide genuine service by explaining that the decay is actually a fruit of interventionism and most notably of monetary interventions. It’s crucially important to see that interventionism is not only destructive in material terms, but also the driving force of cultural destruction. Mises himself perfectly understood this and he said so in the concluding pages of Socialism where he stated, as a matter of course, that socialism has turned out to be a force of cultural destruction on a massive scale. But unfortunately, he didn’t go into detail. And so, this is where we can still provide a service today.
JD: You have a chapter in your book called “The Cultural and Spiritual Legacy of Fiat Inflation.” I love this chapter because you demonstrate how an express policy of inflation makes government grow at home and abroad, by financing welfarism and foreign wars. But you go farther at the end of the chapter, and suggest inflation makes us worse people on an individual level. I sense there’s another book you could write on this idea alone.
GH: Actually one of my doctoral students is working on this topic. Let’s see how well he does! One big problem with monetary intervention is that it “de-responsibilizes” us, destroys the virtues in us. It destroys morals from within. The whole point of morals is to lead a successful life. This is something that’s often not sufficiently appreciated because you associate morals with a whole item list of constraints that you put on what people would like to.
JD: Self-sacrifice.
GH: Self-sacrifice for the mere sake of sacrifice, rather than in the pursuit of a higher end. But this is not the traditional conception of the virtues, as we find it most notably in the Christian canon of cardinal and theological virtues. These are attitudes, mental dispositions that make for success in life, that make us more successful, not only on our personal way to heaven, but also in our social relations. Now, monetary interventionism destroys this because what is virtuous holds true under the premise that you have clearly defined and protected private property rights, that you have something like responsibility, that if you make a wrong choice, there will be negative feedback because it ultimately falls back on you, you’re responsible for the wrong things that you do. You mess up your social relations, you mess up a friendship, you betray your relatives and your wife and so it will ultimately fall back on you. But, in our society, we do all kinds of things and have the government intervene in various ways, to prevent the cost being too high on people who behave recklessly, both in their social relations and as far as their own individual behavior is concerned. Think of drug consumption or sports that are excessively risky, or of divorce. We are socializing many of the risks associated with such behavior, and this of course cannot fail to destroy virtue from within, and at the end of the process, everybody asks themselves, well, first of all, why should I behave virtuously?
JD: A lot of economists would say I don’t want to talk about virtue and values. I’m not a priest, I want to talk about inverted yield curves. Mises really thought economics was about real life, and reasonably intelligent people ought to think about it.
GH: Well, certainly Mises himself did not refrain from commenting on this. And I’m not taking up the position of a philosopher and saying, look, these are the virtues. The work has been done, I don’t need to do this. What I do with economic analysis is to show how government interventionism reinforces this particular conception of what values and virtues are all about, and diminishes another; and how it sometimes inverses the traditional conceptions and sometimes destroys them.
Jonathan Newman discusses the many contributions of the brilliant popularizer of sound economics, Henry Hazlitt (1894–1993). Best known for his book, Economics in One Lesson, Hazlitt stressed that a comprehensive view of of any event or policy is necessary to avoid missing longer term consequences.
Hazlitt was a voice of reason in the mainstream press. He demolished Keynesianism, socialism, government interventionism, price controls, government welfare, fiat money, expansionary monetary policy, and all kinds of economic errors and wrongheaded policies.
The Who Is? podcast is available on iTunes, Google Play, Stitcher, Soundcloud, and via RSS.
In this episode, Guido Hülsmann, author of Mises’s biography The Last Knight of Liberalism, highlights the life and work of Ludwig von Mises (1881–1973), arguably the greatest economist of all time. Very early in his career, Mises was influenced by Carl Menger and Eugen von Böhm-Bawerk to turn away from the Historicist approach and to pursue studies in economic theory.
Among Mises's many contributions, Hülsmann discusses the socialist calculation debate, Mises’s battle against inflation, and the argument that economics is part of a larger science called Praxelogy. Mises revolutionized the theory of money, developing a full explanation of money prices and the consequences of money production.
Lucas Engelhardt explains the many contributions of an early precursor to not only the Austrian school but to the whole of economic thought, Juan de Mariana of the 16th century Spanish scholastics. Mariana’s book On the King and the Royal Institution stressed the importance of remembering that kings are under a greater natural moral law and ought to be punished when they violate it. Mariana distinguished between a tyrant and a king by how the ruler viewed the property of his citizens.
Regarding the exchange value of money, Mariana understood the value was determined by the supply and demand of money so that debasement of the currency led to rising prices. Engelhardt also explains Mariana’s understanding of subjective valuation.
The Who Is? podcast is available on iTunes, Google Play, Stitcher, Soundcloud, and via RSS.
Per Bylund explains the many contributions of Jean-Baptiste Say (1767–1832), a precursor to the Austrian school of economics. Today, Say is most well known for his “law of markets” which is now referred to simply as “Say’s Law.” Often misstated as “supply creates its own demand,” the law is that we produce and supply to the market in order that we may demand other goods in exchange. Production, therefore, is an indirect means to attain the goods and services we desire to meet our needs.
Say also made contributions in the theory of money, including how it emerges spontaneously, and why the commodity serving as a medium of exchange needs characteristics of durability, divisibility, and high value per unit, with the choice of commodity should be left to consumer preferences. Other highlights include his distinction between banks of deposit and banks of circulation.
The Who Is? podcast is available on iTunes, Google Play, Stitcher, Soundcloud, and via RSS.
Murray N. Rothbard (1926–1995) was one of the most important participants in Ludwig von Mises’s seminar, and undoubtedly the premiere Austrian economist of the twentieth century. Here, David Gordon discusses Rothbard’s contributions to economic theory and their broader historical context.
In his 1962 Man Economy and State, Rothbard built on Mises’s work and further developed the complete deductive science of economics called Praxeology. Gordon highlights several of Rothbard’s contributions including the impossibility of a monopoly price occurring on the free market, the implications of the calculation problem on the size of the firm, and the impracticalities of fractional reserve banking. Rothbard’s exposition of the Great Depression and his work in History of Economic Thought are also discussed.
The Who Is? podcast is available on iTunes, Google Play, Stitcher, Soundcloud, and via RSS.
In this episode, Shawn Ritenour answers the question, “Who is Wilhelm Röpke?” A German economist, Röpke contributed to the theoretical structure and political vision of the Austrian school, warning of the dangers of political consolidation and underscoring the connection between culture and economic systems.
Röpke opposed collectivism and centralization of power in all of its forms. In his own words, he became a “fervent hater of war, of brutal and stupid national pride, of the greed for domination and of every collective outrage against ethics.” He warned against Keynesian full-employment policies and he developed a theory of repressed inflation. He argued that inflation was merely a Keynesian means of transferring wealth.
The Who Is? podcast is available on iTunes, Google Play, Stitcher, Soundcloud, and via RSS.
JEFF DEIST: What makes you optimistic, what makes you pessimistic about what you see in the US?
RON PAUL: Well, if I look at the big picture including a long span of time, I would say conditions aren’t that bad, even though I often talk about all the bad things I anticipate and how it could get worse in terms of the economy and foreign policy.
When you think about it, I was born in 1935, in the middle of the Depression. I remember my early life. I remember when I was 3 years old and 5 years old and the Depression lasted through World War II and the conditions were such as I remember very clearly, but it wasn’t a big deal for me even though we lived in close quarters and we didn’t have a lot of shoes and were just skimping by.
So, we went through a Depression and World War II. Those were pretty tough times and since that time — since the war issue’s always been a big issue with me — I remember the tragedies of World War II. We had relatives in Germany, so it always caught my attention. Then we had the Korean War. I could remember my mother saying, “another war this soon?” We just got over one, so she was negative on that and then we had the Vietnam War and I knew that I probably would be drafted and that was one of the reasons that helped me move toward medicine.
So, those were pretty bad times. Think of the people that were dying over those first 30 or 40 years. Things weren’t great economically either. In America, we were not evenallowed to own gold.
Those were conditions that existed that changed for the better to some degree. Philosophically, I think, we’re still on the wrong track overall, although some things have improved. Once again, we’re able to own gold. The United States government and I pushed it along when I was in Congress to mint gold coins again and talk about monetary policy.
Philosophically, we are making progress in some areas, though, and I give a lot of credit to the institutions that do this, like the Mises Institute and FEE. And of course, I want to participate in changing foreign policy and we keep working on that through the Ron Paul Institute.
But, on the downside of all this, I see we’re on a disastrous course even though the official economic indicators look great and wonderful. Everybody’s practically euphoric andTrump is a good cheerleader. But, there is a lot of weakness behind the numbers, and we’re engaging in self-deception and unsupported hopefulness that things will be all good, there will be no inflation or high unemployment, and there’ll be no major war. I think when I look at the seeds that have been sown, the future looks rather bleak in many ways, even compared to what it was like as we finished World War II and Vietnam.
We’re in a mess partly because our major universities are still very Marxist-oriented and they’re very anti-liberty and therefore, I think for people who care about liberty, we have a big job ahead of us.
JD: You talk about this in your book, Swords into Ploughshares. Is there a particular moment or recollection from your childhood during the Great Depression, or World War II, that started you on the path to being liberty-minded?
RP: Not at that young age. I think I had a natural instinct — and I claim everybody has a natural instinct — to be an individual. I think we express that when we are 2 years old and when we are 4 years old, when we’re teenagers and it’s always a struggle of being independent-minded and minding our own business and taking care of ourselves. And then, we have that beaten out of us. Of course, discipline is very necessary and good. But it depends on where it’s coming from. If it’s coming from some wise parenting, I think this is very, very good.
But, there was never one moment I started down that path of being liberty-minded. I think, more or less, it was an evolution. Back then I’d read newspapers and listened to the radio, listened to my dad talking about the war issues and going to school and it was a mixed bag. And then, I guess the serious introduction came probably in the early 1960s. I got interested in reading Austrian economics. I read almost everything that Ayn Rand ever wrote and that’s when I found Leonard Read and got to know him. It seems like when Goldwater was running — that would have been ’64 — I had already been thinking about it. If you read everything Goldwater was talking about back then, he would throw out some names. So, somewhere along the way, I came across the name Hayek because he was known because of The Road to Serfdom. So, I was inquisitive enough to look into it.
By the way, when I talk to college students today, I say the most important thing you can leave this place with is being inquisitive, checking out, finding out, and ask the question and seek the truth and do your best to be truthful to yourself and then come up with these answers. I am fascinated, that on the campaign trail in the last 10–15 years, where people would listen and come up to me and they would say, “I get it. It’s just common sense.” They’d put the whole picture together and they seemed to have sort of a momentwhere a light bulb goes on.
JD: Part of this evolution affected your decision to be a doctor, didn’t it? Deciding you wanted to help people. You saw a world full of hurt.
RP: I had an exceptionally good male teacher that taught biology and I got fascinated with that and got an A. So, when I went to college, I sort of leaned in the direction of science. I already felt comfortable with biology and the chemistry teachers and physics teachers weren’t as good. So I majored in biology, so that sort of set the stage, but even up until my third year in college, I was uncertain. But by the time I was finished in college, I had made a decision that’s what I wanted to do and fortunately, I was able to do that. I considered myself very fortunate that I was able, over my lifetime, to be able to do medicine, to a large degree and stuck with that a lot more than people realize as well as getting involved in the issues. People say, “when did you get involved in politics?” I say I never did. “When did you decide to go into politics?” I never did. But, I wanted to talk about the issues that were important to me and the vehicle was politics because I wasn’t an economics professor. I wasn’t writing great books and things like that, I was more inspired to try to convince other people of a different way of doing things. And I think I picked up some of the wisdom on how to do that from Leonard Read because he had some special ideas on how you converted people. Yet, I ended up talking, and being impressed and amazed that I could get 5,000 or 10,000 people out on a college campus, but being a member of Congress was what I used that one thing to do and that is to change people’s minds.
JD: I know you’ve written about it, but talk briefly about your involuntary time, of a sort, in the Air Force during the 1960s.
RP: Right. I always assumed I would be drafted. I thought being a doctor was a better way to go, because I just dreaded the thought of people just shooting at each other and killing each other. In October of ’62, I was almost finished with my second year of residency, and during the crisis, I got a draft notice. Fortunately I was able to finish out the year, but I went into the Air Force in January of ’63 and was stationed at Kelly in San Antonio and that’s how we originally got to Texas. But, back then, there were a few people resisting the draft. There was a doctor that was in the news and I sort of looked at that and I paid attention, but I didn’t say, “that’s what I ought to be doing.” But resistance to the war grew, and as time went on I sort of admired what boxer Mohammad Ali did, to give up his career in a way for three years, because he was arrested and prosecuted for resisting the draft. That, to me, was very impressive. I was disturbed by that, but I expected it. That’s what governments do to you.
I was disturbed that my medical training was going to be messed up. But, I was pretty stoic about it and I liked the idea of flying. I remember going through flight medical school. It was not a big education, it was 3 months schooling, but I remember it was in the early 60s, they were just talking about the space program. I said, in my mind, I wonder if I ever could be the first doctor that could go into space. That technology fascinated me and of course, that wasn’t to be, but I just made a decision that I would make the best of it. During the Air Force period, I had a lot more time to read and that’s when the Randians were very active and it was at that time, I subscribed to The Objectivist Newsletter and remember specifically reading “Gold and Economic Freedom” by Alan Greenspan, which I kept a copy of all those years. That’s the activity I was involved with. I’m not a Randian, and I’m not an Objectivist. I have my critique of that, but it was sort of inspiring reading.
Even today, I don’t read hardly any novels, but I read hers because they were sort of inspirational and yet, she forced me to sort things out because she was so negative on Christianity and generosity, at least she came across that way with her attack on altruism and compared it to communism and that didn’t make sense to me. I had to figure that out, that there was a difference, that they weren’t identical.
But, so I had more time off while in the Air Force and enjoyed it. I learned how to fly an airplane and got my pilot’s license, but had to travel around the world frequently as part of my duty. I went to the Far East on a couple trips and I went to the Middle East and every place from Spain, Italy, Turkey, Ethiopia, Pakistan, the whole works. Iran, I was in, I don’t think I was in Iraq. In Iran, I had been there in Tehran, but that was back when we owned it, with the Shah.
I referenced those trips over the years because they became so significant in my activity in foreign policy. I especially remember how we weren’t allowed to go into Afghanistan. We were in Pakistan and we went up to Peshawar, which was not too far from the Khyber Pass, which was historic and remains historic. It was right on the border and it turned out that was the area where that whole Bin Laden episode happened. And I can visualize that place very, very well as I was driving with the military people up in a truck, to visit the border. I can remember the captain that was with us in the truck, who had been there before and he said, “Ron, do you see that place up there?” It was a place of totally bare and rocky mountains. He said, “there are thousands of people that live up there. They are tribal and they’ve been there for a long, long time and they’ve never been conquered.” And he gave me a little history lesson and so, once we started thinking about this, in the foreign policy, I was able to visualize.
So, my military experience turned out to have some value.
JD: After the Air Force you were back in South Texas. You now have several kids. You’re reading Austrian economics, getting more and more involved in your thinking. In the early 70s, you go to the University of Houston and see Ludwig von Mises, only a year or two before he died.
RP: I think it was his last lecture tour. We saw a little clip in the paper — very, very small — in the Houston Chronicle and it said he would be a speaker at the University of Houston. There was only one other person I knew in the whole town that knew who Mises was and that was Dr. Henry May and so, I called him, I said, “Henry, Mises is coming to town. Why don’t we go up and hear him?” And it was a major decision for us because we had to drive about 50 or 60 miles and find where he was giving this lecture. At the same time, we both had office hours, so we had to get coverage, for somebody to come in and take care of our patients because it would take us the afternoon to do this. So, we went up and his lecture was on socialism. I sort of read the book and knew a little bit about it. It was just the experience of hearing him lecture. He had a German accent with a lot of lisping, whistling. He spoke English, of course, but there was a strong accent, but it still was an experience. The venue, it was a room, probably a classroom that might have held 40 to 50 students, maybe more and they had to bring extra chairs in and that room was packed. We got there a little late and we stood at the door so we could at least see him for the experience. I don’t know whether you ever heard the other part of the story.
JD: Dr. Michael Keller.
RP: Do you know the story?
JD: Our friend, Dr. Keller, was responsible for having the event there as a young member of UH student council.
RP: One time we were talking many, many years later, to Keller and I told him this story. He said, “Guess what? I was the one that got Mises to come.” It was probably decades later that we crossed paths and that’s how one person, doing something — like bringing Mises in — can make changes and I found that fascinating.
JD: So, when you ultimately decided to run for Congress, the first time around in the Houston area, I wonder if people understand how beneficial it was that you were known as a medical doctor and an OB — it was a political asset for you in running for Congress.
RP: Yes, it was, as a matter of fact. We used it in our advertisements and our media person did an ad which was just, the lights coming on at my house. It was dark and I go out and get in the car and drive off and they show me going off and then me coming back home in the middle of the night. I got up and went and delivered a baby. Matter of fact, [Congressman and medical doctor] Michael Burgess was a medical student back then and after we got to know each other he said, “I saw your ads. That’s when I went into OBGYN. The ads were so impressive.” It had nothing to do with anything foreign policy or gold standard or anything else. It was just that I was an OB doctor and it was image making. When he told me that story, I said, “It’s too bad you just went into OB. I thought you’d become a libertarian.” But, he probably wouldn’t mind me saying that.
JD: Carol was a little astonished when you won? It changed your life, not always in great ways, in terms of family.
RP: Well, she wasn’t astonished. I was probably more astonished. It’s when I told her I was going to run. She said, it was risky, dangerous because you might win. I said no, I can’t possibly because I wasn’t involved in that. I was trying to get rid of Santa Claus and you don’t win doing that. She said, yeah, but you’re going to tell them the truth and they’re going to like that and they’re going to vote you in. So, yes, we had some adjustments to do. And that was one reason why after I had four terms, I came back to medicine for 12 years.
JD: One of the great things that came out of your first stint in Congresst was your minority report, with Lewis Lehrman on The Case for Gold. You were part of the Minority Commission appointed by Ronald Reagan. Reagan is someone you saw through maybe more than a lot of conservatives did.
RP: Oh, yeah. Reagan was a nice guy and I think he believed in some good things, but he also was able to rationalize a lot of things. Deficit spending, big government, militarism. I didn’t like what he did in Libya, bombing Libya.
Also, he really had less to do with the gold commission than it sounds because it was passed under Carter the year before Reagan was in. So when Reagan was elected and it came up, it looked like they were just going to ignore it. We had to make sure that they did it and my involvement came about, interestingly, because I had talked about gold.
The most important outcome of that whole thing was that we legalized private ownership of gold again for the first time since the 1930s. The legislation was brought up under the IMF bill in 1983 and Jesse Helms and I sort of worked it together. But he was ahead of me on having it done. I think he was getting ready to do it in the Senate and they came to me and I was able to introduce it in the House.
The bill’s passage was a significant event, but that was a reflection of what was going on in ’79 and ’80. I mean, we went from gold not being owned by Americans and fixed at $35 an ounce at Bretton Woods, which was a disaster. It collapsed and then we had a decade of massive inflation and 15 percent interest rates then 21 percent and people were very, very concerned about the dollar and so, the purpose was to study the role of gold in the monetary system, domestic and international.
We had our first meeting and it was held in secret and [Donald] Regan was the chairman. He was Treasurer and he said, “we have to keep this secret because we don’t want to mess up the gold markets and all.” And guess who came to our rescue? Several people did, but [syndicated columnist and journalist] Bob Novak did. Novak was a gold guy and he started writing about it and he got enough people to pester them and then they turned the commission’s documents over. Few people in Washington wanted an open discussion.
JD: A lot of people may not know the story about President Reagan calling you to vote for funding for a bomber program. Tough call for a young congressman.
RP: Yeah, I was in the House restaurant and I think Carol was with me because usually when we had someone come from home, a guest, we’d go there. So, they came over and said, the president’s on the phone. I went to take the call and matter of fact, over the years, he did that I think twice, but this was the one on the B-1 bomber, that was controversial and he asked me — I was very, very polite and he was very polite — and I said, well I’m sorry, Mr. President because you know, I campaigned against that and I said I don’t think I can break my word. He said, okay, I understand. There wasn’t any badgering or anything like that, but then I went back and I told Carol.
JD: That’s a great story. He was a little more gentlemanly than Tom DeLay.
RP: DeLay was something else. He’s being rehabilitated.
JD: Yes. Do you have any thoughts on running against Phil Gramm in 1984 for US Senate in Texas?
RP: I was looking for a graceful way out of Congress and the Senate run was it because I did have a lot of supporters then and I didn’t want to insult them by just quitting. It was very, very clear that the establishment Republicans didn’t want me and they ganged up real fast to support Gramm. I don’t know of any other way that I could have done it, but it was sort of my desire to get home because in spite of all the stories you hear about Congressmen, back then I was probably making $40,000 or $50,000 a year and I had kids in school and it was not financially easy to go back and forth and have a couple homes and get kids through college. I decided that if I was going to go back to Congress, I had certain rules that I had. I was not going to have any kids still in school and I wouldn’t owe any money. I’d have my house and all my properties paid off and then I could be more relaxed in going back and not have to worry about the finances.
JD: So, when you decide to run again in 1996, people might not know how arrayed against you the GOP was. Then Governor George W. Bush of Texas and his man, Karl Rove, were not fans, and actually Newt Gingrich as speaker had the Democrats switch parties to run against you. So they didn’t want you back.
RP: They worked very, very hard. Matter of fact, that race is probably the most fascinating that I was involved in. It’s been written up in detail because when I decided I was going to run, I went and talked to the Republican delegation and I said, “I want to run.” I want to get another Republican seat for Texas because Greg Laughlan was the sitting Democrat in the 14th district where I lived.
I said I could get the seat. But, what shocked me is I didn’t know how quickly I could change it to a Republican seat a month later. With the backing of the Republican establishment, Laughlan became a Republican. He was on the Ways and Means Committee and the GOP promised him a million dollars and Newt Gingrich came on and he supported him. He got 56 — maybe, a large number, I think it was around 56 — other members of Congress to cough up and donate to his campaign and both Bushes, Senior and Junior, supported him. They didn’t want me in Congress.
But, it all backfired. We were tipped off at times when they were trying to bring somebody in to tell local voters to vote for Laughlan. I think it was somebody from the Reagan administration that they sent in. I can’t think of his name right now but he had been in the cabinet. We would know that he was coming in and then we had our press release ready the day before he arrived. The thing that we could use on this was, “why are they sending people from Washington to tell people in Texas how to vote?” And that was a powerful message.
And also, I knew for sure that the reason that race was so interesting was that they would use the drug issue. I was very clear about the War on Drugs and how could anybody be against the War on Drugs in a Bible Belt conservative Republican district in Texas? You can’t be elected like that.
So lo and behold, the Republican Party spent a million dollars or more, which was a lot of money then, and they did the most vicious ugly ads against me claiming that I’m giving drugs to kids and children, drug dealers and all this trash. And it didn’t work. I think most people didn’t believe it could possibly be true because they knew me more as a doctor taking care of and delivering babies. In fact, we answered it with an ad showing me delivering a baby. So, we had to combat this image. I ended up winning the primary.
But then the Democrats did the same thing, used the drug issue and I finally concluded that I thought I was absolutely alone, but I think the people are way ahead of Congress because there probably were a lot of families that had been touched by somebody because they smoked a marijuana cigarette and got thrown in prison. It was horrible. It still is bad and we’re seeing this today. I think the people either didn’t believe it or they weren’t going to hold it against me or they think the drug war was bad and I think time has proven that that was a good assessment, even though now we have an administration that’s trying to go backward.
JD: Well, when you come back to Congress, your second stint from 1997 until 2012, was marked by really two things that stick out. One is that you were strongly against the Iraq and Afghanistan wars and you were involved in promoting noninterventionism. The other thing is that you were involved in monetary policy going back and forth with first Alan Greenspan and later Ben Bernanke. Give us your overriding thoughts about your second go in Congress.
RP: It was quite a bit different than the first time I ran. There was more attention and especially from 2008 on, from the presidential election in ’08 and ’12. It was just astounding and it was the issues that I liked to talk about, such as civil liberty issues.
I remember that I was totally shocked when I arrived at the University of Michigan, it was after a debate we had in Detroit, and there was a group of young people who had waited because I was late. But, we came over and that’s where they started shouting “end the Fed” and that’s where I remembered them doing that. I didn’t tell people. I didn’t have cards, hold cards up or say let’s end the Fed. It was spontaneous, so I knew something was going on, where people wanted to hear this message.
The other big issue was the NDAA [National Defense Authorization Act]. College kids started talking about that or bringing it up to me even before I was hitting hard about it. The main concern was the authority to arrest Americans and hold Americans without due process which has continued.
Those were the issues I like to talk about and of course, one of my biggest events — might have been the biggest one — was at the Berkeley campus. Things were going along and we got more attention on the Federal Reserve and people, even today, I think have a much healthier attitude about the Federal Reserve. I remember at the time seeing a poll conducted by a television station asking whose fault the recession was. I think that 66 percent agreed it was the Fed’s fault and I thought, “wow.” And this wasn’t on your website or my website. This was on the CNBC website. And I thought, well, something interesting is going on. They’re not going to get away with what they’ve gotten away with for a long time because we’re going to have another crisis and the media will say it’s the Fed’s fault.
JD: You knew Alan Greenspan a little bit and he understood gold and he understood Austrian economics. He’s a brilliant man.
RP: We had a little bit of fun at times and I had visited with him after some hearings about Murray Rothbard and different things because he knew Murray from the Rand group. I think the most fascinating little incident was because I remember his article in The Objectivist Newsletter and he was coming to one of our hearings and we were able to go and have a one-on-one, sit down and get a picture and say a few words. And not everybody did it, but I was interested in it. That’s generally not my thing, but for Greenspan, I thought, I might as well take advantage of this. I had the original green pamphlet, which was The Objectivist Newsletter and it was in 1966 and it was when Greenspan had his article first published. I said, “do you recognize this?” He knew what it was. “What I’d like you to do is sign this article for me.” So, he got his pen out and he signed this. I said, do you want to put a disclaimer on it? And he said, “I just read that recently and I still support all those views.” What am I going to make of all that?
I’ve tried to get him on the Liberty Report, can’t get him on. I thought I could have some fun.
JD: Maybe if you pay his $200,000 speaking fee.
RP: Yes, probably.
JD: I recall you also had a breakfast with Ben Bernanke when he was Fed Chair. How did that go? Was that polite or was it frosty?
RP: It was polite and boring, in a way.
JD: He wasn’t the ideologue that Greenspan was.
RP: It might have been me not being aggressive enough or something. But, I’d have a much easier conversation with Volcker. Volcker, I got to know a lot better than I knew Bernanke and in the early 80s, there was a thing called the Monetary Control Act and there was a major part of it which was opening up the door for the Fed to monetize anything they want, especially foreign bonds. So, I complained about it and complained about it in my little way at the conference and Volcker invited me over. He said, “I’d like you to come over and have breakfast and we’ll talk about it some more.” But, it was sort of an academic thing, the way it was. It wasn’t like, “I’m going to straighten you out.” That wasn’t his attitude. So, this had to have been in ’79, most likely or ’80.
JD: Mr. Volcker should be on your show. He’s got a new biography.
RP: I don’t know whether we’ve reached out to him. He was more sympathetic to gold than some. So, when we went in, it was a one-on-one breakfast and we went over and the aide I had was somebody by the name of Lew Rockwell. We walk in and we got there a couple minutes early and Volcker’s staff was in the room where we were supposed to meet. So, we were just chatting away there in friendly conversation and then Volcker walks in, you can’t miss him because I think he’s about six-and-a-half feet tall. So, he walks in and I thought, “well I have to shake his hand and say hello.” He didn’t even look at me. He didn’t come to me. He went straight to his staff and he said, “what’s the price of gold?” So, I thought, “gold is important to him” and I still think it’s every bit as important to Fed people now because it is the ultimate measurement of the dollar. They can rig it and monkey around with it and play games, but ultimately, the market will have its say. That’s the way that Bretton Woods broke down the market. But then, of course, we talked and had the meeting and he didn’t convert me, but it was very polite. But, what I really remember about that was, he was very interested in what the price of gold was that morning.
JD: The other huge and unfortunate series of events that marked your second time in Congress were 9/11 and then our subsequent invasion of Iraq and Afghanistan. Looking back, talk about that terrible period with Bush and Rumsfeld and Cheney and Wolfowitz. The Republicans in Congress were horrible too.
RP: We started this interview off with talking about how bad the Depression was and World War II, and Korea, and Vietnam. But then when you look at some trends today, some things are almost worse because of our aggressiveness. Back then, it was sort of dumb economic policy and Fed policy that gave us Depression and war. But, we had a declaration of war and it seemed like it was more acceptable, given the circumstances. But in the 21st century, things dramatically changed after 9/11, and the US has become far more aggressive. After all, 9/11 wasn’t the reason for the wars that followed. It was the excuse. Washington policymakers already knew what they wanted to do in the Middle East before 9/11 even happened.
My first speech, my first effort at peace, was shortly after I went back into Congress. I think it was 1998. It was the Iraq Freedom Act or I forget what it was called, but it was just intervention and threats and sanctions, that kind of stuff. I was saying those measures will lead to war. But, nobody was even talking about it in ’98, but it kept ratcheting up and getting worse and worse and worse.
It just was sort of unbelievable that’s what we were doing, and of course I wasn’t able to stop the war. I thought I was supposed to be there to help stop the wars, but they’re still going on.
JD: We’re going to feel the effects of these for decades and decades with the young people who’ve been hurt and need VA care.
RP: It’s horrible.
JD: And for all of your troubles, if you recall, there was that article in National Review from David Frum which called you and some other people, Pat Buchanan, “unpatriotic conservatives.” I always thought that you were neither. I think even some libertarians think of you as a conservative, but really you’re not in any political sense of that word.
RP: No, it’s a tricky word. Because some people could argue that if you technically want to follow the only oath that we take as members of Congress, that’s sort of conservative, to obey the oath and follow it. But “conservative” in the sense of being a warmonger, and supporting the war on drugs, and not having an understanding of civil liberties. That’s not a good kind of “conservative.” Also, conservatives today, they don’t admit it, but they’re big spenders, they’re huge spenders. So no, in that sense, we libertarians are not conservative. Besides, Mises and other libertarians never liked to be called conservatives. They wanted to be called liberals. That’s the trickiness of language. I generally steer clear of the labels.
I like to divide things into two parts: authoritarianism and volunteerism. On the one side are people who think that your life ought to be done on voluntary terms, as long as you reject aggression. On the other side are the authoritarians and they think they know what’s best for others. They really do. People I knew in Washington are convinced that people are idiots and therefore they can’t be responsible for themselves.
That’s why they don’t want ordinary people to own guns — and government should have all the guns. If you wanted to compare the number of people who die from government guns versus private guns — historically, government kills about 95 percent of the people. Maybe it’s worse than that, when you think of the 20th century.
Jeff Deist discusses the major contributions of Carl Menger (1840–1921), founder of the Austrian school of economics. Sharing credit with Jevons and Walras, Menger initiated the Marginalist Revolution in economic thought with the 1871 publication of his book, Principles of Economics. Classical economists had been stumped by the “paradox of value,” but Menger solved it by focusing on the utility of the marginal unit, or what we call marginal utility.
Menger also developed the notion of imputation of value from the consumer good all the way back through the factors of production to the highest “order” of goods, the concept of voluntary exchange coming about because of unequal valuations of the goods being traded, and an explanation of the origin of money arising spontaneously as individuals accept a more saleable good in exchange even if it’s not the good they ultimately desire. These and several other major contributions are highlighted in the episode.
The Who Is? podcast is available on iTunes, Google Play, Stitcher, Soundcloud, and via RSS.
The great essayist and economist pens a tribute to his colleague and teacher. Dr. Peterson knew Dr. Mises well. Both were professors at New York University. In this monograph, he describes his temperament and personality as well as his scholarly contributions — all in Peterson's legendary style. It is a fascinating portrait and moving tribute to a master.
Narrated by Jim Vann. Text version is available here.
Download the complete audiobook (four MP3 files) here. This audiobook is also available on Apple Podcasts, Google Podcasts, and via RSS.
The Murray N. Rothbard Memorial Lecture, sponsored by Helio Beltrão. Presented at the Austrian Economics Research Conference at the Mises Institute in Auburn, Alabama, on 23 March 2018.
[The audio and video versions of Professor Hoppe's keynote address presented at the Mises Institute's 35th Anniversary celebration in New York City on October 7, 2017, can be found here.]
I first met Murray Rothbard in the summer of 1985. I was then 35 and Murray was 59. For the next ten years, until Murray’s premature death in 1995, I would be associated with Murray, first in New York City and then in Las Vegas, at UNLV, in closer, more immediate and direct contact than anyone else, except his wife Joey, of course.
Being almost as old now as Murray was at the time of his death I thought it appropriate to use this occasion to speak and reflect a bit on what I learned during my ten years with Murray.
I was already an adult when I first met Murray, not just in the biological but also in the mental and intellectual sense, and yet, I only came of age while associated with him — and I want to talk about this experience.
Before I met Murray I had already completed my Ph.D. and attained the rank of a Privatdozent (a tenured but unpaid university professor), the same rank incidentally that Ludwig von Mises once held in Vienna. Apart from my doctoral dissertation (Erkennen und Handeln), I had already completed two books. One, (Kritik der kausalwissenschaftlichen Sozialforschung) that revealed me as a Misesian, and another, about to be published in the following year, (Eigentum, Anarchie und Staat) that revealed me as a Rothbardian. I had already read all of Mises’s and Rothbard’s theoretical works. (I had not yet read Murray’s voluminous journalistic work, however, which was essentially unavailable to me at the time.) Thus, it was not my personal encounter with Murray, then, that made me a Misesian and Rothbardian. Intellectually, I was already a Misesian and Rothbardian years before I ever met Murray personally. And so, notwithstanding the fact that I am myself foremost a theoretician, I do not want to speak here about the grand Austro-libertarian intellectual edifice that Mises and, in his succession, Rothbard have handed down to us, or about my own small contributions to this system, but about my long personal experience with Murray: about the practical and existential lessons that I learned through my encounters with him and that turned me from an adult to a man who had come of age.
I moved to New York City, because I considered Murray the greatest of all social theorists, certainly of the 20th century and possibly of all times, just as I considered Mises the greatest of all economists, and, with Mises having long gone and out of the picture, I wanted to meet, get to know and work with this man, Rothbard. I still hold this view concerning the greatness of Mises and Rothbard. Indeed, even more so today than 30 years ago. And since then, there has been no second Mises or Rothbard. Not even close, and we may have to wait for a long time for this to happen.
So I moved to NYC knowing Murray’s work, but knowing almost nothing about the man. Remember, this was 1985. I was still writing in longhand and then using a mechanical typewriter, acquainting myself with a computer for the first time only during the following year at UNLV. And Murray never used a computer but stayed with an electric typewriter until the end of his life. There were no cell-phones, there were no emails, no internet, no Google, no Wikipedia, and no Youtube. At the beginning, even fax-machines did not exist. My correspondence with Murray preceding my arrival in NYC, then, was by old, regular snail-mail. Murray expressed his enthusiasm about my wish to meet and work with him and immediately offered to enlist the help of Burton Blumert, and indeed, Burt then was of instrumental help in facilitating my move from Europe to the US. (The wonderful Burt Blumert, owner of Camino Coins, and founder of the original Center for Libertarian Studies that would ultimately be merged with the Mises Institute, was one of Murray’s dearest friends and confidants. He was also a great benefactor and dear friend to me.)
I had seen some photos of Murray, I knew that he, like Mises, was Jewish, that he taught at Brooklyn Polytechnic Institute (subsequently renamed New York Polytechnic University and nowadays Polytechnic Institute of NYU), that he was the editor of the much admired Journal of Libertarian Studies, and that he was closely associated, as its academic director, with the Ludwig von Mises Institute that Lew Rockwell had recently, 35 years ago, in 1982, founded. That was about it.
And so, both unprepared, we met for the first time in Murray’s university office. Here was I, the ‘cool blonde from the North,’ to cite a popular advertisement for bitter tasting northern German beers, young, tall and athletic, somewhat unsociable, dry and with a dry sense of humor, and more on the blunt, sarcastic and confrontational side. Perfect Wehrmacht-material, if you will. And there was Murray: the ‘big-city neurotic,’ to use the German title of Woody Allen’s comedic Annie Hall, a generation older, short and round, non-athletic, even clumsy (except for typing), gregarious and hilarious, never moping but ever joyful, and, in his personal dealings (quite unlike in his writings), always non-confrontational, well-tempered or even tame. Not exactly Wehrmacht-material. Personality-wise, then, we could hardly have been more different. Indeed, we were quite an odd couple — and yet, we hit it off from the start.
Given the long, special relationship between Germans and Jews, especially during the 12-year period of Nationalsocialist Party rule in Germany, from 1933–45, I, as a young German meeting an older Jew in America, had been afraid that this history might become a potential source of tension. Not so. Quite to the contrary.
On the subject of religion itself, there was general agreement. We were both agnostics, yet with a profound interest in the sociology of religion and quite similar views on comparative religion. Yet Murray greatly deepened my understanding of the role of religion in history through his unfortunately uncompleted great work, during the last decade of his life, on the history of economic thought.
Moreover, in our countless conversations, I learned from Murray about the importance of complementing Austro-libertarian theory with revisionist history in order to come up with a truly realistic assessment of historic events and global affairs. And it was I, then, as someone who had grown up in defeated and devastated post-WWII West-Germany with the then (and still) ‘official history’ taught across all German schools and universities of (a) feeling guilty and ashamed of being German and German history and (b) believing that America and America’s democratic capitalism was ‘the greatest thing’ since or even before the invention of sliced bread, who had to revise his formerly still, despite all Austro-libertarian theory, rather naïve views about world affairs in general and US-American and German history in particular. As a matter of fact, Murray made me fundamentally change my rather rosy view of the US (despite Vietnam and all that) and helped me, for the first time, to feel consoled, content and even happy about being German, and to develop a special concern for Germany and the fate of the German people.
To my initial surprise, then, — and ultimately my great and pleasant relief — Murray was quite a Germanophile. He knew and highly appreciated the German contributions to philosophy, mathematics, science, engineering, scholarly history and literature. His beloved teacher Mises had originally written in German and was a product of German culture. Murray loved German music, he loved German baroque churches, he loved the Bavarian beer-garden atmosphere and the from-church-to-beer-garden-we-go tradition. His wife Joey was of German ancestry, her maiden-name being JoAnn Schumacher, and Joey was a member of the Richard-Wagner-Society and a lifelong opera buff. As well, most of Murray’s friends that I would eventually meet turned out to be Germanophiles.
Foremost among them Ralph Raico, the great historian of classical liberalism, who I had hoped to see again at this occasion but who sadly left us forever almost a year ago now. I met Ralph only a few months after my arrival in NYC, at a party held at Murray’s apartment on the upper Westside. I immediately took to his caustic sarcasm and over the years we developed a close friendship. Apart from our many meetings at various Mises Institute events, I still fondly remember in particular our extended joint travels in northern Italy and especially when, at a conference in Milano, sponsored by some friends and affiliates of the once (but no longer) secessionist Lega Nord, some self-proclaimed — who would have guessed that?! — “anti-fascist” demonstrators appeared in front of the conference hotel to denounce us, to our great amusement, as ‘libertari-fascisti.’ Ralph was also the one who introduced me to the revisionist scholarship concerning WWI and WWII as well as the entire interwar period, and it was Ralph, who taught me about the history of German liberalism and in particular its radical 19th century libertarian representatives that had been almost completely forgotten in contemporary Germany.
Incidentally, Lew Rockwell, too, early on showed his Germanophile credentials. When we first met in NYC in the fall of 1985, he drove a Mercedes 190, he then went astray for a few years, driving an American-made pickup truck, but ultimately returned to the fold by driving a Mini-Cooper, produced by BMW.
But above all it was Murray, who taught me never to trust official history, invariably written by the victors, but to conduct all historical research instead like a detective investigating a crime. Always, first and foremost and as a first approximation, follow the money in search of a motive. Who is to gain, whether in terms of money, real estate or sheer power from this measure or that? In most cases, answering this question will lead you directly to the very actor or group of actors responsible for the measure or policy under consideration. Simple as it is to ask this question, however, it is much more difficult and requires often arduous research to answer it, and to unearth, from under a huge smokescreen of seemingly high-minded rhetoric and pious propaganda, the hard facts and indicators — the money flows and welfare-gains — to actually prove a crime and to identify and ‘out’ its perpetrators. Murray was a master in this, and that at a time when you did not have access to computers, the internet and search machines such as Google. And to do this detective’s work, as I learned from Murray, you must go beyond official documents, the MSM, the big and famous names, the academic ‘stars’ and the ‘prestigious’ journals — in short: everything and everyone deemed ‘respectable’ and ‘politically correct.’ You must also, and in particular, pay attention to the work of outsiders, extremists and outcasts, i.e., to ‘disrespectable’ or ‘deplorable’ people and ‘obscure’ publication outlets that you are supposed to ignore or not even know about. To this day, I have heeded, and indeed relished following this advice. Anyone who could see my list of bookmarks of frequently visited websites would likely be surprised, and any establishmentarian or leftist in particular would likely be shocked and shudder in disgust.
With this general perspective and outlook on things, revisionists such as Murray (and myself) are regularly charged, contemptuously, as some nutty conspiracy theorists. To this charge, Murray would typically respond: First, put bluntly and sarcastically, even if one were a certified paranoid this cannot be taken as proof that no one was actually after you and your money. And second and more systematically: Conspiracies are less likely, of course, the larger the number of supposed conspirators. Also, it is naïve to assume the existence of just one big all-encompassing conspiracy run by one all-powerful group of conspirators. But conspiracies, often rival or even contradictory conspiracies, i.e., confidential efforts of various groups of people acting in concert in the pursuit of some common goal, are indeed an ever-present feature of social reality. As any action, such conspiracies can succeed or they can fail and can lead to consequences that were un-intended by the conspirators. But realistically speaking, most if not all historical events are more or less exactly what some identifiable people or group of people acting in concert intended them to be. Indeed, to assume the opposite is to assume, incredibly, that history is nothing but a sequence of unintelligible accidents.
Moreover, in learning from Murray about the necessity of complementing Austro-libertarian theory with revisionist history so as to gain a complete, realistic picture of the world and worldly affairs, I also received constant training from him in the art of prudent and judicious judgment and evaluation of people, actions and events. Pure theory allows us to make rather clear-cut judgments of true or false, right or wrong, and effective, leading to the goal intended, or ineffective. But many if not most actions and events provoking or eliciting our judgments do not fall into the category of matters that can be thusly evaluated. We are surrounded, or better still: encircled, by a class of people — politicians and state-agents — that, day-in and day-out, renders and enforces decisions that systematically impact and affect our property and consequently our entire conduct of life without our consent and even against our explicit protestation. In short: we are confronted by an elite of rulers, instead of, in contradistinction, an elite of agents. And confronted with politicians and political decisions, then, our judgment concerns the evaluation of, at best, second-bests. The question is not true or false, right or wrong, effective or ineffective. Rather, it is this: Given that political decisions are per se false, wrong and ineffective, which of these decisions is less false, wrong and effective and comparatively closer to the truth, the right and the good, and which person represents a lesser evil or a greater one than another. Such questions do not allow for a scientific answer, because answering them involves the comparative evaluation of countless immeasurable and incommensurable variables. And in any case, newly discovered facts about the past or future developments may well reveal any such judgment as mistaken. But the answer is also not arbitrary. What is true, right and effective is given, as fix-points, and reasons must be supplied, whether based on logic or empirical evidence, for locating various second-bests as closer or more distant to such points. Rather, judgment-making in matters such as these is a difficult art, much like entrepreneurship is not a science but an art. And just as some people are good at entrepreneurship and others bad, indicated by monetary profits or losses, then, so are some people good at judging political events and actors and others bad, gaining or losing in the reputation as wise and prudent judges.
Murray was of course not unfailing in his judgments. During the late 1960’s and early 1970’s, for instance, he misjudged the anti-war stand of the New Left as more principled than it really was, something that he afterwards readily admitted as a mistake. And I know of at least one, rather personal case, where Joey’s judgment was better and more on the mark than his. This notwithstanding however, I have not encountered anyone of sounder, subsequently vindicated judgment than Murray.
With this I want to come to the second major lesson I learned during my long association with Murray. While the first lesson in revisionism concerned matters of practice and method, the second lesson concerned existential matters.
Before I met Murray, I knew of course that he was a radical outsider in a predominantly leftist-liberal academia and I expected (and was willing to accept for myself) that this would involve some sacrifices, i.e., that one would have to pay a price for being a Rothbardian, not only, but also in terms of money. But I was quite surprised to realize how high this price was. I knew that Brooklyn Polytechnic was not a prestigious university, yet I expected Murray to occupy there a comfortable, well-paying post. Moreover, at the time I still fancied the US as a bastion and bulwark of free enterprise and consequently expected that Murray, as the foremost intellectual champion of capitalism and the personified anti-thesis to Marx, would be held in high esteem, if not in academia then certainly outside of it, in the world of commerce and business, and accordingly be rewarded with a certain degree of affluence.
In fact, at Brooklyn Polytechnic Murray occupied a small, grungy and windowless office that he had to share with a history professor. In Germany, even research assistants enjoyed more comfortable surroundings, not to speak of full professors. Murray ranked among the lowest paid full professors at his school. Indeed, my German National Science Foundation grant at the time — a Heisenberg scholarship — turned out to be considerably higher than Murray’s university salary (something that I was too ashamed to reveal to him after I had discovered it). And Murray’s apartment in Manhattan, large and filled to the ceiling with books, was dark and run-down. Certainly nothing like the penthouse that I had imagined him to occupy. This situation improved significantly with his move in 1986, at age 60, to Las Vegas and UNLV. While my salary went down there as compared to my previous compensation, Murray’s went sharply up, but was still below 100K, and he could afford to buy a roomy but spartan house. Even as the holder of an endowed chair at UNLV, however, Murray did not have command of any research assistants or a personal secretary.
Yet Murray never complained or showed any bitterness or signs of envy but always plugged along joyfully and pushed ahead instead with his writings. This was a hard lesson for me to learn and I am still having difficulties following it at times.
A propos, Joey and Murray once told me laughingly how, at the time when they were still dating, both had expected the other to be a good catch. Joey, because Murray was Jewish, and Murray, because Joey was gentile — only to then find out that they were both wrong in their expectations.
Moreover, despite his towering achievements as an intellectual champion of free market capitalism, Murray never won any prizes, awards or honors to speak of. That he did not win a Nobel prize in economics was not surprising, of course. After all, the great Mises also did not win it. But in the US alone there existed dozens of institutions — think-tanks, foundations, business associations, research centers and universities — that professed their dedication to free markets and liberty, and yet none of them ever awarded Murray any significant prize or honorary award, all the while they showered people with money and awards who had done little more than to suggest — “daringly” — some incremental reform such as, let’s say, lowering the marginal tax rate from 35% to 30 or cutting the budget of the EPA by some percentage points, or who had simply expressed their “personal love” of “freedom” and “free enterprise” often, loudly and emphatically enough.
None of this fazed Murray in the slightest. Indeed, he expected nothing else, for reasons that I still had to learn.
What Murray realized and I still had to learn was that the most vociferous and ferocious rejection and opposition to Austro-libertarianism would not come from the traditional socialist Left, but rather from these very self-proclaimed “anti-socialist,” “limited government,” “minimal state,” “pro-private enterprise” and “pro-freedom” outfits and their intellectual mouthpieces, and above all from what has become known as the Beltway-Libertarians. They simply could not stomach the fact that Murray had demonstrated with plain logic that their doctrines were nothing but inconsistent intellectual clap-trap, and that they were all, to use Mises’s verdict vis-a-vis Milton Friedman and his company, a “bunch of socialists,” too, notwithstanding their vehement protestations to the contrary. For, as Murray argued, once you admitted the existence of a State, any State, defined as a territorial monopolist of ultimate decision making in every case of conflict, including conflicts involving the State itself, then all private property had been effectively abolished, even if it remained provisionally, qua State-grant, nominally private, and had been replaced instead by a system of “collective” or rather State-property. State, any State, means socialism, defined as “the collective ownership of factors of production.” The institution of a State is praxeologically incompatible with private property and private property based enterprise. It is the very anti-thesis of private property, and any proponent of private property and private enterprise then must, as a matter of logic, be an anarchist. In this regard (as in many others) Murray was unwilling to compromise, or “intransigent,” as his detractors would say. Because in theory, in thinking, compromise is impermissible. In everyday life, compromise is a permanent, and ubiquitous feature, of course. But in theory, compromise is the ultimate sin, a strict and absolute ‘no no.’ It is not permissible, for instance, to compromise between the two incompatible propositions that 1+1=2 or that 1+1=3 and accept that it is 2.5. Either some proposition is true or it is false. There can be no “meeting in the middle” of truth and falsehood.
Here, regarding Murray’s uncompromising radicalism, a little anecdote told by Ralph Raico seems apropos. To quote Ralph:
Murray was someone special. I recognized that fact the first night I met him. It was after the Mises seminar; a buddy of mine and I had been invited to attend, and afterwards Murray suggested we have coffee and talk. My friend and I were dazzled by the great Mises, and Murray, naturally, was pleased to see our enthusiasm. He assured us that Mises was at least the greatest economist of the century, if not the whole history of economic thought. As far as politics went, though, Murray said, lowering his voice conspiratorially: "Well, when it comes to politics, some of us consider Mises a member of the non-Communist Left." Yes, it was easy to see we'd met someone very special. Unlike Murray, quite a few individuals who had learned essentially everything they ever knew from Murray, in particular his Man, Economy and State, were willing to make such intellectual compromises, and they were richly rewarded for their intellectual “flexibility” and “tolerance.” But that was not Murray! And consequently, he was (and still is) ignored, excluded or denounced by the chieftains of the “limited-government-free-market-industry.” And he was essentially left without any institutional support, as a lone fighter, until the arrival of Lew Rockwell and the Mises Institute.
I experienced this Rothbard-phobia second-handedly, if you will. For as soon as word had gotten out that the new German arrival was Murray’s boy and also appeared rather “intransigent,” I found myself immediately placed on the same blacklists with him. Thus, I had quickly learned a first important real-life lesson of what it means to be a Rothbardian.
Another lesson was in humility. Murray had a huge library, had read and digested an enormous amount of literature and was consequently a humble man. He was always reluctant and highly skeptical to assume or recognize any “originality” claims. “Originality” claims, he knew, are made most frequently by people with tiny libraries and little reading. In distinct contrast, Murray was highly generous in giving credit to others. And he was equally generous in giving advice to anyone asking. Indeed, on almost any conceivable subject, he was prepared, off the top of his head, to provide you with an extensive bibliography. As well, he encouraged any sign of productivity even among his lowliest students.
While I always tried to follow this example, I could not bring myself to go quite as far as Murray did, however. Because I thought and still think that Murray’s humility was excessive, that he was humble almost to a fault. His students at Brooklyn Polytechnic, for instance, mostly engineering majors (or, as Murray described Mises’s students at NYU, “packaging majors”), had no idea who he was, because he never mentioned his own works. They were genuinely surprised to find out from me who their jolly professor was when I substituted teaching Murray’s class while he was out of town. And at UNLV the situation was not much different. While I actively promoted him as his unofficial PR-agent, Murray continued in his self-deprecation. Although he had written on almost any imaginable subject in the social sciences, he would, when he suggested or assigned term-papers to his students, mention his own related writings, if at all, only as some sort of afterthought or upon specific request.
Yet Murray’s extreme modesty had also another, unfortunate effect. When we moved to Las Vegas in 1986, we had expected to turn UNLV into a bastion of Austrian economics. At the time, UNLV’s basketball team, the Runnin’ Rebels, under coach Jerry Tarkanian, were a national powerhouse, always slightly scandalous, but impossible to overlook. We had hoped to become the Runnin’ Rebels of economics at UNLV. Several students had transferred and enrolled at the university in anticipation of such a development. But these hopes were quickly disappointed. Already at our arrival at UNLV the composition of the economics department had significantly changed, and then majority rule, democracy, set in. To balance the Austrian influence, only one year later, the department majority decided, against our opposition, to hire a no-name Marxist. I urged Murray to use his position and reputation to interfere with the university’s higher-ups and prevent this appointment. Except for Jerry Tarkanian, Murray was the only nationally recognized person at UNLV. He held the only endowed chair at the university. We knew the university’s president and provost socially and were on cordial terms with both of them. Accordingly, I believed that there was a realistic chance to overturn the department’s decision. But I could not persuade Murray of his own powers.
After this missed opportunity matters became worse. The department continued to hire anyone but an Austrian or Austrian sympathizer. Our students were mal-treated and discriminated against. The department and the dean of the business college denied me tenure (which decision was overruled by the university’s provost and president, not least because of massive student protests and the intervention of several university donors). The department chairman wrote an outrageous, nasty and insulting annual evaluation of Murray’s professorial performance (upon which the university administration forced the chairman to resign from his position). As a consequence, a second chance for us arose to turn matters around. Plans were developed and were discussed with the provost to split the department and establish a separate economics department in the College of Liberal Arts. This time Murray became involved. But the initial momentum to our advantage had been lost in the meantime, and after the first signs of resistance, Murray quickly resigned and gave up. He was not willing to take off his gloves, and our secessionist project soon fizzled out in defeat.
Only to quickly finish our UNLV saga: After Murray’s death in 1995, I continued working at UNLV for another decade in an increasingly hostile environment. The once protective university administration had changed, and I felt ever more unappreciated and out of place. Even my great popularity among students was used against me, as proof of the “danger” emanating from my teaching. In 2004, I became embroiled in a scandal. In a lecture I had hypothetically suggested that homosexuals, on average, and owing to their characteristic lack of children, had a comparatively higher degree of time-preference, i.e., of present-orientation. A cry-baby student complained, and the university’s affirmative action commissar immediately, as if he had only waited for this opportunity, initiated official proceedings against me, threatening severe punitive measures if I were not to instantly and publicly recant and apologize. “Intransigent” as I was, I refused to do so. And I am certain that it was only this steadfast refusal of mine to beg for forgiveness that, after a full year of administrative harassment, I ultimately emerged victorious from this battle with the thought police, and the university administration suffered an embarrassing defeat. A year later I resigned from my position and left UNLV and the US for good.
Coming back to Murray: Naturally, I was disappointed about the developments at UNLV. But they did not have the slightest effect on our continued cooperation. Maybe Murray had been right and more realistic all along and it was I, who had suffered from too much youthful optimism? And in any case, there was one more important lesson about the larger scheme of things that I still had to learn.
Whereas most people tend to become milder and more ‘tolerant’ in their views as they grow older, Murray grew increasingly more radical and less tolerant over time. Not in his personal dealings, as I already emphasized. In this regard Murray was and remained to the end a ‘softie,’ but in his speeches and writings. This radicalization and increasing ‘intransigence’ came in response to developments in the world of US-politics at large and in particular within the “limited-government-free-market” industry and among the so-called libertarians assembled around Washington D.C.’s Beltway. There, everywhere, a slow yet systematic drift toward the Left and leftist ideas could be observed. A drift that ever since, up to this day, has only further gained in momentum and grown in strength. Constantly, new “rights” were ‘discovered’ and adopted in particular also by so-called libertarians. “Human rights” and “civil rights,” “women rights” and “gay rights,” the “right” not to be discriminated against, the “right” to free and unrestricted immigration, the “right” to a free lunch and free health care, and the “right” to be free of unpleasant speech and thought. Murray demolished all this allegedly “humanitarian” or, to use a German term, this “Gutmenschen” talk as intellectual rubbish in demonstrating that none of these supposed “rights” were compatible with private property rights. And that, as libertarians above all people should know, only private property rights, i.e., the right of every person in the ownership of his physical body and the ownership of all external objects justly (peacefully) acquired by him, can be argumentatively defended as universal and com-possible human rights. Everything except private property rights, then, Murray demonstrated again and again, are phony, non-universalizable rights. Every call for “human rights” other than private property rights is ultimately motivated by egalitarianism and as such represents a revolt against human nature.
Moreover, Murray moved still further to the right — in accordance with Erik von Kuehneldt-Leddihn’s dictum that “the right is right” — in pointing out that in order to establish, maintain and defend a libertarian social order more is needed than the mere adherence to the non-aggression principle. The ideal of the left- or “modal”-libertarians, as Murray referred to them, of “live and let live as long as you don’t aggress against anyone else,” that sounds so appealing to adolescents in rebellion against parental authority and any social convention and control, may be sufficient for people living far apart and dealing and trading with each other only indirectly and from afar. But it is decidedly insufficient when it comes to people living in close proximity to each other, as neighbors and cohabitants of the same community. The peaceful cohabitation of neighbors and of people in regular direct contact with each other on some territory requires also a commonality of culture: of language, religion, custom and convention. There can be peaceful co-existence of different cultures on distant, physically separated territories, but multi-culturalism, cultural heterogeneity, cannot exist in one and the same place and territory without leading to diminishing social trust, increased conflict, and ultimately the destruction of anything resembling a libertarian social order.
If Murray had been ignored, neglected or resented before by the usual suspects, now, with this stand against everything deemed “politically correct,” he was vilified and met with undisguised hatred. The by now only all-too-familiar litany of denunciatory terms followed: Murray was a reactionary, a racist, a sexist, an authoritarian, an elitist, a xenophobe, a fascist and, to top it all off, a self-hating Jewish Nazi.
Murray shrugged it all off. Indeed, he laughed about it. And indeed, to the consternation of the “smear bund,” as Murray referred to the united popular front of his “anti-fascist” detractors, his influence only grew and has continued to grow still further since his death. It may not be widely recognized, but without Murray there would be no Ron Paul as we know him — and I say this without wishing thereby to diminish or belittle Ron Paul’s own, personal role and extraordinary achievements in the slightest —, there would be no Ron Paul movement, and there would be no popular or, as the “smear bund” prefers to say, no “populist” libertarian agenda.
As for me, my own views radicalized, too, along with Murray’s. My Democracy: The God That Failed was the first major documentation of this intellectual development, and if anything, my radical intolerance regarding anything left-libertarian and “politically correct” has been growing still ever since. Almost needless to say that I, too, then have been awarded the same and even a few extra honorary titles by the “smear bund” as Murray (except for the self-hating Jewish stuff). Yet I had learned to shrug all of it off, too, as I had seen Murray do it, and as Ralph Raico had always encouraged and continued to advise me. In addition, remembering a popular German saying helped me: “viel Feind, viel Ehr’.” And indeed, the ongoing success of my annual Property and Freedom Society conference-salon, now in its 12th year, held and conducted in a genuinely Rothbardian spirit, has demonstrated the utter failure of all defamation campaigns directed at me. If anything, they have helped rather than hindered me in attracting an ever larger circle of intellectual friends, affiliates and supporters.
I should add that during the last decade or so, under the wise and strict guidance of my lovely wife Gülçin, I have also made great strides in combining uncompromising intellectual radicalism with personal lovability, even though nature and natural disposition have prevented me from coming anywhere close to Murray in this regard.
I have said far too little here about Lew, and I sincerely apologize. But this I must say: Lew, apart from Murray has been one of the most important people helping me become the man that I am today. And to Murray, who I am sure is watching us today from up high, I say: thank you Murray, you are my hero, “I shall not look upon his like again,” and I hope you are happy with your student. I always felt tremendous joy when you told me “great Hans, Attaboy,” and even if I can’t hear you right now, nothing would give me greater pleasure than if you said it again right now up there, where the kings of thought are gathered.
The keynote address presented at the Mises Institute's 35th Anniversary Celebration in New York City on October 7, 2017. You can read the text of this speech here.
Dr. Joseph Salerno, speaking at our 35th Anniversary Gala in New York last weekend, makes the case for Murray Rothbard as the preeminent modern Austrian economist—and the rightful heir to Ludwig von Mises. This great talk will change your perspective on Rothbard the economist, especially when Joe reveals what Hayek had to say about Murray's place in the Austrian school.
Presented at the Mises Institute's 35th Anniversary Celebration in New York City on October 6, 2017.
Murray Rothbard has been gone more than 20 years now, his brilliance, wit, and irreplaceable insights taken from us far too soon. At home in New York City over a Christmas break from his teaching duties at the University of Nevada, Rothbard accompanied his beloved wife Joey to her optometrist appointment on a bitterly cold day. A few moments later, on January 7th 1995, he was gone — lost to heart failure at the age of 68.
What he left behind was not only a grieving wife, countless friends and colleagues, and fans of his work around the world. He also left a legacy of academic and popular work that is virtually unrivaled in its sheer magnitude, in the depth and breadth of his knowledge, expertise, and interests. Murray was not only an economist and libertarian scholar, but also a philosopher, historian, political scientist, legal theorist, ethicist, sociologist, mentor, and journalist — all apart from his moonlighting as an amateur sports analyst, election handicapper, and movie critic.
It is this legacy, his immense body of work, that cements his position as a preeminent libertarian thinker of the 20th century. It is what makes him relevant today, and will keep him relevant for the decades to come. In today’s world full of white noise and dilettantes, the substance of his work sets him apart.
An Immense Body of WorkRothbard’s career spanned more than four decades, during which he produced more than 30 full-length books. Man, Economy, and State, his sweeping economics text, is regarded as one of the four landmark treatises of the Austrian school. His academic work in areas like money, monopoly, price theory, and economic calculation all represented great strides for the Austrian school. He dramatically advanced our understanding of business cycles, and took particular pleasure in correcting enduring myths about banking in What Has Government Done to Our Money?, The Mystery of Banking, A History of Money and Banking in the United States, and Economic Depressions: Their Cause and Cure.
But much of his greatest scholarship was outside the field of pure economics. He demolished arguments for government as a necessary evil while offering a wholesale libertarian manifesto in The Anatomy of the State. He presented the groundbreaking normative argument for laissez-faire in The Ethics of Liberty, making a courageous (and still controversial) break from the utilitarianism and classical liberal traditions of his mentors. He upended the illiberal and unnatural arguments for state-enforced equality in Egalitarianism as a Revolt Against Nature. And he gave us his colossal 4-volume treatment of colonial American history in the comprehensive and revisionist Conceived in Liberty.
But while these great books would represent a robust publishing career for any five ordinary academics, they represent only a fraction of his incredibly varied written work. A full bibliography of his published writings requires a bibliography of 62 pages! Murray contributed more than 100 chapters to books edited by others, and wrote more than 1,000 scholarly and popular articles. Imagine if he had lived another 10 or 20 years, even if slowed by age or semi-retirement.
Dr. David Gordon, Murray’s longtime friend, believes that Rothbard’s oeuvre rivals that of any 20th-century intellectual in size and scope. Professor Guido Hülsmann argues that while it is possible to read everything Ludwig von Mises wrote, it is impossible in the case of Rothbard. And the Mises Institute continues to release “new” Rothbard material, in the form of his previously unpublished essays (the Institute is fortunate to house all of his archives, files, papers, and notes). Last fall saw the publication of Never a Dull Moment: A Libertarian Look at the Sixties, and later this year we will unveil his rollicking take on the Progressive era. And there is even a handwritten fifth volume of Conceived in Liberty that may be released in the future.
Of course his CV can never capture the full measure of his impact. It cannot account for the countless scholars he mentored, the countless speeches he wrote and delivered, the countless conferences, symposia, and debates he participated in, or the countless conversations he held late into the night with young people eager to learn everything they could from this indefatigable man.
His Unwavering Optimism and ConvictionMore than anything, his résumé cannot measure the optimism and uncompromising tenacity with which he approached the intellectual battle. This combination of joy and steadfastness gave Murray an advantage almost as big as his intellect: the conviction that his cause not only was right and just, but also that it would ultimately prevail — no matter how illiberal the current age might seem.
Consider the cheery sense of optimism demonstrated in this quote from a chapter on strategy in For a New Liberty:
The case for libertarian optimism can be made in a series of what might be called concentric circles, beginning with the broadest and longest-run considerations and moving to the sharpest focus on short-run trends. In the broadest and longest-run sense, libertarianism will win eventually because it and only it is compatible with the nature of man and of the world. Only liberty can achieve man’s prosperity, fulfillment, and happiness. In short, libertarianism will win because it is true, because it is the correct policy for mankind, and truth will eventually win out.
Note the self-assured tone, his unshakable belief that the obvious superiority of a free society would become apparent in the long run. Was he overconfident about our libertarian prospects, given hindsight and looking back to the early 1970s when the passage was written? Perhaps. But a fuller reading of Rothbard’s work on strategy reveals time and again his pragmatic reasons for this optimism:
The clock cannot be turned back to a preindustrial age. Not only would the masses not permit such a drastic reversal of their expectations for a rising standard of living, but return to an agrarian world would mean the starvation and death of the great bulk of the current population. We are stuck with the industrial age, whether we like it or not. … But if that is true, then the cause of liberty is secured. For economic science has shown, as we have partially demonstrated in this book, that only freedom and a free market can run an industrial economy. In short, while a free economy and a free society would be desirable and just in a preindustrial world, in an industrial world it is also a vital necessity. For, as Ludwig von Mises and other economists have shown, in an industrial economy statism simply does not work. Hence, given a universal commitment to an industrial world, it will eventually — and a much sooner “eventually” than the simple emergence of truth — become clear that the world will have to adopt freedom and the free market as the requisite for industry to survive and flourish.
This passage, again from For a New Liberty, reveals the source of Murray’s confidence, namely the manifest failures of state planning. Contrary to the progressive delusions of the 20th century, no advanced form of government was inevitable or even desirable. It was liberty that could not be stopped. Whether collectivists could be persuaded of this was beside the point; they need to live in the material world like the rest of us. Only laissez-faire can make that world possible.
The move from farms to industrial factories had created a society far too rich, too complex, and too interconnected for rule by would-be central planners. And while Rothbard lived to see only the early stages of the digital revolution, his understanding of the industrial economy presaged the rise of neoliberalism — with its grudging admiration for markets and their essential role in creating prosperity.
Rothbard’s optimism was rivaled only by his insistence that strict adherence to libertarian principles was the wisest approach in the long run. As a result, he never shied away from controversy and never succumbed to the million small compromises that would have secured him the prestige and academic sinecure he richly deserved. Remember that he held a PhD in economics from Columbia, and possessed an intelligence and work ethic far superior to other public intellectuals and his colleagues in academia.
In this sense Murray’s life mirrors that of his mentor, Ludwig von Mises. Mises too had a stubborn streak, and was known for an unyielding tendency to place the pursuit of truth ahead of personal or career advancement.
In one famous instance during the mid-1950s Mises stormed out of a meeting of the Mont Pelerin Society, concerned that the young organization he helped create was falling under the sway of the Chicago school and corrupting its advocacy for uncompromising laissez-faire. One witness to this event was the rising Chicagoite star Milton Friedman, who years later recalled the story as proof of Mises’s intransigence. Mises’s adherence to principle was a strategic error in Friedman’s view, one that would cost Mises influence and money.
But Mises, like Murray Rothbard, saw things differently:
Occasionally I was reproached because I made my point too bluntly and intransigently, and I was told that I could have achieved more if I had shown more willingness to compromise. I felt the criticism was unjustified; I could be effective only if I presented the situation truthfully as I saw it.
Rothbard’s Lasting InfluenceToday it is clear that much of Rothbard’s fame and influence is due to the very intransigence for which he still faces criticism. Certainly he could have stifled his more controversial views, and in particular kept silent on the topics of foreign policy and anarchism — at least until he was comfortably tenured at a university. Certainly he could have confined himself to writing only in academic journals. Certainly he could have had a much more comfortable and financially rewarding career.
But had he done so, would we celebrate him today? How many people remember former chairmen of Ivy League economics departments, or even know the names of past Federal Reserve governors? How many people read academic journals? Countless economists, historians, political philosophers of Rothbard’s time are already forgotten, while a growing number of people from all walks of life and all corners of the planet still read, enjoy, and learn from Murray.
One man’s inflexibility is another man’s adherence to principle. Whether intransigence is virtue or vice often depends on whether one stands on principle or stands on ceremony. For Murray Rothbard, the principle was always the point. Ego, popularity, and personal gain had nothing to do with it. Standing up for liberty, and against the state, was always worth whatever slings and arrows he might endure.
We need not sanctify Murray Rothbard, nor treat his pronouncements as infallible. Many of his best and most provocative writings still evoke strident debate and disagreement even among ardent Austro-libertarians today. We must, however, insist on giving him his due as among the greatest libertarian thinkers of the modern age. The world owes this great man a debt that has not yet been repaid.
This week's episode features Tom Woods' opening lecture at Mises University 2017. Tom shares his experiences meeting Murray Rothbard, how Murray shaped Tom's intellectual development, plus some valuable lessons for us all.
Recorded live at Mises University 2017 at the Mises Institute in Auburn, Alabama. Jeff Deist interviews Mises Institute founder and Chairman, Lew Rockwell. Recorded on 29 July 2017.
Sebastian Mallaby is the Paul A. Volcker Senior Fellow for International Economic Relations at the Council on Foreign Relations. One can be sure, then, that his new comprehensive book, The Man Who Knew: The Life and Times of Alan Greenspan, reflects an Establishment point of view. As if this were not enough to tell us where the book is coming from, Mallaby informs us that he had Greenspan’s full cooperation in writing it. “This book is based on almost unlimited access to Alan Greenspan, his papers, and his colleagues and friends, all of whom were generous in their collaboration.
Though the book is hardly a panegyric to Greenspan, Mallaby views his subject with considerable favor. Nevertheless, the book contains ample material for a more severe verdict: Greenspan abandoned the free market convictions he effectively defended early in his career as an economist. To uphold economic truth was not the path to the power and influence Greenspan sought; and he readily adjusted his beliefs to fit with his ambitions.
Greenspan attached himself to Ayn Rand’s inner band of disciples; but his adherence to free-market economics did not stem from his alliance with Objectivism. Greenspan learned economic theory from Arthur Burns at Columbia University. For Greenspan, like his mentor Burns, statistics had primary importance: economic theory emerged from discerning patterns in the data and was strictly subordinate to its empirical sources. “Burns was the chief heir to Wesley Mitchell’s empiricist tradition, and his influence restrained any enthusiasm that Greenspan might have felt for the new trends that had begun to stir in economics. ... Even the cleverest econometric calculation was limited because yesterday’s statistical relationships might break down tomorrow; by contrast, finer measures of what the economy is doing are more than just estimates — they are facts.”
From his studies of the data, Greenspan arrived at an important conclusion. Financial markets played a crucial role in the genesis of the business cycle: “Squarely confronting the notion that financial markets are merely a casino of meaningless side bets, he laid out an insight for which Nobel laureate James Tobin would later capture the credit. Stock prices drive corporate investments in fixed assets. ... In turn, these investments drive many of the booms and busts in a capitalist economy.”
Greenspan applied his insight to Fed policy in a way that resembles the Austrian theory of the business cycle. During the 1920s, “the Fed’s key error was to underestimate its own contribution to the stock bubble. The rise in the market had set off a rise in investment and consumer spending, which in turn had boosted profits and stoked animal spirits, triggering a further rise in the stock market. The 1920s Fed had been the enabler of this feedback loop — in order for investment and consumer spending to take off, companies and consumers needed access to credit. Faced with a jump in the appetite to borrow, the Fed had [wrongly] decided ‘to meet the legitimate demands of business,’ as Greenspan put it.”
Greenspan drew from his analysis “a radical position: the United States should return to the gold standard of the nineteenth century. By tying money and credit to a fixed supply of gold, the nation could prevent toxic surges in purchasing power.” ... “‘The pre-World War I gold standard prevented speculative “flights from reality” — with their disastrous consequences,’ “Greenspan insisted.”
Nor was this the only area where Greenspan adopted a radically free-market stance. Defying the mainstream, “Greenspan followed up with an attack on government efforts to rein in monopolies with antitrust laws. ... He pointed out that it was not just corporate managers who would want to challenge monopolists; the financial system would demand that they do so. If a monopoly extracted fat rents from its customers, its share prices would soar; that would give entrepreneurs an incentive to create rivals to the monopoly, and it would give financiers an incentive to ply those rivals with abundant capital.” Mallaby views this “crude” view with evident distaste, noting that both Friedrich Hayek and Milton Friedman adopted a more “nuanced” position.
What then became of this free-market radical? Unfortunately, his desire for “power and pelf,” in Murray Rothbard’s phrase, led him to alter his views. A firm commitment to freedom would never gain him entry to the inner sanctum of government, and Greenspan soon learned to temper his views.
In his radical days, Greenspan had opposed government bailouts to failing firms: the discipline of failure was essential to the operation of the free market. In 1971, he defied his teacher Arthur Burns, who favored bailing out Lockheed. “Testifying before the Senate, Greenspan refused to back his mentor. ‘I am in fundamental disagreement with this type of loan guarantee,’ he began. Government-directed lending ‘must inevitably lead to subsidization of the least efficient firms,’ damaging productivity and therefore living standards. ... What the economy really needed was for weak companies to go bust, so that capital and workers would move to better-run establishments.”
Once close to the levers of power, matters were different. He wished to become Paul Volcker’s successor as Fed chairman, and he knew that firm opposition to Fed policy would hurt his chances for the job. Going against his earlier analysis, he supported the “largest bank bailout in U.S. history,” the rescue in 1984 of the Continental Illinois National Bank. He admitted the dangers of the bailout, but it was, as Mallaby summarizes his position, “necessary and appalling.” Appalling, one suspects, because of its effects on the free market; but necessary to advance Greenspan’s career. By the time he became Fed Chairman, the transformation was complete. By 1989, his “libertarian rejection of bailouts was long gone; what he wanted above all was the space to fight inflation.”
Greenspan wanted to fight inflation; but the best way to do it was no longer acceptable. A gold standard, he had long ago recognized, would bring with it monetary stability; but to replace the Fed with a commodity standard not subject to control by the government would erode his power. Accordingly the gold standard had to go.
He cast aside the gold standard with a transparent sophism: “A necessary condition of returning to a gold standard is the financial environment which the gold standard itself is presumed to create. ... But, if we restore financial stability, what purpose is then served by a return to a gold standard?” (quoting Greenspan). Why a gold standard cannot help create a stable financial environment, but instead presupposes it, Greenspan left unclear. Even less clear was how the Fed was supposed to preserve stability in the absence of the gold standard. Evidently we were to rely on his supreme powers of judgment in steering the economy.
Greenspan in his long career as Fed chairman gained the power and acclaim he coveted; but the crash of 2008, two years after the end of his tenure in office, led to a sharp decline in his reputation.
In their attitude toward compromise, Greenspan is the polar opposite to Murray Rothbard. Rothbard could have tailored his views to win the favor of Arthur Burns, who was a family friend, but he refused to do so. He never abandoned his principles, and he took the measure of Greenspan. Writing about him in 1987, Rothbard observed: “Greenspan’s real qualification is that he can be trusted never to rock the establishment’s boat. He has long positioned himself in the very middle of the economic spectrum. He is, like most other long-time Republican economists, a conservative Keynesian, which in these days is almost indistinguishable from the liberal Keynesians in the Democratic camp.”
In looking over Greenspan’s fall from free-market grace, the melancholy first lines of Browning’s The Lost Leader, addressed to Wordsworth, come to mind: “Just for a handful of silver he left us,/Just for a ribbon to stick in his coat. ...”
The Henry Hazlitt Memorial Lecture, sponsored by Sally von Behren. Presented at the Austrian Economics Research Conference at the Mises Institute in Auburn, Alabama, on 10 March 2017. Includes introductory remarks by Joseph T. Salerno.
David Hart, editor and librarian at Liberty Fund, joined us in Auburn today to deliver a dynamite lecture on his favorite subject: Frédéric Bastiat the radical. We think we know Bastiat from The Law, but his work in economics and social theory actually spans thousands of pages. And he was a thoroughgoing radical in his personal and professional life, both in his Basque hometown of Bayonne and in the "Babylon" of Paris. Hart makes the case that Bastiat was not only a serious and under-appreciated thinker, but also a proto-Austrian to whom we owe a huge intellectual debt. This is a very entertaining and revealing look at one of the true founders of modern libertarian thought.
It would be difficult to exaggerate Professor Murray N. Rothbard's influence on the movement for freedom and free markets. He is the living giant of Austrian economics, and he has led the now-formidable movement ever since the death of his great teacher, Ludwig von Mises, in 1971. We are all indebted to him for the living link he has provided to Mises, upon whose work he has built and expanded. But many are less aware of Rothbard's political influence. Some would say that while he is undoubtedly an excellent economist, his political efforts have been less than successful. I would deny this.
Rothbard is the founder of the modern libertarian movement, and of the Libertarian Party which is its political incarnation, and he thus has built the necessary foundation for liberty by inspiring the most important third-party movement ever. And in my own political work, I have been profoundly influenced by the lucid and brilliant works of Rothbard. In his first correspondence with me after I was elected to office, Rothbard expressed surprise and delight to find a real Congressman who wrote that "taxation is theft," and approvingly quoted his article, "Gold vs. Fluctuating Exchange Rates." I, of course, was thrilled to hear from someone whose works I had studied and admired for so many years.
The aura that has traditionally surrounded American politics in this century has turned to suspicion during the past decade. The scandals of Watergate (and, let us hope, Iran-Contragate as well) convinced the public, for a time, that it is naive to trust any mainstream politician. Rothbard was delighted with the whole event, saying in 1979 that, "it is Watergate that gives us the greatest single hope for the short-run victory of liberty in America. For Watergate, as politicians have been warning us ever since, destroyed the public's 'faith in government' — and it was high time, too. "Rothbard rejoices, saying, "government itself has been largely desanctified in America."
No one trusts politicians or government anymore; all government is viewed with abiding hostility, thus returning us to that State of healthy distrust of government that marked the American public and the American revolutionaries of the eighteenth century." For the sake of liberty, let us hope this hostility isn't just a passing phase.
Most understand that what a politician says during his campaign is rarely compatible with his performance. Still, this broad — and healthy — cynicism does not translate into clear public understanding of the lies of the average politician.
It is incredible how a politician can maintain an image while the facts clearly point in the opposite direction. Many still see President Reagan as a budget-cutter while he has proposed the largest budgets and deficits in our history.
While it is perhaps understandable that the public remains naive about the realities of politics, given the Establishment-media conspiracy to hide the truth, but the tendency of scholars to gloss over facts and misrepresent realities is absolutely inexcusable. Academics tend to cling to old interpretations, or worse, old Statist ideals which blur their view of reality. And when prevailing historical orthodoxy is challenged, those who have an interest in maintaining myths attempt to silence their opponents.
Just one example from his works is the case of Murray Rothbard's revisionist analysis of Herbert Hoover's pre-Depression years. When Rothbard set out to tell the story of Hoover, consider what he was up against. Republicans, who for the most part opposed Roosevelt's New Deal, blame the enormous growth of government that occurred during those years on the Democrats. Conversely, the Democrats, who are proud of the New Deal, take credit for it. Thus Republicans are taught that "Hoover's only problem was that he did not have a Republican Congress," and Democrats are taught that government should solve any crisis that "socially Darwinian free markets inevitably cause," just as Roosevelt did. And intellectuals are notoriously stubborn about accepting new historical interpretations, especially if the revision favors free markets over government planning.
It is a tough job to change historical interpretations — no matter how false — which have been solidified for generations in the minds of State-protecting partisans. Nevertheless Rothbard announced in 1963: "Herbert Clark Hoover must be considered the founder of the New Deal in America." And in fact "Franklin D. Roosevelt, in large part, merely elaborated the policies laid down by his predecessor."
Rothbard's analysis is stunning and exhaustive. He set out to prove his proposition and did so without question. Hoover was an interventionist. He was philosophically committed to using the coercive machinery of government to bring about full employment, insure the survival and influence of labor unions, manipulate the price level for farmers' benefit, maintain wage levels and deport immigrants, prevent bankruptcies, and above all to inflate the money supply. Hoover did this in spite of the "bitter-end liquidationists" who thought the Depression represented a necessary correction in the malinvestment of the previous decade.
And indeed, against all odds, Rothbard has made inroads to changing the way history treats Hoover. The eminent British historian Paul Johnson, who became the darling of the conservative movement with his massive study on the history of Christianity and his history of the world during the twentieth century, Modern Times, was directly influenced by Rothbard's reconstruction of Hoover. In Modern Times, Johnson calls Hoover's fiscal and monetary policies "vulgar Keynesianism," a point upon which Rothbard had previously elaborated.
Idols for Destruction, a scholarly work by Herbert Schlossberg now causing much talk in conservative and evangelical circles, enthusiastically echoes Rothbard's historical revision of Hoover. "Herbert Hoover, amazingly referred to even by historians as a partisan of laissez-faire, energetically supported ... a powerful central State that would coordinate the efforts of business."
The New Deal was not new after all. It was hatched in the decade prior to Roosevelt's ascension to power. Rothbard's analysis, directly and indirectly, has led many to be more objective when evaluating partisan politics, both now and in the past.
Years before I ever thought of running for Congress, I came across Rothbard's America's Great Depression. Before reading it, my thinking was clouded by the temptation to divide these issues and ideas in partisan terms. Rothbard fixed that.
America's Great Depression was a key book in my conversion to pure free-market, libertarian thinking. The confidence I gained with ammunition supplied by Rothbard encouraged my entry into politics, since I needed the reassurance that my intuitive allegiance to liberty was shared by great thinkers. Rothbard taught me to always keep the distinction between peaceful market activity and State coercion in my mind. It served as a constant guide once I was in office.
I wanted to see the brilliant writings of theoreticians such as Rothbard translated into practical political action. To my surprise there was a strong constituency for these views, and I was elected to four terms. Even a person familiar with only a small part of the vast work Rothbard has produced during his career knows his attitude towards politics. Like Mises, he labels the State as the "social apparatus of violent oppression."
How do we minimize the role of the State? To bring about radical and permanent change in any society, our primary focus must be on the conversion of minds through education. This is a task to which Rothbard has dedicated his life. That's why he was such a willing participant on so many occasions in the educational functions I held for interns, staffers, and Members of Congress. After speaking at a seminar I held, he expressed delight at the large turn-out, saying it "shows the extent to which our ideas have permeated politics and public opinion, far more than I had hoped or believed."
But because Rothbard sees education as the primary vehicle for change, that does not mean, of course, that he is opposed to getting directly involved in political action towards a libertarian society. As he had said, "since the State will not gracefully convert itself out of power, other means than education, means of pressure, will have to be used."
That's why I asked his help when I was appointed to the U.S. Gold Commission, and Rothbard produced brilliant material on American monetary history in the nineteenth century, especially as related to gold and the evils of central banking. These are issues that Rothbard has refused to compromise on, despite enormous pressure from inside and outside the movement. To this day, he remains the most persuasive monetary theorist and consistent critic of inflation and fiat paper money. When gold is once again restored to a central place in our monetary system, we will owe a gigantic debt to the work of Rothbard.
In fact, Rothbard's work with the Gold Commission helped us get on the road to a gold coin standard, because out of the Gold Commission came support for my legislation to mint the American Eagle Gold Coin. And his encouragement and support helped me make up my mind to run for the Presidency of the United States on the Libertarian Party ticket.
In a multitude of ways, Rothbard's work has given not only me but all of us the ammunition we need to fight for the American dream of liberty and prosperity for all mankind.
This is a chapter from Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard, edited with an introduction by Walter Block and Lew Rockwell.
Dr. Kevin Gutzman is a history professor at Western Connecticut State University, a New York Times best-selling author, and one of the leading Constitutional scholars in the country today. He and Jeff talk about his new book, Thomas Jefferson—Revolutionary: A Radical's Struggle to Remake America. Dr. Gutzman discusses some of the overlooked ways Jefferson shaped America, and how his radical views are often underplayed by many academics today. Jefferson’s views on self-governance freedom of conscious, and rejection of centralized control made him perhaps the most libertarian Founding Father — one whose ideas are still relevant today.
This is a biography of Ralph Raico written as part of a Masters Thesis by one of his students.
As Professor Hunt Tooley acknowledges, today we are seeing a rebirth of interest in the Austrian school and classical liberalism, with no small part played by Ralph Raico. In his easily accessible books, essays, seminars, and lectures, Raico is increasingly becoming known as the acknowledged champion of historic, authentic liberalism.
From the Introduction:
This paper is a brief intellectual biography of retired Buffalo State College history professor Ralph Raico (1936-present), who is known as “the godfather of liberalism in the classical tradition.”See Mark Thornton’s introduction to the lecture by Ralph Raico, “The Life and Work of Ludwig von Mises” (speech given at the Mises University, Ludwig von Mises Institute, Auburn, Alabama, July 31, 2006.) He is, according to Professor David Gordon, “our foremost historian of classical liberalism.”David Gordon, “Ralph Raico on Authentic Liberalism” forward to Ralph Raico’s Classical Liberalism and the Austrian School (Auburn, AL: Ludwig von Mises Institute, 2012), p. xiii. And as Professor Joseph Stromberg summarized,“[Ralph] Raico…has made important contributions to the history of German liberalism, translated Ludwig von Mises’s Liberalism, broadened our knowledge of liberal class-conflict theory, and accomplished much more.”Joseph Stromberg review of Ralph Raico’s Great Wars & Great Leaders: A Libertarian Rebuttal, in The Independent Review, Vol. 17, N. 1, pp. 121-125.
Few libertarians outside of Raico can claim to have had relationships with all the giants of the modern American libertarian movement. The acquaintances include Ludwig von Mises, Frederick Hayek, Ayn Rand, Murray Rothbard, Robert Nozick, Bruce Goldman, Benjamin Rogge, Leonard Liggio, Hans Herman-Hoppe, Guido Hülsmann, Walter Block, Lew Rockwell, Thomas DiLorenzo and Raico’s high school friend, economist George Reisman. Through various connections, Raico also became friends or associated with famous intellectuals outside the libertarian spectrum such as Milton Friedman, Peter Bauer and Noam Chomsky.
Raico’s intellectual contributions to the libertarian movement are numerous and profound. He created and edited one of the first and only libertarian magazines of the 1950s, the New Individualist Review, and edited the Cato Institute’s original magazine Inquiry. He is the translator of Ludwig von Mises’s Liberalism (1922) from German to English. He wrote a definitive book about German liberalism, Die Partie der Freiheit (1999), a book of revisionist history called Great Wars and Great Leaders: a Libertarian Rebuttal (2010), and a masterpiece of intellectual history, Classical Liberalism and the Austrian School (2012). Raico is also the author of dozens of articles and book chapters.
This paper is based upon readily available materials. I have undertaken very few or perhaps none of the standard requirements which constitute a biography. There are enormous gaps in the biographical events of his life and in the overview of Raico’s scholarly work. Despite these deficiencies, I hope this paper is useful as an introduction to one the founding fathers of the modern libertarian movement, a movement which is finally seeing a bit of fruition. This study falls short of a hagiography; it is a partisan appreciation of an original, powerful thinker, and influential promoter of libertarian thought.
Raico’s intellectual development is traced in its several contexts, as well as his overall influence and importance as a scholar, teacher, and libertarian activist. First I attempt to establish Raico’s intellectual framework and focus on his most important influences: Ludwig von Mises, Murray Rothbard and Friedrich A. Hayek. I then bring to light Raico’s impact on the current popular libertarian movement, drawing heavily on the testimony of other libertarian scholars. Finally, Raico’s major scholarly achievements are summarized, along with a consideration of his overall importance to libertarian thought.
Quarterly Journal of Austrian Economics 19, no. 3 (Fall 2016): 302–306Entrepreneur Andrew Carnegie (1835–1919) emigrated to the United States from Scotland at age 12, working entry-level jobs (bobbin boy, messenger, telegraph operator) that taught him about the importance of initiative and self-taught education. At age 17, Carnegie became a railroad superintendent’s personal secretary when his employer discovered he could read and write. He became privy to challenges faced by railroads, and was enterprising enough to grasp opportunities for improvement and self-enrichment. Trusted with greater authority, Carnegie learned about investments and cost-accounting, was promoted to railroad superintendent, and formed a company to manufacture iron for rails. Carnegie also invested in coal, express, horsecar and oil companies, and owned $400,000 in assets ($6.8 million today) by age 33 when he wrote a memo to himself vowing to set aside his business affairs and devote his time to philanthropy, formal studies and a public policy career. He achieved the philanthropic goal but not before playing a key role in creating the first billion-dollar U.S. corporation. ...
Carnegie’s entrepreneurial talents in developing new markets and technological innovation cannot be ignored, Bostaph writes, despite his support for protective tariffs and unscrupulous dealings with politicians. Readers interested in an economic examination of Andrew Carnegie’s commercial career will benefit from Bostaph’s work.
The Quarterly Journal of Austrian EconomicsVol. 19 | No. 3 | 302–306Fall 2016
Book Review
Andrew Carnegie: An Economic BiographySamuel BostaphLanham, MD: Lexington Books, 2015, 125 pp.
Greg Kaza
Greg Kaza (kaza@arkansaspolicyfoundation.org) is executive director of the Arkansas Policy Foundation.
Entrepreneur Andrew Carnegie (1835–1919) emigrated to the United States from Scotland at age 12, working entry-level jobs (bobbin boy, messenger, telegraph operator) that taught him about the importance of initiative and self-taught education. At age 17, Carnegie became a railroad superintendent’s personal secretary when his employer discovered he could read and write. He became privy to challenges faced by railroads, and was enterprising enough to grasp opportunities for improvement and self-enrichment. Trusted with greater authority, Carnegie learned about investments and cost-accounting, was promoted to railroad superintendent, and formed a company to manufacture iron for rails. Carnegie also invested in coal, express, horsecar and oil companies, and owned $400,000 in assets ($6.8 million today) by age 33 when he wrote a memo to himself vowing to set aside his business affairs and devote his time to philanthropy, formal studies and a public policy career. He achieved the philanthropic goal but not before playing a key role in creating the first billion-dollar U.S. corporation.
Non-economists (MacKay, 1997; Nasaw, 2006) have authored other Carnegie biographies. Univ. of Dallas Emeritus Professor of Economics Samuel Bostaph has written a biography that is engaging on several levels. First, Bostaph applies economic ideas about entrepreneurism, production and protectionism to Carnegie’s commercial activities. He contrasts Carnegie’s commercial acuity with his self-serving use of lobbying, tariffs and other forms of crony capitalism. Second, Bostaph explains, in some detail, technological advances within the iron and steel industries. Finally, he presents a side of Carnegie that should not be ignored: international peace advocate and opponent of imperialism who bought a replacement to avoid military conscription in the Civil War.
Bostaph begins by explaining three theories of entrepreneurship developed by Frank Knight, Israel Kirzner and Joseph Schumpeter. He uses the concept of Kirznerian entrepreneurial action for explanatory purposes to place Carnegie “firmly in the context of the market process.” Bostaph identifies Carnegie as an entrepreneur in “a Schumpeterian sense: strong willed and eager to gain social power, yet innovative in his introduction of new products, processes and forms of business organization.” These production processes are a recurring theme. Carnegie’s father and ancestors were hand loom weavers paid piece rates for weaving damask. Weavers were vulnerable to downturns in the market for fine linen goods, centered in Dunfermline, Carnegie’s hometown. Yet within two decades of Carnegie’s birth the industry was virtually defunct due to technological advances. This experience and others made Carnegie alert to the future. He saw innovation as a key competitive means for increasing market share.
Following is Bostaph’s description of the production process that led to construction, in the early 1870s, of one of the U.S.’s largest steel mills, 12 miles south of Pittsburgh:
With the availability of the low phosphorus iron ore of the Lake Superior region and the high quality coke made from the coal of the Connellsville area, he (Carnegie) decided it was now possible to use the Bessemer process to produce steel in the quantities needed, and at a low enough cost, to replace iron rails with those of steel. (p. 42)
He further describes the process as follows:
Coke was a key ingredient of iron and steel making. The anthracite coal of eastern Pennsylvania contained very little impurities and was viewed as a natural coke. Coke also could be made by heating the softer bituminous coal and cooking the impurities out of it. The bituminous coal of the Connellsville region made a superior coke because the production process left it honeycombed with pockets that gave more surface area for burning. This made for faster burning than could be achieved with the denser anthracite, and thus faster pig iron production. (pp. 51–52)
The production of western Pennsylvania coke fed Carnegie’s expansion of rail and structural steel, a vital step leading to the vertical integration of the U.S. steel industry.
Carnegie had two managerial obsessions. The first was cost minimization and product quality. He constantly worked to reduce his production costs below his competitors, and used the latest processes to create a superior product. The second was restricting partners’ salaries and dividends to use profits for capital investment. Carnegie, in contrast to competitors, used the closely-held partnership form of business organization. They were not required to disclose their internal business plans and performance metrics. Public firms published this information so Carnegie purchased shares to learn about his competitors. Carnegie was a shrewd judge of men, and business practices and trends. Many of his top managers had started as unskilled or semi-skilled labor, and rose through the ranks. One of his managers had five operating principles: employ young and ambitious men; mix nationalities in the workforce; use up-to-date machinery; encourage competition between plants; and reduce the workday from 12 to 8 hours to increase productivity.
His commercial enterprises also took advantage of protectionism and tariffs. One obvious rationale for protectionism-and the one mentioned favorably by Andrew Carnegie, Bostaph explains, was the “infant industry” argument. This was tantamount, with iron and steel production, to an “infancy” dating to 1789, a period of more than 100 years. “Basically,” he writes, “what happened in both the iron and railroad industries during this period was that government was used as a means for socializing costs while privatizing profits.” (p. 41) Tariffs on the supply side advantaged domestic iron and steel producers. One factor inspiring Carnegie’s decision to build a large mill was the Tariff Act of 1870. Bostaph explains, “Protected by that duty and producing rails on a large scale in a state of the art plant, they expected to take the domestic market away from the British, as well as from their American competitors.” (p. 44) Carnegie termed himself a “moderate” protectionist opposed to high tariffs and free trade. (p. 55) He was also a defense contractor, selling armor plate to the Navy (p. 83).
Carnegie’s commercial career reached its zenith in 1901 when he sold his steel firm for $304 million to the newly-created U.S. Steel, the first billion dollar U.S. corporation.
But he was not an interventionist. In 1898, Carnegie argued against annexation of the Philippines, stating it would be costly. He offered to pay the U.S. government $20 million for the islands, the amount a treaty required that Spain be paid. Carnegie sought to buy the Filipinos their political independence but his offer was refused. He later established the Palace of Peace at the Hague (1903) and the Carnegie Endowment for International Peace (1910) “to hasten the abolition of international war.” Carnegie grew up a “violent young republican” (Carnegie, 1920, pp. 10-12) in a household whose members were “highly critical of the existing political and economic system.” (p. 12) After U.S. Steel’s creation, Carnegie spent nearly two decades at the end of his life giving his fortune away as well as acting as a vociferous advocate for world peace.
One issue worthy of further research is Carnegie’s understanding of the business cycle. This means examining his operations in the nine cycles that occurred between the Civil War’s end in 1865 and U.S. Steel’s founding in 1901, according to the NBER’s business cycle chronology. Carnegie appears to have flourished in them by refusing to overcapitalize his operations in the preceding expansions, while purchasing discounted assets in contractions. Bostaph touches on this issue by noting the Panic of 1873 was a financial disaster for some firms but not for Carnegie’s steel operation. “The partners had the cash for their subscriptions and building during a recession meant that materials, labor, and transportation costs were less than earlier years.” (p. 44) He notes that Carnegie’s drive to cut costs “made it possible not only to increase his profit margins in good times, but also to preserve the power to reduce prices when it was necessary to keep the orders coming in. To be able to do so was particularly important during recession years when Carnegie would cut prices to keep production up at low profit rates rather than lose sales, cut production, and lay off workers (p. 46, Nasaw, pp. 174–176). It’s worth noting that work on Carnegie’s first big steel mill began during an 18-month contraction (June 1869 to December 1870), and a decline in rail demand in 1883 led to the forced sale of the Homestead steel works to Carnegie at the value of the original investment during a 38-month contraction (March 1882 to May 1885). Carnegie’s competition fought to stay afloat in recessions while he expanded operations.
Carnegie’s entrepreneurial talents in developing new markets and technological innovation cannot be ignored, Bostaph writes, despite his support for protective tariffs and unscrupulous dealings with politicians. Readers interested in an economic examination of Andrew Carnegie’s commercial career will benefit from Bostaph’s work.
REFERENCESCarnegie, Andrew. 1920. Autobiography of Andrew Carnegie. London: Constable and Co.
MacKay, J.A. 1997. Little Boss: A Life of Andrew Carnegie. Edinburgh: Mainstream.
Nasaw, David. 2006. Andrew Carnegie. New York: Penguin Press.
Recorded at the Mises Circle in Boston on the campus of Harvard University, on 1 October 2016. Includes closing remarks by Jeff Deist.
Editor’s note: This article was originally written to commemorate the 40th anniversary of the death of Ludwig von Mises in 2013.
Each year in early October, the world looks to Sweden and Norway, where the annual Nobel Prize winners are announced in the fields of literature, medicine-physiology, physics, chemistry, and peace-making.
The great Swedish entrepreneur, Alfred Nobel did not sponsor a prize in economics, and the committees sponsored out of his estate did not grant any such prize until the present day. But there is a “Prize in Economic Sciences in Memory of Alfred Nobel” which is sponsored by the central bank of Sweden. Since 1969, that prize has been granted every year in early October, too.
The timing and the labeling of the prize, as well as the fact that its laureates are selected by the Royal Swedish Academy of Sciences, which also picks the other laureates (except for the peace prize), have misled people all over the world into thinking it is the real thing. Like counterfeit banknotes, the economics prize has been circulating among the unsuspecting public.
Alfred Nobel did not intend to sponsor a prize in economics. Apparently, neither did the Swedish central bank. Its prize has usually been awarded to scholars specializing in applied mathematics, or applied psychology, or in the art of playing with statistical data that goes under the name of econometrics. Very rarely is it awarded to scholars who actually spend most of their time thinking about real-world economic problems, and almost never to anybody who has anything new and important and true to say about the real economy. It is true that many laureates were very well versed in economics, but even they did not, as a rule, obtain the prize for any contribution to that discipline.
The problem with the “dismal science” of economics is well known. It mercilessly exposes and dispels the myths that have been invented to justify central planning and government interventionism. This flies in the face of the very institutions that finance and award the Prize in memory of Alfred Nobel. The Swedish central bank is institutionally committed to central planning in money. It can hardly be expected to print and spend millions of kronas on research that is useless — and potentially nefarious — from its very own point of view. Moreover, Sweden has been ruled by socialists for most of the post-war period. The venerable Royal Swedish Academy of Sciences was not immune from this tendency.
Unsurprisingly, the economics prize has always been heavily biased against economists who oppose the fiat-money foundation of the welfare state and of the warfare state. The facts speak for themselves. With the notable exception of F.A. Hayek (laureate in 1974), none of the prize winners is on record as an outspoken critic of central banking and monetary interventionism. And even Hayek came out of the closet only after winning the prize, publishing Choice in Currency (1976) and Denationalisation of Money (1977).
Unsurprisingly, two giants of economic thought, Ludwig von Mises (1881-1973) and Murray Rothbard (1926-1995) did not obtain the economics prize in memory of Alfred Nobel. Mises, who was arguably the greatest economist ever, died at the very moment when that prize was awarded for the fifth time. On the occasion of the 40th anniversary of his passing, it is appropriate to commemorate his achievements and to highlight his lasting legacy.
Ludwig von Mises is well known as a fountainhead of the revival of classical liberalism and libertarianism after WWII. But his influence on contemporary political thought was based entirely on his groundbreaking contributions to social analysis, and to monetary economics in particular. At the very moment when inflationist ideas had made their intrusion into the academic world and were about to supersede classical economics, Mises revolutionized the theory of money. He was the first economist to develop a full-fledged explanation of money prices, and he was also the first to develop a comprehensive analysis of the causes and consequences of money production. His work renewed and greatly reinforced the case against monetary interventionism, which had been at the heart of classical economics.
Before Adam Smith, public opinion was infused with the notion that the volume of spending (in today’s Keynesian jargon known as “aggregate demand”) drives the economy. Politicians and businessmen therefore strove to increase the national money supply in order to promote production and growth. Smith argued that this was all wrong. The true causes of aggregate wealth were to be seen in the division of labor and in a frugal lifestyle. Policies designed to increase the national money supply by encouraging exports and hampering imports were ineffective. They impoverished the nation rather than to promote its growth.
This thesis inspired the intellectual movement known as classical economics. It has also inspired the economists of the Austrian School. When Carl Menger developed his price theory based on the rock-solid foundation of subjective value, he did not seek to overthrow classical economics root and branch. What he did was to repair one fundamental shortcoming of classical price theory, and in so doing he solidified the overall edifice. Eugen von Böhm-Bawerk reinforced the classical teachings on savings and capital by analyzing the role of time in the production process. At the beginning of the 20th century, then, Ludwig von Mises completed the Austrian revision and reconstruction of classical economics with his theory of money.
Adam Smith had neglected money because neither the demand for money, nor the supply thereof were to be counted among the causes of the wealth of nations. Many of his disciples — especially the great David Ricardo — delved into the matter in more detail. But their writings suffered from the Achilles’ heel of Smith’s theory: his cost-of-production theory of prices. They could therefore not quite come to grips with the economics of banking, and the practical consequence was a never-ending sequence of booms and busts. This practical failure in the field of money and banking eventually discredited the entire edifice of classical economics. Inflationist doctrines made a comeback, first creeping (second half of the 19th century), then galloping (around WWI), and eventually triumphing in the 1930s.
Mises did not develop his theory of money in order to come up with classical-liberal practical conclusions. Quite to the contrary, it took him a while to understand the political implications of what he had found. The first edition of this monetary treatise (1912) is actually quite tame in that respect. It is only in the second edition (1924) that Mises starts to hammer the anti-interventionist implications of his work in monetary economics. At about the same time, he had begun to delve into other areas of research, most notably into the analysis of socialist and interventionist systems of government. These works brought him great fame, and they were instrumental in converting an entire generation of young intellectuals — such as Hayek, Haberler, Machlup, Morgenstern, and Robbins — to classical liberal ideas. But his monetary thought would always remain the backbone of his thinking. Eventually he would present it fully developed within a general theory of human action (Nationalökonomie, Human Action).
It was Mises’s personal misfortune that, during all of his life, his economic and political ideas were thoroughly out of fashion. But, precisely for this very reason, his legacy is lasting and strong. Today the ideas that Mises had painstakingly refuted have run their course. Inflationism, socialism, and statism have spelled misery, corruption, and chaos. Reading Mises enables us to understand this world, and it helps us to see the road that leads out of these quagmires.
The Quarterly Journal of Austrian Economics
Vol. 19 | No. 2 | 169–172Summer 2016
The Economist Eugen v. Böhm-Bawerk
On the occasion of the tenth anniversary of his deathLudwig von Mises
Originally published in the Neue Freie Presse, Vienna
August 27, 1924
TRANSLATOR’S NOTE
A transcript of the German language original under the title “Der Economist Eugen v. Böhm-Bawerk—Zu seinem 10. Todestage” has been found in one of Bettina Bien Greaves’s books at the Mises Institute. The text was originally published in the Neue Freie Presse (New Free Press), a Viennese newspaper which was founded by Adolf Werthner, Max Friedländer, and Michael Etienne. It existed from 1864 until 1938. Böhm-Bawerk’s last publication “Unsere passive Handelsbilanz” (“Our passive balance of trade”), from which Mises quotes, was also published in this newspaper, and has, to our knowledge, never been translated into English.
Karl-Friedrich Israel
~ ~ ~
Eugen v. Böhm-Bawerk will remain unforgotten for all those who have known him. The students, who enjoyed the fortune of attending his seminars, will never lose what the acquaintance with such a strong mind has given them. For the politicians, who have met him as a statesman, the integrity of his ethos and his altruistic commitment to duty will continue to be exemplary. And no citizen of this country shall forget the minister of finance, the last Austrian minister of finance, who, in spite of all obstacles, earnestly aimed at balancing the public budget and preventing the upcoming financial catastrophe. But even when the lives of all those who had known him personally have come to an end, his scientific oeuvre shall live on and bear fruit.
In his scientific work Böhm-Bawerk focused from the outset on the central problem of theoretical economics, the interest problem. At the age of twenty-five, in the spring of 1876, he gave a lecture on the interest on capital in the KniesTranslator’s note: Karl Knies (1821–1898), an adherent of the German Historical School, was professor of political economy (Staatswissenschaften) at the University of Heidelberg for more than thirty years. seminar in Heidelberg, which already contained the main features of what would later become his famous agio theory of interest. Before he could however publish his work, there were difficult preliminary questions to answer. It was to these questions that he dedicated his work. Always keeping the ultimate object in mind, he published Rechte und Verhältnisse vom Standpunkte der volkswirtschaftlichen Güterlehre in 1881, Die Geschichte und Kritik der Kapitalzinstheorien in 1884, Grundzüge der Theorie des wirtschaftlichen Güterwertes in 1886, and finally his Positive Theorie des Kapitals in 1889.Translator’s note: The four books have been translated into English as Whether Legal Rights and Relationships are Economic Goods; History and Critique of Interest Theories; Basic Principles of Economic Value; and Positive Theory of Capital respectively. His work was thereby brought to completion. As Senior Legal Secretary and Head of Division in the ministry of finance, as k. u. k.Translator’s note: Meaning kaiserlich und königlich (Imperial and Royal) and referring to the empire of Austria and the kingdom of Hungary. Minister of Finance and President of the Senate of the Higher Administrative Court, he had very little leisure in the following years to perform any scientific work. Only after 1904, when he retired from office for the third and last time, could he devote himself again undisturbed to his research. A series of excellent works is the fruit of tireless effort during the last decade that he was allowed to live. He died on August 27, 1914, when the Austrian armies were about to fight the first battles of the Great War in Poland and Eastern Galicia.
Böhm-Bawerk’s scientific work has quickly found the recognition it richly deserves. His magnum opus was translated into English by William Smart as early as 1890; shortly afterwards a French edition followed. In England, the United States, France, Italy, the Netherlands, Sweden, and Denmark, his doctrine became the starting point for further in-depth analyses and studies. Sure enough, in Germany an understanding of Böhm-Bawerk’s achievements was long absent. The prevailing doctrine at the universities ignored him. It took decades before the accomplishments of the “Austrian School” were recognized in the Reich. Today, however, it is considered a grave misfortune that only Böhm-Bawerk’s magnum opus, which is already in its fourth German language edition, is easily accessible. His shorter writings, which are indispensable for any friend of economic enquiry, are rather difficult to access. It is therefore a thankworthy enterprise to republish them in a collected edition. A student of Böhm-Bawerk, well known for several scientific works, has addressed himself to this task.Gesammelte Schriften von Eugen von Böhm-Bawerk, edited by Franz X. Weiss and published by Hölder-Pichler-Tempsky A.G., Vienna and Leipzig, 1924. [footnote in the original] The well-endowed volume, which is graced with a felicitous portrait of Böhm, contains the above mentioned work Rechte und Verhältnisse, along with a tract on general theory and methodology, essays on the theory of value, and finally an essay that has been published on January 6, 8, and 9, 1924 in the Neue Freie Presse, entitled “Unsere passive Handelsbilanz.” It starts with a short biographical introduction by the editor, Dr. Franz X. Weiss. The essays on capital and interest, which are not contained in this collection, shall be republished in a separate volume.Translator’s note: In fact, his works on capital and interest, including his two larger treatises, have been republished in the well known three volume edition. The third volume contains Further Essays on Capital and Interest.
To praise the tremendous value of the theoretical works collected in this volume would be like bringing owls to Athens.Translator’s note: This is an ancient Greek proverb. The owl was the symbol of the city of Athens. Owls adorned the roof of the old Pantheon as well as the self-minted Athenian silver coins. Hence, “bringing owls to Athens” means doing something unnecessary or superfluous. For the experts and numerous intellectuals who are concerned with economic questions, this would hardly constitute anything new. Let us, however, quote some sentences from the above mentioned essay on the passive balance of trade, merely to emphasize the sharpness with which Böhm has early on pointed to the fundamental problem underlying our state finances. It reads:
[T]hrift is never popular…. If parliaments have historically been the guardians of thrift, they now have turned much rather into its sworn enemies. Nowadays, the political and national parties—maybe not exclusively in our own country, but certainly also here—tend to develop a certain covetousness, almost considered to be dutiful, for all kinds of benefits for their own electorate at the expense of the general public. And when the political situation is relatively convenient, that is to say, if it is relatively inconvenient for the government, one’s ends can be achieved through political pressure.
Our population suffers from economical megalomania. This is among other things shown by the “investments from the public purse.” One is often mistaken when using the famous slogan of “indirect productivity” of public spending, even if at times the indirect advantages of public enterprises, which are unprofitable by themselves, may exceed the amount that has to be paid from public funds for their passive operations. The “blind eulogists of frivolous investment policies” will feel the mistakes of their approach
…only when, like these days, the capital stock has been exhausted by the public sector over many years to a degree that capital is lacking for the most important and vital private businesses in all spheres, only when many enterprises begin to stumble, many projects have to remain undone, and all suffer severely from the increased rate of interest.
These were the last words that Böhm-Bawerk addressed to Austria’s financial authorities. Today they will be valued more highly than at the time when they were first published in this newspaper.
Quarterly Journal of Austrian Economics 19, no. 2 (Summer 2016)
"On the Occasion of the Tenth Anniversary of His Death" [Translator's Note: A transcript of the German language original under the title “Der Economist Eugen v. Böhm-Bawerk—Zu seinem 10. Todestage” has been found in one of Bettina Bien Greaves’s books at the Mises Institute. The text was originally published in the Neue Freie Presse (New Free Press), a Viennese newspaper which was founded by Adolf Werthner, Max Friedländer, and Michael Etienne. It existed from 1864 until 1938. Böhm-Bawerk’s last publication “Unsere passive Handelsbilanz” (“Our passive balance of trade”), from which Mises quotes, was also published in this newspaper, and has, to our knowledge, never been translated into English. —Karl-Friedrich Israel]
Eugen v. Böhm-Bawerk will remain unforgotten for all those who have known him. The students, who enjoyed the fortune of attending his seminars, will never lose what the acquaintance with such a strong mind has given them. For the politicians, who have met him as a statesman, the integrity of his ethos and his altruistic commitment to duty will continue to be exemplary. And no citizen of this country shall forget the minister of finance, the last Austrian minister of finance, who, in spite of all obstacles, earnestly aimed at balancing the public budget and preventing the upcoming financial catastrophe. But even when the lives of all those who had known him personally have come to an end, his scientific oeuvre shall live on and bear fruit.
In his scientific work Böhm-Bawerk focused from the outset on the central problem of theoretical economics, the interest problem. At the age of twenty-five, in the spring of 1876, he gave a lecture on the interest on capital in the KniesTranslator’s note: Karl Knies (1821–1898), an adherent of the German Historical School, was professor of political economy (Staatswissenschaften) at the University of Heidelberg for more than thirty years. seminar in Heidelberg, which already contained the main features of what would later become his famous agio theory of interest. Before he could however publish his work, there were difficult preliminary questions to answer. It was to these questions that he dedicated his work. Always keeping the ultimate object in mind, he published Rechte und Verhältnisse vom Standpunkte der volkswirtschaftlichen Güterlehre in 1881, Die Geschichte und Kritik der Kapitalzinstheorien in 1884, Grundzüge der Theorie des wirtschaftlichen Güterwertes in 1886, and finally his Positive Theorie des Kapitals in 1889.Translator’s note: The four books have been translated into English as Whether Legal Rights and Relationships are Economic Goods; History and Critique of Interest Theories; Basic Principles of Economic Value; and Positive Theory of Capital respectively. His work was thereby brought to completion. As Senior Legal Secretary and Head of Division in the ministry of finance, as k. u. k.Translator’s note: Meaning kaiserlich und königlich (Imperial and Royal) and referring to the empire of Austria and the kingdom of Hungary. Minister of Finance and President of the Senate of the Higher Administrative Court, he had very little leisure in the following years to perform any scientific work. Only after 1904, when he retired from office for the third and last time, could he devote himself again undisturbed to his research. A series of excellent works is the fruit of tireless effort during the last decade that he was allowed to live. He died on August 27, 1914, when the Austrian armies were about to fight the first battles of the Great War in Poland and Eastern Galicia.
Böhm-Bawerk’s scientific work has quickly found the recognition it richly deserves. His magnum opus was translated into English by William Smart as early as 1890; shortly afterwards a French edition followed. In England, the United States, France, Italy, the Netherlands, Sweden, and Denmark, his doctrine became the starting point for further in-depth analyses and studies. Sure enough, in Germany an understanding of Böhm-Bawerk’s achievements was long absent. The prevailing doctrine at the universities ignored him. It took decades before the accomplishments of the “Austrian School” were recognized in the Reich. Today, however, it is considered a grave misfortune that only Böhm-Bawerk’s magnum opus, which is already in its fourth German language edition, is easily accessible. His shorter writings, which are indispensable for any friend of economic enquiry, are rather difficult to access. It is therefore a thankworthy enterprise to republish them in a collected edition. A student of Böhm-Bawerk, well known for several scientific works, has addressed himself to this task.Gesammelte Schriften von Eugen von Böhm-Bawerk, edited by Franz X. Weiss and published by Hölder-Pichler-Tempsky A.G., Vienna and Leipzig, 1924. [footnote in the original] The well-endowed volume, which is graced with a felicitous portrait of Böhm, contains the above mentioned work Rechte und Verhältnisse, along with a tract on general theory and methodology, essays on the theory of value, and finally an essay that has been published on January 6, 8, and 9, 1924 in the Neue Freie Presse, entitled “Unsere passive Handelsbilanz.” It starts with a short biographical introduction by the editor, Dr. Franz X. Weiss. The essays on capital and interest, which are not contained in this collection, shall be republished in a separate volume.Translator’s note: In fact, his works on capital and interest, including his two larger treatises, have been republished in the well known three volume edition. The third volume contains Further Essays on Capital and Interest.
To praise the tremendous value of the theoretical works collected in this volume would be like bringing owls to Athens.Translator’s note: This is an ancient Greek proverb. The owl was the symbol of the city of Athens. Owls adorned the roof of the old Pantheon as well as the self-minted Athenian silver coins. Hence, “bringing owls to Athens” means doing something unnecessary or superfluous. For the experts and numerous intellectuals who are concerned with economic questions, this would hardly constitute anything new. Let us, however, quote some sentences from the above mentioned essay on the passive balance of trade, merely to emphasize the sharpness with which Böhm has early on pointed to the fundamental problem underlying our state finances. It reads:
[T]hrift is never popular…. If parliaments have historically been the guardians of thrift, they now have turned much rather into its sworn enemies. Nowadays, the political and national parties—maybe not exclusively in our own country, but certainly also here—tend to develop a certain covetousness, almost considered to be dutiful, for all kinds of benefits for their own electorate at the expense of the general public. And when the political situation is relatively convenient, that is to say, if it is relatively inconvenient for the government, one’s ends can be achieved through political pressure.
Our population suffers from economical megalomania. This is among other things shown by the “investments from the public purse.” One is often mistaken when using the famous slogan of “indirect productivity” of public spending, even if at times the indirect advantages of public enterprises, which are unprofitable by themselves, may exceed the amount that has to be paid from public funds for their passive operations. The “blind eulogists of frivolous investment policies” will feel the mistakes of their approach
…only when, like these days, the capital stock has been exhausted by the public sector over many years to a degree that capital is lacking for the most important and vital private businesses in all spheres, only when many enterprises begin to stumble, many projects have to remain undone, and all suffer severely from the increased rate of interest.
These were the last words that Böhm-Bawerk addressed to Austria’s financial authorities. Today they will be valued more highly than at the time when they were first published in this newspaper.
Recorded live at Mises University 2016 at the Mises Institute in Auburn, Alabama. Jeff Deist interviews Mises Institute founder and Chairman, Lew Rockwell. Includes a Question and Answer period. Recorded on 30 July 2016.
Judge Denson shares memories of his role in the founding of the Mises Institute. Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2016, at a special reception in honor of John V. Denson's birthday.
It's Memorial Day weekend, a time when we (hopefully) reflect on war rather than celebrate it. So, it's the perfect opportunity to revisit an inspiring antiwar talk from our own Senior Fellow Tom Woods.
You may not know it, but Tom was once a neocon who considered the libertarian position of noninterventionism unrealistic and naive. But, his mind was changed by none other than the late Murray Rothbard, who convinced Tom that peace and liberty cannot be severed, that empire abroad leads to socialism at home, and that foreign policy should be front and center in a libertarian worldview.
[Delivered at a memorial service at the University of Nevada, Las Vegas, January 20, 1995.]
Murray N. Rothbard (1926–1995) was just one man with a typewriter, but he inspired a worldwide renewal in the scholarship of liberty.
”Give me a short description of his thought and contributions,” said the reporter when this free-market giant died at the age of 68. But how do you sum up Beethoven’s music or Dante’s poetry?
In 45 years of teaching and writing, Rothbard produced 25 books, thousands of articles, and three generations of students. He was a teacher who never stopped learning, an intellectual prize fighter who always punched cleanly. He battled every destructive trend in this century—socialism, statism, relativism, and scientism—and awakened a passion for freedom in thousands of scholars, journalists, and activists. At once a genius and a gentleman, his causes were honesty in scholarship, truth in history, principle in politics, and—first and foremost—human liberty itself.
Filled with laughter and principled beyond measure, Rothbard rejected the compromises and pretensions of the modern world. He was unaffected by intellectual fashion, undeterred by attacks, and untempted by opportunism. Quite simply, nothing stopped him. And as the Happy Warrior of economics, as Forbes called him, he made singular contributions to banking history, price theory, monopoly and antitrust, and business cycles, to name just a few areas.
For many years, he taught economics at Brooklyn Polytechnic Institute, working in a dingy, windowless office on the fifth floor, surrounded by Marxists. He never once complained, except to wonder why an engineering school couldn’t make the elevator work. His admirers celebrated his appointment as the S.J. Hall distinguished Professor of Economics at the University of Nevada, Las Vegas.
Teaching in New York, Las Vegas, Auburn, and at conferences around the world, Rothbard led the renaissance of the Austrian School of economics. He galvanized an academic and popular fight for liberty and property, against the omnipotent State and its court intellectuals.
Like his beloved teacher Mises, Rothbard wrote for the public as well as professionals. “Civilization and human existence are at stake, and to preserve and expand it, high theory and scholarship, though important, are not enough,” he wrote in 1993. “Especially in an age of galloping statism, the classical liberal, the advocate of the free market, has an obligation to carry the struggle to all levels of society.”
Rothbard’s theory was his practice. He was involved in nearly every political and social development of his time, from Robert Taft’s presidential campaign to the 1994 elections. His last article, appearing in the Washington Post, warned that Newt Gingrich is more likely to betray the revolution than lead it.
The Mises Institute is honored that Rothbard headed our academic programs for 13 years. He spoke at all our conferences and teaching seminars, edited our Review of Austrian Economics, consulted on our books and monographs, and wrote for our Free Market. Most of all, he taught and inspired our students, who will carry his ideas into the future.
Rothbard has been compared to the greatest minds in social science, but his wisdom and character led him to show gratitude to his predecessors. His formative intellectual event was the 1949 publication of Mises’s Human Action.
“I had gone through all the doctoral courses at Columbia University,” Rothbard wrote, “without once discovering that there was such a thing as an Austrian School, let alone that Ludwig von Mises was its foremost living champion.” But this book “solved all the problems and inconsistencies that I had sensed in economic theory.”
Rothbard attended Mises’s seminar at New York University from its first meeting, and became the student who would defend and extend Mises’s ideas, push the Austrian School tradition to new heights, and integrate it with political theory. He taught the movement how to write, and was also an important cultural influence.
The Austrian School had previously been a largely European intellectual movement. Mises changed that with his migration to this country. Rothbard completed this process, so that the locus of the school is no longer Europe, but America, the nation whose founding principles Rothbard and Mises so deeply admired.
Man, Economy, and State, Rothbard’s great work, was the key to the resurgence of Austrian economics after Mises’s death. Beginning with the philosophical foundation, Rothbard built an edifice of economic theory and an unassailable case for the market. In many ways, the book rescued economics from its mostly deserved reputation. Instead of the dismal, statist, and incomprehensible pseudoscience students are used to, Rothbard gave us a tightly reasoned, sweeping case for the free market that is still used in classrooms all over the world.
The book treated economics as a humane science, not as a branch of physics. Every page took account of the uncertainty of economic conditions, the certainty of change, and the central place of the entrepreneur, while never losing sight of the implacability of economic law. No wonder Henry Hazlitt, writing in National Review, called it “brilliant and original and profound.”
Since its publication, the treatise has only grown in stature. Through it, Rothbard has taught countless students to think like real economists instead of number crunchers. He explained and applied the logic of human action in economic exchange, and refuted its opponents. Like Mises, he looked not at “economic man,” but acting man who deals with the scarcity of time and resources.
Rothbard breathed life into economic theory with his historical works, and refuted the charge that Austrians are only concerned with high theory. He was also one of the few intellectuals on the Right to champion revisionist history. Other historians have since picked up his works and built on them to create entire schools of thought.
He wrote America’s Great Depression, applying the Misesian theory of the business cycle to refute the most common anticapitalist slander: that the market caused the crash and economic downturn of the 1930s. He showed that the villain was government intervention, in the form of credit expansion and Herbert Hoover’s high wage policies. Paul Johnson adopted the thesis for his Modern Times. He also refuted the then-dominant view of Herbert Hoover as a laissez-faire conservative, by showing that he was actually a premature New Dealer. In journal articles, he showed that the New Deal followed logically from the economic regimentation of World War I and the Progressive Era, which gave us central banking and the income tax.
Rothbard was once asked to write a short book of American history. He agreed, and it eventually appeared. But Conceived in Liberty was four large volumes on the period 1620–1780. His purpose was to highlight forgotten events that demonstrate the libertarian character of our history and people. It is masterful, revisionist, and a pleasure to read. But what happened to the original project? Rothbard explained that he had discovered so much (tax revolts! uprisings! betrayals! power grabs!) that was left out of conventional accounts.
The American revolution threw off tyranny, he argued. It was not simply a continuation of British-style statism in another guise, as Hamilton claimed. The new social order would protect communities, properties, and essential rights. Rothbard also proved to be as proficient a military historian as he was an interpreter of ideological history.
Rothbard hardly let a moment go to waste, teaching through the day and writing through the night. His wife of 41 years, JoAnn, tells of being awakened once by his newest discovery: “That bastard Eli Whitney didn’t invent the cotton gin after all!”
In his work, as in his life, he always sided with the pro-liberty forces against the welfare-warfare State. He especially liked the anti-New Dealers, the anti-imperialists, the Confederates, the anti-federalists, the tax resisters, the underground businessmen, the anti-State pamphleteers, and other unsung heroes. Throughout history the power elite has found profitable uses for the State. Rothbard never passed up a chance to name them, to explain how they did it, and to show how their actions harmed everyone else in society.
Conflict was the central theme of Rothbardian political economy: the State vs. voluntary associations, and the struggle over the ownership and control of property. He showed that property must be in private hands and owners must be free to control it as they see fit. The only logical alternative is the total State. There is no room for a “third-way” like social democracy, the mixed economy, or “good government,” and the attempt to create it is always disruptive.
Power and Market, another enduring contribution, zeroed in on this conflict, and attacked every form of government intervention, confounding one antimarket cliché after another, and defending market competition as essential to social peace. Where others looked for “market failure,” Rothbard found only government flops.
The book discussed the most common intervention in the market: taxation, the direct taking of someone’s property by a group claiming a monopoly on coercion, i.e., the State. The taxing power defines the State in the same way that theft defines a robber.
He also showed that there can be no neutral tax, that is, one that leaves the market exactly as it would be without the tax. All taxes distort. And all taxes are taxes on production and hinder it, even so-called consumption taxes.
Taxation takes capital from private hands and prevents it from being used to serve private interests and the consuming public. This is true regardless of the type of tax. Also, the government spends taxes in ways that alter the production patterns of the market. If money is spent on market-oriented projects, it unjustly competes; if it is spent on nonmarket projects, it is economically inefficient.
Taxes are never “contributions,” he argued. “Precisely because taxation is compulsory there is no way to assure—as is done automatically on the free market—that the amount any person contributes is what he would otherwise be willing to pay.” As Rothbard said, it is not utopian to work for a society without taxation; it is utopian to think that the power to tax won’t be abused once it is granted.
No principle of taxation, he argued, can equal a market system of fairness. A progressive tax discriminates on the basis of income; the rich aren’t forced to pay more for bread than the poor. A flat tax forces the same result, since higher incomes contribute a greater dollar amount than lower ones. The least harmful tax is a head tax or equal tax: a flat fee low enough for even the poorest to pay.
As a steadfast believer in free trade, Rothbard argued that peace between nations cannot rest on negotiations between State managers. Peace is kept by the network of exchange that develops between private parties. This is why he opposed false “free trade” such as Nafta and Gatt, which have more in common with neomercantilism, and he was the first to forecast the disaster Nafta has become.
Interventionists have long used the language of markets to advance statism. Consider antitrust law enforced in the name of “competition.” Rothbard showed that the only authentic monopolies are those created by law: the government subsidizes a producer at others’ expense (public hospitals and schools) or forbids competition altogether (the postal service).
Other forms of monopoly include licensure, that is, deliberately restricting the supply of labor or number of firms in a certain industry. Government monopolies always deliver inferior service at exorbitant prices. And they are “triangular interventions,” because they subsidize one party while preventing others from exchanging as they would in a free market.
He showed that unemployment insurance (actually, unemployment subsidies) increases the number of people out of work. Child labor laws, a favorite of unions and the Department of Labor, subsidize adult employment while preventing young people from gaining valuable work experience. Even eminent domain (“a license for theft”) fails under Rothbard’s property-rights strictures.
What about “intellectual property rights”? Rothbard defended the copyright as a contract made with consumers not to reprint a work, resell it, or falsely attribute the source. A patent on the other hand, is a government grant of monopoly privilege to the first discoverer of certain types of inventions to get to the government patent office.
And under public ownership, he argued, the “public” owns nothing, and the ruling officialdom owns all. “Any citizen who doubts this,” Rothbard suggested, “may try to appropriate for his own individual use his allotted part of ‘public’ property and then try to argue his case in court.”
The government sector focuses on the short run, he argued; there is no such thing as “public-sector investment.” It is only the private sector, which is the real public sector, Rothbard said, where property owners take long-run considerations into account. Unlike government, they preserve the value of resources, and do not plunder or waste them.
In his last scholarly article, he developed the idea of the nation as something separate from either the State or the individual, a collective identity based on language, ethnicity, race, and religion. Rothbard celebrated the post-Cold War emergence of the nation as a countervailing power to the State, and presented the hope that “the brutal and repressive state will be gradually dissolved into a harmonious and increasingly prosperous social order.” It was the final hope of a lifetime of hopes.
Many economists think numbers are the sum of the discipline. Rothbard turned the tables to argue that government data are gathered and used for piecemeal planning and the destruction of the economy. Whatever information markets need about economic conditions can be garnered privately.
A good example is the “trade deficit” between nations, which he said is no more relevant than the trade deficit between towns. There is no justification for assuming that trade must equal out in accounts. The important point is that people are benefiting from exchange, whether across the street or across the world.
Aren’t historical statistics useful for research? Many are misleading. The Gross Domestic Product counts government spending as production, when it should be counted as consumption. Also, government taxing is considered neutral when it’s destructive. Deficits, which drain savings and crowd out production, also need to be accounted for when assessing productivity.
Rothbard looked at private production by subtracting out the government component. The result is the Private Product Remaining, or PPR, which has served scholars as a basis for more accurate historical work. Using the PPR, for example, we see national product increasing at a much slower rate than the GDP, thanks to big government.
Even money-supply statistics were in need of revision in Rothbard’s view. Long before people gave up on the Fed’s ability to generate anything useful (the “M’s” are laughable these days), Rothbard proposed his own measure based on the Austrian School theory of money. It counts cash, deposits easily turned into cash, and all other liquid financial assets.
The State and its banking cartel is the worst possible money manager, Rothbard argued, and free enterprise is the best. He produced many studies on the abuse of money and banking by central bankers and the central State. They include his doctoral thesis, Panic of 1819, Mystery of Banking, and papers on the banking debates of the mid and late 19th century, the monetary debauchery of FDR, the fiasco of Bretton Woods, and the following age of inflation and monetary chaos. Just out is his Case Against the Fed, the best book ever written on the subject.
View the Federal Reserve as a counterfeiting syndicate, and we have Rothbard’s theory of the central bank. But, he pointed out, at least the counterfeiter doesn’t pretend to be working in the public interest, to be smoothing out business cycles, and to be keeping prices stable. He was also the first to analyze in depth and from a free-market perspective the special-interest groups that created the Fed.
Rothbard added to Austrian theory a systematic model for how money is destroyed. The State conspires with the central bank and the banking industry to enhance their mutual power and wealth by devaluation, the equivalent of coin clipping. Little by little, society’s money has less to do with its original form, and eventually it is transformed into paper created out of thin air, to best serve the State’s interest.
As a part of this process, the State intervenes to forbid customers from insisting on 100-percent reserves in checkable deposits. From there, it is progressively easier to move from gold to paper, as has happened in this country from the turn of the century.
Like Mises, Rothbard saw inflation as a policy pursued by the banking industry in league with the government. Those who get the newly created money first—banks, government, institutional securities traders, and government contractors, for example—win out because they can spend it before prices go up and investments are distorted. Those who get the new money later lose.
A Rothbardian gold standard is no watered-down version. He wanted convertibility at home and abroad. Only that system—which would put depositors in charge of insuring the financial soundness of the banking system—can prevent the Fed’s monetary depredations, which have reduced the value of the 1913 dollar to 5 cents today.
The ultimate guarantor against inflation is a private banking system with private coinage, a great American system that was squeezed out by the central State. Rothbard’s writings on money and banking—extensive and deep—may eventually become the single most influential aspect of his thought.
Economists rarely talk about liberty and private property and even less about what constitutes just ownership. Rothbard did, arguing that property acquired through confiscation, whether by private criminals or the State, is unjustly owned. (He also pointed out that bureaucrats pay no taxes, since their entire salaries are taxes.)
Ethics of Liberty was his moral defense. “Liberty of the individual,” Rothbard wrote, is “not only a great moral good in itself” but “also as the necessary condition for the flowering of all the other goods that mankind cherishes”: virtue, the arts and sciences, economic prosperity, civilization itself. “Out of liberty, stem the glories of civilized life.”
Once we understand why private property should be inviolable, troublesome notions fall by the wayside. There can be no “civil rights” apart from property rights, because the necessary freedom to exclude is abolished. “Voting rights” are also a fiction, which—depending on how they are used—can also diminish freedom. Even the “right to immigrate” is phony: “On whose property does someone else have the right to trample?” he asked.
Thus, the Rothbardian social order is no ACLU free-for-all. The security of property provides lines of authority, restraints on behavior, and guarantees of order. The result is social peace and prosperity. The conflicts we face today, from affirmative action to environmentalism, are the result of false rights being put ahead of private property.
In defense of capitalism, Rothbard was uncompromising. But he did not see the market as the be-all and end-all of the social order. For him, capitalism was not a “system,” but a consequence of the natural order of liberty. Neither “growth” nor “greed” is the capitalist ideal. In the free economy, leisure and charity are goods like any other, to be “purchased” by giving up alternative uses of time and money.
And with growing prosperity the need for material goods falls relative to nonmaterial goods. “Rather than foster ‘material’ values, then, advancing capitalism does just the opposite.” No society has ever been as grasping and greedy as the Soviet Union, although the Left is still trying to convince us that State power equals compassion.
A Rothbardian world would be a world without politics. But Murray was no dropout, and in fact loved politics. Who else could write a 5,000-word essay on a random week of electoral life in New York City, and make every word fascinating?
His political writings date from the early 1950s, when he wrote for Faith and Freedom, a hard-Right, isolationist publication. In articles on the evils of the military buildup, he warned that American liberty would be sacrificed to the Cold War.
That led to his break with the Buckleyites, who ridiculed him and his ideas. They never took him on directly; they were smarter than that. Instead, they smeared him in private, and tried to deny him publishing and speaking opportunities.
As editor of Left and Right and Libertarian Forum, Rothbard also predicted that the Cold War would someday end because Soviet socialism would collapse. But, he said, the American military machine would keep on cranking out the planes and bombs. The real threat, he maintained, was not foreign Communism, but US militarism and socialism, which would do what the Soviets never could: steal our liberty.
Rothbard developed a large and growing audience for such views, and continued with this theme for the Rothbard-Rockwell Report, writing against US military interventions in Panama, the Gulf, Somalia, Rwanda, and Bosnia. As the official Left and Right pushed for a New World Order, Rothbard, exasperated, suggested we save time and just invade the entire globe.
Well, here we are 40 years after Rothbard began his foreign-policy writings. The warfare State is as big as ever, and so is the welfare State. National Review—which has always cozied up to power, and, like other neoconservatives, even holds up the dictators Lincoln and Roosevelt for our admiration—is still cheerleading the Republican establishment to new levels of hypocrisy. And we can see that Rothbard was right all along: right about the military, right about politics, right about the Buckleyite conservatives and their love of State power.
That is why Rothbard has triumphed in the end. Despite its attempt to purge and destroy him, National Review‘s influence on the intellectual world hasn’t come close to Rothbard’s. And when the Buckleyites are long forgotten, Rothbard’s authority will not have begun to peak.
For Rothbard, politics and criminal behavior are largely the same enterprise, to be treated with the same investigative rigor. Every day required another whodunit. His motivation in political writing was exposing crime and denouncing criminals.
Some people say that Rothbard’s politics were all over the map. That is not true. He set the political standard as liberty itself, and worked with anyone who pursued it. At the height of the Vietnam War, for example, when the official Right was countenancing mass murder, he looked to the New Left as a vehicle for stopping this most vicious form of statism.
But as the Cold War ended, Rothbard was overjoyed to reunite with the remnants of the Old Right. After he was in paleoconservative circles only a few months, we began to witness new ideological hybrids springing up: anarcho-Southern agrarianism, anarcho-anti-federalism, anarcho-protectionism, and anarcho-monarchism. Their advocates were his colleagues, and he was their conscience.
Rothbard’s political thought is simple at its core but astounding in its application. He believed that common moral strictures, and standards of evaluation, should apply to the State.
If theft is wrong, it is wrong. The same goes for murder, kidnapping, lying, and fraud. They are as wrong for the State as for everyone else.
“Always and ever,” he wrote, “the government and its rulers and operators have been considered above the general moral law.” It is this that Rothbard’s right-wing “anarchism” was devoted to ending: he wanted to make government subject to the rule of law. But Rothbard was no Utopian; his view was that government power should be limited in any way possible, and he worked to make it so.
His pioneering studies of private courts predated the popularity of private arbiters. (Rothbard wanted to abolish “jury slavery” and force courts to pay a market wage.) His work on private law enforcement predated the popularity of home protection and private security. His promotion of private roads predated their wide use in suburbs and malls. His promotion of private schools predated the anti-public school revolt.
What Rothbard wrote about Mises applies in his case as well:
never would Mises compromise his principles, never would he bow the knee to a quest for respectability or social or political favor. As a scholar, as an economist, and as a person, Ludwig von Mises was a joy and an inspiration, an exemplar for us all. Like Mises, Rothbard gave up money and fame in academic economics to promote what is true and right. And he set all who knew him an example of how a man should live his life.
The Mises Institute was blessed to be associated with him, and he credited the Institute with having “at last forged an Austrian revival that Mises would be truly proud of.”
Rothbard’s ideas and character, like those of Mises, must be always before us, and before new generations as well. The Mises Institute will ensure that it is so. We are still discovering the breadth and depth of Rothbard’s literary legacy, with the publication of volumes one and two of Rothbard’s history of economic thought, put out by Edward Elgar shortly after his death. It is the most important work of its kind since Joseph Schumpeter’s.
Whereas other texts pretend to be an uninterrupted march toward higher levels of truth, Rothbard illuminated a history of unknown geniuses and lost knowledge, of respected charlatans and honored fallacies.
Later in 1995, a two-volume compilation of his important economic articles, totaling more than 1,000 pages, will appear in Elgar’s “Economists of the 20th Century” series edited by Mark Blaug. In addition, there are unpublished manuscripts, articles, and letters to fill many more volumes.
From Menger to Rothbard, Austrian School economists have argued that man is motivated by much more than mere self-interest and profit maximization. If the neoclassicals emphasize homo economicus, the Austrian School studies homo agens, the person who acts for a wide variety of reasons, including those that have nothing to do with material gain.
Murray N. Rothbard was empirical proof that the Austrian theory is correct. In his professional and personal life, he always put classical virtues ahead of his private interest. His generosity, his constancy, and his faith helped make him not only a giant among scholars, but also a giant among men.
His acts of charity were uncountable. How many times have I seen a student approach him at one or two in the morning at a teaching conference and ask a question about the gold standard, or economics as a purely logical science? He had been asked the same thing a thousand times before, but that student would never know it, as Rothbard enthusiastically explained everything.
Many, myself included, were schooled in economics, politics, philosophy, history, and much more at his feet. If his beneficiaries defaulted on their debts to him, as they so often did, he would shrug it off.
In an age of Limbaughvian self-promotion, Rothbard always pointed beyond himself, and never tired of extolling the greatness of his beloved teacher, Ludwig von Mises.
He never wanted, nor would he have tolerated, a cult of Rothbard. He lived to see the emergence and development of Rothbardian political economy, but he never once acknowledged its existence. Even his demeanor suggested this. Was there ever a genius with so little pretension?
Rothbard took ideas so seriously that he refuted even the most idiotic thoughts from the most irrelevant sources. How few of these people realized that he was paying them the ultimate compliment: treating them as if they were his equals.
Rothbard never sought academic or popular prestige. A first look at his bibliography seems to reveal a prolific genius with little marketing sense. But that was the point: despite his promotion of the free market, Rothbard never let the market determine what he would think or say. He adhered to what is right regardless of self-interest.
Imagine, for example, the courage it took to carry on the American isolationist tradition—almost single-handedly—in a time of hysterical pro-war propaganda.
He could have given up his anti-interventionism in foreign policy and been a big shot in conservatism. He might have been National Review‘s favorite intellectual. Who knows? He might have even made the pages of Commentary. Or he could have given up his free-market and strict private-property views, or at least downplayed them, and been rewarded by the Left. At the height of the Vietnam War, this would have made him a star at the Nation.
Some say that Rothbard’s constancy was a vice, that he refused to change his mind. In fact, no one was more ready for correction. In recent years, to take just one example, he wrote that he had neglected the cultural foundations of liberty, and cheered those who hadn’t.
In a contradictory accusation, others have said that Rothbard’s consistency is a myth, that in his long political life he swung from Right to Left to Right. This is a smear. In moral and cultural matters, he was always a reactionary. In politics, Rothbard’s constancy was based on his belief in the primacy of foreign policy. When a nation becomes an empire, he argued, the prospects for liberty are nil. Look for the opponents of war and imperialism during his life, and there you would find Rothbard.
One final trait of Rothbard’s: he was a man of faith. He believed that there is order in the universe, that natural law is real and intractable, that truth exists and that it can set us free. His faith was the faith of all men who have put ideals ahead of selfish concerns.
If we are to live up to Rothbard’s example, what must we do? Read and research and produce quality scholarship, commit ourselves to promoting liberty and fighting the State, act on our convictions with tireless energy, never sell out, never give in, and never forget that we will win in the end.
We have one other duty. Without him here to object, we can at last tell the truth about the world-historical figure that was Murray N. Rothbard, who now belongs to the ages.
Recorded during the Authors Forum at the 2016 Austrian Economics Research Conference, Samuel Bostaph (University of Dallas) discusses his recent book, Andrew Carnegie: An Economic Biography (Lexington Books, 2015). The audio version includes an introduction by Mark Thornton.
Murray Rothbard would have celebrated his 90th birthday this past week, so the Mises Institute held a reception in his honor at the ISFLC conference in Washington DC. Joining us to explain why Rothbard remains so relevant today is University of Manchester professor Matt McCaffrey, a former Mises Institute Fellow and editor of our new Rothbard Reader. Matt discusses Rothbard's amazing range of interests and knowledge, his relationship with Mises, his great opus Man, Economy, and State — written in his early 30s — and his enduring legacy in a sea of forgotten mainstream economists.
To read Professor McCaffrey's and Professor Joe Salerno's introduction to the Rothbard Reader, click here. And order your copy here.
The late Murray Rothbard is in many ways the godfather of the modern libertarian movement, starting with the publication of his great tract Man, Economy, and State, back in 1962. And of course, Rothbard played an instrumental role in helping Lew Rockwell get the Mises Institute off the ground.
This weekend's show features a great panel discussion about Murray—not just the economist and the intellectual scholar, but also Murray the man. The panel features David Gordon, Walter Block, and Joe Salerno—all three of whom worked with Murray, and knew him personally for many, many years prior to his death in 1995.
So, if you're a fan of Rothbard, I guarantee you will enjoy this free-wheeling discussion of what Murray was like not just as an intellectual and a scholar, but also as a person.
Bassani shows that Jefferson was a special kind of libertarian. He did not believe in government, but for one or two areas. Nor did he believe in the "union" much less the nation state. He was a radical individualist who had no use for the political collective. This is where we find the very core of his thought.
Author of the Declaration of Independence, diplomat in France, leader of the opposition to the Federalists in the 1790s, president of the United States from 1801 to 1809, critical conscience of the country until his death on July 4, 1826, Thomas Jefferson is the most widely studied, fascinating and genuinely representative American intellectual.
Bassani surveys Jefferson’s views in the twofold articulation—the rights of man and states rights—that represents the core of all his political ideas. While recent scholarship on the subject tends to portray a union devotee, nonindividualistic, antiproperty rights Jefferson, with possible communitarian, if not even protosocialist undertones, this work does Jefferson justice.
Written between 1940 and 1941, shortly after he arrived in the United States, Notes and Recollections is in effect Mises’s pre-1940 intellectual autobiography. This work reveals how Mises developed his theories, wrote his books, lectured, and taught; it describes his life in Vienna and the people with whom he worked. He also discusses his activities as an adviser to Austrian government officials and his frustrations in attempting to keep inflation and communist and Nazi ideas from destroying the Austrian economy.
The Historical Setting of the Austrian School of Economics is an essay originally published in English in 1969 that reveals Mises’s intellectual development in the context of the origins of the Austrian School. It serves as a good introduction to the theory and history of the Austrian School.
As Mises explains in these two works, his viewpoint that modern economics is based on subjective value and marginal-utility theory separated him from classical economists such as Adam Smith, David Ricardo, and John Stuart Mill.
This is Mises's intellectual biography, written after he arrived in the U.S. It was written at the lowest point of his career, at a time when he had left his homeland and was snubbed by American academia for being too anti-socialist. But his steely determination to press on is evident on every page of this affecting, personal, and powerful book.
The audio version Hülsmann's sweeping intellectual biography of Ludwig von Mises.
Narrated by Paul Strikwerda. The full text is available online here.
Download the complete audiobook (25 MP3 files) here. This audiobook is also available on Soundcloud, Apple Podcasts, Google Podcasts, and via RSS.
A moving autobiographical account of Margit von Mises's life with "Lu", from their first days in Vienna to his death in New York in 1973. The author reports interesting anecdotes on various encounters with famous economists and philosophers, both in Europe and the U.S.
Narrated by Amber Cathey.
Download the complete audiobook (12 MP3 files) here. This audiobook is also available on Google Podcasts and via RSS.
Quarterly Journal of Austrian Economics 18, Number 2 (Summer 2105)Murray Rothbard told us that liberty is what allows human flourishing, that liberty requires private property rights and the non aggression principle (NAP), and that this nation was conceived in liberty.
What do mainstream economists tell us today? I attended a seminar in my department a few weeks ago. As everyone walked into the room, the presenter had an equation showing on a powerpoint slide via a projector. Before really getting started, a lively discussion began—all about whether the function should be Cobb-Douglas or CES and whether the data were aggregated in one way or another and whether this or that parameter should be present. This is what passes for economics these days in mainstream departments. ...
Murray N. Rothbard Memorial LectureAustrian Economics Research ConferenceLudwig von Mises InstituteAuburn, AlabamaMarch 12, 2015
Featuring remarks by Jeff Deist, Llewlellyn H. Rockwell, Jr. [1:55], Thomas E. Woods, Jr. [4:27], Judge Andrew P. Napolitano [8:47], and Dr. Ron Paul [20:32]. Recorded in Lake Jackson, Texas, on Saturday, 15 August 2015.
Jeff and Bob discuss his new book, Choice: Cooperation, Enterprise, and Human Action, Bob's new opportunity at Texas Tech University, and all things Bob Murphy.
The opening lecture of the 2015 Mises University. Recorded at the Mises Institute in Auburn, Alabama, on 19 July 2015. Includes an introduction by Joseph T. Salerno.
In this second installment of a two-part interview, Jeff Deist and Joseph T. Salerno discuss the health and vitality of the Austrian school. Joe also provides great insights into the state of academia, whether it's wise for libertarians to pursue a PhD., and the tactical advantage of targeting intelligent laypeople.
In this first installment of a two-part interview, Jeff Deist and Joseph T. Salerno discuss the health and vitality of the Austrian school, the impact of the South Royalton conference, Joe's relationship with and memories of Rothbard, and why so many factions seem to persist within Austrian economics. Joe also gives some great insights into the state of academia, whether it's wise for libertarians to pursue a PhD, and the tactical advantage of targeting intelligent laypeople.
Jeff Deist and Paul-Martin Foss discuss Ron Paul's years fighting the Federal Reserve, why Carl Menger still matters, and why the Beltway types are wrong when they want to tinker with—rather than end—the Fed.
Our show this weekend features William Boyes, Director of Arizona State University's Center for the Study of Economic Liberty. Boyes was in Auburn last week presenting a keynote speech at our Austrian Economics Research Conference. In his talk, Boyes gives the perspective of someone who has been a Keynesian in mainstream academia, but who is now a dedicated Austrian.
The Murray N. Rothbard Memorial Lecture, sponsored by Helio Beltrão. Recorded at the Austrian Economics Research Conference at the Mises Institute in Auburn, Alabama, on 14 March 2015. Includes an introduction by Joseph T. Salerno.
[Originally published in The New Banner: A Fortnightly Libertarian Journal on 25 February 1972. Thanks to J. Michael Oliver (The New Libertarian: Anarcho-Capitalism) for sending it to the Mises Institute. Thanks also to W. Robert Black III, of the New Banner Institute.]
IntroductionDr. Murray Rothbard, libertarianism's foremost theorist and advocate today, is a scholar, teacher and author of considerable reputation. Without question he is one of the thinkers most responsible for the formulation of the doctrine of anarcho-capitalism. While his efforts have been primarily in the field of economics, his writings and activities demonstrate a much wider range of thought
Dr. Rothbard has studied under Professor Joseph Dorfman at Columbia University and Dr. Ludwig von Mises at New York University. He took his undergraduate and graduate work in economics at Columbia University. He has taught at the City College of New York and currently teaches at the Polytechnic Institute of Brooklyn.
As an author he has numerous works to his credit, including, his monumental economic treatise, Man, Economy and State; its sequel, Power and Market, an analysis of government intervention in the market; America's Great Depression; The Panic of 1819; and What Has Government Done to Our Money? Articles by Dr. Rothbard have appeared in numerous books and periodicals including American Economic Review; American Political Science Review; Journal of History and Ideas; Quarterly Journal of Economics; New Individualist Review; Intellectual Digest; and the New York Times.
Among his most outstanding accomplishments in the study of human action are; his revolutionary theory of monopoly in which he shows that there can be no monopoly in a free market; his original analysis of patents and copyrights; and his refutation of numerous interventionist fallacies. Primarily in his classic Man, Economy and State, he shows that "the workings of the voluntary principle and of the free market lead inexorably to freedom, prosperity, harmony, efficiency, and order; while coercion and government intervention lead inexorably to hegemony, conflict, exploitation of man by man, inefficiency, poverty, and chaos."
Aside from his obvious scholarly efforts, Murray Rothbard has deeply involved himself in the daily struggles of the libertarian movement — such as his spearheading of the assault on the current state price freeze. He is also the editor of the Libertarian Forum, a monthly libertarian newsletter.
Dr. Rothbard was interviewed in his home in New York City on January 13, by J. Michael Oliver and Donald C. Stone of The New Banner.
Managing Editor's Note: Having never met Murray Rothbard prior to this interview I was only aware of his scholarly side — through his writings; I had no conception of the type of personality which I was to encounter. Donald Stone, editor of the libertarian newsletter Pegasus and friend of The New Banner, who accompanied me and assisted in the interview, had only briefly met Murray Rothbard on one occasion a year before. We were both quite pleased, therefore, to discover that his esteemed reputation as a scholar was matched by his joviality and candor as a host and conversationalist. The New Banner is confident that with this interview, it has made available to its readers an up-to-date view of the libertarian struggle by the man who stands today as perhaps the foremost libertarian.
NEW BANNER: In the No. 7 issue of the Ayn Rand Letter, Miss Rand admonishes her readers, "Do not join ... libertarian hippies who subordinate reason to whims and substitute anarchism for capitalism." Do you think that this remark was directed at you and other advocates of free market alternatives to government institutions, and do you think this remark is in keeping with Miss Rand's oft-stated principle of “defining your terms?"
ROTHBARD: Well, it's hard to say, because you notice there are very few specific facts in her discussion. There is one sentence covering "libertarian hippies." Who are they? Where are they?
The movement that I'm in favor of is a movement of libertarians who do not substitute whim for reason. Now some of them do, obviously, and I'm against that. I'm in favor of reason over whim. As far as I'm concerned, and I think the rest of the movement, too, we are anarcho-capitalists. In other words, we believe that capitalism is the fullest expression of anarchism, and anarchism is the fullest expression of capitalism. Not only are they compatible, but you can't really have one without the other. True anarchism will be capitalism, and true capitalism will be anarchism.
As for her remark being in keeping with the principle of defining one's terms — well, obviously not. I don't think she has ever defined the term "anarchism," as a matter of fact.
NEW BANNER: Do you see a possible future for libertarian retreatism or do you see it as a blow against an effective political development of the movement?
ROTHBARD: I don't think it's a blow, because there are not going to be many retreatists. How many people are going to retreat to their own island or their own atoll! Obviously, half a dozen people go out there, if they do, and it might be fine for them. I wish them well, but personally I wouldn't do it. I'm not going to go off to some damn island or some damn atoll! Ha. I think that most libertarians or most Americans won't do it either.
This might be a personal out for these individual people, but it is hardly a solution for the country. It's not a solution for me or for anybody else that I know of. And so I just think that they are interesting to read about, but they're irrelevant — to use a much clichéd term — to the current concerns of myself or the rest of the public.
Even if it were feasible — even if the government didn't crack down on it as a "hazard to navigation" or whatever, which it undoubtedly would, even if they could get it off the ground, who is going to go there?
Some of the retreatists, by the way, are philosophically very bad. You might know of this fellow Marshall who is the big retreatist and nomad leader. He has this view that in order to be free you have to be a nomad. In other words, any ties to a place or a career injures your freedom. I think this is an evil philosophical error — which all too many people have.
NEW BANNER: The American people seem on the whole to be passively if not actively supporting Phase II. Conservatives are more concerned with law and order than with economic freedom; liberals are calling for more after this recent taste of controls. The rest the country apparently will resign itself to any situation after so many years of Orwellian double-talk. Where does this leave the libertarian? Alone for the next generation?
ROTHBARD: Well, not necessarily, because I think what's happened is that a vacuum of leadership has developed in the country about Phase I and Phase II. In other words, libertarians have been the only people who have been against Phase I and II from the beginning and on principle. Some of the labor union leaders are against it because they didn't get enough share of the pie. They obviously were not against it on principle. Libertarians were the only ones from the very beginning to establish this record and to go out to the public and attack it. I know that I've spent an enormous amount of time attacking it, debating Herb Stein and so forth. But I think it’s useful also strategically, because Phase II is going to fall apart. It's already beginning to crack-up. As it cracks-up libertarians will be the only ones who have established a record of opposition to it. I think in a sense we can fill the vacuum. This might be a very good thing for the libertarian movement. As the thing falls apart people will begin to turn to us for leadership. "Well, here are these guys who've been prophetic. When everybody else was going along with it they realized it wasn't going to work."
NEW BANNER: Some libertarians have recommended anti-voting activities during the 1972 election. Do you agree with this tactic?
ROTHBARD: I'm interested to talk about that. This is the classical anarchist position, there is no doubt about that. The classical anarchist position is that nobody should vote, because if you vote you are participating in a state apparatus. Or if you do vote you should write in your own name, I don't think that there is anything wrong with this tactic in the sense that if there really were a nationwide movement — if five million people, let's say, pledged not to vote. I think it would be very useful. On the other hand, I don't think voting is a real problem. I don't think it's immoral to vote, in contrast to the anti-voting people.
Lysander Spooner, the patron saint of individualist anarchism, had a very effective attack on this idea. The thing is, if you really believe that by voting you are giving your sanction to the state, then you see you are really adopting the democratic theorist's position. You would be adopting the position of the democratic enemy, so to speak, who says that the state is really voluntary because the masses are supporting it by participating in elections. In other words, you're really the other side of the coin of supporting the policy of democracy — that the public is really behind it and that it is all voluntary. And so the anti-voting people are really saying the same thing.
I don't think this is true, because as Spooner said, people are being placed in a coercive position. They are surrounded by a coercive system; they are surrounded by the state. The state, however, allows you a limited choice — there's no question about the fact that the choice is limited. Since you are in this coercive situation, there is no reason why you shouldn't try to make use of it if you think it will make a difference to your liberty or possessions. So by voting you can't say that this is a moral choice, a fully voluntary choice, on the part of the public. It's not a fully voluntary situation. It's a situation where you are surrounded by the whole state which you can't vote out of existence. For example, we can't vote the Presidency out of existence — unfortunately, it would be great if we could — but since we can't why not make use of the vote if there is a difference at all between the two people. And it is almost inevitable that there will be a difference, incidentally, because just praxeologically or in a natural law sense, every two persons or every two groups of people will be slightly different, at least. So in that case why not make use of it. I don't see that it's immoral to participate in the election provided that you go into it with your eyes open — provided that you don't think that either Nixon or Muskie is the greatest libertarian since Richard Cobden! — which many people, of course, talk themselves into before they go out and vote,
The second part of my answer is that I don't think that voting is really the question. I really don't care about whether people vote or not. To me the important thing is, who do you support. Who do you hope will win the election? You can be a non-voter and say “I don't want to sanction the state" and not vote, but on election night who do you hope the rest of the voters, the rest of the suckers out there who are voting, who do you hope they'll elect. And it's important, because I think that there is a difference. The Presidency, unfortunately, is of extreme importance. It will be running or directing our lives greatly for four years. So, I see no reason why we shouldn't endorse, or support, or attack one candidate more than the other candidate. I really don't agree at all with the non-voting position in that sense, because the non-voter is not only saying we shouldn't vote: he is also saying that we shouldn't endorse anybody. Will Robert LeFevre, one of the spokesmen of the non-voting approach, will he deep in his heart on election night have any kind of preference at all as the votes come in. Will he cheer slightly or groan more as whoever wins? I don't see how anybody could fail to have a preference, because it will affect all of us.
NEW BANNER: What other activities would you consider appropriate for libertarians during the election?
ROTHBARD: Well, as I tried to indicate — supporting candidates. I think there will be two main groups of libertarians this year. One group will be the non-voting group. The other group will be the Dump Nixon group of which I am an enthusiastic member. I almost take the position — anybody but Nixon. Dump him! Punish him! Smash him! Retire him to the private life which he so richly deserves. Get him out! I think there are all sorts of reasons why, if you want to pursue it, why Nixon should be dumped.
I do not support Ashbrook, but I think it is a very interesting development, because there is a possibility that the extremists in the conservative camp are hoping that Ashbrook will run on a 5th party ticket in the general election, which is the important thing. Because, if he runs in Ohio, California, etc., he can break Nixon by just getting 10 percent of the conservative vote. That is, if he has the guts to run in a general election.
NEW BANNER: At the outset, your newsletter, Libertarian Forum, was co-edited by Karl Hess. He has since departed. What ideological differences led to this split?
ROTHBARD: First of all, he wasn't the editor, he was the Washington editor, which meant that he wrote a column. He did not have anything to do with the editorial policy of the paper. The concrete split came when I made a very tangential attack on the Black Panthers. He got very upset about this. He thought, one, it was a terrible thing to attack the Panthers, and two, since his name was on the masthead, the Panthers might think he was a part of the party which was attacking them. He felt at that time that it was very important to work with the Panthers. I consider the Panthers a bunch of hooligans and I don't see any reason for supporting them — either in regard to whatever criminal activities they participate in or their free breakfast program. You know the Salvation Army has been giving away breakfast for many years, and I don't see anything particularly revolutionary in that. At any rate, at that time he was very committed to the Panthers and that was really the split.
But more deep than that is the fact that Karl after having been an anarcho-capitalist for some time shifted over to become an anarcho-communist or anarcho-syndicalist. I don't really see any basis for collaboration between the two groups, because even if we are both against the existing state, they would very quickly come up with another state. I don't think you can be an anarcho-communist or an anarcho-syndicalist. You know if the commune runs everything, and decides for everything, whether it is a neighborhood commune or a mass country commune — it really does not matter in this case, somebody's got to make the communal decision. You can't tell me that you'll have participatory democracy and that everybody is going to equally participate. There is obviously going to be a small group, the officiating board or the statistical administrative board or whatever they want to call it, whatever it's going to be, it's going to be the same damn group making decisions for everybody. In other words, it's going to be a coercive decision for the collective property. It will be another state again, as far as I can see. So I really can't see any basis for collaboration. That is really part of a broader analysis of the communist versus the individualist position.
You see, I was one of the people who originated the idea of an alliance with the New Left. But I didn't think of it in these terms. I didn't think of an alliance with the New Left as living in communes with the Black Panthers. I thought of it as participating with the New Left in anti-draft actions or in opposition to the war. I conceived of a political rather than an ideological alliance. While we are both against the draft, let's have joint rallies to attack it, or something like that. This is a completely different sort of thing.
This incidentally has been a problem with libertarians for a long time. Both in the old days when they were always allied with the right-wing and now when they tend to be allied with the left. You start allying yourself with a group and pretty soon you find yourself as one of the group. In other words, the alliance slips away. Start with the idea that we are going to work with either conservatives or radicals for specific goals and somehow they start spending all their time with these people and they wind up as either conservatives or radicals. The libertarian goal drops away and the means become the ends. This is a very difficult problem because you don't want to be sectarian and have nothing to do with anybody. Then you're never going to succeed at all. I think that one of the answers to it is to have a libertarian group which is strong enough to keep reinforcing the libertarianism of our members.
NEW BANNER: David Nolan is forming a Libertarian Party. Its membership has indicated an interest in nominating you for its Presidential candidate in 1972. What is your response to this overture?
ROTHBARD: Ha, ha, ha (prolonged laughter). I really don't think, as lovable as third parties are, that a libertarian party at this stage of our development is anything but foolhardy. There are just not that many libertarians yet. There's no finances, there's no people, there's nothing. Maybe eventually we will have a libertarian political party.
NEW BANNER: What would be the purpose of a libertarian party?
ROTHBARD: I think if there were a libertarian party — and I don't want to make it seem as if this is a realistic thing at this time — if there ever were a strong libertarian party it could do several things. Tactically, we could have a balance of power. Even better as an educational weapon. If we had ten guys in Congress, let's say, each of whom are constantly agitating for libertarian purposes — voting against the budget, etc., I think it would be very useful.
Also, we have a long-range problem which none of us has ever really grappled with to any extent. That is, how do we finally establish a libertarian society? Obviously ideas are a key thing. First off you have to persuade a lot of people to be anarchists — anarcho-capitalists. But then what? What is the next step? You certainly don't have to convince the majority of the public, because most of the public will follow anything that happens. You obviously have to have a large minority. How do we then implement this? This is the power problem. As I've expressed this in other places, the government is not going to resign. We are not going to have a situation where Nixon reads Human Action, Atlas Shrugged, or Man, Economy and State and says “By God, they're right. I'm quitting!" I'm not denying the philosophical possibility that this might happen, but strategically it's very low on the probability scale. As the Marxists put it, no ruling class has ever voluntarily surrendered its power. There has to be an effort to deal with the problem of how to get these guys off our backs. So, if you really have a dedicated group in Congress or the Senate, you can start voting measures down or whatever. But I don't think this is the only way. I think maybe there will be civil disobedience where the public will start not paying taxes or something like that. If you look at it, there are several possible alternatives in dismantling the state. There is violent revolution, there is non-violent civil disobedience and there is the political action method. I don't know which of these will be successful. It's really a tactical question which you can't really predict in advance, it seems to me that it would be foolhardy to give up any particular arm of this.
It's incumbent upon people to come up with some sort of strategic perspective to dismantle the state. For example, Bob LeFevre somehow works it out that it's almost impossible to get rid of the state — from his own point of view. He is against violent revolution — okay, now that is a very respectable position; he's also against voting; he's against political parties — it becomes very difficult to really see how one can get to the state at all with this kind of procedure. I don't see why we should give up something like political parties. It might be a route eventually to dismantling the state or helping to dismantle it.
NEW BANNER: In the February, 1971, Libertarian Forum you stated that the movement was "taking off." In the perspective of the last year would you change your opinion?
ROTHBARD: No, I think it's taking off. It's growing very rapidly, and it's getting a lot of publicity which is important. The recent New York Conference was very successful in many ways. We are still in pretty good shape. I don't know where to go from here, particularly. I'd like to see more strategic thinking on the part of the movement as to what to do next. For instance, should there be any organizational effort, if so, what? This sort of thing.
NEW BANNER: Do you see any wisdom in anarcho-capitalists allying with today's New Left?
ROTHBARD: There is no New Left now. The New Left is really finished — there isn't any such animal anymore. One of the reasons that I liked the New Left in the old days, in the middle-60's, was that there were a lot of libertarian elements in the New Left. Not only was there opposition to the war and the draft, but also opposition to bureaucracy, central government and so forth. But all that seems to have dropped out. There is really nothing going on in the New Left now at all.
NEW BANNER: Why do you think the New Left has never strongly supported the anti-draft movement? They seemed to have been more anti-war, but not concerned with anti-draft.
ROTHBARD: They were against the draft, but as you say, they didn't really have their heart in it. They really weren't against the draft. They are in favor of the People's Republic draft, when the People's Republic gets established. I remember when Castro first got in power in 1959. A lot of the more sincere Castro followers said that one of the great things about Castro was that he had abolished the draft. Of course, he had, but a couple years later it was back. So you see, they're against a draft by a reactionary government, but not by a people's government. Ha, ha.
NEW BANNER: Do you agree with the proposal that libertarians overlook their philosophical differences in order to provide a unified front?
ROTHBARD: I don't think that question can really be answered flatly. I don't agree with the sectarian idea that you have to agree on everything before you can act on anything. In other words, that you have to agree on A is A, free will, modern art, or whatever. I don't buy that, I think it's unrealistic. On the other hand, simply saying that you will unite on anything if you agree on “Smash the State," on a couple of slogans, is very dangerous, too. It depends upon the goal of your action or activity. If you are engaging in an ad hoc sort of thing like an anti-draft rally, then I don't see anything wrong with having speakers or common activity with all anti-draft people regardless of their original premises. If you are going to have a libertarian organization carrying on all sorts of activities, conferences, journals and things like that, you will want to have much more full agreement.
Of course, in the libertarian movement you have a pretty wide spectrum, which I think however, fortunately is narrowing. I think we are getting a situation in which the extreme left and the extreme right, so-called, are sort of mellowing into a central position, which gives us more basis for cooperation. The "rip off Amerika" group is beginning to calm down, and the Randians are beginning to get more wary about the Constitution, the Founding Fathers and American foreign policy. So, I think that there is more agreement now than there was a year ago.
NEW BANNER: In regard to the ongoing debate between you and the Friedmanites. David Friedman has made an accusation. He has accused you of having not read what his father Milton Friedman has written, misquoting or quoting out of context what you have read, and further has accused you of being a mediocre economist who is jealous of all the attention accorded Milton. Any comments?
ROTHBARD: Ha, ha, ha.
As for misquoting, of course, you can always say that nobody has fully read the works of other people.
I don't think Milton, for example, knows anything about the Austrian School. Obviously, Milton is more of an expert on his own writings than anyone else. As for being jealous of attention, that's like saying that I am jealous of Keynes or Galbraith. Let me put it this way, I think that they are getting over-deserved attention. It seems to me that Galbraith is getting a lot more attention than he deserves, and I think the same is true of Milton.
But I think it is also very clear that you don't have to be an expert on Friedman's writings to realize that Milton is in favor of the absolute control of the money supply by the state, that he is in favor of a 3 or 4 per cent increase in the money supply (the numbers keep changing all the time) by the state every year, that he favors a negative income tax which is essentially a guaranteed annual income by the state, and that he favors a voucher plan which would leave the state solidly in control of the educational system. These things are quite blatant; there is no secret about it. I think it is pretty clear that Friedman is a statist. I mean, if you are in favor of the state having control of the money supply, control of the education system, and a guaranteed annual income, that's it. There is not much more that can be said. The fact that the Friedmanites are against price control is all very well, and I hail that, but the fundamental aspects of the state remain. The state still commands the highposts of the economy.
This is one of the problems with Friedmanites — they have no political theory of the nature of the state. They think of the state, and this is true of Milton and the whole gang as far as I can see, as another social instrument. In other words, there is the market out here and then there is the state, which is another friendly neighborhood organization. You decide on which thing, which activity, should be private and which should be state on the basis of an ad hoc, utilitarian kind of approach. "Well, let's see, we'll feed the thing through the computer. We find that the market usually wins out, that the market is usually better." So, most of the time they come out in favor of the market on things like price control or government regulations, but they really think of the state as just another social instrument. And so when they come out in favor of the state, they go all out. In other words, there is no limitation. Well, they say, the state will do this. The state will run the educational system or whatever the cop-out happens to be. So, they feed the thing in — we'll have controls for a while and then they will die out — it's not very important anyway. You see, they really think they can put through Friedmanism, let's say, just by educating Nixon. The sort of thing I said before jocularly, about Nixon reading Atlas Shrugged and being converted. That is really the sort of theory of social change the Friedmanites have. You see the President once in a while, you talk to him and you convince him that there shouldn't be price controls, the ICC should be eliminated, or whatever — and then he goes ahead and does it. But it just doesn't work that way. They have no realization that the state is essentially a gang of thieves and looters. That they are exploiting the public, that they have a whole bureaucratic apparatus of exploitation, and that they are not just going to give it up. In other words, there is the whole problem of power involved which the Friedmanites refuse to face. They don't realize that the state is not a social instrument. It's an inimical organization which is hostile to society, plundering it, which has to be confined, whittled away, reduced and hopefully ultimately abolished. They have no conception of that at all. They just think of it as another friendly, corner grocer kind of thing which you either use or don't use.
NEW BANNER: Federal Reserve Chairman Arthur Burns said recently that he would expand the money supply at a rate that would insure a "vigorous" expansion of the U.S. economy. At the same lime, the Price Commission will be permitting only limited price increases. What do you think the net result of these policies will be?
ROTHBARD: The net result will be further inflation, with black markets and with people losing out. Those people who haven't got the political muscle at the Price Commission or Pay Board won't get their increases, while those who do have that muscle will get it.
All sorts of monstrous situations will occur. Decline in quality, for example. We will find that there will be more air in the Baby Ruth — you can't find the Baby Ruth anymore anyway. There will be less chocolate in the chocolate. There is no way the state can police this, of course. And it's very harmful to the public.
And the real root of inflation, which is the money supply, well, the tap is being turned on. It's unfortunate, but a lot of people including conservatives and libertarians even, have been great fans of A.F. Burns. I've never been able to see that. He's always been an inflationist, a statist and a pragmatist.
NEW BANNER: Nixon is supposed to push for a value-added tax (VAT), a move which he will probably reveal soon. What might be the results of such a tax?
ROTHRARD: Well, it's a national sales tax. It is one thing that has not been tapped yet. I think Chodorov said that the principle of taxation that the government always uses is the same principle as the highwayman: Grab them where they are — if it moves, tax it! If you can find something that hasn't been taxed yet, well, tax it. VAT is a new gimmick which hasn't been imposed yet in the United States.
Income tax is obviously reaching a critical limit. It would be difficult for them to increase that. The property tax is fortunately going by the board. And with the whole education question — well, they need a new tax to finance it. It's a sales tax, so it will tax the poor more than the wealthy. Also, it's a hidden tax, so the public wouldn't realize it. It's a value added tax which is paid by each manufacturer as they go down the list.
It also injures turnovers. If a product is made 8 times, if it turns over 8 times before it gets to the consumer, it is going to be taxed twice as much as if it turns over 4 times. This will restrict what the Austrians call "the longer process of production" which will injure capital investment a great deal. Incidentally, only the Austrians have dealt with this whole question of the period of production. It will also bring about vertical integration — mergers — which the government claims are monopolistic. If the thing turns over it means that you pay an extra tax, but if the two firms merge they won't have to pay any tax on that phase of it. So, it will encourage mergers.
NEW BANNER: In the light of your past record of accurate predictions, what will be the nature of Phase III?
ROTHBARD: I don't claim to be a great predictor or forecaster. It is in the nature, incidentally, of Austrian economic theory that the economist can't really forecast perfectly at all. I'm not sure about Phase III. A lot depends upon whether Nixon gets reelected or not. As in all cases of government intervention you are presented with two alternatives as the sun sinks in the west — as Phase II begins to crack up as it already is.
Already the Pay Board has granted increases to some groups and shut off increases to other groups. So, as this thing becomes increasingly unworkable, then the government will be faced with the question — either we scrap the thing altogether and go back to the free market or we tighten the controls, get people who really believe in it, get Galbraith instead of Stein, and we have a rigorous program. It could go either way. Who knows how Nixon is going to go? You can't tell from one day to the next what Nixon is going to do anyway. The summer of last year, Nixon would have been equally likely a priori to either drop a bomb on China or else form an agreement with it. There is no way of predicting which path he is going to take.
You have the curious situation now where the economists in charge of the Phase II program almost exclusively are against it. They all say, "Well of course we're against control and are in favor of the free market, but we have to do this anyway." In this kind of self-contradictory situation, who knows what they're going to do?
NEW BANNER: In February, 1971, Senator Mark Hatfield made some interesting but vague comments in praise of your book Power and Market. Have you had any contact with the senator concerning his ostensible sympathy with libertarianism?
ROTHBARD: I've only met the senator personally once — in the summer of 1969. At that time he was very friendly toward libertarianism and said he had committed himself to the cause of libertarianism. Now, I've had a couple of contacts with him since then by mail. But, obviously his voting record is not particularly libertarian. It's very good on foreign policy and the draft, but it's not too great on other things.
What the reason for this is I really don't know. However, he has been very good in introducing legislation for tax credits and for the right to own gold. I really don't have that much contact with the Hatfield staff. In the abstract, at least, he is very favorable to libertarianism
He seems to understand it. I also understand that one member of the Hatfield staff is an anarchist who was converted by the Tannehill book — this is the rumor I get.
NEW BANNER: I understand that you have written two other major manuscripts that have yet to be published; the Ethics of Liberty and The Betrayal of the American Right.
ROTHBARD: The Betrayal of the American Right is not really a major manuscript. It is a pleasant enough thing. It's fairly short. It's sort of a combination personal and general history of the right-wing from Mencken and Nock in the Twenties and going into the World War II period and then up to the present. That's not going to be published so far, because Ramparts Press, which was originally supposed to publish it, didn't like it, and it has now been turned into a reader. Right now the idea is that they are going to come out with a reader of Old Right stuff like Mencken and Nock, and I'll be picking the readings and doing the introduction. So, as for that manuscript, after the reader comes out, I guess I'll look around for a publisher for the original Betrayal of the American Right.
The ethics book has only been partially finished, so that's the problem with that.
Right now I'm working on a libertarianism book for MacMillan. The tentative title is For a New Liberty. It will be sort of a general book. It is a rather difficult book to write, because I can't be as scholarly as I'd like to be, and yet on the other hand I can't be too mass oriented. So, I have to pick my spots. I've started off with a description of the movement discussing who is in it, the spectrum in it, and then I go into the philosophy of the movement — the central core of libertarian philosophy. Then I go on to the applications of that philosophy. I just finished the chapter on education and next I'll go on to welfare. After I finish that I'll start working on the ethics book, which is really my favorite. So far I have written in Power and Market, etc., on the "value free," praxeological aspects of liberty and I have not really tackled the ethical position in print. One thing which I find exciting in it is that I'm going to try to deduce the ethics like I do the economics from a Robinson Crusoe and Friday situation — a Crusoe political philosophy. I'll show what happens when Crusoe and Friday engage in voluntary trade and exchange as opposed to coercion and then bring in the whole coercion versus liberty issue. Then work from there on up.
I also have another manuscript which is a very long-term thing — that being a history of the United States. In that I have written up to the Constitution. It will be a history of the United States from a libertarian point of view. It is very difficult to write that, because the thing is we don't know what has happened — a lot of the facts have been buried. Orthodox histories don't give many facts; a lot of facts are just left out.
NEW BANNER: Is it intended to be a textbook?
ROTHBARD: No, not really. It's just a libertarian history of the United States. It could be used as a textbook, I hope. You know, Man, Economy and State was originally supposed to be a textbook and wound up as a giant treatise. I think this might be the same thing,
NEW BANNER: Dr. Rothbard, on behalf of our readers and our staff, I would like to thank you for this most informative interview.
ROTHBARD: You are quite welcome.
Image source: Mises Rothbard Archives.
This article is a transcript of the interview on Mises Weekends.
Jeff Deist: This week we’re joined by Mises Institute Senior Fellow Dr. David Gordon, the man who Rothbard claimed knows everything about everything. Our topic is the life and times of the late Dr. Murray Rothbard. David Gordon was both his friend and associate and if you are a Rothbard fan, you’ll really enjoy this week’s show. We discuss Rothbard’s life from an insider’s perspective, touching on his experience founding the Cato Institute, his relationship with Mises and the areas where they disagreed, his time with Ayn Rand and her objectivist followers and much, much more. Stay tuned.
Ladies and gentlemen, welcome once again to Mises Weekends. I’m Jeff Deist and I’m very pleased to be joined this weekend by none other than our own David Gordon who is visiting us from Los Angeles, so he’s in the studio here. I’m face-to-face with him and David, thank you very much, it’s great to see you.
David Gordon: Great to see you too, Jeff. Thanks for inviting me.
JD: David, last weekend we spent some time with Guido Hülsmann, going inside the mind of Ludwig von Mises. This week, we’d like to talk to you in a similar vein about Murray Rothbard. So tell us first and foremost about your relationship with Murray.
DG: I met Murray in 1979. I’d actually read Man, Economy and State when it came out in ’62 when I was in junior high and I didn’t get to meet any of the major libertarians till ’79. I met him in ’79 when I attended a conference at the Cato Institute in Eugene, Oregon in June and he and I hit it off right away and I met also his great friends, Ronald Hamowy and Ralph Raico and right after that conference, thanks to Murray’s influence, I was offered a job at the Cato Institute and I was there briefly. As you probably knew, Murray split with the Cato Institute and I went with him, but I always got along very well with Murray.
What impressed me the most about him was he had an endlessly curious mind. He was always absorbing new information and he would keep up with the latest books and of course, he’s best known for his libertarianism and his work as an economist. He kept up with all sorts of subjects. He knew philosophy, history, trends in art and music, anything you wanted to talk to him about, he would have new ideas and know all the new books on it and he would be very fast in the way he talked and want you to have to keep up with him and sometimes hard to do it. I’d always be on the phone with him, sometimes several times a week and I knew him for 17 years.
JD: So, did you ever spend any time in his New York apartment and did you know Joey Rothbard as well?
DG: Oh yes, well I knew Joey very well. She was very protective of Murray. They had met when they were both at Columbia. She was very, very smart, very well read. She knew American history very well.
JD: And of course, she was protective of him and then he ultimately found himself in hot water with the Ayn Rand circle over the fact that Joey was not rational enough for them in the sense that she was religious.
DG: Oh yes, yes. I remember she told me that one of the things they wanted her to do, they didn’t want him to divorce her right away because she was religious, but they wanted her to listen to their stuff and they thought if she did, then she would convert to their views. Nathaniel Branden apparently had done a series of tapes on the existence of God and proofs of God and they wanted her to listen to them and she didn’t do it. She said something like, why do I need to listen to these tapes? She was a quite devout Presbyterian. She kept up with that all of her life. There was a minister, I think Dr. Reed in the church in New York she thought very highly of.
JD: David, of course, Murray Rothbard was known for being just enormously well read and able to carry on conversations about an incredibly wide variety of topics. In a sense, I guess this is the definition of a polymath.
DG: Oh yes very much. Although I got my PhD in history, most of my academic work has been in philosophy and I found he was very good at philosophical arguments. His mind worked extremely fast and sometimes when he was writing, he wouldn’t put in all of the steps. He would expect things that were obvious to him might not be obvious to all the readers and I think he’d expect readers to be able to fill in all of the blanks and sometimes they couldn’t do it, but he, if you asked him about something, he could explain all the steps, but it’s just so obvious to him that I think he didn’t always put everything in. So you’ll find sometimes people criticize him. They’ll say, oh well he said this and this doesn’t follow, but in his mind it did. You just have to get the derivation and he assumed that readers would be able to do that.
JD: Well David, another aspect of Murray’s genius was just that he was so incredibly prolific. Can you talk a little bit about his tremendous output, both academic and otherwise?
DG: Oh yes, it really is quite amazing. I mean, Man, Economy and the State, which is his major work on economics, if you include the Power and Market, which he intended to have in the book, it’s well over 1,000 pages. That was something he was finishing in his late 20s, early 30s and he did a four-volume history of colonial and revolutionary America Conceived in Liberty, he has published it after he died, there’s a massive two-volume work on History of Economic Thought. He has thousands of articles and while this was going on, most academics are just occupied with their scholarly work and he was very involved in libertarian politics and he was constantly writing and commenting on all the different events that was happening.
One thing also, he kept up with politics really in a very unusual way and in this way, he would be able to tell you say, in elections, he could take any one, all the different Congressional races in the country and could tell you who was running and what the different issues were. If there was a conflict, say, in the Middle East, like today we have the conflict going on with the Israelis against Hamas, he would be able to tell you what every subgroup of the different sides was and what all their positions were and what each one had said and give you the history of all of them. So anything you asked him about politics, he would give you detailed account and you’d have interpretations of everything. These accounts would be based on his own reading in sources, he’d know all the different sources and he could tell you books about it and what he thought of it.
JD: David, do you think if Murray had had a more comfortable academic position, a tenure at some prestigious school somewhere, that his output and his drive would have been reduced?
DG: Well, it’s possible although I think with him: Mises has in Human Action a discussion on the creative genius of someone who is driven to work no matter what and I think this was probably true of Murray. I think whatever his position was, he would never have gotten comfortable. I mean, when he got his job at Las Vegas, I think he was doing better financially than he had at Brooklyn Polytechnic and he really didn’t have to keep writing. He had really nothing to prove, but he really kept on and people didn’t even know he was working on this multi-volume history of economics and there were some of his critics who would say, well Rothbard was a scholar at one time, but then he gave up scholarship and he just decided he wanted to do libertarian political work and that they were very surprised when his history of economics came out because anyone else would have had to work full time on it for years and probably then wouldn’t have been able to finish it, but he was able to do it and it’s amazing how he had the time to do it, but he did because if you read the book, he gives not just accounts of the major figures in economics, but he’ll give accounts of all the minor people who were writing and he’s read all of their works and had detailed comments on them and the secondary literature on them, so it was a tremendous achievement. That’s actually my favorite of Murray’s books, the History of Economic Thought.
JD: So Murray Rothbard completes his magnum opus, Man, Economy and State at a fairly young age and this book is praised by Mises himself. Tell us a little bit about Murray’s relationship with Mises.
DG: Murray always respected Mises a great deal when he started attending Mises’ seminar at NYU in 1949. He always looked up to Mises and they would go after the lectures, the students would I think go to a café and keep talking. Now, Mises, although he was from what all accounts a very warm, friendly person, he was in typical style European. He wasn’t one who really palled around with the students very much. So I think Murray and Joey would sometimes visit him and Mises’ wife, Margit, but I wouldn’t say they were enormously close friends. You could certainly say they were friends, but they didn’t really socialize enormously. One thing Murray said about Mises was that he had a very dry sense of humor.
I remember Margit von Mises came to a conference and a dinner for Murray on his 60th birthday at the Mises Institute, which was in 1986. I was lucky enough to be there and Margit von Mises was there and she spoke and she said how much she and her husband admired Murray.
JD: Of course, Mises was a very different kind of person than Murray. He was obviously an old world European gentleman. Murray was sort of a brash Brooklynite, very much a product of the 20th Century and I know Mises was a little uncomfortable with some of Murray’s positions on let’s say, anarchism.
DG: Oh yes, I think that’s right. When Mises did an extremely favorable review, a glowing review of Man, Economy and State, he said there are few things on legal questions where he thought Murray’s views were more questionable and could be challenged and I think Mises tended to associate anarchism with the left, this is what he was familiar with and the idea of the individualist anarchism, pro capitalist anarchism really wasn’t one he was familiar with. I’d like to think if he’d had more time to study it, he would have gone over to that view, but as it happens, he didn’t, and in fact, in Human Action, he’s very critical of Franz Oppenheimer, who is one of the heroes to the anarchists, one Murray liked a lot. But Mises was very critical of him and I think one thing that you touch on in your question that I think is very important is, Murray Rothbard was in foreign policy very consistent non-interventionist. He thought the US shouldn’t have gotten involved in World War II or the Cold War.
For him communism is more of an internal problem, it’s that socialism is a bad system, so the way to combat communism and socialism is just to establish a free market, but Mises tended to be much more sympathetic to an anti-communist foreign policy. Mises was not an opponent of entry into World War II. I don’t know that he specifically commented on American entry, but he would not I suspect, have been sympathetic to the American isolationist, so he was one who I think on foreign policy grounds, would have been opposed to Rothbard on the Cold War. In fact, I think in Planned Chaos, Mises suggested that there’s something about the Soviet state, the socialist character of the state would cause them to expand necessarily and in fact, he went so far in the second edition of Human Action, he defends conscription which went against his own work. He had some very good arguments in Nationalökonomie which is the 1940 German version of Human Action. He endorsed conscription, so I think there would be quite a bit of divergence there between them, but so far as I know, they didn’t go into that. They never argued about it or went into it. I think that would have been certainly an area that they differed.
JD: David, after Murray Rothbard completes Man, Economy and State, his major economics treatise, he goes on to write some truly fundamental books about libertarianism, including of course, The Ethics of Liberty. Talk about how Murray really created the foundation of the modern libertarian movement.
DG: Oh yes, that’s a very good point. I think if you do it through Austrian economics, Austrian economics is value free, but Mises was a utilitarian. I’d say roughly, he was arguing, we should have the free market because this is for the best, in fact, the only way to promote peace and prosperity, so we should have free market because it’s really the only system that works. But the approach through rights is saying it’s certainly relevant that something works, it’s promoting peace and prosperity, but that really isn’t the basis of ethics. It’s that people have certain rights, which is the right to own, the right to acquire property and you get an independent argument for libertarianism on that basis. Murray in philosophy was mainly interested and influenced by the Aristotelian and Thomist tradition. “Thomist” describes followers of St. Thomas Aquinas and afterwards. “Neo-scholastic philosophy” it’s sometimes called. He studied that quite a bit and this is another area where Mises differed with Rothbard. Mises had a very low opinion of the neo-scholastics. There’s a footnote in Human Action where he refers to a book by Louis Rougier and is very critical of the neo-scholastics. Mises was also critical of natural law philosophy. He thought that wasn’t really very sound, so that’s another area where they were rather different.
JD: David, you’ve identified some areas where Murray Rothbard felt Mises was wrong in his approach or his theory. Given the benefit of hindsight today, are there some areas where modern Austrians or modern libertarians might look at Murray’s work and say Rothbard was wrong about X, Y or Z?
DG: Well basically, I think Murray was on the right lines entirely. If I had to say anything, sometimes I think when he was refuting a position he differed with, when he was defending a position, his — what he would do would be, he would amass as many arguments as possible and sometimes I think in a few cases, there are problems in some of the arguments. As I mentioned before, he thought enormously fast and I think sometimes in philosophy, you have to go a little slower and then sometimes some steps that he would just say, oh, well, this is completely obvious, sometimes there are objections one could raise, so it would have been nice if he could respond to that. He would have if he’d been asked, but he just didn’t. I remember there was one — you see, one thing about Murray was very, very open in conversation, but if he was convinced of a certain position, especially if it involved politics, this wouldn’t be true just in any general intellectual issues, like you could certainly say I don’t agree with what you’re saying about German baroque art, of course I wouldn’t know enough to differ with him, but I mean, somebody could certainly say that. But if somebody differed with some political point, you had to be very careful how you put it. Like I would usually say, “well if someone were to object to give this objection, how would you respond?” I wouldn’t say, “I think this is a good objection.” You had to be rather careful about this because Murray would get very enthusiastic about a particular way of looking at things and that would be it.
JD: Were you at all intimidated by him intellectually? I mean, he was this little guy, but he was such a force.
DG: Oh yes. I mean, I would very much hesitate to differ with Murray. If I differed with him, the odds were very much in favor of his being right, but I mean sometimes we might just go over things and I’ll say, here’s a point. One issue, this is one I think that was one where Murray was right and I was wrong, is I tended to be much more favorable than he was to Robert Nozick as a philosopher. I thought maybe there was a way of taking Nozick’s position so that he really wasn’t that different from anarchism and Murray thought no, no, this is wrong and I think Murray was right. But what happened, in the differering philosophies, there is a complication in that Murray and Nozick really didn’t like each other much. It was much more Nozick didn’t like Murray than the other way around, but that was something you always had to bear in mind when you were talking to Murray about Nozick, that he didn’t like Nozick very much. They apparently had their different issues — I think one of the issues was a very obscure one that Nozick thought you can have measurement of someone’s internal subjective states, like you could talk about degrees of pain or degrees, making this purely objective measurement. In fact, Nozick had a paper where he defends measuring interpersonal utility. Of course, Rothbard said no, you couldn’t do that. That was one issue and then they differed very much on the Middle East. Nozick was very pro-Israel and Rothbard was very much the other way and then they had some differences on particular candidates in the Libertarian Party. They tended to support different people. Murray was very involved in Libertarian Party politics and I didn’t keep up with that at all, but he would have particular people that he’d support. He would be very upset with people who supported a different group from the one that he wanted.
JD: David, even some of Murray Rothbard’s close friends and associates, like Ron Hamowy, for instance, have remarked about his intransigence. Do you think if he had been a little less intransigent, a little smoother around the edges, let’s say, would he have been a more effective libertarian?
DG: Well, I don’t know that I’d agree with that, really. The thing about him was, it was just among the libertarians that he insisted on what he considered to be the correct position. Say, if someone wasn’t a libertarian, he would be very, very tolerant about whatever they said. For example, one of his best friends who was also a great friend of Joey Rothbard as a couple: Leonard Lieb and his wife. Leonard Lieb was a historian who wrote mainly about the Netherlands and Leonard Lieb was very much a conventional leftist, but they got along perfectly well. But the thing was, if you were a libertarian, then Murray expected you to have the right position and again, it would be alright if you didn’t have the right position as long as you didn’t insist on arguing with him and I think to some extent, it’s true that he was very intransigent.
He would insist on what he believed was right, but I think the thing that’s sometimes overlooked is that the people who opposed him tended to be very insistent on what they thought and they kept arguing with him and wanted to insist on what they thought. It was only if they kept after him that he would eventually lose his temper. I remember there was one case where George Smith and Wendy McElroy, who were very prominent libertarians in the L.A. circles, were interested in nonviolent resistance to the state and they became very interested in thought of Mahatma Gandhi and wrote on him and Rothbard had some very negative comments on Gandhi. He gone through his career and he had a lot of negative comments on him. One thing about Gandhi — I forget whether Murray included this in his what he wrote about him — was during World War I, Gandhi, giving recruiting speeches in India for the British Army, which you wouldn’t expect, but that was true, so after he wrote this, then Wendy McElroy wrote a reply defending Gandhi and then Murray was perfectly alright with that. But then George Smith wrote another very much sharper criticism of Rothbard, then Rothbard got very upset and I think that broke up their friendship, at least for awhile. So you had to provoke Murray to get him upset with you, but I think, to answer your question more directly, I think if he had been smoother around the edges, it wouldn’t really be Murray. That was his personality. He was very much like the hero or the main character in Ibsen’s play Brand who said the devil is compromise. That was really essential to Murray to state the truth as he saw it.
JD: David, I’d like to touch upon Rothbard’s atheism. He was born into I guess a secular Jewish family in Brooklyn in the early part of the 20th century. Talk about how is atheism shaped his worldview and his career.
DG: Well, I think he was an atheist, not out of hostility to religion. It was more that he didn’t find the arguments for the existence of God very convincing. Now toward the end of his life, I think he just said something like “if there is a God, it would be a being that we really can’t know anything about or would be completely different to anything we would understand.” So I think with him, it’s more of an intellectual matter. He just didn’t find the arguments convincing. For him, it wouldn’t be kind of an emotional thing. But I don’t think that — say, like the Randians would say, if you’re not an atheist, you’re really irrational. He would not take that view. He was very tolerant, whatever people thought. That was just his understanding. One of his great friends was the Jesuit libertarian Father James Sadowsky and certainly Sadowsky, being a Jesuit, it never affected their friendship and I think that the existence of God or atheism wasn’t really a central issue for Rothbard.
JD: But he was able to construct his entire defense and theory of natural rights without reference to a theist deity.
DG: Yes, that’s right. He didn’t — in doing that, though, that’s in the natural law tradition. I mean, you can remember Aquinas was a great authority on natural law, thought natural law is what can be established purely by reason, so it’s consistent with being a theist to support natural law in Rothbard’s way of doing it.
JD: David, as we wrap this interview up, any last thoughts on Murray Rothbard’s enduring legacy now that he’s been gone 20 years?
DG: I always viewed Murray as a second father. He really meant a lot to me and I think he’s had similar effects on a lot of people. At the Mises Institute, we try to promote Rothbard’s legacy and I think he’s really the one who is, by far, the most important person in libertarianism. I often wish when issues come up today, I wish I could call Murray and find out his views on things so he would always have a tremendously analytical and informed judgment on everything, so I think he’s the one you really have to study if you want to understand libertarianism.
JD: David Gordon, thanks very much for your time today. It was great having you in the studio. Ladies and gentlemen, hope you enjoyed the interview. Have a great weekend. We’ll see you next week.
Image source: Mises Archive
[Editor’s Note: This is a transcript from Jeff Deist’s interview with Tom Woods on June 3, 2014.]
WOODS: I want to talk about the time you spent as Ron Paul’s chief of staff. I can’t imagine that could be dull. So first of all, what was that like, and how would you compare it to what the likely experience of other politicians’ chiefs of staff would be?
DEIST: It was amazing, and in part simply because over time Ron had risen up to become such a national figure that the political class in D.C. had to start to begin to give him grudging respect. Because if there’s one thing that they respect, it’s fundraising ability. So as much as they might disagree with Ron, these poor congressmen were all plagued in their home districts by people coming up to them and going, oh, I’m a huge Ron Paul fan, or can you get me Ron Paul’s autograph? Or can you vote more like Ron Paul? They all hate it. And one of my favorite, favorite parts of the job was, again, in D.C. there’s this ludicrous hierarchy of absolute, absolutely unaccomplished nobodies sort of strutting, feeling their oats, and so there is this unspoken rule among chiefs of staff or members of Congress that when they want something, they reach out to the other member’s chief of staff. In other words, you can’t just talk to the receptionist or something. Absolutely pathetic. So I would sometimes get these calls or emails from other chiefs of staff shyly saying, hey, I’ve got some Ron Paul books. Can you get them signed for me? Or stuff that their constituents had requested.
WOODS: Funny.
DEIST: Yeah, it was funny, and the other thing I always loved was when these — oftentimes members of Congress themselves or their lowlife political operatives would come to me as a channel seeking Ron’s endorsement for their candidate. I would always ask very innocently or innocuously, “I am just curious: did he or she endorse Ron against Romney and the others?” Of course, I knew the answer was an abject, resounding, no. But yeah, so we stuck it to them, but Tom, what people need to understand is if you go back to the ’70s, when Ron first decided to run for Congress and got in there, and then late in the ’80s ended up running for the Libertarian Party presidential nomination, he was flying around on horrible Southwest flights, and he was talking to 30 or 40 people in some back room at a Denny’s restaurant somewhere, and there was no way to coordinate all this via email and websites and Twitter and social media. He was in the wilderness. He was all alone.
Okay, so now you fast forward 30 years, and he goes to Berkeley. He goes to Utah. Wherever he goes, he’s treated like a rock star. People have to understand that there were years and years in the wilderness, and the degree to which he was treated shabbily by folks in Washington and by the two parties. He is finally getting, in my view, what he deserves, which is admiration and adulation, because he carried the banner of liberty for so many years and was just mocked and derided and belittled for it. So young people today, especially the millennials, college kids, they see him as a star, but what they don’t see is all the years that he had to work and be away from his family and be away from his wife and be away from his medical practice and give up income he could have made as a physician. So God bless him. I certainly love the guy, but I am a little biased, to put it mildly.
WOODS: To me that’s what made him a star, were all those years, those thankless years, pouring in all that energy, doing everything he could and not caring, frankly, if people listened or not. That’s not his concern. He has no control over that. What he does have control of is how hard he fights, and he fought, and fought, and fought. And I tend to think, and maybe I am being unfair here, Jeff, but I tend to think that some of his more, I don't know, pygmy detractors — if they were in a similar situation, where year after year they got no recognition — when all these people in the libertarian world who attack him, thrive on attention — could you imagine them year after year getting no attention? Could you imagine them sticking to their guns and not compromising? To the contrary, they would all be rationalizing in their minds why it’s okay to co-sponsor Santorum’s bill in the Senate if they were working for senators or whatever. They would all have some reason that being part of the machine was probably the best thing for liberty. They would have all rationalized their absorption into the machine years earlier. And he didn’t. I can’t even be absolutely confident that in that situation I would have held out. Maybe I would have had some way of having mental reservations that it’s okay to be part of the machine just this once, and he resolutely refused to do it year after year.
Now let me talk about what life was like in his office. Now, he’s got—the people I know, or three of the people I know and really respect from his office — were Paul-Martin Foss doing monetary policy. Talk about — I don’t want to say that he was superfluous, but that’s the only congressional office I could think of that the candidate could probably have gotten away without one, because he knew the stuff. But Paul-Martin did fantastic research. Then you’ve got Daniel McAdams — civil liberties, defense policy, etc. And then Norm Singleton — just overall legislation. What a dream team he had. What was it like working in there?
DEIST: Yeah, well, Norm really deserves a lot of credit. He’s been in this and been behind Ron for decades, and Norman is really one of those unsung heroes of Washington, a stalwart, stand-up guy, and also beloved, really, in his own way. But it was so interesting working there because during the time when Ron chaired the domestic monetary policy subcommittee, I thought some of those hearings that he had were epic.
WOODS: Oh, absolutely!
DEIST: He had this ability to have these incredible guests as witnesses, and then, of course, a couple of chances every year to speak directly to Greenspan, previously, but then Bernanke. A lot of that stuff, thanks to YouTube, will go down in history. If nothing else, he was sort of laying down historical markers as we went along, and you got to think back. We had serious calamities from a monetary policy perspective and from a financial perspective during Ron’s tenure. We had the tech stock collapse in the early 2000s. We had the Enron accounting scandal issue. We had the housing collapse. We had a disastrous war in Iraq and all the deficit spending it entailed. So these were all bad things, and I think it’s very important — people discount this — how important it was that Ron was there making the case for posterity, to say, look, these are the grave errors, the grave sins of our time, because if we just sort of keep repeating the mealy-mouthed stuff about monetary policy that both the demand-side Keynesians believe and the supply-siders — the Chicago monetarists — believe, then it’s awfully hard for future generations to do it better and to understand what went wrong. Certainly, there’s a whole generation of young people out there who not only were introduced to, let’s say, Rothbard because of Ron, but were also introduced to monetary policy generally because of Ron. And you’ve got to remember, monetary policy was considered this boring, wonkish, backburner issue that wasn’t really political and that egghead economists would sort of — even amongst economists it was considered sort of a dull niche. So for Ron to bring monetary policy to the floor and to put it in the news and put it in the lexicon of average folks who read End the Fed, or whatever, that is an enormous service to America, in my view.
WOODS: Jeff, I have thought the same thing about those hearings — that libertarians, for instance, in the future will look back on those hearings almost with disbelief: I can’t believe there was a congressman who invited Jim Grant and Joe Salerno, for example, to come in and talk about this stuff! Or who invited Jeff Herbener. Professor Herbener comes in and gives a sys tematic, step-by-step overview of why it is that government should be out of the money business entirely, and it should be left to the market. Talk about pearls before swine. But fantastic! Astonishing to me that this occurred.
What about day-to-day life in the office? What kinds of stories do you recall that you find most endearing and most characteristic of Ron when you look back?
DEIST: Well, just the fact that he was so accessible. We had thousands upon thousands of just drop-by visitors. People would be walking down the hall — and I hate to say this, but people actually spend their time, their vacation time and their hard-earned money, and they bring their kids to Washington. But people would just be walking down the hall, and they would say, “Oh, Ron Paul!” And they would just come in, and of course, Ron would be in his office, we’d let them in, and half the time Carol would be in there working on a cross-stitch piece or something, and he was just as natural, and as friendly, and as Texas as you can get, and Ron is such a sweet and genuine person. I also remember being privileged to meet so many incredible people just by virtue of working for Ron. I got to meet people like Peter Schiff and Jim Grant, and Pat Buchanan, you name it — just the people who would come into our office over the years, and just the hilarious, anecdotal stuff. A female member of the Financial Services Committee — which used to be called the Banking Committee, when we actually used language in this country accurately — this woman on the Financial Services Committee came up to Ron after a hearing one time. I won’t name her name. She said, “I don’t understand. Do you mean that we don’t have a gold standard?”
WOODS: (laughs) I remember. I heard this!
DEIST: And people have this delusion that members of Congress sit on a particular committee because they have some expertise in the underlying subject matter for that committee, and it is preposterously not true. You sit on a committee because a committee is better or worse, and you’ve raised more or less money for the party, and becoming the chair of a committee, that basically means you’ve given at least $500,000 to the National Republican Congressional Committee, and you do that by having a gerrymandered district where you’re very safe, and so you never have to spend any of your campaign cash on your own election. And so you continue raising lots of money, but you just give it all to the National Committee, so it’s this sort of catch — it’s the opposite of a catch-22. In other words, you have lots of money as a member of Congress, so you give it to the committee. The committee gives you a chairmanship, so then you have lots of power, so since you have lots of power, special interests give you more money because you can affect legislation. So it’s this incredible spiral that occurs. Of course, Ron was completely outside of all that. It was so fun because we just —
WOODS: What special interest is going to give him money sitting on the subcommittee he sat on when he’s saying the opposite of what the whole special interest connected to that subcommittee would want him to say?
DEIST: Nah, they never bothered us, and what was so great was that all the other members of Congress had to go across the street like little schoolboys, dutifully go to the NRCC, the National Republican Congressional Committee, which is right across the street, and they would have to get lectured. There’s sort of a whiteboard in there, almost like used car salesmen tallying up their sales. There’s a whiteboard in there, and everyone can see who’s behind on their dues and their fundraising, and so they go over there and they get lectured and scolded about how they need to raise more money. They have phones over there, because you’re not allowed to make fundraising calls from the halls of Congress, and they’d get on the phone and make their calls. Ron never had to do this. So yeah, we never had to sweat a vote because we always knew how Ron was going to vote, and in other offices, of course, staffers worry about their bosses ever voting differently from leadership because they are concerned about their jobs and their upward mobility.
WOODS: Jeff, Ron seems stoic and unflappable in the face of, well, unpleasant events. Even when it looks as if everything is lost and the country is in the toilet, he just fights on and he doesn't seem to give in to despair. But he is a human being, after all. Was there ever a time that you can recall in the office when he just seemed dejected and frustrated?
DEIST: Well, he’s got such a friendly, outgoing disposition. I think it served him well as an OB/GYN in terms of bedside manner. I certainly saw him get physically tired, to where just the flights and the campaigning and everything, and I certainly saw him get frustrated by the demands on his schedule, because what he really loves is taking his boat out on the San Bernard River out to the Gulf of Mexico, and what he really loves is sort of fussing with his tomatoes in his garden or riding his bicycle. So I certainly saw the drain on his energy, and I saw the impact on his life and his free time that he could have been spending with his family, but he never wavered. He believes that this is worthwhile, and he also believes, I think, just because his Austrian outlook makes it such that because the current system cannot continue that it will not continue, and as a result, I think, he just has an underlying optimism. It’s kind of a mixture of country doctor but also his Protestant Pittsburgh roots, where his dad was a dairy farmer, and young Ron ran around helping to deliver the bottles from the wagon as a young boy. And I think there was just something in him from the get-go that was just an innate, reflexive, cheerful libertarian. That’s the best explanation I can give you.
WOODS: Well, one last thing about Ron. I always wondered about this. I never got to see him on a daily basis, so I wouldn’t know, but it’s a double-edged sword in a sense, the popularity that he enjoyed. Now, the one edge of the sword is more significant than the other, but the other edge is that now you’re going to get attacked a heck of a lot more than you used to be when you were more obscure. And some of the attacks that he had to endure were really, really horrifyingly evil. Did that ever seem to wear on him?
DEIST: Well, it made him sad, but they were horrifyingly evil, and I think in large part it’s because he’d threatened certain interests, especially foreign policy interests, which is, of course, related to defense contracting itself. And apart from the financial interest, there’s a huge segment of the American population that is psychologically wedded to the notion that American foreign policy is benign and that the American military is an unquestionable force for good and that all the wars we’ve ever fought have been moral and good. And there’s just something about that that hits people in the gut in a way that makes them react viciously and makes them react emotionally. So yeah, Ron is not the kind of guy who ever threw sharp elbows, but he certainly was on the receiving end of a lot of them.
WOODS: Jeff, let’s talk about the Mises Institute. What do you see as the role of the Mises Institute?
DEIST: Well, it’s really the same role as Ron’s campaign for president. First and foremost we’re educational, but beyond that, I want people to see the Institute as their intellectual home. Let’s face it, some of the underpinnings and the foundations of Austrian economics, and libertarianism more generally, are not easy reads. They are not sound bites. They are not things that necessarily just lend themselves to quick digestion via social media. Sometime you have to really roll up your sleeves and dig in and read through a difficult book or to really understand and to be a good debater and a good arguer and a good advocate for liberty. So certain people are not—you’re not going to necessarily visit our website or view our scholars the same way you’re going to consume social media for instance. I want us to be more of an incubator, more of a touchstone—just like Stanford and MIT incubate entrepreneurs in the tech world, I want to incubate, especially young people, but not only. Lots of people come to Mises at a much later age. I want to be a place where people go for their really foundational work of the Austrian School and of libertarianism, and then they go out and apply that in their lives in any kind of way, whether that’s their personal life, whether that’s their business life, whether that’s their public life. So I want us to always be the North Star, always be here, always be the place where people can hang their hat and say, hey, at the end of the day that’s my intellectual home, and Mises is where I go to find out the truth, the unvarnished, unbridled truth, but also to access a whole panoply of libertarian scholarship, and mostly for free. Basically, you can spend a lifetime reading free PDFs and e-books on our website.
WOODS: Absolutely! I have said that to people. If you want to be a recluse, here’s something that you can spend your time doing for an awfully long time. What do you see in the Institute’s future? What are your plans?
DEIST: Well, we’re constantly looking for new ways to bring the message to people. I categorically reject the idea that technology changes everything. No, it doesn’t. There’s no new economics. There’s no third way. No matter what technology does, there’s the essential choice between laissez-faire and statism. In other words, we can organize a society and deal with each other via political means or via economic means. So that’s never going to change. That’s why I am a little suspicious of people who say, now, because of technology, we’re going to be free. The technological advances of the last thirty years are staggering, and they make it possible for us to communicate, especially across borders, instantaneously, and that’s a tremendous good, and that’s a tremendously beneficial thing to the libertarian movement. But you’d be crazy to say we’re freer than we were thirty years ago in terms of the growth of states. That’s preposterously untrue. We’re less free than we were thirty years ago. We’re far less free than we were 100 years ago.
So we can’t view technology as a panacea. We have to use technology to spread the message of Austrianism in ways we never could before. So that’s really the future. The future is treating the Austrian movement as a global movement rather than necessarily a Western or American-centric movement. I think the appetite for what we’re doing in the Middle East and Asia is huge, and I think we’re going to see that in the next 10 years. I think we’re going to start to have Mises Circle events in places like Dubai, in places like Singapore, and I think as the fiat disaster of central banks unravels around the world, we’re going to see more and more interest in real money. I think that, more than anything else, more than methodology, I think the issue of money as a commodity, the Austrian perspective on money and central banking is what sets us apart from all the neoclassical schools. It sets us apart more than any other aspect of Austrian economics. And I think that is where, we’re going to see over the next ten, twenty years, that the Austrian school prevails. And that doesn’t necessarily make me happy. I certainly don’t want anyone out there suffering financially because of it. But we know that the fiat models of the ECB and the US Fed can’t continue. And I think that’s really where the Austrian School and the Mises Institute are going to make huge strides, because we’re going to finally see the endgame for the US dollar, the endgame for the euro, and something new is going to rise in its stead. Is it going to be gold and silver or a private cryptocurrency, or is it going to be some monstrous invention of the IMF or the World Bank? So that’s coming, and it’s coming sooner than we think.
WOODS: Jeff, I tell every audience that will listen that the Mises Institute played an absolutely fundamental role in my own intellectual development. It played a tremendously important role in my own life, and there wouldn’t have been a Meltdown, well, there probably would have been a meltdown, I am talking about my book. There wouldn’t have been a book called Meltdown
in 2009, giving an Austrian overview of the financial crisis, if I hadn’t had the training I got from the Mises Institute. There’s just no question about that. My life would have taken a completely different path if it hadn’t been for the Mises Institute. What you guys are doing really does change people’s lives, and it really does affect the national conversation, so to speak, for the better. And when you are a lone truth-teller you are going to be besieged from all sides — from your obvious enemies, yes, but from people who aren’t quite as sound as you are. If there’s one thing people like that can’t stand, it’s somebody who holds aloft the pure banner as you guys do, and you guys, just like Ron Paul, you let those slings and arrows go right past you, and you just carry on with your work. It’s very, very important what you’re doing, and I am very grateful for your time today. Best of luck, and I look forward to seeing you this summer.
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This article is also available as an Audio Mises Daily
A selection from the Spring 2014 issue of The Quarterly Journal of Austrian Economics.
Jean-Baptiste Say: Revolutionary, Entrepreneur, Economist. By Evert Schoorl, New York: Routledge. 210 pages.
The present volume is a full-length biography of Jean-Baptiste Say, and presents a detailed account of the life and intellectual development of the founder of the French Liberal School. The author studies three important periods in Say’s life — his youth, his activity as an entrepreneur, and the later period of recognition of his work — which are coincident with the French Revolution, the Industrial Revolution, and the professionalization of economics respectively. Consequently, true to its subtitle, the book describes Jean-Baptiste Say in all three facets of his life and career — those of revolutionary, entrepreneur and economist.Although Schoorl’s volume has been introduced to its readers as the first biography of Jean-Baptiste Say, Institut Charles Coquelin has published in 2005 an equally vast account on Say’s life and work. Charles Minart’s book, Jean-Baptiste Say (1767–1832): Maître et pédagogue de l’Ecole française d’économie politique libérale was, however, written in French and thus far has been only available to a limited audience. Nonetheless, it is a first and fully-developed endeavor to outline the life and political economy of Jean-Baptiste Say through extensive excerpts of his works and private correspondence, and to highlight the French economist’s continued relevance for the history of economic thought.
A man of letters, Say’s first job was that of secretary at an insurance company. His employer, Ettiene Clavière, introduced him to the writings of Adam Smith and to the fight against slavery. At the tender age of twenty-seven, Say became co-editor of La Décade, a journal that wanted its readers to participate “in a unity of culture and in a continued cosmopolitanism.” Schoorl rightly sees La Décade as “an enlightenment organ” that had a significant impact on Say’s future writings, which were centered on “freedom, universalism and progress.”
The darkest period of Say’s life is covered in chapters 4 to 7. After the publication of the first edition of his Traité d’économie politique, Say was pressured by Bonaparte to “rewrite certain free-market parts in a more interventionist vein.” Say recalls in a letter: “Bonaparte commanded me to attend him and offered me 40 thousand francs a year to write in favour of his opinion. I refused, and was caught up in the purge of 1804.” Father of four children, the thirty-five year-old Say had to “go to the Conservatoire in order to learn [cotton] spinning,” and later invested his capital in a factory in Auchy. But for the next fifteen years, his finances experienced a tremendous decline. In 1814, he hit rock bottom, and desperately tried to find a secure source of income. Say wrote to his friends in the Talleyrand government, begging for a job at the head “of the Post or at the head of public works or customs,” adding that “even if as a good disciple of the Economistes, I hardly like customs; but well, we are not yet ready for laissez faire and laissez passer.” The French government eventually offered him a commission in Britain, to spy on their industrial development and report on the mechanization of farms, on cotton spinning mills, sugar refineries, and steamboats. This English journey generated a small supplement to his finances, and occasioned his first encounters with Ricardo and Mill.
However puzzling and inconsistent Say’s attitude and decisions during this time of his life, his biographer is kind enough to not judge him too harshly. Say does not appear to have abandoned his laissez-faire position though. In a letter to Jefferson dated also 1814, Say writes: “I will admit that I am thinking seriously of settling [in America] ... feeling the need to breathe the air of a free country, and with nothing but hope that France may be well governed.”
Say’s reputation — as well as his finances — experienced an upturn and steady growth for the last twelve years of his life. The Traité was published in six editions during his lifetime and was translated in Germany, Great Britain, Italy, and the United States. And while denied a place in the Academie, Say was offered the chair of political economy at Collège de France. The last decade of his life saw a continually rising popularity in France, but most especially on the international front. It was marred, however, by health problems and a pestering, suspicious government. John Stuart Mill recalled Say as “a fine specimen of the best kind of French Republican ... a truly upright, brave and enlightened man,” an opinion probably shared by most of Say’s peers and students.
This book focuses mainly on Say’s life, but it is nevertheless laced with interesting pieces of information pertaining to Say’s intellectual achievements. Chapters 10 and 11 focus on Say’s economics, mapping both the controversies that Say was involved in during his life and the ongoing controversies about his writings and ideas, 180 years after his death. The author nicely draws out several differences between the earlier and later versions of Say’s Traité — differences Say himself often noted in his correspondence — that show the French liberal evolving as a theoretical economist. The myth of Say as a simple popularizer of Smith is refuted also by Schoorl, this time with evidence that Say himself was aware of the detrimental effect of such opinions of his writings: “Those who have accused me of only having made Smith’s principles more clear, have given me praise by this comment ... but they have not rendered me justice.”
Additionally, we find that the French economist, planning to continue his father’s dream of establishing a boarding school, was also well aware of the importance of economic education for the prosperity of a nation. Say noted in his first major work, Olbie, that “[w]hoever writes an elementary treatise on political economy, capable of being ... understood by all public bureaucrats ... by countrymen and by artisans, would be the savior of the country.” His opinions on this matter were later shared by two of his intellectual successors: Ludwig von Mises and Murray Rothbard.
While debunking several myths about the life and works of this best-known French economist, Schoorl himself falls into some traps. For example, he repeatedly refers to Say’s method as positivist, disregarding all evidence to the contrary presented by such writers as Murray Rothbard and Joseph Salerno. Schoorl also fails to mention two traditions in economics that were inspired by Say’s works: the French Liberal School — which dominated economic thought in France in the nineteenth century — and the Austrian School — which considers Say one of its most important forerunners.
Though unwittingly, Schoorl does offer significant information relevant to current research on the French Liberal School. For instance, modern scholars will be interested to see how the disagreement between Say and Ricardo on the “value riddle” meant in fact that “Ricardo’s theory of value was part of a paradigm altogether alien to Say.” At the time, the liberal school lost the battle against “the objectivist Ricardian” school; but hopefully the renewed interest in Say’s work will soon reveal that the “subjectivist Saysians” formed a sound tradition of economic thought, unduly forgotten for too long.
Finally, it is worth pointing out that despite the tremendous amount of useful information that will surely serve as basis for future research, the present volume falls short of being a successful biography. The chapters, albeit ordered chronologically, follow one another abruptly and Say’s life story is fragmented. The volume reads much more like a collection of essays than a complete biographical account of Say. In fact, Jean-Baptiste appears to be a stranger to his biographer, although Schoorl devotes much of his scholarly work to the French economist’s writings. Unfortunately, Say remains a stranger to the readers as well. Perhaps the intention was to let the evidence speak for itself; but the result is a rather formal and apathetic narrative, which fails to engage its readers in the manner in which good biographies should.
Jean-Baptiste Say’s revolutionary and unyielding spirit has left its mark on his own life and on the history of economic thought. It is important that his contributions be brought back to the attention of modern scholars, as the debate with past and present Ricardian partisans will prove to be a fruitful one. Hopefully then, this first biography of Say in English will not be the only one.
Image source: iStockphoto
Volume 4, No. 1 (Spring 2001)Though little known among the economics establishment during his lifetime, Ludwig M. Lachmann was always widely connected. The range of scholars whom he knew and with whom he communicated was truly impressive. Since his death in 1990, he has become better known, particularly among heterodox economic scholars representing a wide variety of viewpoints. His appeal to such a heterogeneous group is undoubtedly to be found in his insights regarding the nature and importance of knowledge. This is reflected in this interesting book of essays honoring his memory. The book is edited by two scholars who, while differing in their approaches to economic doctrine and policy, share an appreciation of Lachmann’s scholarship, and an appreciation of his intellectual honesty, his methodological subjectivism,and his interest in endogenous change.
Jeff Deist and Marc Abela discuss the Bank of Japan's failed twenty-five year program of monetary stimulus, the resulting creation of insolvent zombie banks, and the impossibility of "Abenomics". You'll enjoy hearing about Toshio Murata—a Japanese student of Mises in the 1950s—who painstakingly translated 'Human Action' into Japanese, who is still alive today. And, you might be surprised by Marc's revelations about the Japanese mindset, culture, and disturbingly high suicide rate.
Volume 9, No. 3 (Fall 2006)This issue of the Quarterly Journal of Austrian Economics features the debut of a section on “Remembering,” which recognizes the life, career, and achievements of little-known or forgotten individuals who have made direct or indirect contributions to the advancement of Austrian economics in their capacities as writers, teachers, mentors, translators, or editors. The first to be so recognized is the Irish economist, George Alexander Duncan, the first professor of political economy at Trinity College Dublin, a lifelong member of the Mont Pelerin Society and a devoted follower of the Austrian School of economics during the heyday of Keynesianism. Future issues will feature, among others, essays on Ludwig Mai, an expatriate German economist who for many years was an influential college professor in the United States and Patrick James Stirling, the nineteenth-century British translator of Frédéric Bastiat’s works.
Volume 11, No. 2 (2008)
Caldwell sets out to answer the question: what can neoclassical economists of the late twentieth/early twenty-first century, learn from Hayek's writings? His reply constitutes an intellectual tour de force of the neoclassical approach. If neoclassical economists read only one book on Hayek, this would have to be it. Caldwell is not just sympathetic and open, his objective is nothing less than to demonstrate to neoclassical economists, clearly and trenchantly, just how much they have to gain from certain of Hayek's writings. He succeeds remarkably.
Volume 12, No. 2 (2009)
Kaza reviews Alan Greenspan's book The Age of Turbulence: Adventures in a New World. Kaza asks "Which social acquaintance will defend Greenspan against the charge the seeds of the greatest credit crisis since the Great Depression were sown on his watch?"
Volume 13, Number 3 (Fall 2010)
A symposium was held in San Antonio, Texas at the Southern Economic Association convention in November of 2009. This issue consists largely of papers based on the lectures given at the symposium. During the symposium, the subject was the current economic crisis.
Volume 13, Number 3 (Fall 2010)
Larry was a committed Austrian economist and passionate defender of the liberal economic order. At the time of his passing, he was a leading advocate of free banking and critic of central banking. A prolific and engaging writer, he authored many scholarly and popular articles on a wide variety of topics, ranging from the economics and institutions of monetary freedom to the role of privateering in national defense. While he contributed to the advancement of economic theory and political economy, as a vocational economist he saw his primary mission as educating his students and the public at large in the principles of a purely contractual society.
Volume 16, Number 3 (Fall 2013) Bellikoth Ragunath Shenoy was an Indian economist and teacher who produced many essays on Indian economic policy. Scholars of economic thought have neglected the importance of his work. In this essay I develop an analysis of the theoretical basis that suffuses his policy commentary. Throughout many articles and lectures, Shenoy’s analysis is derived from a strong foundation of methodological individualism, the Austrian theory of capital and business cycles, and the role of prices in the market process.
Jeff Deist and David Gordon discuss Murray N. Rothbard's life from an insider's perspective, touching on Rothbard's experience founding the Cato Institute, his relationship with Mises and the areas where they disagreed, his time with Ayn Rand and her Objectivist followers, and more.
Volume 14, No. 4 (Winter 2011)
The 2007–2008 financial crisis, accompanying recession, and continuing slow recovery have reinvigorated crude Keynesianism as the foundation of a "somebody in charge" policy to combat recession and high unemployment. Wapshott "The federal government's urgent response to the financial crisis of 2007–2008, initiated by George W. Bush and continued by Barack Obama, was thoroughly Keynesian, with both administrations intervening in the marketplace to head off the economy's collapse." In his view, "America faced an existential crisis, and as in the 1930s, a failure to act was considered so foolhardy it was barely contemplated." Readers familiar with Rothbard will be aware that it was this urge to action, the State's animal spirits that turned a "garden variety recession" into the Great Depression.
Volume 14, No. 2 (Summer 2011)
Ludwig H. Mai was an amalgam of intellectual influences. Most certainly he was partly an Austrian "fellow traveler" — one who had deep respect for Carl Menger and Eugen von Böhm-Bawerk as well as his professor and anti-statist Franz Oppenheimer (who was also an indirect influence on Murray Rothbard). That Mai “added on” ideas learned from such individuals as Wilhelm Röpke, and former Chancellor of West Germany Ludwig Erhard, did not detract from a basic "Austro-German" orientation in his thought. Dr. Mai was my mentor and he took his job seriously. I love and practice economics to this day thanks to the launch I received from him.
Volume 15, No. 4 (Winter 2012)
Mises: The Last Knight of Liberalism is much more than a biography of the twentieth century’s great Austrian economist. It is a monumental work which traces Ludwig von Mises’s life and the evolution of his economic thought and places them in the proper historical and cultural context. The book confirms many previously well-known ideas about this eminent author, while it also provides the reader with new, and often surprising, information and data. The erudition in this biography is both fresh and impressive, since the book not only offers a much better understanding of Mises, but also must be considered, on its own merits, to be one of the most significant interpretative contributions on the Austrian School to date.
(Winter 1999 Supplement)An Interview with Roberta ModugnoProfessor Modugno teaches political philosophy and political economy at the Center for the Methodology of the Social Sciences at LUISS (Libera Universita Internazioale degli Studi Sociali) in Rome. She is the author of Murray N. Rothbard e il libertarismo amerciano (Rubbettino Editore, Soveria Mannelli, 1998). She was interviewed at the 1998 Austrian Scholars Conference in Auburn, Alabama.
AEN: Does the publication of your book mark the rise of Rothbardian scholarship in Italy?
MODUGNO: I would like to think so, but far more important than my book is the publication of Rothbard's books. The publisher Liberilibri has brought out both The Ethics of Liberty and For a New Liberty, and translations are being prepared of other books as well. Those volumes nicely complement the growing library of classical liberal and Austrian economics books being published by Rubbettino Editore. These include volumes by Ludwig von Mises and Israel Kirzner. Menger and Hayek are also in print.
So the addition of Rothbard to this literature is a natural step. After all, Rothbard develops the logic of market thinking and the ethics of private property to its fullest extent. The purpose of my book is to introduce his thought, explain his worldview and rationale, and argue that Rothbardian-ism represents an important strand in classical liberal thought because it extends the work of Menger and Mises.
None of these existing advances would be happening without the hard work and dedication of Italian scholars like Dario Antiseri, Massimo Baldini, Antonia Martino, Lorenzo Infantino, and Raimondo Cubbedu. They are on the cutting edge of Austrian scholarship in Italy, and working to gain interest in these ideas within the academic community and popular opinion.
AEN: What interested you in Rothbard's extensions of Austrian theory into an overarching theory of liberty?
MODUGNO: His consistency and rigor. Rothbard's theories were being developed in the 1960s, when American politics began to witness the permanence of the welfare state together with increased public spending on military and space programs. He saw that the two sides of modern statism, which were conventionally kept in separate conceptual categories, were really working together against liberty and property rights. Lyndon Johnson called this machinery the Great Society, but Rothbard labeled it the welfare-warfare state, and he saw it as a formidable enemy. Of course, Rothbard was a formidable foe.
The United States pulled out of Vietnam in the first half of the seventies, but looking back, what did it produce? Ten years of national emergency, 55,000 deaths, 300,000 injured, and $110 billion on government spending. And that doesn't count two million Vietnamese deaths. The sheer cost in lives and liberty is shocking, yet economists have been shy about seeing war as a worthy subject of investigation. Rothbard merged Austrian theory with a libertarian theory of the state to produce a theoretical apparatus for understanding the welfare-warfare state, and a program for reversing its course.
As he explained, in the warfare state, we see the fulfillment of Keynesian doctrine: huge amounts of public spending directed by government planners designed to spur economic growth. Kennedy's phrase "ask not what your country can do for you, ask what you can do for your country" was really just a poetic justification for the Keynesianized welfare--warfare state. It suggests that people should not demand to be left alone to manage their own affairs; rather, people should be willing to sacrifice their liberty, property, and even lives for the sake of the state's domestic and international interests.
AEN: Do you believe that this backdrop helped shape Rothbardian political economy?
MODUGNO: Carl Menger wrote during the rise of the administrative state. Mises and Hayek dealt with the experiment in full-blown socialism and the growing power of central banks. Rothbard wrote during the rise of the permanent redistributive and expansionist state, justified in the name of democratic politics. All these trends figure into any evaluation of these scholars' contributions.
In Power and Market, Rothbard uses the first chapter to examine the role of protection agencies as an alternative to warfare. That is, he dealt with how a free market would deal with the problem of defending person and property from violent attacks of all sorts. He correctly says that this is the first analysis of the economics of government to argue that no provision of goods or services requires the existence of the state. Further, he says that this was an issue that had to be left in the dark in his prior writings, including Man, Economy, and State.
Rothbard's theories may have developed earlier. But it was against the backdrop of the Kennedy and Johnson administrations, and the vast losses of the Vietnam war, that they first came into public view. It was this extension of the Austro-libertarian mode of analysis that attracted so many young scholars into a growing intellectual and activist movement that opposed state power in all its forms.
AEN: Yet you think Rothbard's theories have relevance for Italy.
MODUGNO: Perhaps they are even more important for Italians than for Americans. Americans appear to be more jealous of their liberty and more suspicious of government. Americans appear more likely than Italians to resist state encroachments. Political forces in the United States tend toward cutting government, but in Italy, the government is huge and its bureaucracy is imperial, and this has led to terrible human suffering and stagnant economic conditions.
The largest expense of the Italian government is Social Security. Workers pay 32 percent of their salary, which is more than twice what the U.S. worker pays. The problem is that the Italian program seeks to provide 100 percent financial security, which is absurd. My hope is that by drawing attention to Rothbard's comprehensive attack on the state, people will begin to see that they cannot look at the problems of Social Security in isolation. The problems of this program must be seen within a broader context of statism in general.
AEN: What about Rothbard's positive program, a society built purely on private property, that is sometimes called anarcho-capitalism?
MODUGNO: Randall Holcombe wrote an insightful essay which argues that from a practical point of view, it doesn't matter whether a person is willing to travel all the way down that road with Rothbard. You can still learn from him. Everyone realizes that marginal changes have to be made to seek the optimal state of affairs. Also, Rothbard was not just an idealist. He had a very practical program to scale back the state anywhere and everywhere it could be done. So, it is Rothbard's imagination and persuasive power that provides the truly valuable service; he helps us conceive of a purely free society without a state, and by doing so provides an intellectual foundation for the entire movement toward less government.
Rothbard hoped for the immediate abolition of all government intervention, but he also understood that the establishment of liberty will probably, in the end, be a gradual process. Llewellyn Rockwell is right: Rothbard was no utopian. He wanted government limited in any way possible, and worked to make it so. His proposal for a stateless society is a tool that helps us reshape the way we conceive of subjects like liberty and power, property and state. Rothbardian political economy draws the attention of people to the right issues.
This is why I'm not too interested in this old debate of whether there should be a limited state or no state. Right now, we are dealing, for all practical purposes, with an unlimited state. What we need more than anything else is a rigorous theory that brings together the best of Austrian School scholarship with the classical libertarian tradition, and we find that in Rothbard's understanding of the viability of a purely free society.
AEN: Are there other traditions of anti-statist thought alive in Italy?
MODUGNO: For many years, Robert Nozick had been considered the standard bearer of antistatism, and he is very well-known in scholarly circles. Scholars have long set Nozick's idea of the limited state against Rawls's theory of justice and the redistributive state. But we must keep in mind that it was Rothbard who introduced Nozick to the ideas of liberty in the first place. In reality, then, it is better to set Rothbard's theory of justice, based on private property, against Rawls's theory of "fairness" in order to understand the crucial debate. This helps us understand that every appeal to enact policies in the name of "fairness" is also a proposal to violate property rights, which Rothbard saw as the first principle of human rights.
AEN: How much resistance is there to capitalism within Italian academia?
MODUGNO: It is very intense, even after all the evidence of socialism's failure. But younger scholars are increasingly attracted to the Austrian theory. The best of them realize, with Mises, that free markets are the best way to achieve the common good, and, with Hayek, that only markets fulfill the principle of solidarity. With Rothbard, we begin to understand that there can be no human rights without firm attachment to property rights.
AEN: What is your current project?
MODUGNO: In Italian scholarly circles, as well as in the popular press, it is extremely important that traditions of thought, especially radical ones, be considered compatible with religious thought, particularly the social teaching of Catholicism, ancient and modern. I would like to do a thorough investigation of Rothbard's demonstration that the scholasticism of the late middle ages is the foundation for the modern revival of Austrian social science. This is a thesis that could bear fruit in Italy, not because everyone goes to church but because faith is a tradition of thought woven very deeply into Italian culture. To show that the Austrian School represents a fulfillment of scholastic political economy is to show that Italians have a long tradition of respect for free markets that has been artificially suppressed.
Volume 18, Number 4 (Winter 1998)An Interview with Bettina Bien GreavesBettina Bien Greaves attended Ludwig von Mises's New York University seminar, compiled Mises: An Annotated Bibliography, the major parts of which are now available on Mises.org here, and also edited several collections of articles. She is a senior Mises Scholar of the Ludwig von Mises Institute and was interviewed in her office at the Foundation for Economic Education.
AEN: How did the most recent Mises book, Interventionism: An Economic Analysis, come to be written and published?
GREAVES: This is a fascinating case. Mises came to the United States in 1940, and this must have been written soon after, but nothing ever came of it. This was a very sad and difficult period in his life. He had no money and no job. His books and papers, except for those he had taken to Switzerland, had been confiscated by the Nazis. He had few contacts in America. I marvel that he was able to be so productive.
I'm very pleased this book is out at last. It is a valuable contribution, and stands with Socialism (1922) and Liberalism (1927) as an important part of the comparative-systems literature.
In those first few months after arriving in the United States, Mises also wrote Notes and Recollections, a very moving book. I have to give Mrs. Mises the credit for Mises's productivity during this period. She shielded him from the world so he could get his writing done.
AEN: Your bibliography is also an invaluable contribution to Misesian scholarship.
GREAVES: It certainly was many years in the making. It began in the late 1950s, when I began attending Mises's New York University seminar. Then, one summer when the Miseses were going to Europe, his wife Margit gave me a key to their apartment so that I could catalog his books. I did that over the summer. Among the books and pamphlets were Mises's own writings. Also over the years when I was in Mises's seminar, he would hand me a copy of anything he wrote. I began accumulating things over time.
That eventually became the bibliography I presented to him on his eightieth birthday (1961). But as soon as it went to print, I was dissatisfied with it because I had found some omissions. I kept thinking I would get back to it, but it took the constant urging of my friend Robert McGee to force me to pick the project up again. He came over every week to help, and we worked faithfully for months. We both thought that a list of books would be rather dull. So we decided to annotate it. Well, this vastly expanded the project.
McGee became so busy in his work that he had to pull out, and I finished it up over the following year. It includes not only Mises's published works in all languages, but crucial passages from contemporary reviews of Mises's works, including reviews in German, French, and Spanish. I had help with the Italian, and the Czech I left only in titles, but the rest I did myself.
AEN: And you did the translations yourself?
GREAVES: Ill never forget Mises saying in his seminar, again and again, that languages are important. I took that to heart. It was still difficult for me and I did it very slowly. I had some French and German in school, and I studied Spanish after I got out of school in 1938, in anticipation of spending some time in Latin America. By the time the war came, I was working three jobs in Washington, D.C., two of which were secretarial. I wanted to do something more exciting and more lucrative. I went to the U.S. employment office to see what they had.
They asked me: would you like to work for the government? I said no. Then facetiously I said, "For one thing I dont like long corridors." They assured me there would be no long corridors in South America. Thirty days later I was in South America, working with a special commission investigating labor trouble at a Bolivian mine. For propaganda purposes, the commission included a member representing organized labor. Every morning, he would go around pulling clean towels down from racks to insure that the maids at the hotel would have work to do. The New Deal ethic of "make work" trickled all the way down to that level.
After completing its report, the special commission left Bolivia and I was transferred to the Board of Economic Warfare. For the war effort, the Board of Economic Warfare was buying tin, tungsten, and cinchona, for the treatment of malaria. I learned some Spanish in my two years in Bolivia, then returned to Washington. There I was assigned temporarily to the Board of Economic Warfare's Mexican Division, whose task was to approve licenses for trading with Mexico. There were four men and three girls in the office and practically no work. I spent my time doing my fingernails, cutting paper dolls, and making clothes for my young niece. But I did type up the office's request to Congress for the next year's funding to include six men and six girls. That taught me something about bureaucracy. Later I was transferred to Europe.
AEN: Did you make it to Austria?
GREAVES: Yes. After V-E Day, I was one of eight girls flown over the Alps to Austria. Working in Vienna gave me a chance to relearn German. But I had never heard of Austrian economics. I had one economics course at Wheaton College (Norton, Mass.), from which I concluded that the best kind of government would be an enlightened dictatorship. The only problem was that we could not be sure that later dictators would be equally enlightened. When the Board of Economic Warfare was disbanded, I switched to the War Department for a few months before returning home. When I left the War Department, I swore I would never work for the government again. And I did not.
I worked in bookkeeping after the war, and one day I applied for a position as an editorial assistant. I wrote that I was fed up with government red tape. Well, at the other end of that letter was Percy Greaves, who would later become my husband. He ran the Foundation for Freedom in Washington, D.C., but that organization did not do well. In 1951, I came to the Foundation for Economic Education (FEE), where I met Ludwig von Mises, who was a part-time member of the staff.
A magazine called The Freeman, before FEE took it over, sponsored a Mises seminar. I attended that summer and took verbatim notes. Then that fall I started attending Mises's New York University seminar, where I also took notes. I didn't stop taking notes on his seminar until it finally closed in 1969. I also took some private German lessons, conducted entirely in German.
AEN: And you put your knowledge of German to work for Mises?
GREAVES: He was generally suspicious of translations. He doubted whether many translators could be familiar enough with the two languages on which they worked to produce something truly faithful to the original. Also, he often pointed out that customs, practices, and concepts associated with one language may have no counterpart in another. Even so, he sanctioned some translations. I was particularly careful with the translation of three monetary essays published as On the Manipulation of Money and Credit, edited by Percy. The two of us often spent hours, with dictionaries and thesaurus at hand, discussing the most suitable words to use. It took a lot of time, but I hope the result would have pleased Mises.
AEN: Was Human Action out by the time you met Mises?
GREAVES: Yes, and I read it in 1951. I remember standing on a street corner reading it, waiting to be picked up for Mises's seminar. I was captivated by it. Of course I didn't have an economics background, but in some ways that worked to my advantage. Mises's book went against the grain of what was being taught in economics classes and business schools. To understand his approach required first unlearning what was being taught elsewhere at the time. I didn't have much to unlearn, so, in some ways, picking up Austrian economics was easier for me than even for Percy, who had been in business school.
The laissez-faire politics of the book was no problem for me. I was raised by a father who was a strict constitutionalist. He believed in free trade and wasnt fond of government. He was opposed to the New Deal, though my grandmother was a New Dealer. He just agreed not to talk with her about it. My impression is that the Austrian explanation for the depression is more widely accepted today than in the past. Frederick Lewis Allens book Since Yesterday accepts that the cause and the problem of the depression rested with the credit system. And Paul Johnsons History of the American People adopts the Austrian explanation too.
AEN: In the early 1950s, did you imagine that Mises would be your lifetime project?
GREAVES: Oh, heavens no. I sort of got stuck with it. Percy was the real Misesian, and he kept pushing me to read and study and work with this project. You know, I'veheard it said that Percy worshiped Mises blindly, but that was not true. He was drawn to Mises because he realized that Mises had the answers and that others did not. I came to understand that too.
Not that Mises was surrounded by acolytes. There were three types of people who came to his New York University seminar. First, students who wanted an easy credit. Second, more serious people like Murray Rothbard, Israel Kirzner, and Hans Sennholz, who were economists of the Austrian tradition. Then there were people like me, George Koether, Mary Sennholz, and many others. We came and just got hooked. Frequently, a person would hear one lecture and get hooked. I dont put myself in that category at all. I supported the free market, but it took me a while to fully appreciate Mises.
AEN: Mises's appeal, then, is both scholarly and popular.
GREAVES: Certainly, and I think this is one reason he has had such an impact. A good example of his popular style can be seen in Economic Policy: Thoughts for Today and Tomorrow. In 1959, he was to deliver some lectures in Argentina. He came with a clear message. Government should protect and defend the lives and property of the persons under its jurisdiction, settle disputes that arise, and otherwise leave people free to pursue their various goals and ends in life.
This idea was radical then and it still is today. Governments still presume to regulate and control economic life. They manipulate prices, fix wages, subsidize business, hamper imports or exports, manage the money supply, care for the sick and elderly, bail out the profligate, and on and on. But these efforts are contrary to freedom and contrary to capitalism, and they produce undesirable consequences for society in the long run. They impede the ability of people to cooperate in their own material betterment.
In these lectures, he expressed this idea with great clarity and force. He always said it was as important to convince businessmen and average people of the case for the market economy as it was to convince scholars and intellectuals. What determines whether or not we have a free economy is the ideas people hold about economics. Mises did everything he could to popularize the message.
AEN: Was there a difference between the private Mises and the public Mises?
GREAVES: In public and private, he was always a very quiet and unassuming person, but also he was positive and determined. As many people have said, he wouldnt compromise. When he lectured, he did not have the style that is popularly associated with genius: wild eyed, arms waving, demagogic. That was not Mises at all. He was conventional and traditional in his appearance. His manners were perfect. He didn't talk about what he was doing or thinking. But in a seminar setting, he could be extremely quick witted. He was once asked about the proposal for making "paper gold," i.e., Special Drawing Rights, the international currency. He responded that the proponents of "paper gold" should consult the alchemists.
AEN: Many people have said he was a man of the Old World.
GREAVES: Remember that his full name was "Ludwig Edler von Mises." "Edler von" indicates the particular rank of nobility he had under the old Austro-Hungarian Empire. Before 1919, his books and writings were signed "Ludwig von Mises." After World War I, all Austrian titles of nobility were abolished by law. As a result, his writings in the interwar period were signed "Ludwig Mises." After he left Vienna, he added the "von" back in. In America, he dropped the "von" in his private life, but continued to use it in his writings, so that bibliographers would know he was the same man.
It was a smart choice, because he was so prolific. In Vienna, when Mises had a full-time job with the Chamber of Commerce, writing reports and articles on all sorts of economic topics, he was also teaching one evening a week and holding his famous private seminar one evening a week. Hayek says that in 1922, he was dumbfounded to see this huge book called Socialism come out. He didn't know Mises was even writing it and didn't know when he would have had time.
AEN: Fritz Machlup seems to have worked hard to get Mises a position in those early years.
GREAVES: They were very good friends. Machlup was a businessman, he also came to Mises's private seminar in Vienna and received his PhD at the University of Vienna. When Mises was thinking of migrating to the United States, he couldn't get permission without first having a job offer. It was Machlup, and I think Gottfried Haberler, who made arrangements with the provost of a university in California. Mises accepted. It was only after Mises arrived in New York that he was told that there was no job; it was only a ruse to get him to the United States.
Henry Hazlitt, who was working for the New York Times, also tried to get Mises an academic position. He held a dinner party with some people from the New School for Social Research. But they found him far too extreme to hire. When he finally got an invitation to speak in Mexico, and the visas were arranged, it was a tremendous boost to his morale. Later, he was able to get a visiting professor position with New York University, and a foundation called the Volcker Fund paid NYU for the costs of his seminar.
One point on Machlup. He was taken in, at least to some extent, by Keynesian economics. Many years later, Machlup made a speech at a Mont Pelerin Society meeting on money and credit. Mises stood up and left the room. He told Margit, "Machlup knows better than that." Later, Margit got Mises and Machlup back together again.
AEN: It's been said that relations between Leonard Read and Mises were sometimes tense.
GREAVES: FEE was Reads foundation, and he wanted to be the big I Am. And he was. Mises had his bailiwick, in which he felt he deserved recognition as the authority. Read realized that and respected it. Read invited Mises to lecture at FEE regularly, but they kept their jurisdictions separate, as they should have. Read didn't understand Mises, but he knew he was an important person.
Read was also jealous of Percy for the same reason. Percy sometimes went on the road for seminars with Read. After a talk, the audience was split into three groups, and each speaker would take a third of the audience and field questions. Read couldn't field the questions sparked by Percy's talks. He didn't want to talk about money. He would shift the discussion to whether or not the seminar should include a talk on money. I think the problem was in the discussion group format.
AEN: What role did Hazlitt play as Mises's editor?
GREAVES: Mises got a grant to have an office at the National Bureau for Economic Research, and thats where he wrote both Bureaucracy and Omnipotent Government. Hazlitt helped considerably with them, editing and getting them published by Yale University Press. Then Hazlitt encouraged Yale to ask Mises to redo in English his German-language National?konomie. When Human Action was in manuscript form he went over it and marked it up, trying to smooth out the English. Later when reading over the published edition, Hazlitt occasionally came across some awkwardly phrased passages. Whether Mises rejected Hazlitts suggestions, I just dont know. In general, Mises's English was very good, but it was formal, not colloquial English.
Thirteen years later, Mises wanted to make some changes in the sections on monopoly and on government, partly in response to discussions he had with Murray Rothbard. Yale said they would do this by pasting in the new material with the old manuscript. Mises said he wanted to see proofs before printing, but Yale said not to worry.
When the new edition came out, Mises was sick about it. His lifetime work had been mangled. They omitted one page, printed one page twice, and did the same thing with a couple of paragraphs. They had dark type and light type, short pages and long pages. It was a lousy print job that Yale should have been ashamed of. Mises wanted to sue, but his lawyer said they had no chance of winning a case against Yale in Connecticut. At first Yale didn't want to relinquish reprint permission, but finally in 1966, the entire manuscript was reset and published by Henry Regnery. That was the version that was sold for many years. Two years ago, FEE was pleased to issue a newer edition with some corrected typos and a new and expanded index.
AEN: Mises was often thought to be behind the times.
GREAVES: And now we know that he was way ahead of his times. He was celebrating the wonderful inventiveness and productive power of markets while everyone else was talking about the wonders of central planning and socialism. Today, markets are becoming the driving force of history and governments are shrinking in their ambitions.
AEN: What do you think about claims that the business cycle has been abolished?
GREAVES: I'veheard this many times in the past. And I often get asked about parallels between the 1920s and today. Today, just as in the 1920s, people think the prosperity will last forever. Thats what they also thought in Thailand, Indonesia, and South Korea only two years ago. Theres no question that todays soft credit expansion has distorted production patterns, but in what way and to what extent we cannot know for sure.
Of course there's been continual credit expansion since the creation of the Fed, with only a few interludes. Every step away from the gold standard has freed up the central bank to expand the money supply through the credit system, until we arrive at where we are today: no limits on what the Fed can do. The effects of inflation have been forestalled because the dollar is the reserve currency of the world, hoarded overseas and held by individuals and every central bank. It's hard to say where the present boom will lead, but I noted something Mises said in one of his lectures that I was transcribing the other day. He said that the capitalist system is so productive and adaptive that it conceals the ill-effects of credit expansion for a very long time. But there is a limit.
AEN: What do you suppose will be the response by the Fed in the next recession?
GREAVES: It's hard to say, but the history of bank failure doesnt suggest that banking authorities will do the right thing. Every time there were bank failures in the nineteenth century, people would blame the lack of centralization. That's how we eventually got a Federal Reserve. It was attempting to provide the banking industry with more liquidity so that it could ride out bank crises.
Now, we have internationalized bank failures and even whole governments that are propped up by the IMF, working with the Fed and the Treasury. In each case, the dollar is serving as the foundation for these escalating bailouts of foreign governments and banking systems. That would imply that the next crises might lead to a push for a world central bank, which would only extend the present problem.
Keynesians want to restrict the ability of nations to exercise sovereignty over their own central banking policies; they want all countries to inflate at the same rate. That's difficult to do when countries are trying to run their own affairs, and especially when every country seems to think that the way to keep prosperity going forever is to keep expanding the money supply.
In the last series of Mises's lectures that I typed, he was speaking about the continual easing of money. He pointed out that when the quantity of money and credit is being increased, monetary authorities must decide who will get the new money first. Those who do are content; those who dont are resentful. In any event, every such case of selective expansion must lead to economic distortion. We have seen the total collapse of some Asiatic economies when things got out of kilter. The monetary authorities dont seem to have a clue as to how to manage the situation.
AEN: Percy had a strong interest in the question of Pearl Harbor, and then you picked up his project.
GREAVES: I'm working on finishing his manuscript. Percy served as chief of the minority staff on the Congressional committee that investigated Pearl Harbor. The book is called The Seeds and Fruits of Infamy, and it will probably be about 1,000 pages. I think it will be an important contribution. We have documentation that Roosevelt was not willing to wait for United States territory to be attacked. He intended on December 8 to have the United States enter the war to defend "our national interests" in Southeast Asia when British and Thai territories were attacked in that region by the Japanese. Thus the attack on Pearl Harbor became the excuse, but it was not the reason for our entering the war.
The first substantial postwar book on Pearl Harbor appeared in 1947, by George Morgenstern. There have been many since. Most historians agree that Roosevelt wanted the United States to get into the war, but it is not well-known that he had that intention even before the December 7 attack on Pearl Harbor. Our book covers all the eight or nine investigations that sought to determine why we were surprised by the Japanese attack and who was responsible for the extent of the damage. My job is to update his work, considering all the modern scholarship on the subject, and provide as many details about the case and the investigations as possible, so the reader can make up his own mind.
The administration's investigations were rigged, and ended up holding the Hawaiian commanders, Admiral Husband Kimmel and General Walter Short, responsible. The truth started to come out in 1944, when news leaked that the United States had broken the Japanese diplomatic code long before the attack and had been intercepting Japanese messages. But the revelations derived from the prewar intercepts were not delivered to the Hawaiian commanders. Roosevelt died in April 1945, before V-E Day. Only in August 1945, after V-J Day, were the reports from the Army and Navy released--by the new president, Harry Truman. These reports pretty much absolved Kimmel and Short of blame and placed the responsibility on the administration. That's when Congress got involved. Our book reviews all the investigations and considers all the evidence about the cover-ups. As you can see, government cover-ups and plots against the truth are nothing new.
AEN: Will this book affect how we think of Roosevelt?
GREAVES: I don't say this in the book, but I think it demonstrates that Roosevelt was cagey, sneaky, and scheming. That comes through in how he was trying to maneuver us into war. Clare Booth Luce said it in the 1944 campaign: he lied us into the war. I have a chapter in which I discuss what Roosevelt knew and when he knew it. He is not on record anywhere on the subject. There are many notes that say so and so met in the White House and discussed such and such with Roosevelt. But he didn't put things in writing. Incidentally, Admiral Kimmel's son read the first volume of this book, before he died not long ago, and said that was the best treatment of prewar events in Washington that he had seen.
AEN: Do you think we could have avoided the war?
GREAVES: Charles Lindbergh thought so. He said it wasnt our war and we should stay out. I tend to agree. I dont know what would have happened to England in the short run. And I dont know what would have become of Russia in the absence of our assistance.
But as Mises says in Interventionism, Hitler's programs would not have worked over the long run. He was trying to run a planned economy, and it would have failed just as surely as other socialist programs have failed. But today, people think Roosevelt saved the world, not only militarily but also economically, through inflation.
Incidentally, I highly recommend R.J. Rummel's book Death by Government. It is absolutely unbelievable what governments have done to people, ofttimes their own people. There are important lessons here to be learned!
It's true that the attitude of people toward government has shifted. Many find government corrupt and expensive and doubt its effectiveness. At the same time, people still do not trust free markets and open competition. The ideas of Marx and Keynes linger on in the popular mind and still haunt legislation.
AEN: And to explain the workings of economic liberty is a driving force behind your work.
GREAVES: Yes it is. I loved working on Mises's bibliography. At times I found it fascinating; at other times I wondered who would ever be interested in all the minutia I was digging up. I enjoy talking about him and discussing his career. But as interesting as the details of his life are, his ideas and economic theories are more important. Promoting them will be the most fitting tribute possible to Mises.
(Summer 1998)An Interview With Randall G. Holcombe
Randall G. Holcombe is DeVoe Moore professor of economics at Florida State University and an adjunct scholar of the Ludwig von Mises Institute in Auburn, Alabama. He is author of eight book including Public Finance and the Political Process (1983), An Economic Analysis of Democracy (1985), Economic Models and Methodology (1989), and Public Policy and the Quality of Life (1995), along with many articles in academic journals, including the Review of Austrian Economics and the Quarterly Journal of Austrian Economics. He is also editor of Fifteen Great Austrian Economists (Auburn, Ala: Mises Institute, 1998). He was interviewed at the 4th Austrians Scholars conference, April 3-4, 1998.
AEN: What gave rise to your book on the quality of life?
HOLCOMBE: After the collapse of the Soviet Union and the fall of the East Bloc, it is widely recognized that markets do a better job of producing goods and services than central planning. The facts speak for themselves and have brought some degree of closure to the debate originally kicked off by Mises shortly after the Soviet Union was created.
At the same time, there is this idea that there are other aspects to our lives that aren't about producing goods and services. Instead, they are about the quality of life itself, and the market is not that good at protecting that. Sure, people say, let the market handle production, but we still need a central plan to preserve and enhance our quality of life.
The Mises-Hayek argument against socialism turns out to be highly relevant to these debates. They weren't just arguing against socialism; they were arguing for the necessity of market prices as signals that make economic coordination possible.
My book revisits the Austrian case against government planning, and then looks at a number of these quality of life issues to show how market mechanisms are better than government planning in enhancing our quality of life.
It's appalling to me that people are constantly finding problems for the government to solve, even though the evidence shows that government isn't much good at anything it does. Government control may sound good in the abstract. But what it really means is: whoever has the most political power decides what's done.
AEN: In the course of your argument, you come to the defense of so-called urban sprawl. What does this phrase mean?
HOLCOMBE: There's no good definition of "urban sprawl," but that doesn't keep government from legislating against it. There is a section of Florida's growth management legislation that says our land-use plans are supposed to prevent the proliferation of urban sprawl. When people use the phrase, they mean low-density development that spreads out from downtown. Other people think of unsightly strip shopping centers.
I use the definition provided by Florida's Department of Community Affairs, the agency that tells local communities how they can and cannot develop. The DCA says one indicator of urban sprawl is leap-frog development, where development is not contiguous with other development. Another indicator is strip or ribbon development, which run along corridors or highways. A final example is low-density, single-use development, where there are miles upon miles of houses with no businesses.
But when you look at these development patterns, they actually can be the components of efficient development. Let's say you have a housing subdivision that leapfrogs undeveloped land. The developers are seeking out lower land costs and people who purchase homes there are seeking more space for the dollar.
Since nobody wants to build a shopping center on the outskirts of town, leapfrogging creates an economic opportunity for commercial development. It will already be surrounded by residential areas on either side. This is a good way to develop land.
In the same way, nobody wants a house on a major thoroughfare. But if you have strip or ribbon development, and there is undeveloped land in between these developed strips, there's a good place for residential areas. You can live on a quiet street and yet have convenient access to major shopping.
Finally, low-density, single-use development is typically brought about by zoning laws that prevent multiple-use development. The same people who push for zoning regulations then turn around and complain about the results their policies bring about. If we just leave the market alone, the result is an enhancement of the quality of life.
AEN: What are the consequences of anti-sprawl legislation?
HOLCOMBE: As with all central planning, you end up with a miniature version of what Mises called "planned chaos." It creates less efficient land use patterns than you would get if you just let property owners decide how to use property on their own.
It also generates a big transfer of wealth from some property owners to others. If you have property in what is sometimes called an urban-service area, you can develop your property. But if you own land outside that area, the value of your property is pushed down.
If undeveloped land is declared undevelopable, the present value is reduced. Sometimes this can have huge consequences. If you are a farmer and are trying to borrow money against the value of your property, your borrowing ability may be restricted, even if you did not plan to develop your land.
Typically this wealth transfer runs from the poor to the rich. People who live in apartments are poorer relative to people who live in owner-occupied houses. Development restrictions push up the prices of both. That raises the wealth of homeowners, but hurts renters. You can see why some interest groups might favor land restrictions. But they still create inefficient land-use patterns and coercively transfer wealth.
AEN: You also talk about the law of nuisance.
HOLCOMBE: A nuisance is something you do that annoys your neighbors. Prohibiting this has a long history in common law as a good way to control externalities. For example, the law of nuisance is what prevents somebody from putting a cement factory next to your family's home. What's happened in the case of land-use specifically, is that zoning laws have replaced the law of nuisance.
It used to be that cement companies would not open up next door for fear of creating a nuisance and being shut down. Now the managers can go to the zoning board and appeal for the land to be zoned industrial. Then they have a defense no matter how much of a nuisance they cause.
There's an interesting case in Florida. Runoff from sugar farms was polluting the Everglades. A former governor of Florida sued the farmers claiming that the runoff is a nuisance. The sugar farmers shot back that there are government regulations that control their operations, including their runoff flow. They claimed that because they are in compliance, they are not subject to the law of nuisance. When the suit was brought, the court agreed, and threw out the suit. That is now being reconsidered.
AEN: You also write about restrictive covenants.
HOLCOMBE: A restrictive covenant is a contract among owners which allows them to guarantee that property will be used in a certain way. When I bought my house, along with it came a long list of regulations drawn up by the homeowners association. They aren't government regulations; they are private and designed to keep property values high. These covenants are increasingly common and very efficient market means of insuring the quality of life. The key is that they are entered into voluntarily. They are used in areas where there is no zoning, but also in areas with heavy zoning restrictions.
AEN: How to the initial owners know the kinds of private regulations that are going to enhance property values?
HOLCOMBE: They can't know for sure since knowledge is never perfect. The question is: what institutional arrangements are most suitable for discovering the best method? It turns out that markets are much better at planning for the long term than governments.
If you own property, you have an incentive to maintain the value of property, even long after you are dead and gone. At any time, you or your heirs can sell the property. With government ownership, there is no incentive to maintain property values because it is always unclear who is going to control it in the future.
Let's assume that the environmentalists are really sincere about improving our quality of life. Without having a direct stake in the value of property, there is very little they can do to preserve and enhance the environment. With government, you can't buy an outcome; you can only rent it. The next legislature can always undo what the present one does. Private ownership is the key to protecting an asset.
AEN: And this is true even with land preservation?
HOLCOMBE: A retired friend of mine owns a tree farm. He just cut down a stand of trees and then replanted. Those trees he planted aren't going to be ready for harvest until well after his lifetime. So why would he do that? Why would he plant trees that someone else will profit from? Well, he owns the property and wants to make it as valuable as possible right now, and today's value depends on the expected yield in the far-distant future.
It's private ownership that gives the incentive to think for the long term. Sometimes on television, you see these awful pictures of forests that have been clear-cut and the ground is eroding. The idea is to say: look what the evil loggers have done! But invariably, these pictures are of national forests, which are owned by the government. The timber rights are given on a contract basis, and the recipients have no incentive to preserve the value of the land because it's not theirs.
AEN: But the cause and effect relationship is not immediately obvious to the person who sees these pictures.
HOLCOMBE: That's true in many areas of economics. An example reappears just about every rainy season: flood insurance, which the government subsidizes. With this insurance, people can say, "I love this house down by the river. It might flood, but, hey, I've got my government flood insurance." The nature of the insurance affects the way people behave. Private insurance takes account of relative risks, but public insurance causes people to disregard risks.
AEN: And assessing risk is a key to the quality of life.
HOLCOMBE: Product quality in general illustrates the point even better. If the government didn't assume a monopoly on the regulatory function, private regulatory agencies would pop up everywhere to certify quality. Underwriters Laboratories is a good example. It is entirely private and non profit, but it produces the most trusted seal of safety there is. These days, you almost can't bring an electric product to market without having the UL stamp on it.
Another example of a private regulatory agency is Best Western Motels. They own no motels. But they'll let you put the sign up that says "Best Western" if you meet their guidelines. They've got dozens of pages of regulations that you must meet: how wide the halls are, the temperature in the bathrooms, the quality of the doors, the quality of the television reception, and on and on. If you meet their regulations, you pay them for their sign.
Why would anybody pay to be regulated like that? The answer lies in an understanding of consumer preference. You're driving down the street thinking about stopping at a motel. There's "Mom and Pop's Motel" but you've never heard of it. There's also "Mom and Pop's Best Western Motel," and you choose it because the risk of poor service is reduced. Companies are willing to pay private regulatory agencies like Underwriters Laboratories and Best Western in exchange for certifying their products.
AEN: And can this approach be extended to areas like medicine and law?
If we did away with state licensure of doctors tomorrow, allowing anyone who wants to practice medicine to do so, credentialing agencies would spring up everywhere. The American Medical Association would certainly work as a private credentialing organization.
And it would have competitors. A patient might say, "I've been going to an AMA doctor, but I'd like to try a different kind of doctor." Licensure of doctors serves as a cartelization device to keep out competitive approaches. Doctors get infuriated with me when I say that, but it's true.
The same is true of law. You might argue that we need state licensure of lawyers because courts are run by the state. But even here, look at the huge increases in private arbitration. They correct for the unresponsiveness of government courts. It's proof the government need not monopolize courts or lawyer certifications. Private agencies can take over the function of guaranteeing quality judicial services.
This whole approach has been eliminated by government regulation, which crowds out private regulation. Government uses tax dollars to finance its regulation; generally firms prefer this to spending their own money to certify good quality. Sometimes people say that the rarity of private regulation makes the case for government regulation. In fact, private regulation is rare because government regulation is so widespread.
AEN: Why is private better than government regulation?
HOLCOMBE: Government regulations do not ensure the quality level that consumers desire. Regulatory agencies are not responsive to consumers but to lobbying pressure, typically applied by the very industry being regulated. So government regulations end up protecting certain big players in an industry against market forces. Quality standards become an arena for using coercive instead of market pressure against competitors.
Also, there is no rational cost accounting with government agencies. How much should be spent when evaluating quality? What constitutes quality? At what point do the costs of raising quality exceed the benefits? Bureaucratic regulations cannot answer these questions with any degree of assurance. Markets are needed to sort out these issues.
Government involvement with health care--not just licensure but also subsidies and direct benefits--has eclipsed the role of the consumer. I was talking to a doctor the other day, an old-timer, who told me that one of the first questions his patients used to ask him was: how much will this procedure cost? Now that question has no relevance because consumers are rarely personally affected by the costs of procedures. This is a consequence of government involvement of all sorts.
AEN: It seems like every year or so the Congress passes another bill increasing government control over medicine.
HOLCOMBE: This raises a crucial problem of democracy. Instead of looking to the Constitution or to individual rights as a normative standard, public policy tries to give people what they want. Early on, the Clintons assumed, wrongly as it turns out, that people wanted full socialization of medicine. The interesting thing about that debate was not the outcome but the process, which depended so heavily on public opinion.
If the majority polled had said they wanted the Clinton plan, it would probably have passed. Polls seem to be driving public policy across the board. Every news story comes with a little poll attached, as if this were the crucial consideration. This is not the way a free society is supposed to function.
AEN:Your newest studies for Austrian journals have been in public-goods theory
HOLCOMBE: I've been interested in the subject since my student days. Many of the interesting questions in economics have to do with the public sector. From economics we learn how markets allocate resources when markets are left alone. But then, according to the public finance literature, we need this huge public sector because there are supposedly problems with the market.
Modern public finance theory starts out from mathematical conditions for the stability of competitive equilibrium. These models provide clear conditions that have to be met for market institutions to allocate resources efficiently. This allows us to look at the math; when the condition isn't met, there is a role for government. From there, developed this whole literature of "market failure" in the 1950s.
The theory says there are generally four reasons why markets might not work: externalities, public goods, monopoly, and economic instability. That taxonomy is still in principles of economics books today. The presumption is that government must intervene.
AEN: Yet even the classical economists said government should perform functions the market cannot perform.
HOLCOMBE: Yes, but more for philosophical reasons. Today, it is based on a seemingly scientific foundation. Beginning in the 1950s, economists began to advance Paul Samuelson's idea of a public good. This is a good in which additional consumers can consume the good without reducing the consumption of any existing consumer. In other words, once the good is produced, additional consumers can consume all they want.
An example of that is a radio broadcast. Once the signal goes out, anyone can listen to it without reducing anyone else's ability to listen. This feature supposedly makes the good unlikely to be efficiently provided through market means. This is as opposed to soft drinks; if I drink one, there's one less to drink.
AEN: Ironically, though, the market produces radio broadcasts.
HOLCOMBE: Yes, and, in fact, most public goods, as defined by economic theory, you can think of are provided in the market. The best example I can think of is computer software. Once the code is written, additional users can take advantage of it at no cost to the existing user. It's simply a matter of making a copy.
No matter how many are made, it doesn't reduce the consumption of any other consumer. There can be ten or a million copies at no cost to the existing users. Issues of copyright aside, then, software has the characteristics of a public good, but look how well the market produces it. In fact, the government thinks the market produces it too well: witness the campaign against Microsoft.
AEN: It raises the question of how well government produces public goods.
HOLCOMBE: I've actually done some research on this. Logically, if anything seems to fit the description of a public good, it is passing legislation. I'm not talking about enforcing it. I'm just speaking of the legislative process itself: the legislature gets together and passes laws.
Following public goods theory, you might think the size of the jurisdiction wouldn't matter for the cost. As with software, what difference does it make for your costs whether these laws are for a thousand people or a million or ten million people? But it turns out to make a huge difference. A colleague and I looked at the costs of legislatures across the 50 states and adjusted for legislative output. There is a very close correlation between the number of people in a state and the cost of operating its legislature.
If you double the size of population, you nearly double the cost of legislation. Legislation is like hamburgers at a picnic: if you've got twice as many people, you've got to cook twice as many burgers. Additional users don't use the good for free. So legislation--which most plausibly looks like a public good--actually fails the Samuelsonian test.
AEN: What about other supposed public goods?
HOLCOMBE: Right now, I'm doing a study of national defense, and in my initial results, there appears to be a one-to-one correspondence between the number of people in a country and defense spending. The more people the government is defending, the more it spends in doing so. So, defense turns out to fail the Samuelsonian definition as well. And, really, that's not too surprising. What's surprising is that the theory of public goods has survived despite its lack of theoretical or empirical merit.
AEN: Why has idea survived?
HOLCOMBE: Why does most government propaganda survive? The people who have promoted public goods theory as a justification for government intervention are researchers with a vested interest in supporting the activities of government, either because they work in government schools and universities or heavily subsidized private ones.
If you want to get a more compliant population, you can beat them into submission. But it would be easier and better to convince them that your way of thinking is right. That's the role of public education. Public educators even admit this. They say the main role of public schools is to socialize children, that is, propagandize them.
Public-sector institutions have an incentive to look for and support theories that back public-sector spending. Economists, like anyone else, have an incentive to support institutions that support them. That is why government-supported research produces theoretical developments biased toward government intervention.
AEN: Yet Samuelson's rationale for big government hasn't exactly become common wisdom.
HOLCOMBE: One of my pet peeves is how economists use terms in two ways. We define terms in a technical way to use among ourselves--and Samuelsonian public goods theory is a good example. It means: "the marginal cost of an additional consumer consuming the good is zero." Then we have the man-on-the-street definition of the same thing: "things that are produced by government." But it turns out that the two terms are completely different. Yet in policy pronouncements, economists gloss over the difference in order to justify government intervention.
AEN: Is there an optimal size of government?
HOLCOMBE: I'm currently doing some work with James Gwartney and James Lawson on the effect of the size of government on economic growth. This is a pure empirical study. We are trying to discover what difference the size of the public sector makes on the rate of economic growth.
We looked at time-series data in particular countries like the U.S., at a cross-sectional data set of more than 20 OECD countries, and a larger data set from 60 countries around the world (none of them from the present or former centrally planned economies). No matter how you look at it, there is a very strong and systematic relationship between economic growth and the size of government. For all the data we have, the smaller the public sector, the higher the rate of growth.
We had no observations of countries with public sectors smaller than 15 percent of GDP. Empirically, we can't know too much about how much growth very small government would permit. But in the United States today, government expenditures at all levels are 35 percent of GDP. We could cut that by half and vastly expand our growth. We should keep going until we run out of spending we don't need. I like the founders' view of government, that it should be as small as possible.
AEN: It's a big question, but how did we get from the founders' view to the current view of government?
HOLCOMBE: I've been working on a book for some years tentatively titled, From Liberty to Democracy: The Transformation of American Government. So you can guess my answer from the title. When the founders created this country, the underlying philosophy of American government was liberty. What the founders meant by liberty was freedom from government oppression. Their view was that liberty's enemy is government. So they wanted a government that would only protect rights and liberties. That was the point of the Constitution.
But today, most people think the underlying philosophy of government is democracy. How do we decide what public policy should be? We find out what the majority wants. This idea is completely antithetical to the founders' view. By degrees, we became increasingly democratic and let this notion of liberty fall by the wayside. There is a relationship between the rise of democracy and the decline of liberty. Democracy, as we understand it today, is antithetical to liberty.
AEN: But didn't the founders want rule by the people?
HOLCOMBE: They wanted popular government, but not for the people to determine public policy. Initially, the one area of government in which people had a direct role was the House of Representatives, though there was no guaranteed right to vote. But the Senate was chosen by the state legislatures, until the 17th amendment in 1914.
The president was chosen by the electoral college. The electors were chosen by the states. The Constitution never specified how the states picked their electors. Originally, it was most common for them to be chosen by their state legislatures.
If a majority of the electors voted for one person, he would be president. Otherwise the decision would go to the House. The founders figured the electors would vote for somebody from their state. Because of that, nobody would get a majority. Therefore the House would choose the president.
So the electoral college was to be a kind of search committee. They would be knowledgeable people, know the strengths and weaknesses of the possible candidates, and the electors would forward a slate of candidates to the House. As it happened, it didn't work out that way. A majority of electors usually agreed on one candidate. And by the 1820s, most states had already gone to popular election of electors. By 1828, political parties were out campaigning for presidents.
AEN: And Andrew Jackson was the main player.
HOLCOMBE: Andrew Jackson was an interesting character. On the one hand, he was committed to Jeffersonian ideals of limited government. He ran for president because he thought presidents after Jefferson had unjustly expanded the scope of government. He wanted a return to the founders' ideals.
I'm sympathetic with that, but he also thought the best way to control the political elite in the country was through more democratic representation. As soon as elected officials are made more accountable to the public, they also have to be looking for ways to win elections. You end up with public policy as a popular opinion poll instead of commitment to a principle like liberty. Unwittingly, then, Jackson became part of a longer-term problem.
AEN: Why, when you ask the public what it wants, is liberty not the answer?
HOLCOMBE: We tend to take liberty for granted. And these days, there's also a big status-quo bias. Despite the complaints about government's intrusions into our lives, people think we have it pretty good and have a hard time imagining huge changes away from the status quo.
I was discussing the finance of highways in my economics class. I asked about the toll that finances the Florida turnpike. My students all said it makes sense. Then I asked about the interstate highways and whether they should be similarly financed. Well, they didn't like that idea. They wanted free access to one but not the other. My interpretation is that they have a status-quo bias.
When most people are getting along pretty comfortably, it's hard to convince them that we have strayed far from the principles that produced this level of comfort and prosperity. But prosperity is increasingly threatened as we move farther from the principles that produced it.
It's my job as an economist to explain how small changes in policy can have huge effects, and in ways that are not always immediately predictable, unless you are thinking carefully.
AEN: What attracted you to economics in the first place?
HOLCOMBE: It offers a simple, palatable theoretical structure. And with theory, so much of the workings of the world are revealed to you. Immediately I loved the power of pure theory. The bottom line of this theory is that the market works. The hard part is the supposed exceptions to the market rule, and that's what attracted me to public finance.
AEN: As a student, did you have defined views on these matters?
HOLCOMBE: Unlike a lot of people who say they were socialists or some such when they were young, I already leaned toward pro-market views. All the intellectuals I knew were interventionists. Sometimes, I felt like an anti-intellectual because I couldn't agree with the interventionist view. So the discovery of the Austrian School was a revelation. First it was Hayek, and then Rothbard, and then Mises, and finally, I felt I had an intellectual foundation for what already seemed intuitively plausible.
AEN: And you continue to work within this framework.
HOLCOMBE: Yesterday, at this Austrian Scholars Conference, I delivered a paper on entrepreneurship, building on some ideas of Austrian economist Israel Kirzner. I asked the question: what is the origin of entrepreneurial opportunities? You might think that if an entrepreneur discovers a profit opportunity and uses it, that entrepreneurial opportunity is used up. Where do new ones come from? My answer is that they come from entrepreneurship itself.
A good example is computers. Someone had a great idea for an infrared mouse on computers. But first someone had come up with a graphical operating system, which would not have been possible if someone had not come up with the good idea of a personal computer, which previously required the idea of the microprocessor, and so on. I argue in a forthcoming issue of The Quarterly Journal of Austrian Economics that this is the primary source of economic growth.
AEN: How does this view compare with mainstream growth theory?
HOLCOMBE: In the mainstream view, growth is created by combining inputs. The natural way to bring about growth, then, is to increase inputs. The production function takes it from there. My paper suggests that while inputs are crucial, entrepreneurship is more important.
If you look at the old Soviet Union, they used the production function approach to growth. They invested in capital, they tried to push the technological frontiers, and they had an educated population. They were concentrating on the inputs--exactly according to mainstream theory--but neglecting the environment in which growth takes place. If you create the environment, the inputs take care of themselves. Yet even today, the IMF and the World Bank use mainstream growth theory that points to a central-planning model.
AEN: You've also written a book on economic method.
HOLCOMBE: When I began that project, a friend advised me against "falling into the black hole of methodology." I can see his point. My chapter on "Theories of Utility and Entrepreneurship" was the initial one, written just as a paper. It became a 40-page paper, then an 80-page chapter, then I started to divide it into pieces. The only way I could extract myself from the black hole of methodology was to consolidate it into a whole book and send it off to a publisher.
Economists typically go about their discipline the way everyone else does, and they don't often think about the methodology they follow or whether it makes sense. It was a learning experience for me to explore how economists go about the search for truth, and to sort out what we as economists actually know about the world, versus conjectures about what may be true, versus outright propaganda. Too often economists construct elegant theories that have no connection to the real world.
AEN: And what did you conclude?
AEN: I end up being critical of methodological positivism, in which empirical evidence is used as a demonstration of the proof of theories. There's a good case for looking at empirical data and looking for regularities to see how the real world works. Econometrics is a lot like looking out the window: you want to make sense of what you see. If you are looking at a page of thousands of numbers, it is reasonable to ask yourself if there are any regular relationships between them. But the notion that you are testing a theory in doing this is outright wrong. You really can't test theories in any formal, empirical sense.
AEN: This was Mises's fundamental methodological claim.
HOLCOMBE: I completely agree with him. Most theories we want to test we came up with by looking at the data anyway. That's especially true in macroeconomics, in which there is only one set of data. Everybody knows it. It's not like pulling balls out of an urn, a statistics game in which you try to estimate the color composition of the urn of balls based on sample drawings. In economics, you are not doing that because everybody already knows the data. You've already looked at the urn.
Also, economists don't really test theories; any empirical test must simultaneously test both the theory and the assumptions necessary to connect the abstract theory with real-world data. Whenever the empirical test turns out to contradict the theory, we don't reject the theory. We reject the supporting assumptions and go back to look for more data. We assume our test was wrong, change the specifications of the model, and run some more regressions until the data turns out to back the theory we had to begin with. Then we say: Aha! The data confirms the theory!
So economists don't really test theories and they never reject theories. I challenge economists in general: if we really think we are testing theories, show me a theory that has been rejected on the basis of an empirical test. There are not many. Nevertheless, the data are still useful for looking at regularities.
AEN: Also in your methodology book, you highlighted the Austrian notion of rationality.
HOLCOMBE: In the Austrian view, all behavior is rational, from the point of view of the individual. A person acts, ex ante, to improve his position. That means there is no behavior that is not intended to be utility-enhancing, but it also means there is nothing to allow for prediction. Austrians agree that demand curves are downward sloping, for example, but this follows not from data but from logic.
The neoclassical view assumes that people are wealth maximizing, income maximizing, or profit maximizing. These assumptions give you "testable" hypotheses. That is where the misuse begins. Social scientists are always blasting economists for believing only in "economic man." We respond by saying, "actually our view is much broader." Yet the neoclassical theory of public goods and externalities is built entirely on this same caricature. Well-known economists base their public-policy recommendations on it.
Despite so many examples where people act charitably toward others and go out of their way to respect the rights of others, so much government coercion is justified based on the idea that we must prevent people from having any opportunity to be shirkers or free riders.
AEN: Do you consider yourself an adherent of the Austrian School proper?
HOLCOMBE: I don't know exactly where I fit in the taxonomy of the Austrian School--which, as this Scholars Conference demonstrates, is quite diverse. I've learned a great deal from Austrian writers, and I am a strong supporter. But there are scholars, many of them here, who have dedicated their academic careers to pushing the frontiers of the school. I have worked in different areas. I am enthusiastic about promoting the ideas of Austrian economics, both to my students and to the academic mainstream. The good news is that economists in the academic mainstream are increasingly interested in discovering what Austrian economics has to offer.
Volume 16, Number 3 (Fall 1996)An Interview with Joseph T. SalernoJoseph Salerno, professor of economics at Pace University, is a leading figure in today's growing Austrian School. He has been a pioneer in many fields, including monetary theory, comparative systems, the history of thought, and the economics of war. After the death of Murray N. Rothbard in 1995, Salerno assumed the editorship of the Review of Austrian Economics, together with Hans-Hermann Hoppe and Walter Block. He is now editor of its successor and current flagship scholarly journal, The Quarterly Journal of Austrian Economics. He was interviewed by the AEN staff at the 1996 Mises University, the Mises Institutes summer instructional conference at Auburn University.
AEN: What's your take on the present state of Austrian economics?
SALERNO: How could anyone be at the Mises University and not be elated? This is my eighth. The students are more passionate and well read than ever. We've got all levels, all fields, and many different countries represented. Many students have come on the recommendation of their professors, who had attended in the past. So we're now working with the second and sometimes third generation of alumni.
AEN: What does the program contribute to the movement?
SALERNO: These kids put up with a lot of baloney in school, and the tedium of their regular classes tends to strip economics of its essential content. They go in thinking they will learn about how societies materially advance, how civilization comes about and is preserved. Instead, they end up slogging through years of pointless mathematical exercises.
I'm all for paying dues, but at some point students need to have their imaginations sparked. You can see that happening here. It reminds them why they liked economics in the first place. Teaching and formal training is the key to advancing any school, whether Austrian or Marxian. It is precisely what has been missing from Austrian economics.
AEN: Is that why most of your classes here focus on technical issues?
SALERNO: There is a myth that all Austrians are generalists. General instincts are fine, but they are not enough to sustain a school. A body of thought stands or falls on its practitioners ability to master the technical issues in particular fields. It's what distinguishes dilettantes, hobbyists, and amateur philosophers from engaged economists. I have little patience for people who want to reconstruct Austrian economics from the ground up, but then can't explain, in praxeological terms, the law of demand, much less give an account of the regression theorem.
Until we have a full-time faculty somewhere, this conference fills the gap. It provides the formal training, in a wide variety of fields, that would otherwise be unavailable. The students and faculty love it.
AEN: Is there more evidence of the healthy state of the Austrian School?
SALERNO: It's all around us. The print run of The Review of Austrian Economics gets larger every issue. The articles are sophisticated and make real contributions. They also show that we have fierce debates among Austrians, a sure sign of health. All back issues are in constant demand, from libraries, students, and others.
We also now have our own full-blown history of thought, Murray Rothbard's last gift to the world of ideas. We no longer have to think of Austrian economics as a late-19th-century idea carried forward by a handful of giants. Rothbard has placed the Austrian School in the center of the history of economic thought from the ancients to the moderns.
Today the school is so large and international that it is difficult to keep tabs on it. It has displaced the waning Chicago School in terms of representing the free-market plumbline. That's more than progress. Thats a revolution.
AEN: Do Austrian economists need to be accepted by mainstream journals before theres real progress?
SALERNO: Absolutely not. We shouldn't measure progress this way. Progress does not mean acceptance; it means the propagation and advancement of the truth. Austrian articles are appearing in mainstream journals, but this is a byproduct of our growing presence in the academic world. We shouldn't crave acceptance by the mainstream; we should seek to displace it.
AEN: Is this widening interest still the fallout from Hayek's 1974 Nobel Prize, or something entirely different?
SALERNO: The modern revival is usually dated from Hayek's award. That was also the year of the famous South Royalton conference, the first on Austrian economics in North America. Until recently, I accepted this conventional account of the "Austrian renaissance," perhaps because I was caught up in the excitement of having attended the conference.
More recently, I've come to understand that this view of events is seriously mistaken. It leaves aside what prepared the way for that conference and the boom that followed. For a full picture, we have to go back a decade earlier.
Mises's Theory and History appeared in 1957. It was to be his last major work, and meanwhile Hayek had moved on to spending full time with his social evolution theory. The Austrian School would have died over the next ten years if no new theoretical work had appeared. In retrospect, Rothbard's 1956 article "Toward a Reconstruction of Utility and Welfare Economics" was a sign that great days were ahead.
In 1962 and 1963, in amazingly rapid succession, Rothbard published his seminal works, Man, Economy, and State, Americas Great Depression, and What Has Government Done to Our Money? This last booklet is often seen as a primer on monetary theory, but it is much more. It contains his notable "progression theorem," which explains how the state caused a "progression"--actually a degeneration--from hard money to fiat currency. Such a systematic explanation of the origins of fiat currency was missing even in Mises's works.
AEN: And these three books in two years set the stage.
SALERNO: Absolutely. Rothbards astounding burst of creativity is unparalleled in the history of the Austrian School, if not in the history of economic thought. Remember too that Power and Marketwas completed in this phase as well, although it didn't make it into print until 1970.
In any case, these three books served as the model and inspiration for all future work in Austrian pure theory and applied economics. Rothbard respectfully built on the works of the acknowledged masters, especially Mises, Böhm-Bawerk, and Menger, while boldly advancing beyond them in the theory of utility and welfare, money, monopoly, taxation and interventionism, and the business cycle. Plus, he was a compelling writer and used his personal influence to nurture and sustain the movement. As a result, the young people who came to South Royalton already were, almost to a man, Rothbardians.
After this conference, there was an initial period of productivity. Rothbard again took the lead, publishing notable articles on the definition of the money supply, monetary calculation and cartels, and the pitfalls of fluctuating exchange rates.
But then a period of dormancy set in. Austrian theory got bogged down in a sterile debate over whether the market economy is equilibrating. This was pointless, since Mises had already resolved the issue. The concept of equilibrium is an indispensable analytical tool. It's not a realizable state that the economy moves closer to or further away from in history.
The theory side wasn't revived until the mid- and late-eighties. It picked up again because of political events (socialism was unraveling), the Mises Institutes founding of the first English-language journal devoted to Austrian economics (which Mises himself dreamed of), and the coalescence of a new Rothbardian circle, beginning at these summer conferences.
AEN: Why should it be important to revise the conventional view of the Austrian revival? Merely to give credit where it's due?
SALERNO: There's much more at stake. There has been an unfortunate tendency to limit the revival to the people who attended the South Royalton conference. The next step is to chart the progress of the revival by tracking the careers of some twelve or so people, all of them Americans. The result is a narrow sectarianism that squeezes out newcomers and is willfully blind to new contributions.
But if we conceive the Austrian revival in broader terms--as being the movement of a body of ideas instead of a handful of people--we gain a more realistic understanding of the present state of the school. The current Austrian boom is massive and international, and encompasses literally thousands of students, faculty, and professors the world over. Thanks to this, we are experiencing another explosive burst of creative energy.
AEN: Yet Rothbard himself never took credit for the Austrian revival.
SALERNO: He was too busy crediting past Austrians for their contributions and, at the same time, encouraging younger students to go beyond his own work. He made the tradition and the school the focus, and not his work personally. Today, it's fashionable in academia not to acknowledge intellectual debts unless it's to your advantage, but neither Murray nor Mises had this view. At the same time, whenever we younger economists tried to beef up Austrian theory, even if it meant disagreeing with him, he was delighted.
AEN: Describe how you got involved in the Austrian School.
SALERNO: My ideological awareness first came when I was in fifth grade. My mother had a cousin visit from Italy. During dinner, the visitor revealed he was a communist. My father, who was somewhat of a New Deal Democrat, nearly threw him out of the house. That sparked my curiosity. Then, in 1963, I read an article by Barry Goldwater in Life Magazine--he favored the free market in those days--and I was deeply impressed. One thing led to another, I went through the inevitable Rand phase, and by my senior year at Boston College, I was fairly well read in Mises, Hayek, and Rothbard. In graduate school at Rutgers, I met Murray.
AEN: It was your dissertation that first established you as a historian of thought. Rothbard said your study was the starting point for understanding British banking debates.
SALERNO: Actually, a good part of my thesis and argument can be found in Rothbard's Classical Economics, Volume 2 of his history of thought. My dissertation was on a slightly more narrow topic: the divisions and debates among the bullionists on the question of exchange-rate theory.
AEN: Your last major history of thought paper was on the development of Keynes's thought. Is there anything Austrian in Keynes, as Ludwig Lachmann used to claim?
SALERNO: A few perfunctory remarks about uncertainty and the chaos of capital markets do not constitute Austrian insights. I think we should leave Keynes to the Keynesians--and Lachmann to the Lachmannians for that matter. In my paper, I attempted to show that Keynes moved from Marshallianism to classic millennarianism. In the end, he was attempting to use the state to bring about a world that appealed to his personal intuition, but does not and cannot exist.
In Keynes's dreamland, the interest rate would fall to zero because there would no longer be scarcity of capital. That achieved, we would see the disappearance of "avarice, usury, and precaution." Moreover, his attack on orthodoxy wasn't limited to economics. He opposed bourgeois ethics, folkways, and institutions, and longed for a new order designed by the intellectual elites.
AEN: You have encouraged Austrians to rediscover the writings of W.H. Hutt.
SALERNO: Professor Hutt is most famous for his work on labor unions, which is great. But in response to Keynes, he developed a wonderful theory of market price coordination that is consistent with Misesian theory. I have attempted to rehabilitate his view. His idea was that in an unhampered market economy, all actual or realized prices are market-clearing prices and are coordinated to make the market work smoothly. Price coordination is an ex post concept, that is, it describes what actually occurs at every moment on the market.
What if a person withholds labor? What if a capitalist withholds investment? Then they have reason to do so: they are making rational judgments about future consumer demands. When the data change, they may withhold even longer or may choose to exchange. At each stage, they make judgments based on their predictions, and these influence the prices that emerge at each moment. Errors are happening in the market all the time, of course. But at any moment in time, all resources are priced and allocated to reflect their most highly valued uses, based on entrepreneurial anticipation of future market conditions.
AEN: What theoretical issue, besides method, most separates neoclassicals from Austrians?
SALERNO: No contest: the business cycle theory. The Austrian theory embodies all the distinctive Austrian traits: the theory of heterogeneous capital, the structure of production, the passage of time, sequential analysis of monetary interventionism, the market origins and function of the interest rate, and more. And it tells a compelling story about an area of history neoclassicals think of as their turf. The model of applying this theory remains Rothbard's Americas Great Depression.
AEN: What about the monetarist explanation of the same event?
SALERNO: Rothbard once told me an interesting story about attending a Milton Friedman lecture. This was just after Rothbard's book came out in 1963. Friedman was supposed to speak on medical licensure or some such topic, but swiftly departed from the assigned topic and launched into a diatribe against Murray's book. As far as Murray could tell, Friedman was especially incensed that Rothbard had cited a 1937 Lin Lin article arguing that savings deposits are part of the money supply, on a priori or Austrian, not positivist, grounds. Later, Friedman was peppered with questions from curious students, which further infuriated him.
AEN: Yet both Austrians and Monetarists see the economic downturn as related to Federal Reserve policy.
SALERNO: But that is where their similarities end. Rothbard argued that the stock market crash was not a market failure, but a consequence of inflationary Federal Reserve Policy during the 1920s. Monetary inflation had caused distortions in the real capital structure, and the crash and depression were the inevitable correction. Milton Friedman merely blames the Fed for not rescuing banks once they started to fail.
For the Austrian theory to apply, Rothbard had to demonstrate that a significant inflation had occurred in the 1920s. That's how the debate turned to the definition of money. Friedman understood how high the stakes were.
AEN: And this is how the accusation began that Rothbard fudged his numbers?
SALERNO: This is a longstanding Friedmanite canard. But it's made the rounds, even among some Austrians. The idea is that Rothbard cheated by including the cash surrender value of life insurance policies in his money supply. Ironically, this view is perpetuated by positivists who would include peanut butter in their monetary aggregates if it helped them "explain" nominal income.
In fact, many Keynesian economists writing after the Second World War characterized life-insurance reserves as highly liquid financial assets that perform monetary functions. When this subject last came up, I pulled some older money and banking texts off my shelf at random. Four out of six treated insurance reserves this way, on grounds that they can be withdrawn at any time and are thus readily spendable dollars.
Besides, it turns out not to matter in Rothbard's theory. Including life-insurance policies, the increase in Rothbard's money aggregate between mid-1921 and the end of 1928 totaled about 61%, yielding an annual rate of monetary inflation of 6.5%, compounded annually. Leave them out, and we get 55% over the period, or 6.0% per annum. For comparison, in the highly inflationary 1970s, the money stock grew at an average annual rate of 6.35%, including the double-digit Carter years.
In other words, it doesn't matter for Rothbard's theory whether these are included or excluded. A Hayekian-style treatment of the same events by Phillips, McManus, and Nelson does not include insurance reserves, and concludes that the Austrian explanation is the correct one. The key point is not that the banks weren't bailed out in the early thirties, but that the Fed inflated in the 1920s, even though it didn't show up in increased prices.
AEN: The dispute about the Great Depression and the business cycle goes beyond the numbers, doesn't it?
SALERNO: It goes to the core of economic theory. For most mainstream economists, inflation is not a matter of money and bank credit expansion; it is essentially a price phenomenon. If prices don't rise, there is no inflation. It doesn't matter what the monetary data say. In the 1920s, there was no substantial change in prices, due to enormous productivity and output increases. But to them, that is sufficient evidence that they don't need to look any deeper.
Only Austrians truly believe inflation is a monetary phenomenon. When you increase the amount of money in circulation, it brings many more changes than just price increases. We see a fall in the loan rate of interest. We see a boom in real estate as a higher-order good. We see a boom in the stock market, which trades titles to higher-order goods, that is, capital goods. To focus on inflation as price increases means we don't capture the fullness of the inflationary phenomenon.
AEN: Why isn't the Austrian business cycle theory modeled in an econometric form more often?
SALERNO: Praxeological theorems of cause and effect can only be applied by first establishing precisely where and when the precipitating causal phenomenon has occurred. This requires historical investigation. For example, in business cycle theory, we must first establish that an increase in the supply of fiduciary media has taken place. Only then can we identify a sequence of historical phenomena that make up the business cycle. Econometrics wastes most of its time in a rigged game searching for mysterious causes among millions of potential variables.
Austrian theory is essentially qualitative. We deny that there are any quantitative constants in human action. Therefore, we can talk about changes that bring about other changes in the economy in a qualitative sense. We can say that an increase in the money supply drives down the purchasing power of money, or, obversely, drives up overall prices. But we cannot establish quantitative constants between money and prices.
AEN: What kind of new empirical research is possible?
SALERNO: Let me give you an example. A wonderful paper is coming out in The Review of Austrian Economics by Arthur Hughes which explains the recession of 1990. He relies on a qualitative understanding of cause and effect drawn from Austrian theory. He then applies it to the inflation run-up of the eighties and its effects on the capital-goods sector. To do this, he breaks down government figures, which are constructed based on Keynesian theory. Hughes identifies the various stages of production. It works beautifully.
Now, this would not be acceptable according to current economic fashion, which requires that statistical techniques demonstrate what caused the downturn, whether technological shocks, the weather, sun spots, or the man in the moon. All this is silly. Empirical data alone, no matter how well massaged, cannot establish causation. For that we need real theory, arrived at deductively, and applied to the real world as an explanatory device.
AEN: You had a debate with Gordon Tullock on the business cycle theory. What was his objection?
SALERNO: Tullock's main point was that the typical Austrian-style business cycle would lead to an increase in GDP, while unemployment would only be a minor transitional problem. He raises this point after tracing the effects of an overinvestment theory of the boom and bust. The trouble is that Austrians do not view generalized overinvestment as the essence of the cycle. Austrians distinguish higher-order from lower-order goods, and show how a credit-induced boom stimulates malinvestment, which involves diversion of resources away from lower-order to higher-order goods. His was a common error, but as with all debates, it helps people clarify their own positions.
AEN: Youve had a number of big debates in the Review.
SALERNO: You often hear that Austrians are narrow and dogmatic, reviewing the canon all the time instead of debating or adding to the theory. That has no connection to reality. The Review has more substantive and wide-ranging debates than any journal I see. And these are fierce, exciting debates that deal with fundamental issues, and involve both Austrians and non-Austrians.
That's the way it should be. If you see a journal that merely runs article after article, with no mutual engagement among the authors, no replies or rejoinders--in short, no vibrant interchange--it is a sure sign of intellectual stagnation. It means people aren't reading the journal, which is a huge problem, or that the editors and writers don't really care about advancing the discipline. In the Review, there's ongoing debate in practically every field.
AEN: How did the knowledge/calculation debate get started in the first place?
SALERNO: It actually began with a provocative 1988 Review article by Israel Kirzner, "The Economic Calculation Debate: Lessons for Austrians." Kirzner claimed that calculation--comparing costs and benefits in monetary terms--played a very small part in the Austrian critique of socialism. He further suggested that Mises's 1920 article was deficient in not pointing to the role of economic change in making central planning impossible.
To Kirzner, Hayek's theory of knowledge acquisition, from the late thirties and forties, stated the crucial point of the debate in a more sophisticated way. The virtue of prices is the knowledge about time and place they somehow embody, to which central planners cannot have access. With Hayek, Kirzner says socialism may not be impossible, but it is radically impractical.
Israel ended his piece with a call for "a new round in the debate" to restate the Austrian position on prices and markets with clarity. That's precisely what has taken place.
AEN: How did Kirzner's article stimulate your thinking?
SALERNO: It was a thought-provoking piece, subtly argued. I considered it, reviewed the relevant literature, and realized that Mises was actually making stronger, more sophisticated, and more persuasive arguments about the role of prices than Hayek. This was directly contrary to the lesson Kirzner wanted to teach. I then began the effort to "dehomogenize" Mises and Hayek--that is, to show that they were seeking to demonstrate very different points--and argued that Mises was on firmer ground.
By the way, the editors of the Review have come across a 1938 manuscript written by Mises in German and then translated to French. Here, Mises sharply distinguishes his position from Hayeks. It is an important piece that has never appeared in English. We are working on a translation for the Review.
AEN: Also in "Mises as Social Rationalist," you further distinguished Mises's approach from Hayek's theory of social evolution. Students at this conference speak about it often.
SALERNO: That article had an interesting origin. Lew Rockwell had asked me to write about the concept of equilibrium in Mises. When I thought about it, I realized I would have to deal with the concept of spontaneous order also, since some Austrians had claimed that it is the proper replacement for all equilibrium theorizing.
Looking through Mises, however--much to my surprise at the time--I found there was no concept of spontaneous order at all. That's when my topic changed, and I began this project of replacing the entire "knowledge problem" framework with the Misesian perspective of social rationalism and monetary calculation.
AEN: Can you sum up Mises's calculation argument?
SALERNO: What Mises argued was simply this: In an industrial economy, featuring a complex division of labor, and many heterogeneous capital goods, planners would not be able to use subjective evaluations in figuring out the most valuable use of their resources, as they would in a household economy. This requires objective economic calculation using market prices. If a society does not have the benefit of market prices, arrived at through the exchange of private property, resources cannot be rationally allocated.
In analyzing socialism, Mises assumes the director of the central planning board has all the knowledge of the economic data at his fingertips. He knows the technology. He has engineers and technical support. He knows the value scales of consumers or he can substitute his own values. He has a roster of all the kinds and qualities of labor available. And he has lists of all the varieties of capital goods and their quantities at his disposal. Given all that, he is still unable to engage in economic calculation. All these data are qualitative. He still cannot derive quantitative exchange ratios from them.
AEN: Do you agree that in neoclassical models, all this information will yield prices that can be used in monetary calculation? It's merely a linear-programming problem.
SALERNO: Mathematical solutions do not obviate the need for the markets pricing process. Lets assume we can generate equilibrium prices. They are not actual prices. It still leaves the essential problem that economics deals with: judgment and appraisement in an uncertain future. In Mises's concept of calculation, the function of the price system is to permit entrepreneurs to appraise the quantitative importance of resources when confronted with constant change. Equilibrium prices--the dual values of linear programming--are completely irrelevant to a world in which the capital stock must be continually changed.
AEN: Can you give a concrete example?
SALERNO: Let's say someone needs to produce an automobile. There are hundreds of different ways to go about it. The inputs are steel, paint, labor, rubber, etc., but they are all heterogeneous magnitudes. They cannot be summed up in a single unitary cost figure--a common denominator--that can be used to compare the cost with the output of the automobile itself. He can't determine whether he is wasting resources or not because he can't calculate.
AEN: Anything even more concrete?
SALERNO: Okay, I have a friend who got married and moved from New Jersey to Montana. She had her house built in a factory in Indiana, and then shipped to the site. The reason has to do with the scarcity of labor in Montana relative to Indiana. Unlike in New Jersey, it would not be cost effective to build a house on site in Montana. It could be done, of course, but not economically. We know that because we have market prices that allow us to calculate.
But a central planning board operating without the benefit of prices might look at the situation, know all the various techniques, the value scales, and the resources, and conclude--reasonably--that on-site building is the best way. It might dismiss the idea of house shipping as absurd. It might ask: why build the house in one place only to move it to another? The board can't calculate to compare costs of shipping versus the costs of labor.
AEN: Why isn't that a knowledge problem?
SALERNO: It's not a knowledge problem because the planning board has all the qualitative knowledge. What it doesn't have is the means of calculating the value of the different methods. Remember, I am using the term "knowledge" in the pure Hayekian sense: meaning, technical knowledge, that is, general knowledge that can be gotten from engineers, and knowledge of "particular circumstances of time and place."
Hayek only refers to qualitative knowledge; he thinks gaining that knowledge is the key issue. I am not using the term knowledge as in "knowing the exchange ratio." Of course, if you know the correct resource and output prices, you can calculate, by definition. But that's precisely what the central planner, no matter what else he knows, does not have. Social rationalityrequires the on-going social appraisement of resource prices, which rests on market exchange and private property.
AEN: But didn't Mises have a peculiar definition of rationality?
SALERNO: It's only peculiar if we misunderstand what he means. Lets say your readers read this interview instead of watching tv. And at the end, they decide they wasted their time. That doesn't mean their initial decision to read this was irrational. On the contrary: they made the rational choice based on a forecast. That they turned out to be wrong, from their point of view, has no bearing on the issue. Their action was rational, but their forecast was mistaken. They will take that into account in choosing whether to read future issues of the AEN.
We regret our actions all the time. The point is that if we don't have market prices and economic calculation, we can't even begin to make purposeful choices about resource allocation. A lack of foresight is always with us. But a social planner working without the benefit of economic calculation has no idea whatsoever of where to begin or how to test his results against his forecast. That means the planner is acting irrationally.
AEN: But is it really true that socialism is inherently irrational? How could it have survived so long?
SALERNO: A good example is the Soviet Union, which instituted full-blown socialism for two years, from 1918 to 1920. It was called War Communism. They didn't check capitalist prices from international markets. They didnt use money at all. Within two years, the whole economy had broken down. There was a return to household production of the most primitive form. Lenin then introduced the New Economic Policy, which reinstated money and prices. The experience reinforces Mises's point: an industrial economy literally cannot exist without economic calculation.
AEN: What are the implications for a mixed economy like the U.S.?
SALERNO: Mises's theory of interventionism says that price controls fail to achieve the goals of those who intervene. Rothbard picked up on this, and talked about the mixed economy as containing "centers of calculational chaos." That's a good description of the mixed economy.
AEN: On another controversial area, did Mises favor 100 percent reserve banking or not?
SALERNO: The Review has published a paper by Larry White and George Selgin arguing he did not, and they make a credible case. But Ive argued the other view. Looking at the whole of his writings, we see that the very reason Mises favored free banking was mainly to suppress the issuance of fiduciary media, that is, bank notes and deposits not covered by 100 percent cash reserves.
In the monetary theory section of The Theory of Money and Credit, Mises lists the benefits of fiduciary media. Then in a later chapter on the business cycle, he demonstrates that fiduciary media are a necessary and sufficient cause of the cycle. When Mises finally addresses "basic questions" of future policy, he calls for the suppression of all further creation of fiduciary media, if not an outright ban on fractional-reserves. Even the early Mises clearly thought that the disadvantages of fiduciary media outweighed their advantages.
AEN: A more careful reading, then, should settle the issue?
SALERNO: A careful and wide reading. Mises toughened his stance even more between 1924 and 1940, with the publication of Nationalökonomie, the German language forerunner of Human Action. There he is conspicuously silent on the benefits he had once attributed to the creation of fiduciary media. Instead, he concludes that the only way to eliminate business cycles and inflation is to "suppress all further issue of fiduciary media." Only this, he says, will create the necessary safeguards. Finally, in his 1952 epilogue to The Theory of Money and Credit, he offers a detailed plan for a 100 percent backing for future increases in bank notes and deposits.
Also, it is important to recognize that Mises didn't think free banking would evolve toward a small reserve ratio of gold to liabilities. With real competition, Mises predicted, evolution would be in the opposite direction, toward 100 percent reserves, as bankers swiftly learned that any increase in fiduciary media would leave them open to bank runs and insolvency. In the balance, then, he was more of a Rothbardian than a Whiteian on the fractional-reserve question.
AEN: What are your strongest criticisms of the free banking/fractional-reserve position?
SALERNO: That any increase in the supply of fiduciary media brings about the business cycle. The free bankers have gone to great lengths to get around this point.
Also, the contagion effect--the tendency of bank runs to spread--has doomed fractional-reserve systems throughout history. As bank after bank falls, it creates the illusion that central banking is necessary to correct for a supposed "market failure." But under a 100 percent reserve system, there is no instability and no contagion effect. Bank runs have no macroeconomic consequences.
AEN: But we have fractional reserves now and the system is not plagued by runs.
SALERNO: Today's fractional reserves are a fiction of accounting, and don't exist in fact. Because of deposit insurance and the Feds power to create new money, the public correctly perceives that all deposits are guaranteed at face value. Deposits are in fact risk-free claims to currency. That means we effectively live under 100 percent reserves. If we did away with deposit insurance, we'd be better off in the long run, but the present system would quickly collapse.
AEN: You devote an enormous amount of time and energy to the Review. Is it a good investment?
SALERNO: The Review has really enhanced the prospects of the Austrian School. It has world-wide circulation. It has stimulated new interest among new people. It has provided an outlet for Austrians to get their articles published.
AEN: Why is that important, versus trying to sell articles to mainstream journals?
SALERNO: When you court the mainstream, at best, you can insert a few watered-down Austrian points while working with mainstream theoretical tools. You build up intellectual capital in this, and as the investment grows, it becomes more difficult to give it up. Before you know it, you're no longer doing Austrian work.
There must be a journal that encourages talking about and writing in the Austrian tradition. In the absence of the Review, there would be some independent interest among European Hayekians. But debate would degenerate into speaking about Austrian economics in terms of the history of thought, rather than as a living body of theory as it is discussed now. That's crucial. Austrian theory must advance or it will die.
AEN: Then there's the practical question of whether this will help anyone's career.
SALERNO: It's no longer true that being an Austrian is a career killer. The profession is in such transition that good economists of any stripe can do well. Of course, you're always better off echoing the mainline opinion. But Austrians are in this for more than professional success.
We are Austrians because we are interested in the truth. Sometimes that requires sacrifice. Menger sacrificed, as did Mises, and Rothbard, and many other seekers of truth in political economy. The point is to change history for the better, not merely to go along.
Mises wrote in Human Action that a good economist is always telling government officials what they dont want to hear. They should think of us as the bearers of bad news. I'd rather do almost anything else in life than be an economist who gives comfort to the powers-that-be.
AEN: Do you get the sense that younger Austrians agree?
SALERNO: Not only that, it is the very radicalism of the school that attracts today's best students. Think of it. Here we are in Auburn, Alabama, in August, and the conference is packed. To be sure, this is a nice town. But these students--some of the best I've encountered--could be doing anything else with the last of their summer weeks.
Instead they are competing to spend a grueling training period with us, and most of them get no credit on their transcript for doing so. What drives them? It's the sense that something is gravely wrong in the world, and that Austrian economics offers answers for doing something about it. They want to be involved. The mainstream does not inspire this kind of attitude. That is one reason we stand a good chance of winning this battle for true economic science and the future of liberty generally.
AEN: Any hints of future controversies in forthcoming issues of the Review?
SALERNO: Actually, they're a secret, locked in a file cabinet. And only the managing editor has the key. But I will give a hint: an extremely prominent neoclassical economist has blasted one of the editors. He pulls no punches. And that's just the way it should be.
Volume 16, Number 2 (Summer 1996)An Interview with Pascal SalinPascal Salin, professor of economics at Université Paris-Dauphine, is the current president of the Mont Pèlerin Society. He is the author of five books and many articles in academic journals, including The Review of Austrian Economics. Professor Salin was interviewed by the editors of the AEN at the January 1996 Austrian Scholars Conference at Auburn University in Auburn, Alabama.
AEN: In The Review of Austrian Economics (9, no.1), you wrote a blockbuster that argues against the existence of the income effect. How did this piece come about?
SALIN: I am writing a book on tax theory. In my research, I was struck by the debate surrounding the Laffer Curve. The idea is simple: people will supply more labor at a higher price than a lower one, and that could indeed generate more revenue. Yet among professional economists, there is near unanimity that lowering taxes can cause people to produce less and purchase more leisure. The reason is invariably the "income effect": people produce less because they suddenly have more income. Therefore, if we want high production we should also have high taxes. I had a feeling something rotten was going on. How can a theoretical framework be right if it makes reducing taxes also reduce output? I began to look into it and talk with some of my students. We concluded that the income effect does not exist as a general phenomenon; it is a mathematical illusion in a badly specified world. It depends on specific assumptions which are not spelled out. It also imposes an artificial separation between the theory of consumption and the theory of production. In fact the "substitution effect" is the only one that exists. If another effect appears so that a tax, for example, seems to increase productivity, everything else being equal it is only the process of adjustment from one equilibrium to another, a secondary phenomenon perhaps, but never dominant.
AEN: In the article, you also provide an Austrian critique of the idea of income itself.
SALIN: I found that the problem wasn t so much the "effect," but the concept of "income," which I think is meaningless. Here is a major point of departure between Austrian and neoclassical economics. If you start economics assuming people are "income maximizers," you forget that income is not something which has meaning for the acting person. An actor is attempting to pursue his own objectives, which can be anything at the top of his preference scale and which he can act on, but not income per se. People have the illusion that they understand what income is, since they deal with something called "income" every day and especially at tax time. It seems well defined and it can be measured. One can use it to develop all sorts of relations between it and other variables, and the results appear scientific. Yet there is no reason to use income as the key human motivator any more than to theorize that people seek only to maximize social prestige, gourmet cuisine, and love affairs. Just so, the income effect is a device that allows economists to depart from the correct basis of economic theory, purposive action and marginal utility, and enter into another approach entirely. It is completely arbitrary and incoherent to jump from marginal utility theory to this concept of income. There is no logical link between the two.
AEN: Did you find anything in the literature to back you up?
SALIN: Other than the general theoretical framework of the Austrian School, I was surprised that I didn't find much. I found debates on which effect dominates, income or substitution, but little on the theoretical concept of income itself. But this is not surprising. Economists often end up with the wrong conclusions because they don't think rigorously about foundations and methods. That's why, in my book on taxation, I had to start from the very beginning, and trace the effects carefully. This case shows what happens when economists work solely from mathematics and indifference curves. Curves can be twisted every which way to show anything you want. You can draw an expansion path so that the quantity of labor is increasing, decreasing, or unchanged when its price is decreasing. But this does not give any information about real motivations. If we believe as we should that economics must be coherent with rational logic, we should get rid of any graphical expositions that contradict logic.
AEN: How important is this tax issue for French economic policy?
SALIN: Extremely. In France, people don t know much about economic theory, even classical economics. But they know things like the income effect. Even average people, when discussing the effect of taxation on the supply of labor, will claim it is irrelevant.
AEN: When you say people don't know economic theory, do you mean professional economists?
SALIN: Certainly. Pollsters have found that in Europe and the United States, economists know more economic theory the effects of price controls, for example than the average layman. But in France, it's different. Exactly the same percentage of both groups are wrong. Austrian economics is largely unknown, but so is basic mainstream theory. At best, economists accept a mixture of Keynesian and socialist theory. Even that doesn t capture the level of ignorance. Right now, for example, the consensus among economists is that if we want an economic recovery, we have to increase consumption. Keynes never said that. It is a popular version of Keynes. They still use ISLM as the entire basis of macroeconomics. It is very sad. New generations are more and more inclined to learn new approaches, but the combination between state-funded universities and the state itself is a very difficult cartel to break up.
AEN: Does this make life difficult for dissident economists?
SALIN: France has a highly centralized educational system. It is very difficult to get a position, anywhere, when you are not in the mainstream. What is called economic research is dominated by civil servants who come mainly from the Ecole Polytechnique and the Ecole Nationale Administration. They offer an administrative or accounting approach to policy issues. To solve some national problem, they begin by getting statistics, getting international comparisons, and finding the right measures to make our numbers look as good as those of other countries. They are very clever, but they are not doing economics.
AEN: Yet France has produced some great economists over the centuries.
SALIN: In the 18th and 19th centuries in particular. Murray Rothbard writes brilliantly on these people in his two-volume work An Austrian Perspective on the History of Economic Thought. Very fascinating. But, today, the likes of Frederic Bastiat are completely forgotten. A friend of mine published a small collection of writings by Bastiat. Only 600 copies sold. There is a Bastiat Club, but the followers of this tradition are a very small group. Most people who know who he is would say he is merely an old-fashioned economist.
AEN: How can this decline in intellectual life be explained?
SALIN: This is the key question. How did the ideas of statism come to replace classical liberal ones? And why is Austrianism a small presence in France, the country that produced Say and Bastiat? Ultimately we have to talk about method. I agree with the methods of Mises, Hayek, Rothbard, and apriori deductivism generally. But positivism, the very opposite view, is dominant in the social sciences. I was struck when I read what Hayek said about France. I think he gave the best explanation. At the turn of the 19th century, we had the best scientific establishment in the world. People were amazed at the biological advances made by scientists. They thought the same track was available for economics. They adopted the competitive-positivist approach of Auguste Comte and Saint-Simon. French academics have since acquired this idiot view that positivism can save all fields of knowledge.
AEN: Positivism and science are supposed to go together.
SALIN: That's the mythology. People say positivism lends prestige because it requires rigorous methods and training. But the truth is that economics and the social sciences are far more difficult. The process of thought by which one reaches true conclusions is hard. It requires a level of abstraction which, quite possibly, many people are unable to sustain. Mathematical economists mainly need formal rigor, the ability to shift logically from one statement to the other. But they do not need conceptual rigor, which is the ability to fully understand the meaning of the words one is using. Austrians need both sorts of rigor. We need the ability to reason scientifically about meaningful concepts in the social science. I have long believed that the methodological problem is the main one for the future of liberty. France is dominated by intellectuals with formal rigor but no conceptual rigor. They lack the ability to understand complex human relationships like free exchange and investment. Today, for example, we have a very famous school of mathematical social engineers and economists. And it is quite fantastic that someone like Nobelist Maurice Allais, who in France is considered a libertarian, is seen as the model.
AEN: Austrians have been interested in Allais because of his price theory and opposition to fractional-reserve banking.
SALIN: His is a patchwork form of economics. Some of what he has written is quite acceptable and other parts are not. But there are no links between the parts. He has no theory of man, no theory of society, and no theory of rationality. He has a mathematical and formal approach of interrelations between units, which are called individuals, but in fact are not. To that, he adds his own impressions, prejudices, and wishes. It is quite true that he has an inclination toward knowing what the free market is. But he sees the market as merely an instrument to something more, which is general equilibrium. To him, private property is useful only because it makes it possible to reach equilibrium and promote efficiency. This view of liberty is purely instrumental and not principled. That's why he ends up favoring state intervention in areas like scientific research and housing. It's a completely random choice. When you see the list, it is hard to tell the difference between Allais and a socialist. To me this is very characteristic of economists of our time in France.
AEN: Yet how can we distinguish between Hayek's concessions to the state and those of Allais?
SALIN: We may find that Hayek is not completely coherent, and that he doesn't always test his conclusion against his theory. For instance, his proposed Constitution is more activist than it should be, and he is often in contradiction with himself in areas of policy. Hayek provides a framework for understanding liberty so we can arrive at our own conclusions. It is much worse with Allais. He has no theory against which he allows himself to be measured. He offers no theory of human behavior. We have to depend on the master to inform us of what to think on every issue since his thought is utterly unpredictable.
AEN: How is the lack of economic sophistication in France affecting the political situation?
SALIN: It affects it greatly. People cannot imagine that there might be another way to solve economic problems. The only solutions they can imagine are administrative solutions and Keynesian-inspired solutions. There is no difference in the economic policies of the left and the right. They all pursue the common approach to reform: tax increases, attempted spending cuts, regulatory reforms. And they approach all policy problems as if incentives do not matter. If there is a budget deficit in the Social Security System, they increase taxes. They could decide to reduce public expenditures, of course, but there is too much political resistance. Moreover, people do not understand that resources will be freed up to provide for economic growth if the government stopped taking them. At the very time when budget deficits are reaching 6 percent of GDP, government spending is increasing by 4 percent. Productivity is increasing only at 1 or 1.5 percent. Then the government is forever shocked that public revenues are less than they expected.
AEN: How coercive is the tax system?
SALIN: It is not very easy to drop out of the official system. It is more difficult than in Italy or other places. The tax administration is powerful, arbitrary, and very large. Rates can run as high as 80 percent. Because taxes are so high, the system is also extremely complex. Along with job insurance and the minimum wage, it is the main cause of unemployment. But it is difficult to make people understand that.
AEN: Did you think Jacques Chirac would push policy in a different direction?
SALIN: I did have some hope. Sometimes he sounded like a classical liberal. But that was because some of his speeches were written by a close friend of mine, Alain Madelin, whose support may have played a major role in Chirac's victory. In one Chirac speech I even recognized a sentence of mine. So I was overjoyed. I thought: now here is a case of an intellectual involved in French politics and the only real libertarian. So I was very happy when Chirac was elected. I was quite certain that Madelin would be in a position to push this tax reform. He was made head of the ministry on economics and finance. But Chirac put the heads of bureaucracies lifetime civil servants in charge of solving the unemployment problem. At that moment, I knew there was no hope. In fact, Madelin had no influence and he resigned.
AEN: That story sounds familiar.
SALIN: Yes, because it is a constant problem we have as classical liberal reformers. Even if Madelin had been in a position of influence, he would have been surrounded by people who do not understand such basic concepts as incentives, economic growth, and the market economy. It's still worth the effort to fight it out in politics where you can do some good. But our more basic problem is an intellectual problem. In many ways, I feel French intellectual life is as closed and homogeneous as it must have been in the old Soviet Union. The media, universities, and politics converge to defend the same statist system. They constitute a big cartel, and not the good type that I defend in the upcoming Review of Austrian Economics (9, no. 2).
AEN: Let's talk about the EC. Let's say France transfers some of its monetary and fiscal authority to Europe. Would that be a good thing for liberty?
SALIN: I have long opposed European monetary integration. In 1980, I wrote "European Monetary Union: For Whose Benefit?" with a forward by F.A. Hayek. At that time, I was the only economist in France to oppose this artificial sort of monetary integration. My theory is that it would merely substitute a supranational monopoly of money creation for the existing national monopolies. This is no improvement, and it risks increasing the likelihood of inflation over the long term. There is nothing in the Maastricht Treaty on how money would be managed by a European central bank. Perhaps it would be tolerable. Perhaps a German-style tight money regime would prevail. But if it is democratic, the bank would also be managed by the French, Italians, and everyone else. So we can t know the outcome. That itself creates uncertainty. We might end up with the same sort of problems plaguing the existing situation: exchange controls, inflation, and worse. At least with the present system, we have competition between currencies. France has a long history of inflating away public debts at the people's expense. Today only the desire to compete with the Deutschmark compels the French authorities to pull back. I would rather have a gold standard than the present system, but I ll take what we have now over further steps toward artificial monetary integration. In order to comply with the long-term plan, the government wants to reduce the deficit, but through a tax increase. It is also attempting to maintain a parity with the Deutschmark by use of artificially high exchange rates, whereas France should probably actually devalue its currency within Europe. In both these respects, Maastricht is having a negative impact in the short run.
AEN: In reality, monetary integration seems no more likely now than ten years ago.
SALIN: It may never happen. It is very difficult to forecast but my guess is that the deadlines will keep being pushed back. People in France, partly for nationalistic reasons, are less willing than in the past to participate. But there are many bureaucrats and intellectuals who think a currency is something that can be created by coalitions of governments. They will keep trying.
AEN: Are there other reasons you oppose Maastricht?
SALIN: Libertarians and Austrians should be skeptical about all attempts at government centralization. I favor economic integration through competitive free markets, but not political integration. The French intellectuals who were active in building this supposed dream of a unified Europe all favored interventionist and socialist policies. There is a certain logic here. Making socialism Europe-wide is one way of avoiding having to pay a domestic price for statist policies. At the same time, steps toward economic integration have liberalized some sectors in France air transportation for instance. To me, integration should only mean economic competition, which builds on economic exchange between countries, and not closer links between government agencies.
AEN: France has had many difficulties with the question of immigration.
SALIN: As a libertarian, I am in favor of the free movement of peoples. France has benefited from immigration for a very long time. Immigrants have long contributed to our civilization. To me the liberty of individuals is so important because the ultimate source of wealth is the human mind. Societies are harmed when they restrict the right to move. But in France, it is impossible. We do not live in a libertarian world. Private-property rights are not enforced. We have an enormous welfare state. Right now we have a high quantity of immigration, but very low quality. The people who come have low incomes and low skills. Then they get government subsidies. In the end, they take more from society than they contribute, which complicates the issue enormously. It's true that France has very strict rules. But immigrants have learned how to manipulate them. People come for welfare while claiming that they have political problems at home. They claim the need to reunite families, but they are reuniting families that already have several wives. If the present law were obeyed strictly, immigration would be stopped. But that is not what happens. Millions of people come without authorization and then learn how to manipulate the system. After ten years or so, you can't send them back. The problem of immigration continues to be a very difficult one for France, but with no clear answers, even from a libertarian point of view.
AEN: Why has it proven so difficult to enact free-market economic reforms in democratic societies?
SALIN: It is true that it has been difficult, and in some specific cases, for example Chile, the authoritarian systems have been better for that purpose. In the case of France, we have a welfare system that is managed by the trade unions and the government in a corporatist fashion. We also have a bureaucracy which is a captive of union power. The trade organizations and large businesses collude. They have the same world view and defend each other's bureaucratic powers. Any change in the system creates the risk of strikes, so no government, right or left, proposes far-reaching changes. The social democratic system may be socially unstable, but politically, it is very strong. The elites all realize they would have less power in a society in which the welfare state became smaller.
AEN: It's incredible that this continues even after the fall of the Berlin Wall.
SALIN: When socialism collapsed, I felt like we were victorious. At last it would be recognized that Mises and Hayek were the great minds of the century. Yet the reverse happened. The core error, which we didn't expect, was that people confused liberty with democracy. The socialists in France have the idea that the political changes in the former Soviet Union and Eastern Europe were about overthrowing one-party rule, not the system of social and economic planning. These countries have become social democracies. In Europe, if you say that democracy is less important than liberty, you will be in deep trouble and called extreme right.
AEN: Last night, Ralph Raico argued that achieving the goal of a free society will require more than education and political action. There are also certain cultural preconditions. Did that provoke any thought in you?
SALIN: It was a very challenging paper. When I discovered the Austrian stream of thought, I was overwhelmed and persuaded immediately. But that's not true for other people. How is it that some people are inclined toward clarity and truth in the social sciences but others are not? I don t know. Hayek and Mises thought that people are wrong about liberty because they have not been exposed to the truth. The problem is even worse because the intellectual game is rigged against us. Our ideas are dangerous to the elites. They use every means possible to exclude Austrians and libertarians from public and academic discussion. They call us extreme and marginal and so on. In French universities, liberal intellectuals cannot get courses on their chosen subjects or get scholarships for their students. The trade unions keep the system locked up to prevent threatening ideas from getting in. There is a strong link between the public school system and the difficulties of spreading good ideas. I tell my students, if they are going to write a dissertation with me, they are going to suffer. They will have a difficult time getting published and finding a position. There is no freedom of expression in French academia. A student recently came from Bulgaria to Paris to write a dissertation on the French classical liberal tradition. She expected to find convinced capitalists everywhere. After a couple of weeks, she concluded it was the same as in Bulgaria.
AEN: You also mentioned that the media is a problem.
SALIN: Television is almost entirely public, so there is no competition. The one private station relies heavily on the government. The same is true of the media generally. A good newspaper in France is La Figaro, and it has published articles on the Austrian School, Hayek and Mises, and favorable reviews of Rothbard's works. But it is not a reliable outlet. They had planned to publish work by some of my students opposing tax increases. But they canceled at the last minute because they decided to support the government. Even within private circles the government can exert this kind of pressure.
AEN: Given all this, what led you to the Austrian School?
SALIN: I was educated at the University of Paris by a more or less Keynesian department. After five years, I had the feeling that I had not learned anything at all. But then, with some friends, I organized a seminar named after J.B. Say. Our professors saw it as a provocation. We knew we were taking a risk, since we had to pass a nation-wide competition for appointments. Once we were accused of being liberal and following in the wake of Anglo-Saxon imperialism. Why? Just for reading The Journal of Political Economy! I hadn't even been exposed to the Austrians yet. Then I read a booklet by F.A. Hayek. From the very first page, I was fascinated. It created a sort of intellectual revolution in my mind. The same was true of later Austrian work. I remember reading The Denationalization of Money. After two or three pages, I was so excited that I wrote several pages on the subject before I could continue with my reading. After that exposure, I was an Austrian for life.
AEN: You have written a book about Jacques Rueff, de Gaulle's economic advisor. What was your relationship with him?
SALIN: Rueff is a very interesting case. He was not a professor, but he did give lectures at the Institut d'Etudes Politiques. He was a civil servant. Before he became a liberal thinker, he believed strongly in the state and the planned society. He was proud to be one of the state's servants and to belong to the nomenklatura. Yet he was a truth seeker, largely self-educated. Being an auto didact is a French speciality, you know, so he did not read much from other authors. Over the years, his views began to change and he became more liberal minded. I like his work because everything is linked to his general view, even if sometimes it is difficult to understand his words and internal concepts. Though I was not a student, I was close to him and appreciated his political inclinations. I also appreciated his personal kindness. He was always a gentleman. The first opportunity that I had to meet him was when I was writing my dissertation. I don t know how he heard of me, but he invited me to his home, which was quite nice.
AEN: What would you say are his main intellectual contributions?
SALIN: He was a great balance-of-payments theorist and a precursor of the monetary approach. His monetary theory is linked to the rest of his world view. Even though he was a general equilibrium theorist, he had a philosophical background, and came up with a theory that was somewhere in between the Austrians and the classical economists. He made a distinction between two kinds of interventionism: conforming and nonconforming. Regulations and price manipulations are nonconforming, but, surprisingly, taxation is normal and conforming. This would seem to make him a member of the Chicago School, but I would say he was not too far from Maurice Allais. Both were educated in mathematics and the natural sciences. Both believe there is only one proper methodology, positivism. They believe that science is measurement, and that is that. It all seems to come back to this central error.
AEN: Can you tell about the theory of cartels you have written about in the upcoming issue of the RAE?
SALIN: I've been fascinated by the possibility that cartels are not always inefficient and unstable super-profit makers. They don t always make resources scarcer and increase prices. They can also be the preferred outcome of market competition, if we understand competition properly. Cartels can increase the value of production and the efficiency of the market process. In this article, I modify Rothbard's argument on monopolies, and argue that cartels making substitutable products may have advantages over a single producer.
AEN: Do you enjoy the Mont Pèlerin Society?
SALIN: I can't praise it enough. Next year will be the 50th anniversary of the Society. We will have a meeting in Mont Pèlerin and invite the oldest members to come. As you know, Mises was also a founder of the organization.
AEN: Did you ever hear the story, probably apocryphal, about Mises being so exasperated with the socialist thinking of one session that he left the meeting?
SALIN: No I haven't. But I can imagine that Mises, being a very principled and consistent thinker, would be troubled by some statements. The Society is generally classical liberal, but we have many different streams of thought. I have been criticized for making our programs too Hayekian and too Austrian.
AEN: You are at the center of a worldwide movement for liberty. How do you assess its present status?
SALIN: I see enormous growth in the importance of the Austrian School. The attendance and papers at this Austrian Scholars Conference prove that, with so many good minds from around this country and the world. The writings of the Austrians have begun to penetrate. I have only been frustrated that so many sessions are concurrent and I can t attend every one. A few people are capable of doing a tremendous amount of good, so long as they are willing to stick to their principles and use every means at their disposal to advance truth. Some years ago, I could not have imagined it would be possible to gather so many Austrian thinkers in one place and hear so many interesting papers.
AEN: What about your own influence in France?
SALIN: For many years, my friends and I have been completely ignored. During all the years when socialist ideas went unchallenged, I could not break through. But here's a small story that makes me hopeful. When Chirac's economic minister resigned one Friday night, I got a call from Le Monde asking for an article. They wanted it in the morning, and I wrote it between 1:00-2:00am. I explained that there is no real distinction between right and left social democrats; they both favor state planning. The real distinction is between those who favor liberty and those who do not. I was pleasantly surprised. This article was published on the front page and has been widely circulated. Many readers were exposed to something new. Since last September I have had a lot of interviews on television, which is completely new for me. We still live under a totalitarian domination of public and academic opinion. Are we past the point of no return? I hope not. But it is going to require hard work to restore our intellectual tradition, and the policies and society that follow it. Hayek once told me that Austrian thinkers are part of the hope he had in the world. I would say Austrians are the only hope.
Volume 16, Number 1Michael Prowse, the American economics correspondent for the Financial Times of London, has been compared with Henry Hazlitt for the clarity of his thought and prose, and for his use of Austrian insights in his writing. This speech was delivered at the Mises Institute's 1996 Austrian Scholars Conference at Auburn University.
I'm delighted to be here in Auburn. And I want to say how much I've enjoyed the presentations of the past two days.
I'd like to begin by giving you an idea of the structure of my remarks. I'll start by giving you a little personal history--how I came to be interested in Austrian economics and classical liberalism. Then, as a journalist (and thus in a sense a representative of the public mind), I'll tell you what I find attractive about the Austrian approach.
Let me apologize in advance if some of what I say is not new: I'm more used to addressing audiences who believe Austrian economics has something to do with central Europe than a roomful of some of the foremost experts in the U.S. I'll then look at some of the challenges facing Austrians in the late 1990s and finish by assessing the progress Austrians are making in the battle to influence public opinion.
You'll probably not be surprised to learn that I heard nothing about Austrian economics when I attended British universities in the 1970s. When I was a graduate student at the London School of Economics, that distinguished institution was going through a Keynesian phase: Alan Walters (later an adviser to Margaret Thatcher) had already left for Johns Hopkins and had been replaced by George Akerlof from Berkeley, a quintessential American Keynesian. Friedrich Hayek might never have graced the LSE's portals.
I emerged from higher education--like most of my generation in Britain--with a strong affection for the public sector. Like so many others, I believed that you could not be a compassionate, caring person unless you believed in big government. I accepted that market forces had some uses in promoting economic efficiency. But I thought the government had to intervene in countless ways to prevent "market failure" and that it had a moral duty to redistribute resources on a massive scale to ensure "social justice."
I don't feel much need to apologize for having held these views. They were entirely natural for someone brought up in a welfare state. None of my teachers in school or university seemed to have any interest or first-hand knowledge of industry or commerce. Entrepreneurship was equated with greed. Coming from this background, it is hardly surprising that, as a young journalist in the early 1980s, I was instinctively hostile toward the Thatcher government's free-market agenda.
How and why did my opinions move in a classical liberal direction? Three sets of forces helped change my views. The first was the demise of communism in eastern Europe and the Soviet Union. It struck me as intellectually dishonest to argue that the collapse of planning on a large scale had no implications for planning on a small scale. My confidence in government intervention everywhere diminished as a result of those historic events.
The second influence was simply moving from England to the U.S. six years ago. There are, of course, plenty of supporters of big government in Washington, D.C., where I now reside. But the free market/libertarian case is presented with far greater vigor here than in the U.K. My faith in markets as a ladder of personal opportunity has been strengthened because here in the U.S. the link between wealth and social class seems less pronounced than in Europe. It is striking how often U.S. supporters of liberty and free markets come from relatively humble backgrounds.
But probably the most important influence was my own reading and study. About five years ago I took the advice in John Stuart Mill's "On Liberty" rather too seriously. "He who knows only his own side of the case knows little of that," Mill wrote. I decided I should make a better effort to understand the arguments of critics. I ended up, to my embarrassment, concluding that their arguments were better than mine.
The first Austrian book I read was Hayek's Constitution of Liberty. I then turned to The Fatal Conceit and his three volume opus Law, Legislation and Liberty. I noticed that Hayek frequently referred to a Ludwig von Mises--a name that I had never heard mentioned in the U.K. So I read Human Action from cover to cover.
Some people find this book difficult or off-putting. I found it inspiring from start to finish. In fact, in describing my reaction, I can do no better than quote from a review in The Economist magazine of December 1949. Human Action, it said, is a "magnificent book; intellectual power roars through it like a great wind; it has the impetus of first-rate polemic and the impeccable coherence of Euclid.
After Human Action turned to more recent books on Austrian theory and read works by Mises' two most prominent American students: Murray N. Rothbard and Israel M. Kirzner. At that point I began to realize that Austrian economics is very much a living tradition--at least in the U.S.
The clarity of Rothbard's writing on economics prompted me to read his political work, especially For a New Liberty, his uncompromising defense of "anarcho-capitalism." At this time I became familiar with the work of Henry Hazlitt, James Buchanan, Anthony de Jasay, and other writers in the classical liberal tradition. I'd come a long way from the British welfare state.
Over the years I've managed to publish quite a few articles and columns on Austrian and classical liberal themes in the London Financial Times. I must say this has not always been easy. In the minds of London-based editors, Austrian economics is something that should be covered, if at all, by correspondents in Europe. I'm supposed to write about America, not about the finer points of 19th-century Viennese culture. It cuts little ice to argue--in Karen Vaughn's words--that there has been a "transfer of a tradition."
So I've had to be imaginative in thinking up justifications for articles: in 1994 for example I wrote a long op-ed piece presenting Austrian theory as an "antidote" to the "economic correctness" of Clinton's Council of Economic Advisers, then headed by Laura Tyson. Last fall, I smuggled in a piece on Austrian business cycle theory in the form of an imaginary conversation on the U.S. economic outlook between Keynes and Mises. You will be pleased to hear that it ended with Keynes describing Mises as a "genius" and declaring "you never know, I might become an Austrian." Actually that is not as improbable as it sounds: Keynes was deeply impressed by Hayek's Road to Serfdom and would probably have been appalled by much of post-war "Keynesian economics."
So what, from a journalist's perspective, do I find appealing about Austrian economics? I should say that my appetite was whetted initially by the sheer implausibility of the Austrian story. The message is that the vast majority of economists--including great names such as Paul Samuelson and Milton Friedman--fundamentally misconceive the nature of economic processes. True understanding is restricted to a small band of thinkers, originating in Vienna, Austria. And the truth is kept from the public by the ignorance and mendacity of the profession at large. This is a most appealing story line.
Having become familiar with Austrian theory, I think its attractions are best summarized as "six virtues."
The first--from my perspective--is the realism of the Austrian approach. I believe Austrians analyze market capitalism as it is, not as it might be. Unlike neoclassicals, they make room for such real-world phenomena as Rupert Murdoch, the Australian media tycoon.
The Austrian vision of market competition as an endless dynamic process in which powerful companies struggle for commercial supremacy accords perfectly with the everyday experience of business people and workers. You only have to look at the telecommunications or computer industries today to grasp the realism of the Austrian "process" model of competition.
I need hardly underline the contrast between this red-blooded characterization of capitalism and the insipid general equilibrium model so beloved by mainstream theorists. For the man in the street, the perfect harmony of general equilibrium is an utter fantasy. He would never believe that perfect competition occurs only in a state of equilibrium in which all companies are passive price takers, and in which nothing changes.
Austrians, I believe, have remained realistic because they have never suffered from what has been called "physics envy." Mainstream economists adopted the methods of the natural sciences in the hope of gaining greater prestige. Unfortunately, as Murray Rothbard argued, the model they chose to emulate was classical mechanics circa 1850. Science has since moved on, but neoclassical economists remain wedded to long-outdated nostrums.
Mainstream theorists fail to grasp that the subject matter of economics is very different from that of natural science. Science deals with an objective realm of inanimate objects; economics with the subjective thoughts and feeling of human beings. It is surely ridiculous to imagine that similar mathematical techniques would apply in such different realms.
The second virtue of Austrian economics is its emphasis on the dispersal of knowledge. Hayek, as everyone here will remember, made this point with great clarity in some famous papers in the late 1930s and 1940s. As he argued, the sum total of knowledge available in an economy "never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess." It follows that nobody--and that obviously includes the government-- is able to take a God's eye view of economic or social life.
Politicians should be humble and cautious when they attempt to make decisions on behalf of the community as a whole because they rarely, if ever, possess enough knowledge to make the right decisions. The fact that this humility is so rarely evident only shows that Hayek s arguments, although totally familiar in Austrian circles, are still not widely understood.
Indeed, they are still not understood by otherwise competent economists. What, I often wonder, do mainstream economists think they are doing when they write down utility and production functions for numerous agents in an economic model? Don t they realize that nobody in a real-world economy could possibly possess all this knowledge?
Once Hayek's point is grasped there is no alternative but to adopt an Austrian view of markets: to see competition as a process by which knowledge is discovered and efficiently shifted around an economy. Knowledge is what you get as a result of the competitive process, not something you can assume at the outset.
I regard Hayek's argument as a powerful--perhaps the most powerful--argument against nearly all forms of government intervention. And I believe it has a special resonance for journalists who see government at close quarters. They cannot help noticing that public officials frequently have very little knowledge of the issues on which they make such sweeping decisions. They also notice that different parts of the public sector possess--in Hayek's words--"bits of incomplete and frequently contradictory knowledge." Many journalists are proto-Hayekians, without knowing it.
The third virtue of Austrian economics, to my mind, is the Misesian theory of entrepreneurship. I've always found it curious that mainstream economists have so little to say about the motive force of capitalism. They write endless papers about monetary policy, fiscal policy, and other functions of government. But entrepreneurship itself gets short shrift: indeed there is no place at all for it in the most prestigious general equilibrium models.
For Mises, as you know, entrepreneurship was utterly fundamental to all economic activity--indeed to all human action, which he defined as purposeful attempts to remove feelings of uneasiness. This is because all human action occurs in conditions of radical uncertainty. We have to act, yet we cannot know the consequences of our actions. As Mises emphasized, we are thus all entrepreneurs or speculators.
When we buy a house or choose a career we must make assumptions about future real estate prices or salary trends that may or may not be justified. If we guess correctly, we prosper, but there is always a risk of disappointment. Such everyday actions are no different in their essentials from the decisions of the business tycoon who buys factors of production today in the hope of supplying a good or service at a profit in the future.
Once one understands Mises's point, one realizes that entrepreneurship is not something one can be for or against. Properly understood it is part of the human condition; it is unavoidable if we are to act purposefully in an uncertain world.
The fourth important virtue of the Austrian School is its inter-disciplinary approach and philosophical sophistication. Today, most mainstream economists appear to be technicians, happiest when surrounded by equations or working with computers. They focus on refining the mathematical properties of existing models and rarely stop to question the realism of their underlying assumptions. Their theorizing frequently takes place in an intellectual vacuum.
Austrians, by contrast, have resisted the post Second World War trend toward ever-greater specialization. They remain political economists in a sense that Adam Smith and David Hume would have understood. They tend to be well versed in related disciplines such as political science, law, philosophy, and history. This breadth of vision is common to all the great writers in the Austrian tradition. You cannot miss it in the work of Menger, Mises, and Hayek or, more recently, in that of Rothbard and Kirzner.
As a journalist and a generalist by nature, I find Austrians capacity to relate economic issues to broader political and philosophical themes tremendously appealing. I also believe that breadth of vision is essential if economics is to retain its appeal as an intellectual discipline. If mainstream theorists fail to heed this lesson, they will become increasingly sidelined in academic debate.
The fifth virtue of Austrian economics is the clarity of its policy prescriptions. Economists in general have gained a reputation for equivocation. Their advice is nearly always hedged with qualifications: on the one hand such and such would be desirable but on the other hand . . . Frustrated by these caveats, one famous politician said it was his ambition to find a "one-armed economist."
There is no denying the existence of some policy differences among Austrians. Some believe that central banks monopoly of money creation is justified while others favor free banking. Some--especially European Austrians--support aspects of the welfare state, while others would abolish it entirely. But differences between Austrians pale into insignificance when compared with differences within the profession at large.
Mainstream economists involve themselves in highly technical debates about the efficacy of numerous different kinds of government intervention. They tend to analyze each intervention separately. Austrians look at the big picture. They recognize that each separate intervention--however appealing it seems at the time--contributes to a habit of intervention that is bad for society in the longer run. They recognize that interventions usually serve the interests of special lobbies rather than the wider community. And they recognize that government legislation is very hard to repeal.
Austrians thus tend to be opposed to intervention, period. They understand that the goal of public policy should be to maintain free entry to all markets--that this is the precondition for competition to work its magic. I am certain the public would find this clear policy stance appealing--if it understood the underlying rationale.
The sixth and final virtue from my perspective is the Austrian School's "historical credibility." Journalists are not much impressed by abstract arguments. But they do respect people who call events and trends correctly. As you all know, Austrians saw the flaws in socialism sooner than anybody else. Neo-Keynesian technocrats were still defending socialist planning in the mid-1980s, 60 years after the publication of Mises's book Socialism.
Today, I suspect Mises's critique of communism will strike many readers as so obvious as to hardly require stating: of course efficient decisions will not be possible in the absence of market prices for the means of production; of course a socialist economy would have no means of adapting to the dynamic change that is inherent in all economic life.
Yet we should always remember that this was not obvious to the vast majority of the brightest intellects of this century. As late as 1938, in a review of an English language version of Socialism, Frank H. Knight, father of the Chicago School, supported Oskar Lange's criticism of Mises. Knight wrote that economic life under socialism, and I quote, "will be in general form about what it has been under capitalism." Socialism, he argued, presented a political but not an economic problem. And he accused Mises of, and I quote, "an amazing tissue of question-begging assertion and mere quibble." If this was the view of Frank Knight, you can imagine what lesser minds were saying.
Having outlined some of the principal virtues of the Austrian approach, I now want to consider challenges facing Austrians in the 1990s.
Let me start by making an heretical suggestion: the challenge is not principally intellectual. I know there are a lot of theoretical debates and disagreements. Should Austrians abandon the neoclassical concept of equilibrium altogether, as Ludwig Lachmann suggested? Or should they, following Israel Kirzner, regard market process theory as a device for shoring up neoclassical doctrines, as a device that explains why a capitalist economy, in the absence of shocks, would tend toward an equilibrium?
I think these and other arcane disagreements are generated by an unquestioned assumption: that knowledge must always advance in all academic disciplines. This is a 19th-century assumption and perhaps is true of natural science: perhaps there is always more to be learned about physical reality. But in social science and the humanities the concept of progress is more debatable. There is no reason in principle why Mises and Hayek, building on 19th-century thought, might not already have said most of what is important about the functioning of market economies.
It may be that we are in an age of seriously diminishing returns. It may be that economics as a discipline does not have much work to do, other than to educate the young. It may be that the sterility of much economic research reflects the maturity of the discipline. Indeed, I suspect that were it not for massive public subsidies, there would be far fewer academic economists and far fewer PhDs awarded. If this thesis is correct, it follows that the principal task for Austrians is not to add bells and whistles to the theories of Mises and Hayek, but to try to ensure that their ideas are more widely disseminated. The primary task facing Austrians--and this is the most important point I want to make tonight--is thus outreach, not research: it is influencing the climate of opinion, not breaking new ground. There are two ways to proceed: first, to try to convert mainstream economists to the Austrian paradigm; secondly, to bypass the profession and speak directly to the broader public.
The first route is hard, but important: the economics profession is the filter through which the media and public gain an understanding of economic processes. If most academics are neo-Keynesians, it is likely that most of the public will share their opinions.
The Keynesian revolution offers two insights into the most efficient means of achieving a paradigm shift. The first is that if you want to re-educate a profession, you have to influence students and young scholars. The Keynesian theory was victorious not because it converted mature scholars (who knew the classical counter-arguments) but because it altered the way the young were taught. Eventually the older professors died off leaving the profession in the hands of younger academics who were simply ignorant of many of the pre-Keynesian doctrines.
The second insight is that the agent of change must have mainstream credibility: Keynes's heresies were taken seriously because he had previously established his credentials in classical theory. Unless somebody like Paul Krugman experiences a sudden conversion, this suggests that Austrian infiltration of the profession will remain a slow process.
The other route--speaking directly to the public--seems more promising, thanks to the efforts of institutes such as this. I can testify from my own experience that people are surprisingly receptive to Austrian ideas. I got more enquiries in response to a column in the Financial Times last year on the Elgar Companion to Austrian Economics than to any other article I wrote, with the possible exception of a piece exploring Adam Smith's ethics.
This is encouraging since Austrian economics is often seen as too esoteric a subject for the ordinary business reader. The level of interest reflects, I believe, a deep-seated disillusionment with the scientific pretensions of mainstream economists: their comical efforts in the field of economic forecasting in particular have helped fuel popular discontent.
Austrians may not be getting many articles published in the so-called "top" academic journals, but publishers in the real world seem increasingly interested in the school. British publishers putting out Austrian texts recently include Cambridge University Press, Routledge, Edward Elgar, and Pickering and Chatto. The ready availability of Austrian books and articles is having an impact on public opinion. It is striking that in the past year, writers in the Washington Post and other popular publications have referred, without feeling the need for much explanation, to Mises and Hayek.
Let me finish by congratulating Austrians on their success in advancing the broader cause of classical liberalism. In the U.S., government expenditure accounts for about a third of national income--and this is the lowest in any large industrial country. This level of public spending is probably at least three times higher than a classical liberal would desire. So it is undeniable that "welfare liberalism" as a practical political doctrine is still in pretty good shape.
However, to illustrate the turn in the tide of ideas, I'd like to end by quoting from the introduction to Mises's Socialism, published in 1922. He wrote: "Socialism is the watchword and the catchword of our day. The socialist idea dominates the modern spirit. The masses approve of it. It expresses the thoughts and feelings of all; it has set its seal upon our time."
The fact that this is no longer the case shows how much progress has in fact occurred in the past 75 years. Indeed I believe that Mises, were he still alive, would be immensely gratified by the extent to which market capitalism has become the watchword and catchword of our day. That it has become so, of course, in large measure reflects his efforts.
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- *Special Note: Since Mr. Prowse gave this paper, he has shifted toward a more statist position. For more on his new views and an intelligent response to them, see Thoughts on Power and Wealth.
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Volume 17, Number 3 (Fall 1997)An Interview with Jeffrey M. HerbenerJeffrey M. Herbener, a senior fellow of the Ludwig von Mises Institute, has taught economics at Washington and Jefferson College and is now professor of economics at Grove City College. Author of many articles on the microeconomic foundations of Austrian theory, he is associate editor of The Quarterly Journal of Austrian Economics, director of the Austrian Scholars Conference, and a lecturer at the Mises University, during which he was interviewed for the AEN.
AEN: Congratulations on your new teaching position at Grove City College in Pennsylvania.
HERBENER: It's a great honor. Grove City not only has a beautiful campus; it also has very high admissions standards, so its student population is top quality. It takes no government money, and never will--not even in the form of federal loans to students. So it is able to maintain its freedom from federal control. It is spared government mandates to waste students' tuition payments on sports programs no one wants, and remedial programs no one here needs. The curriculum reflects that independence. It's tough and comprehensive the way a liberal arts program should be.
Grove City fought for its right to independence all the way to the Supreme Court. It was worth the administration's investment of time and energy. The court case that bears our college's name established a precedent so other colleges that shun federal money can also enjoy independence from government control. Taking that case to court was a real public service. I'm also proud that Grove City granted Ludwig von Mises an honorary doctorate in 1957, one of the few honors he received.
AEN: There is a treasure-trove in the Grove City library.
HERBENER: That would be the Mises papers. It's a breathtaking collection. It includes 119 library boxes with a total of 1,785 files covering the period 1900 to 1974, and fully documenting his time in America from 1940. So it includes papers he brought with him from Geneva and Vienna; at least those he managed to leave with. Later this summer, Mises biographer Jörg Guido Hülsmann will be with us to examine them, and I expect many of my students will be doing the same over the coming years. Grove City is very fortunate to have benefited from Margit von Mises's generosity. It's like having Locke's or Hume's papers.
Leaving Austria was traumatic for Mises. Together with the political and economic trends of the late 1930s, it could have meant the end of the Austrian School. But he came to the United States, and despite having been denied the social and academic status he deserved, he worked tirelessly to spread his ideas. There are few joys greater than coming to the Mises University and seeing droves of highly intelligent young students reading his books and discussing his ideas.
I notice that the 1997 Mises University t-shirt this year features the famous quotation from Virgil that Mises, when a high-school student, chose as his lifetime motto: Tu ne cede malis sed contra audentior ito: Do not give in to evil, but proceed ever more boldly against it. Mises took that charge seriously, which distinguishes him from most intellectuals in this century.
AEN: Are you similarly encouraged by the Austrian Scholars Conference, of which you are the director?
HERBENER: I'm honored to have that position. All of history's great intellectual movements had a secure institutional backing, a reliable outlet for publication, and a regular place to meet for serious exchange of ideas. We've got the Mises Institute, and The Review of Austrian Economics is the ideal scholarly print medium. But until two years ago, we didn't have a regular academic conference. Now we have it and its accomplishments have been impressive.
Originally, I thought we'd run one panel at a time. But quickly that proved unfeasible, given the number of quality papers that people wanted to present. So we stepped it up to two panels at a time, and then finally three. The trouble, of course, is that attendees have to pick and choose, and miss two-thirds of the papers. But we make the best of them available in the Mises Institute's Working Papers Series.
AEN: Many of these papers go beyond economic theory.
HERBENER: The decision was made early on that the conference should be broader than economics, because the Austrian School has always spanned a wide range of disciplines. So we have panels and debates on history, philosophy, politics, the arts, and literature. This past year, we even had several papers on the political economy of geography.
It's also crucial to have an international presence. Of course, America is now the center of the Austrian School, just as in the past it has centered in Spain, France, Austria, Switzerland, and England. But today the movement is truly international, so it would be a profound error for American Austrians to become too parochial, and conceive of the Austrian School only in terms of people they know.
Books and articles are coming out all the time in German, Italian, French, and Spanish. We need exposure to all these works and their authors. By inviting scholars such as Michael Prowse, Raimondo Cubeddu, Jesús Huerta de Soto, Pascal Salin, and others, the Scholars Conference provides this exposure.
AEN: What's on the plate for next year?
HERBENER: I'm expecting some 60 papers, in addition to panels on war, centering on John V. Denson's The Costs of War, and on business cycle theory looking at Tyler Cowen's forthcoming book on the subject. One featured speaker will be Henri LePage from Paris. It's the 20th anniversary of his prophetic book Tomorrow, Capitalism. Other speeches will be given by Leland Yeager of Auburn, who has a new book out from Liberty Fund and James Glassman of the Washington Post.
This is about much more than holding a conference. It's about building a critical mass of scholars who are seriously committed to developing the Austrian position in every way. Only through lively and creative exchange can we continue moving from the periphery to the center of debate. I would estimate that nearly a hundred solid research papers have come from this conference, and probably two-thirds would not have been written in its absence. That doesn't count the spinoffs: papers and books written based on ideas presented in panels.
AEN: What was your objective in your article on welfare economics in the RAE (10:1)?
HERBENER: It was a celebration of Rothbard's contribution to welfare economics. As famous as Rothbard's 1956 article is in Austrian circles, it is underappreciated by the profession at large. His thesis--that utility can only be understood through demonstrated preference and that government can do nothing to cause social welfare, rightly understood, to demonstrably improve--is truly revolutionary. I also happen to think it is irrefutable. Yet this theory has recently come under fire.
My purpose was to restate his argument and defend it against its critics. For example, most economists never bother to give a coherent definition of the phrase social utility. Rothbard does, and defends it to the hilt. Moreover, he does it within the confines of the Pareto rule. He says that if at some place on their preference rankings, some are made better off and no one made worse off, the change must be judged an improvement socially.
AEN: How can we account for the fact that Rothbard's theory lacks broader acceptance?
HERBENER: Rothbard spelled out all the reasons why it is impossible for economists to come up with some way of measuring utility. As scientists, Rothbard said, economists can say little more than that exchange is mutually beneficial. People just feel that is not enough. Economists like to make unwarranted assumptions in order to justify their craft.
Also, within Austrian circles, there have been recent attempts to build a welfare theory based on the contributions of Kirzner and Hayek. The idea is to expand the notion of plan coordination into a full-blown welfare theory. But I'm not sure that works. By trying to do welfare theory as an outcome of the market process and entrepreneurial discovery, they remove themselves from the traditional terrain of welfare theory, which is supposed to focus on Paretian conditions.
AEN: What are the advantages of accepting the Pareto rule instead of offering a different standard?
HERBENER: The advantage is that it is logical and understood by everyone working in the field. Welfare theory must be grounded directly in ordinal preference rankings and not in the monetary calculations of specialized entrepreneurs. Let's remember, however, that the Pareto rule is not the same as Pareto optimality, which always implies general equilibrium and comparison of subjective utilities. Under the Pareto rule, you are merely looking for improvements in welfare based on demonstrated preference.
One apparent problem with the Pareto rule seems to be that it would block arguments for repealing an intervention. For example, if you repeal a regulation, some producers are harmed because they face increased competition and others are benefited because they are allowed to compete. The answer to that objection is that you must have a starting point for adopting that Pareto rule. Hans Hoppe argues that should be self-ownership. Step by step, you can then fortify Rothbard's original position by arguing that the market does maximize, as it were, social welfare.
AEN: Given the limits of Austrian welfare economics, can we really say the free market maximizes social welfare?
HERBENER: I think we can, but we must admit two points. First, this notion of social welfare includes only demonstrated preference. One can certainly argue--extra-economically--that something besides preference should count in our assessments of whether something is good or bad.
Second, it doesn't preclude the possibility that welfare could increase with government intervention; it merely says that we cannot know if it does. In either case, someone might say: scientifically all this holds up, but there is a good deal more to social welfare than science. There is also goodness, beauty, and happiness. True enough, but beside the point for economic theory.
AEN: Given that Austrian economics doesn't necessarily prescribe particular policy conclusions, why are most all Austrians also free-market economists?
HERBENER: Most neoclassical economists I know see it as their job to do economics and nothing else. They are like specialized management experts or accountants. They don't look at the broader implications. Austrians, on the other hand, see economics as a branch of knowledge they are attempting to elaborate on. That means they take economics much more seriously as a scientific investigation into finding the truth. It also means that Austrians think more about normative questions. Their economics leads them to understand how free markets work scientifically, but also how they are the best system for ordering the material needs of society.
AEN: How did you come across the Austrian School?
HERBENER: I was trained entirely in the mathematicalneoclassical tradition at Oklahoma State. Economics attracted me because it seemed to deal with fundamental and interesting questions. In this, it was unlike political science, which seemed to me to be steeped in irrelevant questions like, "what does the public think about this or that," and superficial techniques like surveys. Even bad economics is leagues above that in sophistication. But my professors were all conventional economists, would-be planners working from one or another Keynesian paradigm. I wrote a highly mathematical dissertation on money demand that used all the latest econometric techniques. I did what everyone else was doing, and my only goal was to do it better.
I didn't know enough to be dissatisfied with the neoclassical paradigm. I knew nothing about the Austrian School except for a brief exposure to the Böhm-Bawerkian structure of production in a class on capital theory. At the same time, I retained my interest in larger problems and deeper questions, which I owe to my father's own philosophical turn of mind.
After getting out of graduate school, I took my first teaching position at Pittsburg State University. I began to read Hayek, and moved on to Mises and Rothbard and the rest of the tradition. They offered a much more satisfying and coherent way of looking at economic questions. This research has occupied me since.
More and more economists sense that their techniques and studies are merely arcane or even trivial. This realization provides an opening for the Austrian School. I'm surprised when I'm at mainstream conferences, or read American Economist. Many more people are showing interest in alternative ways of doing economics. If our work is good, we'll eventually win these people over, and win the battle of ideas.
AEN: It's clear that you share Rothbard's optimism.
HERBENER: I was deeply honored to have had a warm friendship with him for many years. I'll always treasure that. His personality and output were a constant inspiration to me, as my memories of him continue to be. He can never be replaced. But I'm gratified to know that the Austrian School is proceeding in a direction, and at a pace, that would greatly please him.
AEN: You've done some interesting work on that great diversion, the Phillips Curve.
HERBENER: A professor of mine used to say that the Phillips Curve is a fact in search of a theory. But he had it backwards. It never was a fact. The theory was that there was a trade-off between unemployment and inflation. But if you go back to the original article by Phillips, he never demonstrates that such a thing exists in the real world. He manipulated and maneuvered the data around to make it look as if there was one. Once his errors are swept away, and the data broken down, the Phillips Curve vanishes as any kind of long-run pattern. It didn't take stagflation to teach us that. It was always untrue.
This raises a much more interesting question. How did the idea ever come to dominate the macroeconomic literature in the first place? Here's my theory. Recall that Keynesian theory suggests there are no downsides to manipulating aggregate demand through fiscal and monetary policy. If you created full employment, it would stay there and we'd all live happily ever after. It seems paradoxical, then, that Keynesians would embrace a theory that suggests that creating full employment risks generating inflation. Keynes never said that, but people like Paul Samuelson did.
AEN: So the Phillips Curve gave them an out.
HERBENER: Exactly. It became fairly well recognized, even in the 1950s, that there could be such things as inflationary recessions. That put orthodox Keynesians in big trouble. In order to cover themselves, Samuelson and Solow adopted the Phillips Curve as a model. It served as the means to save themselves from the realization that Keynesianism was fundamentally flawed.
When inflation and unemployment increase, they don't have to throw in the towel on Keynesian theory; they merely claim that the Phillips Curve has shifted outwards. They are saved--until of course the outward and inward shifts of the whole curve dominate movement along the curve. That means the supposed trade-off itself has disappeared. That's exactly what happened. Many people see that the curve is now discredited. But in fact, it never did stand up. It was an escape hatch built by Keynesians that no longer allows them an escape.
AEN: Yet it continues to be the main lens through which most business reporters and even Federal Reserve officials view the world.
HERBENER: Just the other day, I read a piece by an economist at the American Enterprise Institute who was amazed at the mysterious fact that our economy has sustained high levels of growth while still not triggering inflation. This idea that growth "triggers" inflation is sheer Phillips-style analysis. It's hard to believe educated people still talk that way.
On the other hand, it has a superficial plausibility. It's true that if you pump money into the economy to create a boom, that can cause the unemployment rate to fall. The downside is that the new money--not the employment or growth as such--also risks creating inflation.
So here is an opening for Austrians. This phenomenon does have an explanation within the context of the Austrian business cycle theory. What's occurring is not a mechanistic trade-off, but a credit-created boom in the capital goods sector followed by its inevitable consequences. Inflation expectations don't kick in immediately, and neither is there a statistically predictable lag, as the Chicago School once claimed. Austrians can explain both the Phillips-type phenomenon, to the extent it appears, as well as its breakdown.
AEN: Is the Austrian trade cycle theory an integral part of the Austrian edifice?
HERBENER: It is. Perhaps someone can show that it is wrong. I know that both Leland Yeager and Israel Kirzner have strong doubts about its merits. But, as it stands, all of the central principles of the business cycle theory--about the structure of production, interest rates, time, money expansion--are straight from the praxeological system.
Moreover, it seems to explain much about past business cycles and even present economic realities. Economist Tyler Cowen is scheduled to release a book that is very critical of the theory. We'll see how it is received. I have my doubts that the theory is vulnerable to challenge, but it's always good to keep an open mind. We're slated to hash all this out at a panel at the Austrian Scholars Conference (Auburn University, April 34, 1998).
AEN: Are you doing work to reinforce these central principles?
HERBENER: For two years, I've been writing a large study of interest rates. I'm reassessing the early-20th-century debates on the subject, covering the Böhm-Bawerk/Fisher debates, and dealing with their critics. I'm arguing that the time-preference theory of interest--the observation that people prefer things sooner rather than later--has certain logical implications that haven't been brought to bear on other theories of interest. Once they are, these non-Austrian theories collapse.
AEN: Can you give an example?
HERBENER: The most famous is the case of the negative rate of interest. Can it exist? Austrians say no. Irving Fisher agreed for the most part, but for different reasons. He said it's because interest is the payment for productivity. That leads him to spell out some exceptions. One involves two swabs stranded on a desert island with a fig tree. The figs deteriorate, and since interest must be paid out of future wealth, trading present figs for future ones would result in a negative interest rate.
That example is easily refuted. Let's say there's a fixed fig stock, and figs deteriorate 25 percent per week. What prevents a high-time preference swab from striking up a contract to get 50 figs now but paying back 60 figs at the end of the week? Fisher says this can't be done because the interest must be paid out of social wealth, so there isn't enough to pay it. This is a simple mistake. The market doesn't exist in the aggregate; so long as individuals have some stock of the good, they can always make these exchanges.
This fig example has some of the properties of the famous hardtack example. Hardtack doesn't deteriorate, and it doesn't appreciate, so it must represent a good in a zero productivity world. Fisher says the rate of interest on hardtack must be zero because it is not productive and thus income in terms of hardtack always remains the same. But trading is between individuals, and so long as people prefer getting hardtack now to getting it later, the interest rate will be positive.
AEN: It appears that interest-rate theory is packed with brainteasers.
HERBENER: Here's another one: what happens to capital values if the rate of interest becomes zero or negative? We know that as the rate of interest goes down, capital values rise. In a world with no interest, capital values would be infinite. If interest rates were negative, you would have a break point rising towards infinity and then suddenly collapsing. This seems implausible.
The sheer implausibility of it calls into question the whole Fisherian equation, where the market rate of interest is the real rate plus the expected rate of inflation. In that equation, if you had deflation sufficient to make expected negative inflation greater than the real rate, why wouldn't interest be negative? Fisher's answer is that people will hold money and capital markets will evaporate. But that is not consistent with experience.
Recently in Japan, for example, where there has been significant deflation, interest rates have gone below 1 percent. But they do not fall to zero. Why not? Because every step toward zero dramatically raises capital values. Interest rates going from 1 percent to half a percent has the same effect on capital values as an interest rate fall from 10 to 5 percent. It's a cut in half. The positive rate of interest can always be cut in half: 0.5 percent can go to 0.25, 0.125, and so on, but it will not fall to zero.
AEN: You've been highly critical of econometric techniques.
HERBENER: Austrians agree that econometrics is not useful for testing theory. But many say it is useful in historical investigation. I have strong doubts, for the same reasons it is not useful for testing theory. You can't meet the assumptions of the statistical analysis. Regressions assume linear equations and probability density functions that are normally distributed. If it is true that the data of human action are not generated by such a mechanism, this would seem to undermine using regressions for any purpose.
Let's say you are flipping a coin. In an honestly flipped coin, there is a certain law by which the data are generated. You can rely on the mechanism based on your flips. You can then use the results for historical or even predictive purposes. The mechanism matches the quantitative data. But you can't assume anything like this in economics, because, so far as anyone can prove, there are no statistical characteristics to human behavior. It is purposeful rather than random, and changeable rather than constant.
AEN: Yet people make plenty of money doing it, even in the private sector. Hasn't econometrics met the market test?
HERBENER: We have to distinguish market value and analytical value. If you run a regression and get results, you are accepting those results as fact. These facts may provide the entrepreneur some bit of information that he believes assists his ability to forecast. He may also bank on his hunches and his horoscopes. Who are economists to judge what he should and should not use? He assesses the worth of information in light of his own expectations about future demand.
Economists cannot use regressions the same way. We are bound by the implications of the method to bow to the results of econometrics as if they are true on their own terms and, indeed, the most valuable bit of information. Doing econometrics is not the same thing as doing real history, much less accurately predicting the future. Joe Salerno points out that after the 1987 crash, econometricians were fired from research departments right and left. That's a good indication of their market worth on the margin.
AEN: You've made some contributions to the literature on de-socialization.
HERBENER: This continues to be an interesting area of debate. Everybody accepts that you need to have capitalist entrepreneurs to bring about economic innovation. But people have not been willing to admit that these entrepreneurial activities require real private property. Many people writing in this literature look down on stock markets, disparage private ownership of factories and farms, and question the right to accumulate wealth.
The policies of former socialist countries reflect this bias against private ownership. For example, all these countries have highly progressive tax rates and even in the Czech Republic, substantial portions of the industrial sector are still in state hands. This is especially a problem in industries like education and health care.
But in truth, as Mises emphasized, it is impossible to separate entrepreneurship from private property. We must highlight the central importance of real private property. The failure to make it a priority in the reform process has led to some peculiar conclusions. In Russia, for example, where real privatization has been very limited, many academics have noticed a lack of economic innovation. They conclude that the entrepreneurial instinct is not in the Russian soul or has somehow atrophied during years of communism. That's nonsense. If you want innovation, you have to first have private ownership. The correct policy is immediate and total privatization. These skills will naturally appear.
AEN: There's also the argument that private property isn't consonant with some traditional societies, and, for them, other systems may be better.
HERBENER: This is the view, often encountered in the development literature, that adopting capitalist institutions would amount to artificially grafting on foreign ways. It would be "Coca-Colonialism," to use the new left phrase recently picked up by some conservatives. But this is wrongheaded. People best express their cultural uniqueness within the context of private property. When people have their own towns, businesses, farms, and modes of production, traditions have a chance to flourish without being overridden by the state apparatus.
Moreover, foreign investment is never an imposition. No foreign national can make money in a host country unless the consuming public desires the product that is being produced or genuinely wants to work for the company. People tend to disparage the cultural import of McDonalds into the developing world, but these are countries where people have little or no access to safe and inexpensive meat, bread, and vegetables. McDonalds is providing a wonderful service. To me, it seems like cultural imperialism to say these people shouldn't want to eat cheeseburgers.
What's so terrible about the Ex-Im Bank or the Overseas Private Investment Corporation, which subsidize and guarantee foreign investments, is not that they put taxpayers' money at risk, even if that's bad enough. The real trouble is that they override the voluntary preferences of people in foreign countries, who should be the ones determining whether an investment is worthwhile or not. Ex-Im and OPIC are the culture destroyers. They, not the capitalists trying to test marketability, are the real source of cultural imposition.
AEN: You've also written that the standard view of which taxes are to be preferred is wrong.
HERBENER: When economists ask the question, which is the best tax?, they often look at it from the government's point of view; which tax raises the most revenue? Asked that way, the usual view is that income taxes are better than excise taxes. But in the standard indifference curve analysis of taxes, the individual always prefers no taxes to any taxes. This is true even before considering the destruction of economic value and property that taxes generate.
The advantage of excise taxes is that over time you can substitute out of the taxed good into other goods, and thereby avoid paying taxes altogether. You can't legally opt out of earning income. Interestingly, this is why people say excise taxes are the least preferred type. Over time, they bring in the least revenue because people stop paying the tax. To me, that's something to be celebrated.
AEN: What about the argument that income taxes distort production decisions less?
HERBENER: All taxes distort production, so we have to keep the focus on comparative institutions. But to make the comparison between degrees of damage requires we look at an income tax and an excise tax that produce an equal amount of revenue. However, the requisite information needed to make the mental comparison can't be met. You have to know in advance what people are going to do under different rates of taxation. The reality is that people are always shifting their patterns of working and consumption to account for the tax. Those shifts are unpredictable.
You can't know a priori, then, which is going to distort production more. What we can know a priori is that higher taxes, however they are collected, are worse than lower taxes.
AEN: Given a certain level of government spending, is it better to run a balanced budget with high taxes or a deficit with low taxes?
HERBENER: If we could compare them directly, it probably wouldn't make any difference. If anything, the deficits would be worse. They must be paid eventually, and in the short run, they crowd out private investment, keep interest rates artificially high, and necessitate different patterns of investment.
But rarely do we face this kind of instantaneous trade-off. The key political question in the United States is the transition from a deficit-laden economy to one where the government has no debt. It's a huge error to attempt to raise taxes to pay off debt. If you do, you merely substitute crowding out with outright confiscation, which helps no one. The only way to balance the budget, consistent with good economics, is through spending cuts. It is in spending where we see the real impact of government on the economy.
AEN: Is the debt problem abating right now? The deficit does seem to be falling.
HERBENER: It depends on your perspective. Year to year, less may be added to the overall national debt, but every year we are still further away from resolving the long-term problem. In fact, the debt continues to escalate. The key determinant of when the debt cries out for a political solution is when interest payments on the debt consume so much of federal revenues that it must be dealt with. The people who expect immediate subsidies eventually will not put up with revenue being doled out to rich bondholders. By the way, balancing the annual budget does nothing to address this problem. It is bogus economic thinking to say otherwise.
AEN: It appears that taxes are continually increasing in the United States, and the Fed is still manipulating interest rates, yet economic conditions seem highly favorable.
HERBENER: New Era thinking is all around us. This is the view, heard thousands of times, that the business cycle has been abolished and we've entered a new era of permanent economic growth. I find all this alarming. The favorable present economic climate isn't due to the repeal of economic law; it is due to our position in the business cycle.
There are four phases in the business cycle: expansion, crisis, bust, and recovery. We are in the recovery phase, coming after a rather severe recession from the end of the 1980s to the early 1990s, and may also be in the early stage of the boom. And in these early stages, conditions always look the best. The Fed gets away with money expansion, but without facing the inflationary effects. We also get the stimulative effect in the stock market, driven mostly by the artificial holding down of interest rates.
This comes about both from the recovery's natural decline in the demand for loanable funds and the increased supply by the Fed. This is the best of both worlds. That's what we are seeing now. Indeed, if you look at the stock market alone, it would appear we are in the expansion phase already.
The international aspect also has to be kept in mind. Much of the Fed's monetary accommodation has been exported. Central banks around the world are holding record numbers of dollars. This has greatly assisted Fed policy. And this is why everyone's worst nightmare is a sudden unwillingness by Japan or some other country to hold dollars and debt.
AEN: Is it possible that the stock market boom reflects a more fundamental expansion taking place in the capital goods sector?
HERBENER: That's the key question. As the economy comes out of recession and goes into recovery, and the central bank begins to manipulate credit markets, it is very difficult to tell if the reduction in interest rates is a market response or whether it is artificial. It is difficult to tell historically, much less contemporaneously, which effects are dominating. How much of the current expansion is sustainable? It is impossible to say. I am skeptical that a doubling of the stock market in two years can be due mostly to real factors. We know the Fed is manipulating rates and this does have effects.
AEN: If the Fed is holding down short-term rates, why isn't the yield curve steeper?
HERBENER: It is not entirely accurate to say the Fed only holds down short-term rates. After all, it is not the Fed's pronouncements about what the funds rate should be that have the greatest effect on the economy. It is through actual credit expansion that it does damage. The shape that the yield curve takes depends on the suppliers of credit, namely banks, and the demanders, namely borrowers. If the demand for credit happens to be dispersed across different maturities, then the banks respond appropriately. New supplies of credit from the Fed can be doled out through the short term or the long term, depending on the nature of the credit demand. This, by the way, is a unique Austrian insight.
AEN: Do you think that public demand for political changes toward freer markets track the business cycle?
HERBENER: These days, it appears that the public is very resistant to any new taxes, which is a great thing. That seems to be true no matter where we are in the business cycle. Yet during the recovery phase, two key factors weigh on the people's opinions of politics. First, things appear to be getting better, and so long as that is true, people are less likely to complain. Second, they are not able to know how much better off they would be absent the huge presence of government in economic life.
AEN: Can you give an example?
HERBENER: Today, in most households with young children, both husband and wife are working. Twenty years ago, this was not the norm. There is plenty of evidence that this has less to do with increased economic opportunities for women and more with the effects of high inflation on family income. Quite simply, the Fed drafted mothers into the workforce, a situation the revenuers like since it means more paychecks from which to extract wealth. In this big government and the central bank have substantially contributed to the decline of American family life.
When these working mothers get a 5 percent payraise, they are pleased. But what about the effects they can't see, namely, that if it hadn't been for government intervention in the economy, overall family income would be sufficiently high to allow them to stop receiving a paycheck altogether? Because we are all prone to look at the short-term and tangible quality of our lives, and not compare it with long-term changes or unseen possibilities, people are inclined to adapt to lower living standards.
We must remember, however, that the sense of urgency for reform is often stirred up on the side of justice, not efficiency or material well-being. Quite simply, it is wrong for some people to live off others. This is a fundamental American proposition. And what is government but a vast conspiracy to bring about unjust transfers of wealth? By the way, there is growing awareness of the social consequences of two-income families with children. It is our responsibility to fix the blame where it belongs: on the government and its central bank.
AEN: Will the European currency unit come about?
HERBENER: I seriously doubt it. It is much easier for governments to destroy a currency than create a new one. It is theoretically possible for European governments to fix exchange rates and issue a currency defined in terms of those rates. But there are serious practical problems. In today's world of high speed capital flows, governments can't integrate their policies enough to prevent people from picking and choosing the best investment environments.
This is a major reason central banks are selling gold right now. They are building up dollar reserves so they can wheel and deal to keep their currencies in line when the pressures build up before and after monetary integration. But in the long run, the only way to keep a composite currency together is by imposing credit controls. But that would defeat the whole purpose of the integration. As Mises long ago observed, that seems to be the pattern with government policy. If we expect government's plans to go wrong, we'll never be too far off the mark.
Volume 12, Number 3 (Summer 1991)AEN: Throughout your career as an economist, you have shown interest in social ethics.
YEAGER: I don't see anything peculiar about economists being interested in ethics. The two fields overlap. Both are concerned with how people can function together in society without central direction. Somehow, they pursue their own interests and serve those of others at the same time.
AEN: And your interest is utilitarianism.
YEAGER: That's right. Among many classical liberals, utilitarianism is considered a bad word. But I don't think many understand what it means. There are different varieties of utilitarianism. Mises and Hazlitt, both utilitarians, are on the same wave length, as was David Hume, who inspired F.A. Hayek.
Remember that no sensible version of utilitarianism makes interpersonal comparisons of utility. Hume, Mises, Hazlitt, and Hayek did not engage in interpersonal comparisons of utility.
Bentham, I suppose, wrote as if he imagined that it were possible. The same can be said of the mathematical psychics of Edgeworth. He seem to conceive--either as an expository device or even seriously--of the possibility by drawing up his aggregate utility functions as if it were possible.
AEN: But how can utilitarianism protect the minority against the majority?
YEAGER: It is a standard caricature that it cannot. Murray Rothbard takes this position all the time. But if we go back to Chapter 5 in Mill, the one dealing with justice, we find that justice is a name for that set of rules and principles that would guide our institutions and behavior which are of utmost importance toward human happiness. If we set aside justice to give a thrill to Rothbard's majority--the people who get their kicks from torturing red heads--then we are setting aside rules and principles that are important for a decent society and therefore to human happiness.
But this notion of overriding minority rights for the sack of amusement of the majority is a caricature version of utilitarianism. Respect for minority rights is essential to a decent society. Any reasonable version of utilitarianism takes a longer view, considering how a good society can be sustained. It is not concerned with the pleasures of the moment.
In my pessimistic moments, I decide not to write anything more about this since Hazlitt has already said everything.
AEN: What's wrong with natural rights theory?
YEAGER: Nothing. I consider myself a consistent champion of the kind of rights that are mentioned in the Declaration of Independence and the Bill of Rights. But it is wrong to start with some conception of rights and then try to derive everything from that. The importance of respecting human rights is a result of our coming to realize how important they are to a good society and human cooperation.
I get the impression from libertarian rights theorists--like Tibor Machan--that they want to just posit human rights. The good guys see them, the bad guys don't, and that's that. They must think it somehow demeaning to human rights to argue for them.
My objection to rights theory--as it is presented by those who want to distinguish themselves from utilitarianism--is the basis on which they enunciate rights. Rothbard's rights are peculiar for being so narrow--body and property--but most "rights" just amount to claims without obligations.
Furthermore, to invoke rights in a discussion is to use heavy artillery that is contrary to the peaceful discourse. A rights advocate will says, morality requires that my policy be adhered to and anybody who disagrees or denies the rights that I have announced is an enemy of morality. And that's the end of discussion. This is not scholarship at its best.
AEN: But you want to hold on to a notion of rights.
YEAGER: Not as the starting point, but as concepts that arise within the field of ethics. The following definition of rights works in practically all contexts in which the word is used:
Rights are entitlements to behavior on the part of others which are binding with a particularly strong degree of moral force.
Rights to life, liberty, and property means that it is particularly binding on others that they do not invade our own lives, bodies, and freedom.
AEN: But in popular discussion, the terms "rights" is most often used to mean the opposite of your definition.
YEAGER: True. Civil rights are valid, but people try to sell contrary policies under its name. The so-called civil rights bill, which increases opportunities for anybody who has a grievance to sue the employer, is a bad idea. It's disingenuous to deny that such bills are not important in setting up de facto quotas. If the best way to protect yourself from suits is to have the statistically correct mixed of groups, you're being prodded to do it that way.
Many good intentions are vaguely written into the law only bring opportunities for nasty and litigious types to exploit the law in other ways.
AEN: Do you wish more economists were interested in ethics?
YEAGER: We can't expect all economists to be interested in the same things. But the tradition of economists interested in ethics goes way back and carries up to the present. Smith, Hume, Mill, Keynes, Mises, Hayek all were. And ethics does indeed seem to be becoming more important to economics discussion these days. The typical economic journal does not deal with the subject, since it is supposed to be on the frontiers and cannot be concerned with the great bulk of accepted doctrine.
AEN: What role has the mathematization of the profession had in pushing aside ethical discussion?
YEAGER: It has played a role in pushing aside the overlaps between economics and ethics, because it isn't too obvious how one puts ethics into equations. But I don't want to condemn mathematics, since doing so would be engaging in a particular type of methodology. I don't much admire laying down methodological taboos, telling your colleagues the right way to go about things.
AEN: Are you uncomfortable with Mises's views on the use of mathematics, that they have a limited use in doing history but not in economic theory?
YEAGER: I have always been a bit dismayed at Mises's a stern line against mathematics in economics. How can one be so far sighted to see that nothing good can come out of the application of mathematics to economics?
In general, I think people ought to be more modest in their methodological sermonizing. Just because one theorists doesn't apply certain methods doesn't mean they should be taboo.
Mathematics can be a good way of conveying some ideas. With some concepts, you have to keep hammering at them to get them across to your students. The idea of maximizing utility under constraints should be done with words, graphs, and mathematics.
Three ways are always better than one. To really understand these topics, you've got to go over them several times while using a variety of techniques. That the basis of my forthcoming article, "The Curse of Methodology."
AEN: You speak about Austrian taboos, but aren't there taboos in the mainstream?
YEAGER: There are plenty of methodological taboos which are never even discussed. And sometimes the tacit methodologizing is even worse than the explicit methodologizing. If people are explicit, they are laying out their message for inspection. An implicit assumption of the mainstream is that if economic reasoning is to be rigorous, it must present a formal model cast in the form of maximization of utility, profit, or present value.
AEN: Is any particular school guilty of this?
YEAGER: The New Classicists are my particular bugabear. They are always telling us that we must suppose that markets are always clearing, that we've got to interpret the business cycle as if markets are always clearing, that we've got to see unemployment as voluntary withholding of labor from the market. But this notion that all markets are clearing, or are close enough to clearing so that we are required to do our reasoning as if they were clearing, has no more merit than a methodology which hardly gets explicitly discussed.
I am skeptical about all such postulates. The postulates which are legitimate depend on what you are studying. For example, if you are doing an exercise in microeconomics to find the long-run equilibrium consequences on the price and output of a product because of a specified tax or change in technology, then it only clutters up the argument to focus on the transition from the present state of affairs to the future equilibrium state of affairs. We have no particular reason to be interested in the disequilibrated markets before prices have fully adjusted. The proper question is: what is the tendency of the specified change in the data.
But if we are doing macroeconomics--which is concerned with lapses from full coordination, and what accounts for the greater or lesser degree of full coordination in the economy--then these transitional obstacles are the center of the topic. What might be merely a fringe complication set aside in a micro analysis are moved to the very center when we are doing macroeconomics. Yet New Classical economists dismisses all concerns with lapses of coordination and the failure of market so clear completely. It simply wipes away the problem.
AEN: Are you, then, a methodological pragmatist?
YEAGER: I am a methodological libertine. I am not saying that anything goes, or that whatever one comes up with is automatically valid. Divine inspiration is not as good as looking at the facts. But let people work with whatever method works for them, and fits with their talents and inclinations. After all, their work is open for public inspection.
AEN: Donald McCloskey has been persuasive in this regard. What do you think of his work?
YEAGER: I agree with him at many points when he is speaking independently. I really haven't read some of the people that he cites--those associated with deconstructionism and hermeneutics--but I am not too impressed with them.
Hermeneutics, of course, was a flash in the pan, but it is an example of what happens quite often in economics. Economists will latch onto an idea out of some other field in hopes of making a splash in your own. They'll dip into engineering, psychology, or mathematics and try to make a reputation. This way they can look catholic and widely read.
AEN: And what of your view toward Shackle and Lachmann, the radical subjectivists?
YEAGER: They advanced of a kind of subjectivism I reject. In short, they advanced nihilism. I know they don't call it that, but that is the way it comes across to me. If the extreme subjectivists like Lachmann and Shackle take themselves seriously--that we cannot know anything about the future, that expectations are subjective, that the future is being freely invented--why would they pose as professors of economics? Why do they set out to do anything? Lachmann was a dear man, but his entire doctrine was negative and trying to pull down economic rationality. But today's students do not waste time on the ideas of the radical subjectivists.
AEN: How do you see your own role in the Austrian school?
YEAGER: I don't know whether I am considered a critic of Austrian economics or not. I have criticized their business cycle theory and the methodological work of Austrians. But I am basically sympathetic to it and have had a long-term respectful interest in the Austrians.
I first came across some books by Mises when I was at Overland College shortly after the war. I believe they were Omnipotent Government and Bureaucracy. I was favorably impressed and learned a lot. In fact, I had the bad judgment of including some of his insights to an answer in a final exam in an anti-trust class. I received a "C" for including Misesian insights where they weren't appropriate.
While I was visiting Princeton library, I read Nationalökonomie before Human Action, the English version, even appeared. I had already read some Hayek material out of Individualism and Economic Order.
But mostly I was very excited about Mises's doctrine of calculation under socialism. I gave a faculty seminar on that topic when I was teaching for one year at Texas A&M in 1949. I even thought about exploring some related topic for my PhD dissertation.
AEN: What themes in Austrian economics do you like?
YEAGER: I like the concern with the big picture. The Austrians have shown how the activities of millions of separate people can be coordinated into a system that has a semblance of logic and structure even without a central planner. And I also like the Austrian tradition's concern with institutions. Unlike the mainstream, which gets bogged down in questions like decision-making in the firm, Austrians are concerned with the relation between interdependent units in the economy.
AEN: And what don't you like?
YEAGER: I am not a card-carrying Austrian. I don't like the way the business cycle theory gets repeated without any new evidence or logic. And on capital theory, I find myself disagreeing with Austrians.
Briefly, my view is that if you put together Boehm-Bawerk, Cassel, and Fisher, and make the proper selection and combination of their doctrines, you have the essence of good capital theory.
That is, the interest rate is determined by an interaction between the productivity of roundaboutness and time preference.
But I don't know why this should be considered anti-Austrian. Boehm-Bawerk and Hayek explicitly recognized both time and productivity as factors in the forming of interest. I cannot quite understand how the pure subjectivist, or pure time preference, theory of interest came to be regarded as a key part of Austrian doctrine. I only have a hunch. Maybe people thought that since subjectivism is good, the more you have the better.
AEN: You don't regard Austrian economics as separate school within economics?
YEAGER: It certainly shouldn't separate itself and take on the mission of doing battle with the mainstream. All of us economists have some idea we hope to contribute to our fellow economists.
The Austrian tradition is distinctive in having a favored set of topics and perhaps a method. But Austrians should be trying to influence the general understanding of how the economy works.
AEN: What can formal Austrian theory add to the body of mainstream thought?
YEAGER: The emphasis on the dispersion of knowledge in society, and the need to organize it through market means, is an important message that needs to be incorporated into the mainstream. And the emphasis on legal institutions and their role in the coordination of economic activity is also a fruitful framework for study.
Hayek often gets credit for this, but one can find a knowledge problem implicit in Mises. The planners don't know how to combine the factors of production, even supposing they know what they want to produce. Mises's emphasis on meaningful markets displays his interest in gathering this knowledge in the price system, a point upon which Hayek elaborated.
AEN: What about the role of entrepreneurship as a unique Austrian contribution?
YEAGER: It does need to be hammered home, but I think by now the mainstream has got the message. If we can find an economist who hasn't got it, then Austrians should continue. The problem is that entrepreneurship is an idea that is difficult to model. So working in this area doesn't provide much opportunity to demonstrate technical ability. That may be why it doesn't show up as much as it should.
I do think that there has been too much discussion about whether entrepreneurship is equilibrating or disequilibrating. It is clearly both.
AEN: Any thoughts on the anti-socialist revolution in Eastern Europe?
YEAGER: Sure. It overwhelmingly demonstrates that economies that try to be centrally directed do not work. It was a very decisive experiment. The advocates of socialism will no longer come from the ranks of the economists. It is no longer intellectually respectable.
AEN: But it doesn't necessarily follow that just because totalitarian socialism fell, free markets will take their place. We could end up with lots of little social democracies.
YEAGER: But the only option to socialism is markets. Those are the only two models around. There are no other methods of economic coordination out there. Social democracy just means a heavy welfare state, but Swedish-type economies are essentially capitalist economies. It is not a third type.
There is, of course, a question of how far one can go with taxation before one ruins the economy, and I don't know the answer. But social democracy still qualifies as a market. I don't think we are faced with an all or nothing choice about laissez-faire economics.
AEN: When can we criticize the interventionism of a social democracy?
YEAGER: When it impairs incentives to produce. How much intervention we can have without hurting incentives is a subject for more research.
Volume 1, Number 3 (Fall 1978)Professor Ludwig M. Lachmann, one of the most prominent members of the Austrian school, has centered his long and productive career around the importance of subjectivism in economics. From his early work on the role of expectations to his more recent endeavors in capital theory and the market process, Lachmann has been a tireless advocate of subjectivism and methodological individualism.
A collection of his essays, Capital, Expectations, and the Market Process, was recently published, and his Capital and Its Structure will soon be reprinted. Notable among his other contributions are the discussions of methodology and the significance of institutions in The Legacy of Max Weber and his trenchant attack on modern macroeconomics in his "Macroeconomic Thinking and the Market Economy."
Professor Lachmann was interviewed on November 18th, 1977, shortly before his return to South Africa and near the end of his three year appointment as Visiting Professor of Economics at NYU. This interview was conducted by Richard M. Ebeling and Gary G. Short.
AEN: Professor Lachmann, you have been one of the main contributors to the Austrian tradition for forty years. How did you get interested in the Austrian school?
Lachmann: Well, I grew up in the Berlin of the Weimar Republic where the official creed was a kind of revolutionary socialism. I didn't like it. So, naturally, I was looking around for something different. I had read Schumpeter and had been quite impressed. One day, I really don't know by what accident, I came across an article by Mises, who, you'll remember, started publishing methodological essays in the German journals in the late 1920's. I don' remember the first occasion on which I came across one of these articles, but I read it, and found it most interesting. In particular the Austrian economics Mises espoused seemed to be something rather different from what I knew from the textbooks. I got interested and read more Mises and that is how I became an Austrian.
AEN: Did you meet Mises while you were living in Germany?
Lachmann: I met him once in June, 1932, the year before Hitler came to power, there was a conference in Berlin, a "world economic conference," as it was called, that had been arranged by one of the big liberal newspapers in Berlin. Mises had been invited to it and I prevailed on someone in the financial editor's staff of that paper to introduce me to Mises. The meeting of course didn't last longer than two minutes, but I did meet Mises that way.
AEN: After you moved to England in 1933 you became a research assistant to Hayek. What type of topics were usually of interest in the famous Hayek-Robbins seminar.
Lachmann: In general, problems of the business cycle and of capital theory. I actually worked on secondary depressions. That is to say, what Hayek first used to call the process of secondary deflation, a word that had been coined by a German economist to denote that part of the process of depression which goes beyond any kind of primary maladjustment. That is to say, that kind of depression that would not be an adjustment process in the Hayekian sense. It was by then (1933) admitted that a depression of this kind could develop and I think everybody admitted that by 1933 the world was in a process of secondary depression.
AEN: You have talked a number of times about the importance of expectations in business cycle theory. What first drew your interest to expectations as far as the business cycle question was concerned
Lachmann: Talking to Paul Rosenstein-Rodan, who was then a lecturer at University College, London--not technically in the London School of Economics--but he gave a course on the history of economic thought to which all of us who were research students then went. It was Rosenstein-Rodan who in discussing Austrian trade cycle theory with me said, "Ah yes, but whatever happens in the business cycle is in the first place determined by expectations." And then he told me of the work that had been done in Sweden.
AEN: When you arrived in England you obviously must have seen the great concern that a lot of English economists were giving to the problem of the Great Depression. How did you perceive the English interpretation of the Great Depression?
Lachmann: Well, there was no English interpretation of it as such. There was the London School of Economics interpretation which of course was Hayek's interpretation and which you also find reflected in Lionel Robbins' book, The Great Depression, published in 1934. That was the London interpretation. I then realized that there was, in Cambridge, a different kind of interpretation. But at first it was something rather difficult to get hold of. I then realized that to some extent it was something I was already familiar with. I had first come to England for the summer term in 1931 and I had been in Cambridge for a few days, and thanks to an introduction that Schumpeter had given me I had met R. F. Kahn, who had told me about the multiplier that was then just being discovered. In fact, it was shortly before I met him that Kahn's famous article appeared in Economic Journal. So, n a way I knew about the multiplier, but I didn't know much more.
AEN: Were you involved a great deal with the debates between Cambridge and London? Was there constant contact between the parties, or were they isolated and not talking to each other?
Lachmann: No. There was no question of isolation. We did talk to each other. I may remind you that the Review of Economic Studies was started in the fall of 1933 as a joint venture by London, Cambridge and Oxford students. So there was contact. And the contact became even more intimate when in 1935 Abba Lerner, a product of the London School, went to Cambridge. After that there was for a few years a joint London, Cambridge and Oxford seminar, that is to say a joint seminar of the research students in economics at these three universities. Anyone from another university who was interested could join, of course, and it would meet one Sunday a month in one of the three towns, and discuss more or less Keynesian economics.
AEN: What type of reception did you notice was taken by economists when the General Theory appeared?
Lachmann: It was a big success, and immediately so; that I think I can say. Naturally, there was some discussion, not everybody understood the whole thing at once. I had some advantage or, we in London had some advantage because we had Lerner explaining what it all meant. And this was very good teaching indeed.
AEN: In 1938 you had written an article called "Investment and the Cost of Production" in which you raised the issue of "capital complementarity" in understanding expansionary monetary policies: that, in fact, expansionary policies may not bring forth greater output if some complementary factors are scarce. What first brought the importance of complementarity and substitutability in capital to your mind?
Lachmann: My attention was drawn to it by Hayek's paper, "Investment that Raise the Demand for Capital" which was published in 1937, in the Review of Economic Statistics. It had impressed me and it intrigued me to hear from Hayek that Keynes had said to him, "You know this is really quite an interesting idea, it had never occurred to me."
AEN: In the early 30's there had been great interest among the profession in the "Austrian" or Hayekian theory of the trade cycle. Yet as the 1930's progressed even those who had been adherents seemed to have given up their belief in its correctness. What reasons do you think were behind this?
Lachmann: Well, you presumably know about the two different letters to the London Times that appeared in October, 1932. This, of course, was before I came to London. In one of them, Keynes and some Cambridge economists who were not, in general, his friends, like Pigou and Dennis Robertson, demanded that the government should take steps against unemployment. And three days later, Hayek, Robbins and Arnold Plant sent another letter saying that anything the government did by way of public works or similar methods would only make things worse and would not have the affect that Keynes claimed it would have.
That is to say, the "Austrians" seemed to be committed to a policy of continuous deflation whatever happened. Yes, I'm quite sure that the apparent insistence of the "Austrians" that the depression must run its course in the sense that both prices and wages in general must fall seemed to make it increasingly difficult for most other economists to support it, because it was by then obvious that wages didn't fall, not in the Britain of the 1930's anyway. That is to say, there was an obvious difference between the point of view expressed by Hayek, Robbins and their letter of October, 1932, and their willingness to admit the following year that a secondary depression was possible.
AEN: Besides your work in capital theory, you've also written a book on Max Weber. What got you interested in doing a work on him?
Lachmann: Well, anyone who is interested in the methodology of the social sciences must take an interest in Max Weber. I had heard about Weber first at the University of Berlin from my teacher Werner Sombert, who had still known Weber personally, of course. It struck me that what Weber thought and what the Austrians said was more or less the same thing. As you know, Mises admitted that an impetus for his own Neo-Kantian interpretation of the logical part of economics came from Max Weber. In the early years in Johannesburg I read a good deal about Max Weber. And it struck me that his methodology was obviously the Austrian methodology.
AEN: You've been at New York University for about three years. In that period there has tended to be a revival of the Austrian school and there are now more graduate students who are interested in the Austrian tradition. What prospects do you see for Austrians now?
Lachmann: Well, the first steps in the Austrian revival have been taken. How quickly we get on now depends on the Austrians themselves. I think we have broken through the barrier of ignorance, that is to say that state of affairs in which very few economists had ever heard of Austrian economics. I think we are much better known than we were three years ago. From now on everything will depend on how good Austrian economists are, i.e., how readily or how well the Austrians tackle the problems they deal with.
AEN: What type of problems do you think Austrians will have to tackle and what are the important issues that could enable the Austrians to gain the initiative in the field of ideas?
Lachmann: I would agree with a view Hicks has expressed in his paper, "Some Questions of Time in Economics" in the Georgescu-Roegen essays. The most important problems are problems of market structure and certain problems of the effect of technical progress on the capital structure and on the economic structure as a whole. I suppose it doesn=t need any great emphasis that if Austrians stress the market process as the central economic process they should take some interest in the way in which the market functions in various parts of the system and in particular in the way in which different markets function. We have learned for instance that there is a difference between asset and commodity markets and that in some markets expectations are more important than in others. All this I think should be developed further, including, of course, the problem of the forward markets, which as it were, has been thrown at us by certain prominent neoclassical figures.
The other is the problem Hicks has been trying to deal with, questions of technical progress in an economy in which most capital goods are durable and where the effects of technical progress only begin to show themselves gradually and only at first in some sectors of the system but not in others. Now this might lead to some revision of the Austrian trade cycle theory, the subject on which I have become somewhat skeptical. It still seems to me that Wicksell's insistence that the trade cycle has something to do with the uneven rate of technical progress in different parts of the system was fundamentally a sound one. And I hope that Austrian economists somehow will find a way to incorporate such views in the Austrian trade cycle theory. As it stands, of course, there is no reference whatever to technical progress. But it is surely clear that in the real world it does matter.
Another problem Austrians should tackle is a critical examination of certain concepts that are used by other economists. The other day listening to Professor Tobin one learned that he thought that there was a good deal of excess capacity at the moment in the American economy. Now, how exactly would one go about measuring that? It seems to me that economists taking some interest in capital problems should take an interest in such matters as excess capacity.
AEN: How do you think the Austrians should relate to the recent work at Chicago?
Lachmann: In the first place we should distinguish between practical matters, theoretical matters and philosophical matters. Now, in practical matters, I take it we can agree. Personally, I am willing to go along with a good deal of the practical recommendations of Milton Friedman--how to combat inflation, for example. And it seems to me that on what he calls the "natural rate of unemployment," he has said a good deal that makes perfectly good sense. But this doesn't mean that we must necessarily agree on the theoretical level. For instance, is the natural rate of unemployment a minimum, which we could all accept, or is it, as it seems to me, both a minimum and a maximum? And there are certain other questions. But I think on the philosophical level a real abyss yawns between at least some of the Chicago thinkers and us.
My impression from reading certain recent Chicago publications such as the famous article, "De Gustibus Non Est Disputandum" (AER, March, 1977), is that these economists don't understand the difference between action and reaction. They seem unwilling to admit that there is such a thing as spontaneous action in the world. For if there is such a thing as spontaneous action, then it will also take place in the economic field. And if it does take place in the economic field, then it evidently cannot be predicted. Chicago economists seem wedded to the notion that prediction will make everything come true, it is by means of prediction and predictive tests that we are able to distinguish that which is true in the end from that which is not true. But in a world in which spontaneous action exists, such action evidently cannot be predicted, So, I do feel it is very difficult to see how we can possibly agree with them on such matters.
It seems to me to follow from the Austrian rejection of prediction as a test of theories that, again, contrary to the Chicagoans, we have to be very careful about what assumptions we are making because if we have made assumptions which are unrealistic, we will get results which are unrealistic. In Chicago they don't seem to be interested in what assumptions they make as long as they have the possibility of prediction. It seems to me that we must be very careful of the realism of our assumptions and Austrians should in general insist on precisely this.
AEN: How do you see the relationship of the Keynesians to the Austrians?
Lachmann: Now, this is a bit more difficult because the question arises, "Who now are the Keynesians?" I did notice that a certain economist whom I always thought was a Keynesian has described himself as a nonmonetarist. So, it seems to me, that Austrians and Keynesians have certain things in common. They have a common methodology, which in the case of the Austrians is laid down of course in Mises Human Action. And which I would say so far as Keynes was concerned is expressed as you know succinctly in the famous letter to Roy Harrod of July 16, 1938, that I have quoted several times: "Economics is not a natural science. It has to deal with human purposes." That as it were unites us with the Keynesians as against certain other economists, this kind of subjectivism. What also I take it we have in common is a general interest in the facts. After all, we are living in the same world, and it is assumed we accept that facts matter, a proposition which in Chicago doesn't seem to be so readily accepted. But if we admit that facts matter, then we should be able to establish those facts.
AEN: You mentioned the comment by Keynes in which he made a methodological statement. In fact most Keynesians, at least in the United States, follow a methodology that limits itself to a study of averages and aggregates. Is it possible to see this relationship when, in fact, they for the most part operate with a methodological holism?
Lachmann: I don't know what you have in mind, and then of course the question again arises who is a Keynesian? I would point out, for instance, that in a book like Paul Davidson's Money and the Real World, subjectivism is after all present. I wouldn't know any good examples of what you call methodological holism. The mere fact that someone deals with macroaggregates does not necessarily mean that he is not methodologically an individualist. This was, I think, brought out quite well by Frank Hahn, in his famous critique of Friedman. I would say the mere fact that some economists are interested in macroaggregates does not necessarily impair their methodological subjectivism. It still leaves the avenue open for explaining the phenomena pertaining to macroaggregates ultimately in terms of human motives, as, for instance, Keynes did himself when he tried to split up the demand for money (money as a macroaggregate) into the famous motives. That was an attempt at subjectivism, at least.
AEN: One theorist who has said that he comes out of a Keynesian tradition is Shackle, and he says that he is trying to develop the subjectivism that he sees in Keynes, in particular Keynes's thoughts on expectations. What relationship do you see between Shackle's work and that of the Austrians?
Lachmann: I can think of no one more distinguished or important to the fundamental Austrian ideas than Shackle. Whether he wishes to identify himself with Austrian economics or not, or whether he prefers to rather not be associated with any particular kind of school, is an attitude one certainly can appreciate. I regard Shackle as, in fact, an Austrian,
AEN: Did you have the opportunity to get to know Shackle well in your London school days?
Lachmann: Reasonably well, I would say. We were both research students under Hayek for two years between 1935 and 1937. We certainly talked very often. Also, these years include the crucial year 1936, in which The General Theory was published.
AEN: Professor Lachmann, the Austrians have always emphasized the importance of the price mechanism in disseminating information and as an allocative tool for efficient resource utilization in an economy. The western world is now facing the situation in which an important price is more and more inflexible downwards; i.e., wages, particularly in England. What types of policy recommendations or what types of theoretical insights can an Austrian give in a world in which wages are rigid downwards?
Lachmann: All one can say of course is that it would be better if wages were not as rigid as they are, and I think Austrian economists should tell everybody who is willing to listen to them that wages that are inflexible downwards are not in the interests of society and not in the interests of the workers concerned; that in a market economy it is not the path of wisdom never to reduce the price of what one has to sell.
AEN: A collection of your essays has recently been published. Perhaps you would like to say a word or two about it.
Lachmann: The collection of essays, Capital,Expectations and the Market Process, is of course a selection of articles I have written, the earliest from 1940, "A Reconsideration of the Austrian Theory of Industrial Fluctuations." I think that in general these articles reflect both my reaction to the Keynesian economics as well as my growing disenchantment with what was called orthodox or mainstream economics. I do take some pride in an article which will be included that originally came out in February, 1943, "The Role of Expectations in Economics as a Social Science." Before 1942 when I wrote the article it had not become clear to me that the introduction of expectations into economics would mean a major revision of economic theory. And this has been one of the themes on which I have written since 1943. That is to say, fundamentally, the incompatibility of a world in which spontaneous action exists and expectations are as subjective as preferences are.
AEN: What plans do you have for the near future? Do you have any books in particular that you are working on or will you just continue to write in this vein?
Lachmann: No, I just intend to write in this vein as long as I am permitted to.
Volume 19, Number 4 (Winter 1999)An Interview with Thomas J. DiLorenzoThomas J. DiLorenzo, professor of economics at Loyola College and adjunct scholar of the Mises Institute, is the author or co-author of Underground Government (1983), Destroying Democracy (1985), The Rhetoric of Antitrust (1986), Official Lies (1992), Cancer Scam (1997), The Food and Drink Police (1999), and dozens of articles in books and scholarly journals, including the Review of Austrian Economics. He teaches at the annual Mises University.
AEN: Your recent book, The Food and Drink Police, is quite timely.
DILORENZO: We've seen an explosion of litigation designed to destroy whole industries on grounds that they are inconsistent with the government's ideal of health. The government and its connected nonprofits are waging war against cigarettes, but also fast food, liquor, chemical fertilizers, drugs, and biochemical methods of production all in the name of good health.
But it is important to remember that the state doesn't actually desire that we achieve perfect health. This is only a convenient excuse to achieve the real goal, which is confiscation of wealth. They are just going after the money. If the state could accomplish this by promoting unhealthy products, and subsidizing personal decadence, and smashing the health-club industry, for example, it would gladly do that too.
The state is always in league with an intellectual class to provide cover for its misdeeds, and the public-health movement is only the latest. Using this cover, the state and the courts are targeting developed industries tobacco and gun manufacturers, for example and extorting them with litigation. They have even begun to drop the pretense; it is open robbery.
According to the Constitution, Congress has the power to raise taxes. But that path has become politically treacherous. What they have done, then, is to delegate that power to judges. The racket really began when judges started dictating to communities that they had to raise taxes to fund equal education for everyone. This practice is now being expanded to all industries.
AEN: What is the mechanism that makes this possible?
DILORENZO: There are nonprofit groups, funded in part by the government, whose main job is to demonize a particular industry. For example, Ralph Nader has about a dozen organizations that he heads, and they work hand-in-hand with the trial lawyers, who further fund the groups to do their dirty work. Then the law suits begin. The idea is to force a settlement to avoid the costs associated with lengthy court battles.
At the state level, many attorneys general are gubernatorial aspirants. The prototype is Mike Myers, the attorney general of Mississippi who honchoed the suit against the tobacco industry. This resulted in millions being dumped on the state government. The interest groups who get the money cheer and support the attorney general when he runs for governor.
Recall that Rudolph Guiliani, as U.S. attorney, had "inside traders" handcuffed, chained, and dragged down Wall Street. Why? These people were simply operating in the free market in an entrepreneurial fashion. But he turned them into criminals. This catapulted him into the mayoral position, and now he is running for the Senate.
The state governments are flush with revenue right now. But many of them are still in the process of suing tobacco companies, gun makers, and HMOs. Even the paint industry is under fire. It stopped making lead paint back in the 1950s as soon as it found out there were health hazards. But the state of Rhode Island has decided it is going to sue. Some of these companies were bought by other people long after they stopped making lead paint, but they are being sued anyway.
This model of government aggrandizement is making extraordinary gains. I also worry about the effects on other countries. If you look at the Tony Blair model he saw what worked politically in this country and copied it we can expect that lawsuits will become a chief means of expanding the state in many other countries as well. England, France, Spain, and Canada are absorbing these bad ideas.
AEN: And what is the ideological basis of these attacks?
DILORENZO: F.A. Hayek said in the Constitution of Liberty that one of the hallmarks of socialism is a relentless attack on the idea of individual responsibility. This attack has finally taken hold in the public mind. Thanks to the government schools, which have inculcated all this, people seem to accept this without fully understanding what it implies.
In Florida and Maryland, for example, tobacco companies were forbidden from arguing in court that smokers should be held responsible for their own health problems, even when they knew that smoking was bad for them. There are so many people on the public dole that they turn a blind eye to these outrages, perhaps on the theory that some of the money might eventually flow their way. Everyone has known for many decades that smoking can be bad for you. The phrase "coffin nails" was coined at the turn of the century. In the past, when tobacco companies were taken to court, they won, on grounds that the consumer should bear the liability for any dangers associated with products they consume. But when common-law precedents are thrown out, the result is a kangaroo court that loots anyone with deep pockets.
Each time the attacks are stepped up, past promises are thrown out the window. For example, the Clinton administration promised that if the tobacco companies settled with the state attorneys general, there would be no further legal action. But, sure enough, the Justice Department decided it wanted some of the money too, and it has now filed its own suit.
AEN: What do you expect will happen to the tobacco industry?
DILORENZO: It will move overseas. What choice does it have at this point? It has been so thoroughly demonized which is always the first step in destroying something that there can be no future in it, absent a radical political change.
Think of Microsoft. Here we have a company that was a model of an independent firm that dramatically improved our standard of living. Its competitors started to complain, and the attacks began. The Justice Department began talking about taking control of their product development and marketing strategies. The Washington Post piled on relentlessly, running articles denouncing Microsoft for not having enough lobbyists in Washington and not paying enough in bribes to special interests.
Now that Microsoft is giving big bucks to special-interest groups, and shelling out money to favored nonprofits, it may get a free pass. Really, it's a type of nationalization. In the old days, the socialists had the government take over whole industries. Now, they call for them to be sued and regulated and controlled to the point that they have little autonomy left.
Corporations shell out all this money to left-wing groups as a way of keeping them off their backs. This is what Jesse Jackson figured out. He goes around to corporate America and says, if you give us money, we won't call you a racist or foment boycotts against you. It's really a stick-up. After Jackson and the rest get the money, they use it to lobby for more federal subsidies.
AEN: And this is what the welfare state is becoming?
DILORENZO: What people don't realize is that the federal government has never really administered much of the welfare state. Instead, it set up thousands of nonprofits around the country and funded them to carry out an egalitarian agenda. They then turn around and lobby for more money and more programs.
In the research I've done on nonprofits, I'm astonished at how many can be seen as adjuncts of the federal government. The last figures I've seen show that 60 percent of their budgets come from the government. In recent years, the amount of money that has gone to politically-active nonprofits has reached $30 to $40 billion every year.
To put that into perspective, in the last election cycle, all the money spent on campaigning by members of Congress and challengers was under $1 billion. The nonprofit sector is no longer the "independent sector," as it claims. Almost the entire system has been corrupted by government money. It forms what I've called a "shadow government" that is never counted when considering the size of the welfare state.
AEN: What do you think about the argument that the welfare state is a public good?
DILORENZO: It's based on the idea that people are deadbeats by nature. There are all sorts of things people value very highly protection in old age, extra cash when the going gets tough, medical care but because people are free riders, they are disinclined to pay for them, at least not in the quantity they really want them. Government has to step in and provide the goods to increase people's welfare.
But this theory doesn't hold water. The only way we can really know what types of economic goods people value is by looking at people's preferences as demonstrated in the marketplace. Unless we can come up with some way to read minds, there is no other way to know. But if the market already reflects people's preferences, there is no reason for the government to intervene.
And consider this. Government has a huge advertising budget. The Department of Agriculture is constantly fishing for new food-stamp clients, for example. If the government were really providing these as public goods, why should it need to advertise? If there really is an innate demand for what government does, why should anyone have to be recruited to consume its product?
AEN: You've also written some critiques of Constitutional Economics.
DILORENZO: That's James Buchanan's enterprise. In a paper I wrote with Walter Block, we quote Viktor Vanberg, a Buchanan prot?g?, as saying that Constitutional Economics is really about developing a theory of the voluntary state. But we point out that this is a contradiction in terms, like military intelligence and jumbo shrimp.
There have been many books written on the voluntary theory of the state, and all suffer from this problem of failing to examine whether the rules under which society operates are enforced by private or public means. We conclude our paper with a suggestion. If you are really interested in studying voluntarism in society, why not do more work in the privatization of law? There's plenty to do to show that privatization of everything, including law, is superior to the coercive state.
Paul Rubin at Emory University once wrote an article in the Journal of Legal Studies arguing that the common law is efficient. Of course the Chicago School loved that, since their mantra is that everything that exists is efficient. About seven or eight years later, Rubin published another article in the same journal in which he said he was wrong. He said the common law is not efficient because it has been corrupted by lawyers and politicians. The tobacco settlement is exhibit A.
AEN: Back to Buchanan: you have praised his work on cost theory.
DILORENZO: I've heard him say over and over again that his most important book was Cost and Choice (1969). I agree with him. This is really a classic in the Austrian literature, demonstrating that the only coherent way to understand cost is as a subjective notion. This theory is really at the root of his very best work in public finance, of which there is a lot. The Public Choice School has done a great service in reviving the old-fashioned study of political economy. But it is fundamentally based on the neoclassical model. It would be even better if it were based on the Austrian approach.
The rent-seeking idea began by focusing on the costs of lobbying for special favors, particularly protectionism. Rent-seeking was seen as a form of looting. There's a similarity here with the classical idea that there are two ways to acquire wealth: through trade or through theft. But then the idea of rent-seeking went off the deep end. It became a synonym for any expenditure incompatible with perfect competition, and the old distinctions were lost entirely. Companies were said to be seeking rents and "wasting" resources through advertising and product development.
Another example: based on the perfect competition model, which sees many firms as preferable to only a few firms, public choicers have argued that many governments are preferable to fewer governments. This is just piling fallacy on top of fallacy. No, competition is not contingent on the number of firms; government is not a firm; and more governments, which usually means more levels of government, are not necessarily preferable to fewer. What Public Choice needs is an Austrian understanding of markets and government.
AEN: And the same goes for the Chicago School?
DILORENZO: Certainly. The dominant consideration with Chicago's law and economics paradigm is wealth maximization. The view is that the courts need to intervene to establish rules that maximize wealth, without concern for justice or fairness. The assumption is that the court can measure such a thing, and it's not true. Any Austrian knows that.
The tragedy is that their recommendations have taken hold. In cases where liability is in dispute, the courts sometimes assign the rights on the basis of their own ideas of efficiency. In many cases, the courts establish rules that require corporations to pay even though it is unclear whether the corporation is responsible for the damage. Peter Huber has very effectively criticized this approach, and shows that it is largely responsible for the liability crisis.
AEN: Would liability caps help?
DILORENZO: They don't get to the root of the problem. The nuclear power industry has had caps on its liability since the beginning, and this is a government privilege. If one person causes another damage, I don't see why the responsible party shouldn't pay. Moreover, the caps are determined politically, so it will be the government's friends who are protected. No, the real problem is not that there is too much money being spent. The problem is the crazy liability system itself that doesn't assign individual responsibility properly.
There was a 100-yard dash in Florida. The winner would take home $10,000 but the trick was that you had to run with a refrigerator on your back. One of the participants slipped and threw his back out. He sued the refrigerator manufacturer, and won a settlement. The Chicago approach is to say it would be difficult to establish liability, so it might be more efficient to have the refrigerator manufacturer shell out money. But what about justice?
The whole approach of Chicago is that you can be objective and scientific in law and not make value judgments. But that's impossible. For example, the Coase theorem seems to say that rights and justice are less important than efficiency. But the truth is that it really does matter who has the property rights. It matters for the good functioning of the economy. Property rights and justice have to be the forefront of the analysis.
Much has been written on the problem of transaction costs. Once these economists have found transaction costs that are high and persistent, they assume market failure. But costs associated with transacting are part of the market process. The more interesting question is how people deal with them and overcome them. The market is always better at overcoming imperfect knowledge than government.
Harold Demsetz coined the phrase "Nirvana Fallacy," which refers to the tendency of economists to compare the real world with some idealized version that exists only in mathematical models. Joseph Stiglitz will probably receive the Nobel Prize someday for doing precisely that. His models are designed to show that the market fails everywhere because real-world markets are not omniscient. It is for this reason that a former colleague of mine called much of modern economics "exquisite trivia."
AEN: And yet there are increasing complaints about this tendency.
DILORENZO: Yes, but the power of inertia in academe is very strong. The powers that be, the elite universities and the folks that run the American Economic Association, have a lot of capital built up in this way of doing economics. They aren't going to let go until they have to. Deep down, they must know that it is a lot of baloney.
I just wrote a review of a new book by Robert Solow. Here's a man who won the Nobel Prize sixteen years ago. He is a gray eminence of the economics profession. He is still trying to build models of the economy that don't mention capital markets or labor markets. The math looks impressive but there is little economic content. Surely, he must realize that this is a foolish endeavor.
AEN: This is a great problem in economic history as well.
DILORENZO: There's a tendency to look at small slices of reality to the exclusion of everything else. You end up with wildly distorted views of history. That's why I wrote that Murray Rothbard should have been awarded the Nobel Prize for his book America's Great Depression and for his economic history in general. It is revisionist and wonderful. Doing economic history to Murray meant that you had to know something about economic theory, history itself, philosophy, political philosophy.
You can't be a narrow practitioner of one type of technical economics and do real economic history. You can't pretend to know anything about the economic history of Elizabethan England relying only on econometric techniques. You also have to know real history if you intend to capture something about reality.
But economists have long attempted to ape the physical sciences in their methods. So history, to most economists, is not determined by the choices of individuals; it is driven by these social forces summed up in equations. This provides another great opportunity for Austrians. We need to look at all the economic controversies of the past and apply the Austrian way of scholarship.
Mises used to use the phrase "the relentless pursuit of truth." That certainly has been the guiding principle of the Austrian School from the beginning to the present. The mainstream, in contrast, seems dedicated to the relentless pursuit of impressing their colleagues with their mathematical abilities. Paul Samuelson once wrote that "the applause of one's colleagues is what motivates most economists."
When I was in graduate school, a Big Shot was invited to give a lecture. He gave a paper on the hamburger market, which was all math. Gordon Tullock said: well, you know, this doesn't operate at all like the real hamburger market. The lecturer responded that he wasn't interested in the real hamburger market; he was interested in the consistency of his mathematical model. That is not an isolated anecdote. That is mainstream thinking.
If you look at the mainstream journals many of the articles are strangely disconnected from anything real. One person will prove that water runs downhill in ten steps. A comment will appear proving the same thing in nine steps. I cannot understand why anyone would want to spend their careers that way when they can get involved in Austrian economics and actually do important scholarship.
AEN: But then Austrians do have to think about their careers.
DILORENZO: Actually, I think Austrians underestimate the power of their own ideas. My colleagues are all mainstreamers, but I don't miss a chance to educate them. They are very receptive. For example, the Wall Street Journal published a news story saying that hurricane destruction would actually be good for the economy. I passed out Lew Rockwell's WorldNetDaily response, and a photocopy of Hazlitt's version of Bastiat's broken-window fallacy. You know what? Only one knew who Henry Hazlitt was. But everyone loved it. Several said they would use it in the classroom.
If you give fair-minded people an exposure to good ideas, they will gravitate toward them. I was around some Austrians in the middle 1980s, and they were glum because they figured they could never get published in the mainstream. But then soon after, Austrians started doing very well. The establishment of the Review of Austrian Economics was a great help, and we started getting published in journals, like the Journal of Economic Perspectives and elsewhere.
Of course students are very receptive. I just taught an undergraduate course this past semester in which I used Mises's Socialism and The Anti-Capitalistic Mentality. The students thought it was fabulous. They gave me the highest evaluations I've ever received. They are so bored with mainstream economics that they are thrilled to be exposed to important ideas, big ideas, for a change.
AEN: In addition to your scholarly work, you have been effective in getting the word out to the general public.
DILORENZO: The general public has no necessary stake in the proliferation of bad ideas. Even so, it is hard for people to see cause-and-effect in political affairs. For example, it's hard for people to understand the link between companies being driven into the ground and the regulation and lawsuits that were imposed years earlier. It is our job to connect the dots. For example, Shoney's restaurant recently closed almost one hundred of its branches. The cause was a lawsuit a few years ago in which the company agreed to pay out millions and change its operations to make them more politically correct. But the events are not linked in time, so the causal link is not clear to people. Nowadays people don't even flinch when a judge gives millions to undeserving participants in class-action lawsuits.
I've also come to believe the state educational system has been successful beyond its wildest dreams. The founders of state education wanted to inculcate loyalty to the regime. I just finished Rothbard's Education: Free and Compulsory. There's more scholarship in that than decades of educational theorizing from the establishment.
He points out that in any group of kids that you assemble randomly, among one hundred kids, there are going to be several who are just little devils, destructive and unteachable. They are going to harm their classmates to school with violent little devils. And yet we put up with this.
The only way we are going to fix schools up is through abolishing compulsory education, abolishing the property tax, repealing regulations on schools, and letting a thousand schools bloom via market means. In the meantime, the home-schooling movement represents a real source of hope. There are about a million homeschoolers now. This represents a secession from the government-school monopoly.
This is another thing Murray anticipated: he understood that public schooling would someday blow up in the face of the bureaucrats, and that there would be a reaction. The large public schools are a little like Lord of the Flies, especially with two parents working and nobody really paying attention. Many cildren are essentially being raised by their peers. When you meet a home-schooled child, the difference is sometimes quite astonishing.
AEN: Speaking of secession, you have recently been writing quite a lot on the topic.
DILORENZO: There hasn't been enough work done on this important subject. But I've become convinced that the whole idea of decentralized government, the federal system the founders created, is essentially useless unless states have the rights of secession and nullification.
Thomas Jefferson warned that if the day ever came when the federal government could decide upon the limits of its own powers, the Constitution wouldn't be worth the paper it was written on. That day came on April 9, 1865, when General Lee surrendered at Appomattox. Among other things, that destroyed the right of secession. Ever since, the federal government has been able to decide what its power should be. States used to nullify blatantly unconstitutional laws and programs. But that died too when Lee surrendered. Libertarians have always praised decentralized government. But without the right of secession, there is no substantial meaning to this concept.
AEN: Your research on Lincoln has also exploded a number of myths.
DILORENZO: The Great Emancipator has been made into a god. But it turns out he was just another politician, and a particularly menacing one. He was part of the Whig tradition in American politics, which had a three-point agenda: central banking, protectionism, and internal improvements (which means pork-barrel spending). This was the road to political power. Patronage would be virtually unlimited.
If you read Lincoln, he is perfectly clear about his ambitions. He was a mercantilist and an inflationist and he did exactly what he said he was going to do. When Lincoln was elected in 1860 and the South seceded, the central government was controlled by the Whigs (who were then called Republicans), and they implemented their agenda. After the war ended, they imposed their mercentilist system with a vengeance.
As for slavery, Lincoln never uttered a word on the subject until 1857. The Emancipation Proclamation didn't liberate a single slave in the areas that the central government controlled. This document was a war tactic, not a principled statement on liberty.
I put together a chart that shows that from 1800 1860, there were dozens of countries that ended slavery peacefully. The only country in which it ended violently was the United States. The question becomes: why didn't Lincoln use his legendary political skills to enact some sort of compensation scheme?
When you consider all the costs 620,000 people dead, hundreds of thousands maimed, the destruction of the Southern economy, the looting of the Northern economy by federal tax collectors, the destruction of economic and civil liberties it is a big question. The answer is that Lincoln had another agenda, namely, the imposition of mercantilist statism.
After the war, Gen. Sherman was given the assignment of eradicating the Plains Indians, and his Union troops mass murdered them. They snuck up on them in the winter and shot men, women, and children. Isn't it interesting that this supposedly great army of liberation would be sent out to engage in ethnic cleansing so soon after its wonderful humanitarian act of liberating slaves? It is far more revealing to see this epoch as the bald-faced consolidation of political power by the Republican party.
AEN: What's your impression of the young generation of Austrians?
DILORENZO: I'm very excited about them. I think we are reaching a point where people are just fed up with mainstream economics, and are gravitating to other things. The worse the mainstream of the profession gets, the better it is for Austrians. I recall meeting one student at the Mises University who was finishing up her PhD. I asked her why she came to the conference. She said that in her university, she was getting mostly mathematics and game theory. Before she completed her degree, she said, she wanted to be exposed to real economics.
From a political point of view, students are ready for new ideas. They are subjected to the worst form of indoctrination these days. They endure it but they don't accept it. Faculty are harassed too. Last year, I received several notices telling me to attend some crazy indoctrination session on sexual harassment. I wrote back that I wouldn't attend, because there's only so much asinine political correctness that I can tolerate.
The left has become a caricature of itself, so much so that I really think there is a chance for a complete change. Already, young Austrians are having less trouble getting hired. Once the new professors get a few years of teaching under their belts, they'll be ready to jump in and make major contributions to the body of knowledge. They will be leading the charge to restore honesty in scholarship and rationality in economics.
Volume 20, Number 1 (Spring 2000)An Interview with Gottfried von Haberler (1900-1995)Taught by Fredrich von Wieser and Ludwig von Mises, and later a professor at Vienna, Gottfried Haberler worked within the milieu of the Austrian School but departed from the theory in important respects. In 1936, Haberler came to Harvard where he exercised a great deal of influence over the American profession.
Haberler's two major works–Theory of International Trade (1936) and Prosperity and Depression (1937)–drew together scattered ideas into a single theoretical treatment. His work on international trade theory placed the theory of comparative advantage within the framework of opportunity cost rather than real cost. His work on business cycles criticized both the Keynesian and Misesian theory. His last article was written for the Austrian Economics Newsletter (Winter 1995).
This interview, never before published, was conducted January 3, 1979, by Richard Ebeling, now Ludwig von Mises Professor of Economics, Hillsdale College, Hillsdale, Michigan, and by Joseph T. Salerno, now professor of economics at the Lubin School of Business at Pace University in New York.
AEN: Professor Haberler, what first sparked your interest in economics?
HABERLER: I must say it was practically by chance. When I entered the university in 1918 they introduced a new degree. Formerly, economics was taught in the faculty of law. I took a law degree, but later on and for practical reasons. But they introduced a new degree for social sciences, Staatswissenchaften, and I got interested in it without really knowing quite what it was.
AEN: With whom did you study while at Vienna?
HABERLER: Oh, in Vienna, primarily with Ludwig von Mises. He was not a tenured professor, as you know. He had the title of professor and was an honorary lecturer Privatdozent, as it was called. But he also had his famous seminar which has been mentioned in the literature, his Privatseminar. Friedrich von Wieser was my first professor, in the sense that I took his course at the univesrity, a big lecture course for hundreds of students. He was a very distinguished gentleman and a fine lecturer. Hayek knew him very well and also studied with him. Later on I studied with Hans Mayer. There were some others; there was Richard von Strigl; he was a little older than me and was part of the next generation after Wieser and Mayer. My closest friends were Fritz Machlup, Hayek, and Oskar Morgenstern. Morgenstern, Hayek and I later became lecturers, Privatdozent, and we had a joint seminar after we took our degrees.
AEN: How did you originally meet Professor Hayek?
HABERLER: Oh, I met him in the university. He was a year ahead of me, but we met regularly in Mises's private seminar, which was held every other Friday, and that went on for years and years. Mises also taught in the University and gave a course there. It was there that we met for the first time. Hayek was in fact closer to Mises than myself. But, in the end, we were all together in the Mises-Kreis [the Mises-Circle]. Morgenstern and Machlup were of course members of the seminar as well.
AEN: How did you find Professor Mises as an instructor?
HABERLER: He was excellent; first class. Both in the university where he was very popular and then in his famous private seminar.
AEN: What kind of topics were discussed in his private seminar?
HABERLER: Everything. Monetary theory, of course, but also a lot of time was spent on methodology. Yes, methodological problems and the sociology of Max Weber, that struck a cord in our minds. It was very much the a type of methodological subjectivism. And I have noticed that Ludwig Lachmann mentions that he also got interested in Weber. The sociology and philosophy of Weber was discussed very much. And in Mises' seminar, there were not only economists but lawyers, and philosophers, such as Felix Kaufmann. By the way, he was a versifier. One of his poems is reprinted in a Mt. Pelerin publication in 1961 honoring Mises's 80th birthday. It was a very nice little poem about Mises's private seminar. Unfortunately, it was never translated. Kaufmann was a philosopher, but he was also interested in economics. So the group was a mix of people interested in philosophy, economics and sociology.
AEN: What kinds of contributions did those seminar participants make, for example, Strigl or Ewald Schams or Paul N. Rosenstein-Rodan?
HABERLER: Schams was a mathematical economist, and a bridge to the Lausanne School. Rosenstein-Rodan also was interested in mathematical economics and the Paretian School, i.e., general equilibrium economics. We all got along very well. There was no such sharp division between Austrian economics and mathematical economics.
AEN: I understand that Professor Strigl also make contributions in both methodology and trade cycle theory.
HABERLER: Yes, he wrote a book called Economic Categories. I believe the title in German is Die Okonomischen Katagorien und die Organisation der Wirtschaft. Most of the people there had practical positions. Mises, of course, was a secretary of the Chamber of Commerce. Strigl was also in some government office. I, too, was in the Chamber of Commerce for years. Mises had gotten me a job there, first in the library and later I was engaged in trade policy problems. Hayek had a job in the Chamber of Commerce building, though not with the Chamber itself. Hayek's job was in an office engaged in settling prewar liabilities and assets. Mises and Hayek worked together there. There were several other people who also had jobs. You may have heard the name Helene Lieser, though she didn't write very much; she had a job in the Austrian Association of Bankers. Morgenstern later joined Hayek in the Institute for Business Cycle Research--the Austrian Institut fur Konjunkturforschung, as it was called. Now it is called the Institute for Economic Research. It was one of the first business cycle institutes in central Europe.
AEN: What motivated Mises and Hayek to found the institute in 1926?
HABERLER: Well, Mises had developed his theory of the business cycle and Hayek's first publications were in that area. Hayek published his theory of the business cycle in 1931 in his book,Prices and Production. Hayek had based it on the earlier writings of Mises, Knut Wicksell and Eugen von Böhm-Bawerk. At first, I was very much interested in the approach but then I moved away from it; I am now closer to the Chicago School than to the Austrian School.
AEN: What led you question the relevance of Hayekian business cycle theory?
HABERLER: I realized that you can't explain a deep depression by real maladjustments emphasized by Mises and Hayek. It was the so-called "secondary deflation" which made the Great Depression so bad, and not any enormous real maladjustments. I think Hayek would agree with that now. You may remember that we published at AEI a little pamphlet, A Discussion with Friedrich von Hayek (1975), where I tried to get him to admit that it was the secondary deflation which made the Great Depression such a disaster rather than large real maladjustments, and I think Hayek would now agree with that. He said it in so many words in that publication.
AEN: Did Wilhem R?pke have any influence in this respect?
HABERLER: R?pke was not, of course, a member of Mises-Kreis, but we all knew him and later on I saw him a great deal after I moved to Geneva. He came occasionally to Vienna. He was close to us as far as free-market policy was concerned, but on understanding the secondary deflation, he was ahead of the Austrians. Also, Albert Hahn, a German banker, was a personal friend of Mises's and a personal friend of us all. Hahn and R?pke stressed the secondary deflation, and I think they were right. Their ideas were formulated independently of the Chicago School, which came much later.
AEN: Do you think, though, that the Mises-Hayek analysis has relevance at least in explaining the primary distortions?
HABERLER: Well, that may be so, but the particular type of maladjustment that Hayek has in mind, I believe, is not really a very important factor - what he calls the "vertical" maladjustments in the structure of production. What impresses me is that on other occasions our economy handles very large maladjustments, as, for example, during a transitions from war to peace and from peace to war, without much trouble. But in Hayek's theory those so-called vertical maladjustments are supposed to bring about the enormous disaster of the Great Depression. To my mind, that makes no sense.
AEN: The focus of both Mises's and Hayek's approaches was on the non-neutrality of money. The way money is injected into the economic system tends to effect the structure of relative prices and, by affecting relative prices, tends to influence the allocation of resources along alternative productive uses.
HABERLER: Yes, there certainly is something in that. If you inject the money into the economy one place rather than another it makes a difference. The monetarists try to handle that problem by saying that in the second and third rounds of spending, say, after a year or so, it doesn't make too much difference where the new money had been injected. I have an open mind on this question, but on the whole, I tend to agree with the monetarists that it really doesn't make too much difference. But it does make some difference.
AEN: What do you think originally accounted for the wide popularity of Hayek's theory at first, and then for a decline of interest in it?
HABERLER: Well, there was the Great Depression, and Hayek said he had an explanation for it. Later on, of course, it was overshadowed by the rise of Keynesianism. And John Maynard Keynes in some sense was right, namely, that once you had a deep depression a purely monetary policy to prevent a further deflation is not enough. Milton Friedman himself says there is such a thing as a cumulative process.
I like to quote that from the very end of his Monetary History of the United States. He makes the point that the rock which starts the landslide can be easily held back, but once the landslide is underway, you need a stronger force. I would apply that to the Keynesian policies in the Great Depression. Once it has become cumulative then easy money, even a zero rate of interest, doesn't help very quickly. Particularly if a deflation has been going on and prices have been falling, you would need to have a negative rate of interest, and that, of course, is not possible.
Therefore, in such a situation, I think Keynes was right. Injecting money directly into the income stream by a budget deficit was required to stop the landslide. I think this argument applies against the monetarists, as well as against Mises and Hayek. Terrace Hutchison, in his pamphlet Keynes versus the Keynesians (1977), published by the Institute of Economic Affairs, makes the point that Hayek, Lionel Robbins, Arnold Plant, and T. E. Gregory wrote a famous letter that appeared in the London Times on October 19, 1932, in which they rejected deficit spending. That I think was a great mistake, as Robbins later acknowledged.
I don't know what Hayek would say if you asked him now. Maybe he would admit it, too. In any case, the letter was very damaging and was probably responsible to some extent for the success of Keynesian theory. In that particular situation the Keynesian prescription made sense that what was needed was large deficit spending. But the mistake the Keynesians now make is that they go on speaking as if they still lived in a Keynesian world with mass unemployment, where you can spend without raising prices. That, of course, is nonsense. That is the weakness of the present Keynesian school, that they still think they are living in a deep depression, which is simply not true. Right now, we are very close to full employment, despite an unemployment rate of six percent.
AEN: If there had not been wage rigidities during the Great Depression, would you still have recommended that an active fiscal policy was needed to get us out, or could the market have adjusted on its own?
HABERLER: I recommend deficit spending only in a big depression and not in a mild recession. In a mild recession, of course, we have the "automatic stabilizers." You need not go out of your way in a mild recession to create a government budget deficit. It comes about all by itself through the existence of a large public sector, so there is really not much need to reduce taxes. Taxes, of course, should be reduced, they are altogether too high in general. But as an anti-cyclical device, I think, manipulating the tax rate is not necessary unless you get into a really bad recession. And the last recession, our recession of 1973-75, was, of course, a recession and not a depression in the sense of the Great Depression or earlier depressions. It was a mild affair.
AEN: One of the analytical methods that the Keynesians use is emphasis on aggregates, i.e., looking at the general wage and the general price levels. I understand that in the late 1920s you wrote a book on index numbers, Der Sinn der Indexzahlen (The Meaning of Index Numbers). What was the essence of your argument in that book?
HABERLER: Well, that was a technical book on index numbers, and I tried to link up the index number problem with general economic theory, but it did not have much on the particular problem to which you are referring. Now, I hear that Keynesians are criticized for using aggregates. I think that everybody uses aggregates.
Of course, you can overdo it. You can make the aggregates too large, but the economy is simply too complicated to go all the way down in a practical way to the last minute microeconomic distinctions. So I think that criticism of the aggregate approach has been overdone. It is a matter of degree and not either-or. But if you ask me, the weakness of Keynesian theory is that they overlook or have never learned to distinguish between the money rate of interest and the real rate of interest. That of course goes back to Irving Fisher. Probably you can trace it back further if you look. But we in Austria were always aware of that distinction.
I did mention in my book on index numbers that it is possible that the price level changes differently for different classes of goods and consumers, but here you have the practical problem that you cannot easily handle such fine distinction. You would not, however want to say that index numbers are useless because you would need an infinite number of index numbers to incorporate all the microeconomic distinctions. That I definitely did not mean to say in my book.
AEN: You mentioned that you thought there was some truth to the Keynesian argument in a deep depression. What were your first impressions of the General Theory?
HABERLER: Well, I never wrote a review of the book, but in the second edition of my Prosperity and Depression, I added a chapter on Keynesian theory. The first edition only made reference to Keynes's book in footnotes because the General Theory appeared when my book was almost finished.
I was impressed on the whole, but I criticized the multiplier theory and called it, as Keynes puts it, a tautological theory and not very useful. He didn't distinguish between the instantaneous multiplier and the serial multiplier. There were mistakes of that sort, but still it was a very stimulating book. Now, I remember Hayek criticized Keynes's Treatise on Money, published in 1930. I don’t remember if he wrote a criticism of the General Theory, but I think Hayek's review criticizing Treatise was very good. He had a published exchange of views at the time with Keynes. But personally they were on good terms. Hayek knew Keynes quite well, and they often talked to each other. Keynes said some very nice things about the Hayek's Road to Serfdom. And in one instance Keynes said that Hayek's argument in The Road to Serfdom was good medicine, but a bad diet.
AEN: Did you ever have the opportunity to meet Lord Keynes?
HABERLER: Oh, yes, very much so. He invited me to Cambridge for a month in 1932. I was his guest in Kings College and I talked in his famous seminar where no blackboard was permitted.
AEN: They say that he had a very charismatic personality. Did you find that to be the case?
HABERLER: Oh, he was a most interesting man and an excellent speaker, very quick, and so on. Charismatic? I don't know whether that is the right word. He didn't impress me in that way, but he certainly impressed his followers in that manner.
AEN: One of the major criticisms you made of Keynes's book in Prosperity and Depression was what later became known as the Pigou Effect. What drew your attention to this internal problem with his system?
HABERLER: It was not Arthur C.Pigou who drew my attention to it; I came across Pigou's argument only later. It made simply no sense to me to say that, if wages and prices were perfectly flexible, they could go down indefinitely with nothing happening to money. It seemed to me that the quantity of money in real terms would rise indefinitely and that this would bring about reflation; Keynes overlooked this.
But what I would stress more now, in an inflationary situation, is what I said earlier about the distinction between the real rate and the money rate of interest. This has never been incorporated into Keynesian theory, and even now Keynesians overlook it when they say the interest rate is very high. Nevertheless, when you look at the inflation rate, you see that the real interest rate is very low. This is a basic mistake that they made.
AEN: Did Keynes ever comment to you about your criticisms?
HABERLER: No, he did not.
AEN: If one goes through the reviews that were initially written of the General Theory, most were either critical or skeptical of various parts of his approach, yet within a short time a great many in the economics profession accepted Keynes's general argument. What accounts for this?
HABERLER: Well, that it was a "general theory" presented in manageable terms, by which I mean in terms of large aggregates. Keynes's theory easily lended itself to diagrammatic, mathematical and econometric treatment; at the same time Simon Kuznets developed the national income accounts approach and these two develops were soon merged together.
AEN: What do you think of the reinterpretation of Keynes offered by Robert Clower and Axel Leijonhufvud?
HABERLER: Well, in one sense I think they are right, for Keynes himself would not be a Keynesian today. You may remember Hayek reporting that in his last days Keynes had said that, yes, his followers had gone too far, but that he would turn around public opinion. He realized that in the new inflationary situation, his prescriptions were no good. Clower and Leijonhufvud tried to make allowance for that and to interpret the original Keynesian theory in the light of the new situation where the old prescriptions don't work.
It happens very often, you know, that the founder of a school finds himself in conflict with his followers. Marx wrote to Engels on one occasion that he, Marx, was I am not a Marxist! Keynes came close to saying that in his posthumous article on “The Balance of Payments of the United States (Economic Journal, June 1946). He spoke of some of the prescriptions of his followers as modernistic stuff gone silly and sour. That type of comment was aimed at Richard Kahn, and I sometimes feel that we should have Leijonhufvud write an article on Friedmanian Economics and the Economics of Friedman, because the rational expectations people also go a little bit too far. Friedman does not go that far. He is much more reasonable than the rational expectations people, so there is a similar type of conflict arising between the founder of this school and some of his extreme followers.
AEN: What so you see as the fundamental problem with the rational Expectations literature?
HABERLER: Oh, they go much too far. They are saying, for instance, that monetary policy cannot have any effect because people immediately anticipate it; that, when they read in the paper that the money supply has gone up, everyone concludes that the price level is going up, and everyone takes immediate actions which make the effect nugatory. So they, in effect, assume that everybody is an accomplished econometrician, and a one hundred percent monetarist, which I think is simply not so.
AEN: In his reinterpretation of Keynes, Leijonhufvud also laid stress on the idea that what Keynes was really talking about is his theory of "involuntary unemployment" was the problem of imperfect knowledge in a decentralized market. What are your thoughts on that interpretation?
HABERLER: There, I don't think they are right. This is the modern theory of the microfoundations of monetary and inflation theory. I am all for microfoundations, but that particular type I again think goes too far. Leijonhufvud and James Tobin propose, as an amendment to Keynes, that workers are not concerned with their absolute wage, but with their relative wage. If they see that somebody else gets more than they do, they ask for a higher wage, even if it means that they remain unemployed. That makes no sense to me. Workers do not always know what their fellows are getting. It certainly doesn't apply to the mass unemployment which existed in the 1930s. People had no jobs. This new interpretation of Keynes–that what is more relevant is whether someone in a similar position is better off–is, I think, quite unrealistic.
AEN: Do you think that a good part of the unemployment of the 1930s was due to wage rigidities?
HABERLER: Yes, of course. Pigou took the same position, but said it did not mean that he would recommend deflating the economy to increase the real money stock through flexible wages and prices. If you are in such a situation, then you have to manipulate demand, and in such an extreme depression you have to manipulate it, as I said before, by injecting money directly into the income stream, rather than by relying on the Pigou effect. What Hayek, Plant and Robbins in were really recommending in their London Times letter of 1932 (though they didn't put it in those words) was to rely on the Pigou effect to bring the economy back into balance, and I think that was very unrealistic.
AEN: What is the history behind your writing of Prosperity and Depression?
HABERLER: I was asked by the League of Nations to come to Geneva. They had a grant from the Rockefeller Foundation to start work on business cycles. They wanted a work reviewing business cycle theories to see which points various theories had in common, which theories were relevant, and whether a synthesis was possible. That's what I tried to do.
AEN: What are your views on the monetary approach to the balance of payments, which has recently come out of Chicago?
HABERLER: I don't know whether you saw it, but I wrote a review of a book by Harry Johnson on that topic was a little critical of it. I was sorry my good friend, Harry, was very unhappy with that review. My feeling was that it was half-baked; they were very unjust toward what they called the elasticity approach and the absorption approach, and that they all can be put together in one baggage. The elasticity approach is not without its merits. But I said all I have to say in that review in the Journal of Economic Literature, vol. XIV, no. 4 (December 1976), pp. 1324-1328).
AEN: Do you see the monetary approach as basically the classical approach to the balance of payments?
HABERLER: That's what they said, that it all started with David Hume. Jacob Frenkel from Chicago wrote a book on the history of the monetary approach to the balance of payments in which he mentions almost every economist who wrote on that subject between Hume and Harry Johnson as having contributed to the monetary approach. I think that shows that it isn't so novel.
And it is also probably my Austrian background and the inflationary experience we all went through in the 1920s. That made us a little more sensitive to inflation and the distinction between the real and money rate of interest, and the role of inflation in influencing the exchange rate, and the foreign exchange market. The American and British economists who had not had this experience with high inflation were, perhaps, a little handicapped, a little slower in catching on to the inflation problem.
AEN: How would you assess our most recent experience with freely floating exchange rates?
HABERLER: Floating exchange rates came about because fixed exchange rates cannot work in a milieu of high inflation. The basic fact is that if you have high inflation of the major countries, those countries cannot agree on a common rate of inflation of, say, ten percent. There are those countries which simply don't go along, and you get the inflation differential between Germany, Switzerland and Japan, on the one hand, and the United States on the other. That accounts for the decline of the dollar and for the fact that Bretton Woods has been replaced by floating rates. Of course, there are about forty countries that still peg their currencies to the dollar, and there are a few currencies which are pegged to the Mark. But the major currencies all float because of the large inflation differential.
AEN: Do you think floating exchange rates have prevented the spread of the inflation virus from on part of the world economy to another?
HABERLER: Yes, I think so. Otherwise German, Swiss and Japanese inflation rates could not have gone down, for example the Swiss to zero, the German to two percent, and the Japanese to three and a half percent. With fixed rates they would have had to follow the dollar, so in that sense it has prevented the spread of inflation to a few countries–only a few, unfortunately–who have managed to bring their inflation rate down.
AEN: What do you recommend as a long run solution to our international monetary problems?
HABERLER: The most important thing is for the United States to bring its inflation rate down. After all the United States looms very large in the world economy and the dollar is still the foremost international reserve and transactions currency. Therefore, we should bring our inflation rate down at least to the German level; if we could do that, then the remaining imbalances or reemerging imbalances could be handled by minor fluctuations in the exchange rate.
AEN: But you would not be for going back to fixed exchange rates?
HABERLER: This is simply impossible, because, not everybody is ready for it. If the major countries come down to a lower inflation rate, then the exchange rates will stabilize all by themselves. But it puts the cart before the horse to say first: "Let's go back to fixed exchange rates," and assume that everybody will behave.
After all, we tried that; we had the Bretton Woods system and it broke down because not everybody behaved. That situation has not changed. For that same reason, I am rather skeptical about the new European monetary system. The Germans are now down to a two percent inflation rate; the Italians are over ten percent. I simply cannot understand how can you stabilize their currencies with these inflation rates.
The Italians are supposed to get the margin of six percent, but if they have ten percent inflation, six is not enough. That can work only if the Germans underwrite the inflation of France, Italy, Denmark and Ireland. And perhaps the British will also come in if the Germans are willing to underwrite them.
AEN: How relevant is the purchasing power parity theory in explaining the current decline in the dollar or the foreign exchange market?
HABERLER: There is certainly a connection with the purchasing power theory. The price levels between different countries cannot diverge indefinitely. It's not a very precise instrument, but roughly speaking the movements in the exchange rates do reflect their respective inflation rates. Sometimes it's magnified, and especially today with the large dollar balances. The diversification of these balances when the dollar shows signs of going down all the time, may push the dollar temporarily below the equilibrium rate, but basically I think the exchange rates are determined by inflation rates.
But there are different indices, you know; you can take the GNP deflator, the CPI, or the index of manufactured goods and this gives you different results. It's not a very precise instrument. But as the purchasing power parity theory demonstrates there are connections between the price levels of different countries and their exchange rates. There is no doubt that the purchasing power parity theory is useful.
AEN: Do you see any difference between the standard version which comes from the Swedish economist, Gustav Cassel, and the version of the purchasing power parity theory developed by Mises which does not focus on price indices?
HABERLER: Mises didn't like terms "price level" and so on, and as a result I thought he got into difficulties. Yes, as you say, he basically had the same theory as Cassell, but then he said that it was not possible to speak of "price levels" or use to index numbers, and I saw a contradiction in this. You can put it in terms of the methodology of subjectivism, and go down to small aggregates, or ideally to individuals, and reject the aggregative approach, but that I think is practically impossible. You can't handle such complicated problems by going down really to the last individual unit. The economy is too complicated for that; you have to use aggregates.
AEN: What do you see as the main causes and consequences of the current worldwide stagflation?
HABERLER: The main cause is that we have gotten too far from a system of competitive capitalism. In a really competitive economy, one that would be much more competitive than ours as far as prices and wages are concerned, there would be no stagflation. Stagflation, i.e., ?the combination of high unemployment and rising prices, is possible only if you have rigid wages and, therefore, also rigid prices. So stagflation is not due to a basic defect of the capitalist free enterprise economy, but, on the contrary, to the fact that we have gotten too far away from the ideal of the competitive economy.
AEN: You have criticized the ideal of the notion of perfect competition as the main criterion in formulation anti-monopoly policy. What are the conditions of a workable competition? How much control of monopoly should there be?
HABERLER: Well, this is a big question. I have not done much work on that. In my mind the basic problem is in the labor field. Money wages have become completely rigid downward in practically all countries. Further, real wages have become completely rigid downward through indexation and so on. Apart from the labor field, the situation is not too bad.
The growth of international trade is the postwar period has introduced much more flexibility. If we just think of the United States, we have three or four automobile firms. That would be an ideal case of oligopoly, but with all the competition that comes from Europe and Japan, and now even from less developed countries, the economy has really become more competitive.
So to my mind it is mostly the labor field, and then also, of course, from government policies. Governments, one the one hand, make wages rigid by helping the unions in various ways, minimum wages and so on, for example; also among the main culprits are government regulation and protectionism.
AEN: What policies would you recommend to cure the current stagflation?
HABERLER: To curb the power of unions and reduce government regulation. The best anti-monopoly policy is free trade. We are very far away from that and are getting even farther away from it.
AEN: What are the reasons behind the repeated calls for wage and price controls? We've had bad experiences with them, and yet people still call for them.
HABERLER: They have never worked, and yet, despite that, they have been tried again and again. Nobody wants to go back to a more flexible, competitive system. So people think they can do it artificially by working on the symptoms, rather than on the causes. Democracy has its drawbacks, but many of the dictatorships are not doing much better.
Volume 19, Number 3 (Fall 1999)An Interview with Frank ShostakFrank Shostak is chief economist at Ord Minnett Jardine Fleming, Sydney, Australia, one of the largest brokerage houses in that country, and serves on the editorial board of The Quarterly Journal of Austrian Economics. He received his bachelor's degree from Hebrew University, master's degree from Witwatersrand University and PhD from Rands Afrikaanse University, and has taught at the University of Pretoria and the Graduate Business School at Witwatersrand University. He is a frequent contributor to the Asian Wall Street Journal, among many other popular and scholarly venues. His email address is fshostak@ords.com.au
AEN: Do you find Austrian economics useful in your day-to-day work?
SHOSTAK: I think it's important that clients understand the rationale behind your thinking. The Austrian School makes that possible. Clients relate to it very easily, and there's plenty of available literature with which they can follow up. On the other hand, most businessmen cannot understand econometrics, even if they sometimes pretend to because they don't want to appear stupid. But the really smart ones want to know why you think the way you do. You can't just say: "that's what the model says." Serious businessmen won't buy that. Neither will they be tricked into thinking their advisers are oracles. I never pretend to predict the future but only to suggest possibilities based on real events and realistic theory.
AEN: The job of chief economist for a major investment firm usually involves mathematical wizardry.
SHOSTAK: I was trained as a mathematical economist. My dissertation topic was "An Econometric Inquiry into the Monetary Transmission Mechanism in South Africa." After my PhD, I went to work as the head of the econometrics department for the major Johannesburg bank. While there, I built one of the first large macroeconomic models in South Africa. I visited the Wharton School of Business, showing it off and impressing all the math jocks. After working ten years on the project, I began to have doubts, and those doubts grew.
At some point, I decided to throw myself back into thinking about the basis of economic theory. I eventually read Murray Rothbard's Man, Economy, and State, and it permanently changed the way I thought about economics. He began with human beings as they are and as they act and as they choose-points that macroeconomic models cannot take account of. It became clear to me that most of what I was doing was based on the wrong foundation.
The big problem in economics is not that it lacks technical sophistication; the problem is that it lacks philosophical sophistication. When economists do attempt to give the science a philosophical justification, the results are unimpressive. It usually comes down to a defense of patently incorrect assumptions about the world.
But why should we assume things that are incorrect? The answer used to be that you can know good models by their predictive power. Today, few believe that, so the defense of implausible assumptions now comes down to this: they are necessary to create models. This is just a vicious circle, when the starting point and the ending point are the same. This is just a con-job.
From a Rothbardian point of view, economic theory must stand on its own. It doesn't require a mathematical proof but a logical one. It is valid in all space and time because it deals with unchanging laws of cause and effect that emanate from choice.
This is not captured in mathematical functions. If you say y is a function of x, you are trying to dispense with causality and you imply that relations between facts are brought about apart from choice. But in the end, human beings decide how much to spend, whether and how much to invest, and so on. If you throw this idea out, you can create elegant models of anything you want, but they have no bearing on reality.
AEN: While in South Africa, did you know Ludwig Lachmann?
SHOSTAK: I attended his private seminar, which he ran out of his house. What aroused my attention was his attack on quantitative economics. I remember thinking: there must be something wrong with this guy. But he invited me to join his seminar, and I always found him interesting. He lectured and we heard papers by others, and I presented some.
Even in those days, Lachmann emphasized uncertainty and the unknowability of the future. Much of it was sound, but he tended toward nihilism, the assertion that we can never know anything. I must say it wasn't until Hans Hoppe's article on that subject in the old Review of Austrian Economics that these issues were clarified for me.
In any case, in one seminar, he mentioned the debate between Keynes and Mises. I wondered who this Mises guy was, and I became very curious. Lachmann let me photocopy his copy of the first edition of Human Action, and I read the whole thing. I must admit that I couldn't understand a word of it. I was very upset because I thought of myself as a top economist, a member of an elite corps of econometricians. For my own sake, I remember hoping that Mises was just writing rubbish.
After that, I read Henry Hazlitt, whose work I found comprehensible but childish, intriguing but not rigorous-or so I thought. Later I changed my mind. In any case, Hazlitt footnoted Rothbard, and finally I found the economist who could, for me, make the case for the Austrian School.
In my opinion, Man, Economy, and State is better organized, more precise, and more focused than Human Action. Rothbard writes for the mainstream economist and in a language he can understand. Part of the difficulty of becoming an Austrian economist is that it requires a different vocabulary. Rothbard makes the transition much easier.
In fact, I attribute the rise of the Austrian School in our times, whether in academia or the financial world, to Rothbard's writings. They have had far more influence than is usually admitted, even by Austrians themselves. That so many claim that their primary influence is Lachmann or Mises or Hayek is due to the natural tendency to rally around thinkers who speak more obscurely as a way of congratulating oneself on one's interpretive capacities. It is Rothbard who has taught the world of today Austrian economics.
AEN: Was Lachmann a classical liberal?
SHOSTAK: Yes, he was, but he also had a great deal of admiration for Keynes. I asked him about Mises, and he said that Mises was a very stubborn person who didn't make enough of an effort to understand Keynes. If he had made more of an effort, he wouldn't be as negative toward Keynes. He also regarded Mises as arrogant, abrasive, and uncompromising.
I didn't tell him this at the time, but it is clear why Mises didn't compromise. He had strong disagreements with his colleagues. He wasn't interested in making incorrect assumptions about the world. He wanted to describe reality. Of course this led him to be an outcast after the entire profession had decided that it is perfectly fine to assume such things as all people are identical, knowledge is perfect, and output is given.
AEN: What about Lachmann's influence in the Austrian movement?
SHOSTAK: There is a long-running tendency among Austrians who have discovered the fallacies of mainstream thought to reject not just bad theory, but theory altogether. They conclude from the failure of one formal system of thought that all formal systems of thought must go. They rally around the work of Lachmann and G.L.S. Shackle and end up rejecting the existence of the law of demand, for example.
This is an enormous error. The problem with mainstream economics is not that it is theoretical and formal but that it is based on the wrong foundation and therefore generates crazy conclusions. The right response is to start from the right foundations. If a bridge collapses, you shouldn't reject the possibility of scientific geometry; you should try to figure out what went wrong with the bridge engineering plan.
Lachmann's key contribution to Austrian theory was said to be his theory of expectations. He said we live in a kaleidic world that is shaped mainly by what we believe about it and what others believe about our beliefs, etc. But Mises pointed out in the 1940s that expectations are a black box to an economist; they belong in the category, not of praxeology, but of thymology: knowledge concerning internal human valuations. We cannot make any fixed assumptions about such valuations. We cannot say they are perfect or that they are never correct about the future. We just do not know. Praxeology provides certain knowledge about unchanging facts.
AEN: How does this apply in the context of business cycle theory?
SHOSTAK: Writing in Economica in 1943, Lachmann criticized Mises's theory of the business cycle on grounds that expectations could prevent it from taking place. The idea is that businesses expect the bust and refrain from investment expansion, thereby muting the impact of new money coming into the economy. Hence, the business cycle is recast as an information- coordination problem rather than a theory about cause and effect.
The incorrect assumption here is that bad expectations are somehow the cause of the business cycle. The actual cause is the introduction of counterfeit money, which redistributes wealth and leads businesses to make calculation errors. You can have any kind of expectations you want but they will not and cannot obviate past events. This new money is an economic error which must work itself through the economy in some way.
You cannot use psychology to explain the consequence of real events. What people believe about the future cannot change the reality of cause and effect. The business cycle is a consequence of a real act of damage that, once set in motion, cannot be undone. Guido Hlsmann prefers to recast the business cycle theory into a general theory of error cycles, which gets to the core of the issue at hand: government intervention leading to bad decisions.
AEN: Which aggregate money supply statistic do you think is the most reliable?
SHOSTAK: I like the one spelled out by Rothbard in the late 1970s: money that permits instant conversion at no loss. Today this is covered by such aggregates as M2 and Money of Zero Maturity, or MZM. You need to make small modifications-removing short-term savings deposits-and you need to make allowance for institutional money.
Using this measure, it's clear that the money supply has been bouncing back since about 1992, and in the first quarter of 1999, money growth reached as high as eleven percent. This suggests to me that America's economy is very unbalanced. When and how it will tip the other way can't be known, but it will happen. Most people, including people at the Fed, are focusing on whether inflation will return. But that is not the issue. The issue is exaggerated levels of investment, particularly in the stock market, that cannot be sustained.
When the bust hits, you can bet that there will be more cries for the Fed to inflate. This will be a direct result of Milton Friedman's claim that the depression in the 1930s would have been prevented if the Fed had inflated. But he has it exactly backwards: it was the early credit expansion that created the conditions that led first to the boom and then to the bust. It was the first round of money printing that destroyed the pool of funding.
AEN: What do you mean by pool of funding?
SHOSTAK: Essentially, the pool of funding is the quantity of goods available in an economy to support future production. In the simplest of terms: a lone man on an island is able to pick 25 apples an hour. With the aid of a picking tool, he is able to raise his output to 50 apples an hour.
Making the tool, however, takes time. During the time he is busy making the tool, the man will not be able to pick any apples. In order to have the tool, therefore, he must first have enough apples to sustain himself while he is busy making it. His pool of funding is his means of sustenance for this period-the quantity of apples he has saved for this purpose.
The size of this pool determines whether or not more sophisticated means of production can be introduced. If it requires one year of work, for instance, for the man to build his tool, but he has only enough apples saved to sustain him for one month, then the tool will not be built-and the man will not be able to increase his productivity.
The island scenario is complicated by the introduction of multiple individuals who trade with each other and use money. The essence, however, remains the same: the size of the pool of funding sets a brake on the implementation of more productive-but longer-stages of production.
Trouble erupts whenever the banking system makes it appear the pool of funding is larger than it is in reality. When a central bank expands the money stock, it does not enlarge the pool of funding. It gives rise to the consumption of goods which is not preceded by production. It leads to less means of sustenance for the production structure.
As long as the pool of funding continues to expand, loose monetary policies give the impression of boosting economic activity. That this is not the case becomes apparent as soon as the pool of funding begins to stagnate or shrink. Once this happens, the economy begins its downward plunge. At this point, the central bank's monetary policy becomes ineffective. The most aggressive loosening of money will not reverse the plunge. Paper money cannot replace apples.
AEN: What do you make of the many companies that are attracting funding without actually showing profits or earnings?
SHOSTAK: In a free market with sound money, stock prices would function very much like other prices on the market. They would change relative to each other and pay an average return tending toward the normal rate of profit, with due qualifications owing to the good judgment of investors. What we see today, however, is roughly akin to a hyperinflation in financial assets. This is no different from the debasement we see in the value of money in a normal inflation.
Most economists believe that if the stock market is going up, the economy is being revived. But altering the valuation of stocks does not change reality. It is only a manifestation of what people think about the real world. And if you print money, you corrupt the signals that lead people to make rational decisions. Right now, people are being led to form false perceptions about reality. That doesn't mean that people cannot make money in stocks, but it does mean that the present rise of the stock market cannot be sustained.
In the real world, there is no way a company with no earnings can be properly valued at half a trillion dollars. And yet that is what we are seeing. Someone may say: but these companies may produce something someday. Sure, but there are limits. A new Volkswagen is a good car, and it may have a surprisingly high price due to popularity. But when the car sells for a million dollars, something has gone very wrong. It doesn't matter how spectacular the new technology is. Resources are being misallocated.
Even aside from these absurd prices, you can know that malinvestment is taking place by looking at the money-supply figures. They have been growing for years, and every time a crash or a recession is threatened, the Federal Reserve intervenes to save the day. When will all this end? There is no way to know. But the fund is not unlimited, and when the means of sustenance are not there, the growth cannot continue. The music will stop at some point, and, when it does, all the new credit in the world will not revive the economy. The new money can pour in but people will not use it to invest.
AEN: This sounds something like a Keynesian liquidity trap.
SHOSTAK: There is a superficial commonality. There is such a thing as pushing on string. What Keynes describes, however, he does not explain. Only the Austrian cycle theory can do that. A good example can be found in the Asian crisis. Paul Krugman says that Japan fell into a liquidity trap. Why? He doesn't know. He just describes it as an unfortunate state of mind adopted by the citizens, one that can only be cured by printing money.
But there is no need to resort to psychological explanations for why the Japanese are reluctant to borrow. It is clear that the pool of funding was unable to support the level of investment that had been subsidized by excess credit creation, averaging 9 percent per year prior to the crisis. When the central bank raised interest rates, the bubble burst and all the misallocation-which is to say the robbery-was revealed.
How do you recover from a crisis? The Japanese government continues to inflate and spend money. This is incredibly wrongheaded. To create more money is merely to replicate the error that brought about the problem in the first place. And yet, virtually every economist, from Keynesian to monetarist, recommends this disastrous path as the way out of recessions. The only path to recovery is to allow the bad investments to wash out of the economic structure and allow the pool of funding to be replenished.
AEN: Why is inflation still considered the preferred path of economic recovery?
SHOSTAK: It represents a complete misunderstanding of the purpose of money. The purpose of money is to facilitate exchange. It cannot create or sustain economic growth. It is no substitute for productivity. No matter how powerful a central bank is, it cannot revive an economy that is suffering from a credit-generated bust.
Also, mainstream economists have a hard time understanding the theoretical basis of a misallocation of resources. This is due to their economic method. Misallocation cannot be put on a graph and it cannot be represented in a mathematical equation. It has to be understood in light of market theory, which mainstream economists only embrace to the extent it can be modeled.
Think about the statistic Gross Domestic Product (GDP), from which most all economic indicators are derived. What is it? The value of goods and services produced expressed in terms of money, with the real GDP arrived at by dividing it by some meaningless deflator. If you print more money, you spend more money and GDP goes up.
But this does not reflect economic reality. Neither does the GDP deal with stages of production. It should be clear, then, that the GDP is not a reliable indicator of economic growth. It does not reflect malinvestment and, moreover, it is subject to manipulation depending on monetary policy.
AEN: Austrians are sometimes said to regard recessions as the "good" part of the cycle.
SHOSTAK: This is because recessions reveal an underlying reality. They expose a lie that has been generated by credit creation. In Malaysia, for example, the government had been trying to build an Asian version of Silicon Valley, to compete with the US. They had massive structures and companies and plans. But none of it amounted to anything. It was no more valuable than an Egyptian pyramid. The virtue of a recession is that it reveals the truth.
But this truth is difficult for people to face. Economists spend an enormous amount of energy inventing policies to keep the truth from being revealed in recessions. This is what accounts for the hysterical fear of deflation, which is considered to be the worst thing an economy can face. Instead they recommend more inflation. In fact, in an inflated economy, a deflation is exactly what is needed.
The International Monetary Fund (IMF) has improved its understanding of the importance of recessions. In Japan, for example, its economists said that banking and the industrial sector need to be cleaned up. At the same time, the IMF is still pro-credit creation. In Indonesia, with the IMF's blessing, money expansions were running 60 percent and more. In South Korea, the rates were at 35 percent.
What does this accomplish? Nothing but further economic destruction. You cannot eat money. To get the economy back on a sound footing, you need to store up a new pool of funding-the real stuff-so the capital stock can be replenished. That requires sacrifice in the short term.
I fully expect Asia to crumble again. Last year's major crisis was a result of bad fiscal and monetary policies, and those haven't changed. Neither has the economy adjusted.
AEN: What about the currency board option?
SHOSTAK: It produces a better result than the present system because it defangs the central bank. To that extent, it is a good step. But it creates problems of its own. The currency board must choose some existing currency on which to base its system. Doing so makes the currency-board country monetarily and politically beholden to the host country, whether it be Germany or the United States.
The best solution in these countries is to stop printing money and adopt a pure gold standard, defining their own currency in terms of gold. No country is too small to make this feasible. Such a country might be opposed by the US, but it would become a magnet for investment. It would not be vulnerable to outside shocks or outside political manipulation. A country with a gold standard wouldn't have to pay any attention to Alan Greenspan. Most importantly, its productive sector would be built on a solid financial foundation.
Of course central banks are working to undermine gold right now, just as they have for most of this century. Their recent sales of gold suggest that they would like to get rid of gold completely. Even from their own point of view, this is crazy. The current monetary system is completely unstable, and unloading gold can only destabilize the system further.
AEN: How regulated is the financial sector in Australia?
SHOSTAK: About as regulated as the US, which is to say partially so. In the early 1980s, we had what is called financial deregulation, but this phrase is a misnomer. Because money is unsound and the central bank still has the power to inflate and provide guarantees against financial failure, deregulation unleashes financial institutions to conduct business unchecked by genuine market forces.
This is what happened in the savings and loan crisis, an experience that foreshadowed the financial crisis throughout Asia. It was this very deregulation that opened the spigots, and brought about the huge boom-bust cycle.
The lesson is that you cannot have financial deregulation and also have a central bank. The two are incompatible. The whole point of a central bank is to make the banking system unaccountable to market forces. Whenever the banks are in trouble, there is a lender of last resort. No other business entity enjoys such a privilege.
AEN: How powerful is the Fed in your part of the world?
SHOSTAK: Its power to do evil is enormous. Its bureaucrats exercise the dominant influence at all G7 meetings, as well as the Organization for Economic Cooperation and Development (OECD) and the World Bank. It works to coordinate world policies to prevent anyone from getting out of line. The Fed's ideal is a world monetary system that it manages completely, but, for political reasons, it is unable to achieve this.
So in the meantime, its main goal now is what it has always been: to provide a safe and profitable working environment for its member banks via monetary policy, which is to say, credit expansion. This is what is behind the Fed's attempted bailouts of Mexico and Asia. It was acting to protect the assets of its member banks' portfolios.
More generally, the Fed's actions generate inflation and the business cycle, and create artificial uncertainty in the market. It cannot be known in advance what policies the Fed will adopt, and neither can you know the precise timing of the effects. Just speculating on the Fed's actions swings markets in wild and unpredictable ways. I have to laugh every time the Fed demands that the portfolios of foreign central banks become more "transparent." No institution is more clouded in secrecy and obfuscation than the Fed. We can only guess at what it has done or is doing.
AEN: This is one reason you don't accept the Efficient Markets Hypothesis (EMH).
SHOSTAK: It's not only the Fed; uncertainty is built into the core of the market itself. The whole theory of the EMH is ridiculous. They are saying there is no reason for market analysis. All that can be known is known and reflected in the market price. If this were true, there would be no profits. There would be no business cycle.
EMH is another error that stems from a misapplication of mathematical techniques to human action. They examine past behaviors and develop probability distributions based on them, as if past behavior can somehow be a guide to future behavior. But the science of probability breaks down insofar as human choice is involved. There is no normal distribution in human affairs. In some ways, the EMH represents the opposite error of Lachmann. It goes from believing that nothing about the future can be known to assuming that everything about the future can be known. The whole question is mistaken. It is not a question of whether or how much knowledge is out there. It is a question of whether people have understood the information and acted upon it. Plenty of knowledge that is available may not be reflected in the price. The price only reflects knowledge that market participants believe is relevant to market conditions and have thereby acted upon. The market does not have a life of its own and it is not a god; neither is the market random, blind, and aimless.
The market is made up of human beings who are radically different from each other. We have different goals, different kinds and levels of information, and face different environments. Discovering how this works itself out in voluntary exchange is the task of market analysis. Economics is a qualitative, not quantitative, science. It's amazing how many errors in economic theory stem from the failure to understand this.
AEN: You don't find the recent critics of the Austrian School very compelling?
SHOSTAK: Take a look at Brian Caplan's article in the Southern Economic Journal. It is an apologia for fudging one's scientific standards. It's true, he says, that utility is not cardinal but ordinal, but there's nothing wrong with indifference curves even though they assume cardinality. Why? Because it's easy and nothing important is compromised. But he's wrong. The assumption that people's utility functions can be compared mathematically opens up a Pandora's Box of economic and social planning.
He further defends the idea of indifference on grounds that such a state of mind is actually possible. But economists don't care about psychology; they care about action and choice. Indifference is not an economic category. The whole point of economic theory is to explain the implications of choice. People must set priorities and act on them. Economic theory consists of elucidating causal relations between actions and events, not speculating on states of mind or weaving tales through graphs and equations.
Caplan further notes that Rothbard criticizes the continuous function assumption behind smooth curves, preferring to deal only in discreet units. He then claims that Rothbard himself dispensed with his critique in order to draw demand and supply curves. In the first place, Rothbard was merely using the curves for illustrative and not theoretical purposes, and he put them in context in a way which neoclassicals do not. Rothbard's graphs illustrate but do not determine the theory, and there's a huge difference.
But there's a more fundamental point: Caplan never rebuts Rothbard's criticism of the continuous function assumption. Again, Caplan seems to be suggesting that he might have been correct, but then claims it doesn't matter. But of course it matters, if we care about getting the theory right. As scientists, we should not adhere to theoretical assumptions about the world that are false.
But mainstream economists do this all the time, just so they can use mathematics. If some point doesn't fit into a graph or equation, it is just thrown out. That is why most economists today end up doing nothing but analyzing various nonsensical states of equilibrium. Their priorities are wrong. Our purpose should not be to do math but to arrive at true theory.
AEN: Apart from business cycle theory, what aspects of Austrian economics are useful to you?
SHOSTAK: I use the foundational issues of choice and human action on a daily basis. But the great gift that Austrian economics gives practitioners is the ability to think logically about all aspects of economic life. There are so many investment fads out there. They come and go every season. With Austrian economics, you can easily spot the fallacies in these new theories and stay rooted in reality. Over the long-term, this is the best survival mechanism I know.
Volume 19, Number 2 (Summer 1999)An Interview with Walter BlockWalter Block is professor of economics at the University of Central Arkansas and chairman of the department. He is also co-editor of The Quarterly Journal of Austrian Economics, and his work on a wide range of theoretical and political issues has advanced the practical application of Austrian economics. He is author of Defen ding the Undefendable and hundreds of articles and edited books dealing with topics as diverse as religion and economics, and economic development. Read his extraordinary vita here.
AEN: What was the effect of Rothbard's death on the Austrian movement?
Block: There's a line in The Godfather spoken by someone after the Don dies: "we've lost half our power." It's the same with the Austrian movement. He was just one economist but he knew everything, including what all our opponents were up to and where all the bodies are buried. At the same time, he lives on through the people he influenced, personally and through his writings.
In some sense, Rothbard has a heightened presence. Since his death, New York University has reissued The Ethics of Liberty. His Austrian Perspective on the History of Economic Thought, released just before his death, has gone through several printings to keep up with the demand. His two volume Logic of Action has made a huge splash. And we've only seen the beginning. He knew everyone and corresponded with everyone, and much of that will eventually be in print as well.
Through thirteen Mises Universities and other conferences, he had a personal influence on thousands of students now coming up through the ranks. The Center for Libertarian Studies will soon establish a website devoted to global distribution of his in-print writings, many of which are totally inaccessible. After that, more people than ever before will be reading Rothbard.
Ten volumes of The Review of Austrian Economics are now downloadable for anyone in the world on Mises.org, and Murray's writings are included here. Around the world, this is an incredible blessing. A chapter in the history of the Austrian movement, the coming and going of Rothbard's beloved journal over the course of ten years, is suddenly reopened.
AEN: Many people have commented on how many disciplines Rothbard contributed to.
Block: Murray was a free spirit, who one day would write about technical economic issues and the next day about philosophical puzzles. Suddenly, he would be on to war revisionism and the American revolution. He accomplished more in economics than most economists. But he also did work in so many other areas. Some people have said that he should have stuck to one area. But this is like telling Mozart he should have stuck to the sonata form.
Also, Rothbard was a pioneer in ethical theorizing within an economic framework. Today, economists are more overt than they once were in talking about political institutions and ethical notions, even if they don't always lay out their assumptions as clearly as Murray did. He was a stickler for making all value judgments explicit.
AEN: One of your contributions has been to unearth the hidden value judgments in mainstream economic theory.
Block: Consider public finance. The first chapter in every textbook includes a "proof" that the state is necessary; the question is only how it ought to be financed. But this is a value judgment. The authors have the view that the benefits of coercing outweigh the costs, as determined by some arbitrary measure. Or else they believe that voting covers up a myriad of state aggressions against person and property (not having read Lysander Spooner).
All these texts assume that the state is a productive agent. In the GDP, for example, we find included what the private sector sells: the goods and services offered on the market for purchase. For government, though, the GDP counts what it costs to make, whether or not there is a market for what they produce. The higher the costs, the more the contribution to GDP. In the private sector, in contrast, if your costs are too high, and you go bankrupt, your products won't be counted in GDP at all.
AEN: You have no difficulty separating the value-freedom of praxeology and value-driven political conclusions?
Block: The separation is conceptual but essential. It underscores the universality and implacability of the economic laws derived from the praxeological method. Whatever the political values of the individual theorist, the theoretical apparatus of his economics is unaffected. Praxeology provides an honest path to value-freedom in economic theory.
I have the view that if you scratch a mainstream economist, you will find a praxeologist. I was very impressed during the recent debate on the minimum wage, Card and Krueger came out with evidence that increasing the minimum wage did not increase unemployment; quite the contrary. In effect, they were claiming that economic law did not work in Pennsylvania and New Jersey.
Mainstream economists, who have otherwise pledged themselves to the positivist program, did not say: well, that's what the data show. Not at all. Instead, they were apoplectic. They leapt to their feet and said: something is wrong with this study. To the extent they took the view that this study had to be wrong, they were being praxeologists. They were claiming that economic law must work everywhere. Of course, in the end, they were right. The study was deeply flawed, as any Misesian could have known from the beginning.
In my own PhD, before I was an Austrian, I was writing my dissertation on rent control. I was trying to show that it leads to housing shortages, low vacancy rates, and deterioration. When I would get good results-- meaning that I would show what economic law would dictate-- my advisers would say "great!" When I would get bad results--meaning the opposite of what economic law would dictate--they would say: "go out and do it again until you get it right."
But the whole point of positivism is that the empirical results are supposed to test the theory. The theory is not supposed to test the empirical results. For Austrians, the empirical work illustrates the theory, but it doesn't test it. No mere empirical episode can overturn a rock-solid theory, because all historical episodes, no matter how careful you are in collecting data, must be interpreted by some standard. The Austrians proposed that the standard be logically derived from certain axioms about action and the world.
The pitfalls of being a pretend praxeologist as opposed to being a real one is that you can end up spinning your wheels, piling up endless data that do not mean anything on their own terms. Students are especially put off by this nonsense. The advantage to being a real praxeologist is that you can be a more effective economist and more readily understand the world around you.
AEN: Can an Austrian approve of the methods of mainstream economists in researching history?
Block: Not usually. Quite often what economists call history is truncated history, a product of data mining designed to fit into a model. Cleometrics is clearly guilty of this. But the real problem is the methodology: the attempt to prove or disprove theory. They are attempting to use a method that is not conducive to that type of learning. Hence, economists are prone to mix up causes and effects, superficial and essential events.
Compare this confused version of history with the history you find in the works of Rothbard. It is not just data and macroeconomic aggregates. It is real people making choices, real events having an impact on people in government and the private sector, together with an analysis of the ideological setting in which these events occurred, and an underlying presence of economic logic to help explain the workings out of history. All these elements are left out of the typical economic history you see these days.
AEN: Would you say this is also true of Public-Choice historical studies?
Block: That's an interesting case. Public Choice is not all bad. Before it got started, most mainstreams believed that the existence of "market failure" was enough to establish that government needed to take on the job. The great contribution of Public Choice is to point out that this conclusion implies that government is perfect. They pointed out that there is such a thing as government failure too.
It's important to remember that men do not grow angels' wings when they go into public service. But here's where Public Choice comes off the rails: it is an empirical issue for them whether there are higher social costs associated with market or government failure.
Tom DiLorenzo and I presented a paper at the Austrian Scholar's Conference that argues there are other fundamental problems. As Rothbard says in The Logic of Action, Public Choicers have the view that the government can be analyzed like a firm or a club. They assume it is based on a social contract and managed on the principle of mutual benefit. They draw certain conclusions from this assumption, among which is that the political sector can be analyzed exactly like the market.
But the government is not a firm or a club because it is not a voluntary pooling of assets. The political process is not analogous to the market process. Votes are not the same as market exchanges. Government is not a producer but an extorter of wealth. Affairs of state are characterized by acts of aggression that do not enhance welfare. There is no "social contract" behind the existence of the state and there is not unanimous backing for its action. In fact, a unanimously supported state would not be a state at all.
It's all very ironic. The Public Choicers, having grasped the essential point about the state--that it is composed of self-interested individuals--slide into the most naive view of it. I don't understand why. Perhaps they are conflicted. On the one hand, they see the government as self interested. On the other hand, they are convinced of the necessity of the state and are lurching towards some justification for its existence.
AEN: Not a subject that is often addressed rigorously.
Block: It's useful to ask anyone who believes we must have a state: why not a single world government? Right now, we have anarchy among states. There is no official enforcement mechanism that governs trade. Contracts are informal and private and yet the system works quite well.
These days, you are likely to find people who are willing to embrace a world government in order to prevent international conflicts. But it is useful to recall that all world conflicts are themselves a product of states. Private parties do not start wars; only states do that. Moreover, governments are famous for violating the very rules that they have supposedly agreed to, especially when it comes to war and peace. The U.S., for example, only invokes international law when it is in its own interest to do so.
These days, people can avail themselves of the benefits of so-called anarchy through orderly exchanges on the internet. Auction houses like eBay.com thrive, whereby people from all over the world bid and receive goods, with no enforcement mechanism other than their reputations at stake. If you fail to pay, fail to send in goods, or mislead in any way, those facts are spread out before the world. This alone is enough to prevent fraud in all but a few cases.
Anarcho-capitalistic defense, security, and judiciary services thrive in many social settings today. We have all kinds of private arbitration services, we have rent-a-cops, we have gated communities. Even when it comes to certifying the quality of products, it is the private companies like Underwriters Laboratory that are really trusted, not the FDA.
In particular, it is crucial that judicial services be provided by the market. Many disputes between businesses involve technical issues that cannot be understood by government judges and man-on-the-street juries. In private arbitration, real experts play an important role in determining the final outcome.
In Orthodox Judaism, when there is a dispute between two rabbis, they don't go to government courts. They have their own courts. That's true with many, many groups. Clearly, the benefits of state-free market exchanges are understood well by real-world market participants. It is only economists who seem not to recognize it.
AEN: Do you have misgivings about presenting the case for the fully private society?
Block: Well, sometimes you have to be careful. For instance, when I give talks to universities, I'm often anarchy-baited. People will suddenly say, well, if you are saying there shouldn't be a welfare state, you must be an anarchist. In these occasions, it is important neither to sell out nor surrender to the questioner's underlying premise that the state should be the crucial organizing force of society. I will usually respond this way: irrespective of how all of society ought to be organized, it remains undeniably true that the welfare state has done only harm to society, it violates rights, and hence it ought to be abolished.
AEN: What about your own intellectual odyssey?
Block: In the fifties and sixties, I was just another commie living in Brooklyn. My economic views were conventionally socialistic. I believed that the free market would cause massive social divisions and financial calamities. In 1962, I remember hissing and booing Ayn Rand when she came to speak to my college. Later, though, I entered into a debate with Nathaniel Branden, who was her partner. He recommended Henry Hazlitt and Rand for me to read, and these books brought me around to a free enterprise position.
Later, I was told about Murray Rothbard, and I eventually met him. He was the sort my parents warned me about. I stayed up until six in the morning with him and his group. One of the occupational hazards of hanging around with Murray was that you would get stomach cramps from laughing. We did lots of that. Well, Murray brought me the full way to the anarchist position by using my own arguments against me. It was simply a matter of applying market logic to the institutions of police, armies, and courts. Anarcho-capitalism is nothing more than the conviction that market logic applies across the board.
AEN: And the Austrian School came later?
Block: It took me several years. I met Murray in 1967 when I was still at Columbia, and was resistant to Austrianism. It was not quite 180 degrees different from mainstream thought but it was 170 degrees different from what I was learning and doing for my degree, studying under Gary Becker and William Landes.
Maybe there was a bit of self-preservation at work here. I'm a bit mouthy, so perhaps I feared that if I allowed myself to become a full-fledged Austrian, I would have been tossed out of school. I wouldn't be proud of that excuse. Or maybe it was just so alien from what I had been learning. No indifference curves? No econometrics? That's all I was doing from day to day.
Nonetheless, I completed my degree in 1972, and in 1973, I published my first Austrian articles: "A Comment on the Extraordinary Claim of Praxeology" in a journal called Theory and Decision. My next paper was a comment that ran alongside Murray's article on praxeology in the American Economist. Several more papers followed, and I've never turned back.
What swung me over was that the Austrian School seemed to deal more concretely with the world we really live in, as well as the desire I had to write and think about topics that really matter. I suppose if there hadn't been an Austrian School, I still would have been an economist doing the best I could with the tools that were available. But the Austrian School offers a much broader range of possibilities for explaining the way the world works now and could work better. I think you will find an element of idealism in every Austrian economist, one that is often lacking in work of the mainstream.
AEN: This was before the revival of the Austrian School in the early 1970s.
Block: Actually, I agree with Joseph Salerno that the revival must be dated ten years earlier, to 1962 when Rothbard's Man, Economy, and State appeared. It was the first systematic presentation of Austrian economics since Human Action in 1949, and the most magnificent economic treatise to ever appear, so far as I'm concerned.
Without Rothbard's book, I seriously doubt that the Austrian School could have made any kind of revival. There were only a handful of Mises's students around, as Murray knew at the time. So, it's true that the Hayek Nobel Prize in 1974 was a watershed in terms of public relations. But it was Man, Economy, and State that galvanized a generation of intellectuals to go forward with a post-Mises Austrian School.
Murray has also had a far greater impact on present day Austrians than is often acknowledged. Even the people I call the anti-Austrian Austrians define themselves in reaction to Rothbardianism. It's one thing for a group of followers to say they embrace his ideas. It's quite another when his avowed enemies are not able to escape his ideas. That's real influence, on the level of Marx and Keynes. Mises had that kind of influence in Austria before the war. With Rothbard, this happens in both the theoretical and political arenas.
AEN: Was there a consciousness in the early 1970s that you were moving beyond Mises?
Block: Very slightly but yes. It was with great trepidation too. I remember when Rothbard first criticized Mises in print, not on economics but on political ethics. He was very cautious because Mises was always our model. But it is always necessary to build on others, just as Mises went beyond Böhm-Bawerk and Menger. One of my first articles was a criticism of Mises and Kirzner on monopoly theory. Disagreement can be a great source of intellectual growth.
Sometimes in elaborating on points in a tradition, you find yourself moving beyond the original theorist. That means you have a debt to the original thinker but that you also discover ways to improve the theory. There are two errors one can fall into. The first is not paying your respects. The second is paying nothing but respects.
AEN: Were there various Austrian camps developing in the early 1970s?
Block: Not in the early days. I was old enough to go to the very last meeting of the Mises seminar. It was clear that the Austrian movement as we know it today was in its infancy. There was only Murray Rothbard. There was also Israel Kirzner, but my understanding was that he was not known as an Austrian. For example, I knew one of his students, Aaron Levine, who was then teaching at Yeshiva University, and he told me he had never heard of Mises from Kirzner.
I remember Walter Grinder and I pestering Kirzner to be more open with his views. In exasperation, he finally asked what we wanted him to do. Our answer was fateful. We suggested that he bring Ludwig Lachmann from South Africa to be a visiting professor. Lachmann had written a good book on capital theory, and I figured he would make a good teacher. But it turned out that Lachmann had some odd views. He was good on capital, but he was a disciple of G.L.S. Shackle, and that basically meant rejecting the idea of economic law. Increasingly, to Lachmann, Austrianism was another word for methodological nihilism.
Well, this was a real departure from Mises, who believed that economics was a science, not one to be studied with the methods of the physical science, but nonetheless a science, with axiomatic propositions, a formal structure, and universal applicability. Lachmann became the major foil to the influence of Rothbard, and he diverted many otherwise good thinkers onto a path that has proven largely fruitless. Most of his followers haven't changed the subject for twenty years. Back then, they talked incessantly about the glories of denying the conceptual usefulness of the equilibrium construct, and they are still saying the same thing.
The way I see it, there are now three camps of Austrians. There is the Mises-Rothbard rational camp that is totally consistent. It has a worldview and has a broad perspective of the applicability of the science. We find this camp working in a wide range of projects and producing a fantastic amount of material. This group is growing fast through its journals, teaching conferences, and professional meetings.
Then there is the Hayek-Kirzner camp, which has a more narrow view of the Austrian School. To this camp, the insights of Austrian economics boil down to a few, largely true points about the workings of the market economy. It is not holding out a radical, alternative model but rather suggesting more fruitful ways that all economists might go about their work in a way that more closely parallels reality.
I don't happen to think that subjectivism, entrepreneurship, and market process exhaust the whole of the Austrian contribution. Nonetheless, the people do good work. The Quarterly Journal of Austrian Economics is open to contributions from both these camps, and to this extent the editorial policy is ecumenical, even though the editors are all in the first camp.
Finally, there are the Lachmannians, who take subjectivism only and run with it into directions that conflict with Austrian economics and even the idea of coherent thought. For instance, it is from this group that came the "hermeneutics" flare-up a few years ago. These people expended huge resources attempting to redefine Austrian economics, but I think everyone today recognizes that this path leads nowhere. For students, it certainly is a black hole, theoretically and even professionally.
But to get back to the question, I don't know when these camps became conscious of themselves, but at a 1974 conference in Vermont, Kirzner, Lachmann, and Rothbard all gave lectures. Their contributions later appeared in a book that seemed nicely integrated at the time. But looking back, it is easy to see that divisions were developing. You can be in the middle of history taking place and not entirely realize it.
AEN: You find the Misesian-Rothbardian apparatus to be most conducive to your work.
Block: Most of my contributions to the literature have been to apply Austro-Misesian insights to specific case studies in economics that are considered somewhat unusual. Had I not been an Austrian, and rather been a neoclassical with a libertarian bent (which would have been an easy choice), I would have written very differently. I don't think I would have been able to spot the pitfalls associated with seemingly small theoretical concessions. And I don't think I would have been as creative in my choice of research topics.
It is sometimes said that Austrian economics is merely a theoretical cover for a libertarian political agenda. But that political agenda, which I think is a worthy one, would exist regardless. In the same way, Austrianism has a contribution to make purely as an economic system. It doesn't need the veneer of libertarianism to help it. But among the ways in which Austrianism is useful is as a source of enrichment for libertarian theory.
The integration of radical political thought and Austrian economics that you find in Mises and Rothbard was a natural development. There are many market economists in the world. It just so happens, and I think for solid reasons, that most of the most radical are Austrians.
AEN: Speaking of radicalism, why have you given so much attention to the issue of blackmail?
Block: It may seem like a side issue, but it is extremely important. It goes to the heart of market theory, in distinguishing the Austrian from the mainstream view. And it was Rothbard's few sentences defending the legality of blackmail that were used by the Foundation for Economic Education to anathematize Man, Economy, and State, for example.
AEN: Now is your chance to defend the Rothbardian view.
Block: I've written almost 20 large articles on the subject and several smaller ones. In market ethics, we say that all exchanges should be permitted that do not involve coercion. If I invade your property, the law should proscribe that. Is blackmail such a violation? Not at all. If it involves coercion--where I threaten your children's lives in exchange for money--that is extortion, not blackmail.
Blackmail is a threat but not a threat to invade a person's person or property. It is a threat to reveal some information. But revealing information is simply the right of free speech at work. Anyone is free to say whatever he wants so long as he doesn't trample on other's rights. Anyone is free to report that I take a bath with a rubber duckie, for example. It should not be illegal to reveal that information or not reveal that information in exchange for money.
This is often seen as a radical position. But it is simply the outgrowth of traditional market ethics. I don't think you can meaningfully distinguish the character of a blackmail exchange from a regular market exchange.
Now, why do people think it should be illegal? Ronald Coase regards it as a "moral murder." But this position seems arbitrary to me. Robert Nozick and Richard Epstein think that blackmail is unproductive. However, a lot of things are unproductiv from some vantage points--sleeping on a hammock on a Sunday afternoon-- but we don't make them all illegal. Laws should not be based on whether wealth is going to be increased. Market economists are not in the business of telling people to lift that barge or tote that bale.
AEN: And yet blackmail doesn't seem like a normal exchange. One party would rather not be involved at all.
Block: But the service of keeping one's mouth shut is what the person who is being blackmailed is paying for, just like we pay people to clean our carpets or fix our cars. Sure we would rather our carpets not get dirty or our cars not break down. But these are things we must pay to correct if we don't want dirty carpets, broken cars, or our private secrets revealed to the world.
At least the blackmailer has the decency to offer you the chance to pay for his silence rather than reveal the information on his own initiative. For this reason, a blackmailer is far better than a gossip, who never gives the person detracted a choice in the matter. Yet no one says the gossiper ought to be forced to be silent.
In fact, the blackmailer may even provide a consumer surplus. How much is your secret worth? If it is worth $500 to you to keep it secret, and the blackmailer is only asking $100, you make a psychic profit of $400. He is discounting the value of his silence in the same way a retailer offers a dramatic discount to the benefit of the consumer.
Many subtle forms of blackmail are legal. For example, when a CEO leaves a company with a golden parachute, he signs a contract promising not to reveal trade secrets. By offering his silence for money, he is in effect blackmailing the company. When a company agrees to settle a contract dispute out of court--regardless of who is actually guilty--it is paying to avoid consequences it doesn't like, namely a long court battle.
Even normal market exchanges can be interpreted as blackmails. You go to the grocer to buy a pint of milk, but you threaten him that unless he gives you the milk, you won't give him the money. And he is saying: unless you give me that money, I won't give you the milk. Every day, employees threaten their employers that unless they pay up, the employees are leaving. In the same way, the employer is always threatening his employees that unless they do a good job, they will be fired. In a sense, the entire market order can be considered a series of blackmail threats.
And yet when Bill Cosby's secret daughter asked for money in exchange for silence, she was prosecuted for blackmail. But she wasn't threatening his life or property. She was simply asking to be paid not to engage in a peaceful activity. There is nothing wrong with that. The only problem would have been if she had accepted the money and then revealed the information: that would have been breaking a contract.
AEN: You have also been critical of Coase.
Block: Not on his theory of the firm. In fact, Austrian economist Peter Klein has argued that his theory is a good start but can be improved with the addition of Rothbard's view. Coase is also great on private airwaves and private lighthouses.
The problem with Coase is with his view of social cost. He believes property rights should be defined in terms of whether wealth will be maximized. In practice, this empowers judges to become central planners. This is contrary to the libertarian theory that property rights ought to be defined in terms of the homesteading principle and market exchange. The problem here is that this intellectual virus has pretty well taken over the entire profession. Coase's 1960 article "The Problem of Social Cost" is the most cited article in the history of economics.
Every case in the Coaseian literature needs to be reexamined. Consider the case of the cow that wandered outside its owner's property and ate the neighbor's wheat. Now, this is clearly trespassing. If it is to be permitted, the cow's owner and the neighbor need to come to a voluntary agreement. If the owner of the wheat field objects, that should be the end of the story. But Coase would say an outside party needs to investigate how wealth can be maximized and quite possibly coerce an exchange on that basis. What is more valuable: wheat or meat? That is the question that the judge is supposed to ask.
The basis of this investigation is to discern how property would be divided in a "zero transactions cost" world. But zero transactions costs is just another never-never land, similar to the "perfect competition" scenario of neoclassical fame. It has nothing to do with the real world and it is very dangerous to attempt to force the real world to conform.
AEN: Yet it is said that Coase convinced economists that property rights matter.
Block: Actually, Coase's contribution in this regard was that property rights can be violated if it is in the interest of maximizing wealth. Even worse, the Coaseian framework says that we don't know what property rights are until the judge announces his verdict in the case of a dispute.
Suppose the relative prices of meat and wheat change. One year, the rancher is allowed to permit grazing in his neighbor's property, and the neighbor must go along, and the next the rancher is not to do so and can be fined if he permits it. What kind of property rights can be altered when prices change? This is not a theory of property but a theory justifying central planning.
AEN: You are also a leading expert on road privatization.
Block: The issue is at last having its day in the sun. States and localities are periodically permitting private entrepreneurs to build them, but private owners are still not trusted to manage them. Yet it should be clear that government cannot manage roads. Highways are incredibly dangerous, with 38,000 people dying on them every year. And yet there is very little outcry. The same is true of traffic congestion.
There are objections to private roads, but none of them hold water. No, private roads will not cause people to be shut up inside their homes. The economic incentives are the reverse: to get people to drive on them. The reason to own a large capital good like a road is to get people to use it. Similarly, owners of websites want people to access them so they do everything possible to attract attention to themselves.
Now, I don't have all the answers to managing roads. What we need are competing road systems so that there can be competition between management strategies. Tolls on public roads are no substitute because it is impossible to know what tolls should be. The calculation problem cannot be solved apart from private ownership and control. Roads might work like the internet, which is unpredictable but nearly entirely free for consumers.
AEN: What barriers do Austrians face to a larger academic presence?
Block: The most obvious is a lack of understanding on the part of others. I remember once getting into a debate with Gordon Tullock over private roads. He was predicting all sorts of dire consequences associated with them. It became clear to me that he hadn't really understood the Austrian position on private property.
It is the same with Paul Krugman's critique of the business cycle theory. He hadn't really understood the theory, and Roger Garrison used the occasion to explain it once again. If someone criticizes the Austrians, we should see it as an opportunity.
A technique I've long used is to attack views that are otherwise regarded as free market. That imposes a burden on people who are generally sympathetic with the market to come to understand the Austrian position and deal with it more directly. Besides, criticizing Keynesians and Marxists is like shooting fish in a barrel.
It's one thing to be a socialist and be utterly wrong on everything. But it is far worse to wave the flag of free enterprise while making huge exceptions. These people often end up being useful idiots for the socialists they claim to oppose. I can't tell you how many times I heard people say to me, "Even Milton Friedman" says that or that state intervention is okay. Well, he shouldn't be saying that. Austrians have a responsibility to tell him so. It's not personal, but there are principles at stake that cannot be compromised.
Volume 19, Number 1 (Spring 1999)An Interview With Richard K. VedderRichard K. Vedder is professor of economics at Ohio University and an adjunct scholar of the Ludwig von Mises Institute. He is the author of Out of Work: Unemployment and Government in Twentieth-Century America and Poverty, Income Distribution and the Family, and Public Policy (both with Lowell E. Gallaway); The American Economy in Historical Perspective; and articles in The Journal of Economic History and The Review of Austrian Economics. He has taught at the Mises Institute's summer Austrian economics seminar, the Mises University.
AEN: It's obvious that you love teaching.
VEDDER: It's true. I teach everything from introductory economics classes to undergrads, to PhD students. I enjoy working with the advanced knowledge of graduate students, though given the state of economics these days, they sometimes have unlearning they need to do.
But I truly love the enthusiasm of the undergraduates. They start out with little or no understanding of economics. When they leave my class, they know the rudiments. I feel I have made a real contribution to the way they view the world.
AEN: What do you consider to be the rudiments?
VEDDER: I emphasize the all-round meaning and implications of scarcity, and the central place of market mechanisms, primarily property and prices, in dealing with this reality. This is usually considered a microeconomic approach, but you cannot begin to think about my area of macroeconomics without discussing these fundamentals.
Conventional wisdom is that there are two branches of economics, and you can take one without the other, and it doesn't matter which you take first. I disagree with this fundamentally. In Austrian economics, there are not two branches of economics. There is only one theory, applied in different areas. Any Austrian macroeconomist, like Joe Salerno or Roger Garrison, using the same tools, could give a powerful lecture on micro theory at the drop of a hat.
None of the main textbooks stress this point. Not even the market-oriented textbooks concentrate enough on the Austrian point of view for my tastes. I make up for this in my lectures by discussing Mises and Hayek, hoping to spark some interest. Like all professors, I am under constraints, but I try to offer a different perspective nonetheless.
AEN: Do you emphasize the history of economic thought?
VEDDER: Even graduate students are abysmally ignorant of the subject. Most graduate schools do not require the course any more and others have stopped teaching the subject altogether. I consider this terrible. This subject is crucial, unless you think all necessary truth is in the recent literature, which it is not. For this reason, I have volunteered to teach the course next term. I'll be using some of Murray Rothbard's History of Economic Thought.
The greatest insight you gain from the class is that there are a variety of ways to look at economics. It is not enough just to say "here is the neoclassical synthesis" and be done with it. Members of the profession do not agree in a wide range of theoretical and political areas. Realizing this can spark a student's interest. In the typical economics class, you fail to pick up this diversity of thinking.
AEN: What does absence of intellectual history imply about the profession?
VEDDER: History of thought doesn't connect with the agenda of modern mainstream economics. Economics has become extremely technical and narrow in its approach. It has lost sight of broader issues. Many economists have lost sight of how to communicate with students and the general public.
Economists are speaking this specialized language that apes physics and trying to make themselves out to be practitioners of the queen of the social sciences. They want to be seen as smarter and more scientific than sociologists and psychologists. And yet the reality of this approach is to make economics too abstract, and even meaningless in places, dealing with tiny improvements in a small body of theory that has little resemblance to the real world.
Students also get very little basic information about economic structures and institutions. If you ask a typical grad student to describe the operations of the Federal Reserve System most of them will do a pretty poor job of it. Now, I don't love the Fed. In fact, I have argued that we should get rid of it. But a grad student ought not complete a degree in economics without some working knowledge of what it is and how it operates.
AEN: Why would a student study economics if not for a greater understanding of how economies work?
VEDDER: Well, students seem to be going in two directions. There are the standard academic students who aspire to be college professors. They see themselves as theorists and mathematicians who happen to be working with economic phenomena. And there's another group that has a completely different orientation. They want to get their degrees and get out into the business world to make money. Or perhaps they aspire to be like those Nobel Laureates who thought they had discovered the magic formula for investment before their hedge fund nearly went belly-up.
Those two categories sum up nearly all the existing students. But the ones I am interested in do not fit into either category. Those in this third group are interested in economics because they want to discover, from a philosophical and scholarly standpoint, how the world works. They are interested in events, history, institutions, places, law, and policy. They ask probing questions about real phenomena, and seek to understand a general theory to explain it. They care about the history of thought, the workings of central banking, the intersection between economics and other disciplines, and a wide range of real issues.
If you think about it, the truly great economists of the past--Mises being the most impressive example, but also including Hayek, Friedman, and even Keynes and Marx--fit into this third category that is so rare these days. They spoke to the issues of the day.
Most current economists are ill-equipped to do that, because they work only in math and econometrics. They don't know the details of how the world works. They learn the technical material, but don't have a solid grounding in basics, like scarcity and prices.
AEN: This problem undoubtedly affects the way economics is taught.
VEDDER: It is appalling that so many students consider it a dreary subject. Economics can be beautiful. It can be exciting. But emphasis solely on mathematics and technique robs economics of its inherent power. It makes economics dull. I think that explains why more students do not persist in economics.
The American Economic Association established a commission on graduate study several years ago that included economists of all stripes. There was fairly widespread agreement that the profession had become too narrowly technical. For example, it was found that many graduate students couldn't teach a principles class because they were so wrapped up in esoterica.
Most economists today are trained in state universities. They work in state universities or in government. Their income is subsidized, directly or indirectly, by government. There is a pro-state bias built into the system. Most economists have had very little contact in their professional lives with the private sector. They haven't worked in jobs in which consumer service is the priority. They are isolated from the principle and consequences of scarcity.
That would not be a problem if their business was physics, literature, or even history. But economists are writing and thinking about this thing called the economy that they have never actually experienced. That's what accounts for the leftist bias indicated in surveys showing that 80 to 90 percent of economists vote for the Democrats. The growth and popularity of Austrian economics represents a good sign. But still a large majority can be counted on to favor leftist positions.
AEN: Do you think this bias has affected the reception of your own work?
VEDDER: The view advanced in Out of Work is that free markets are the best means to avoid extended periods of high unemployment; prolonged joblessness is most closely associated with a variety of interventionist schemes. This thesis alone guaranteed that we would not get the most respectful hearing within mainstream circles. But we had an additional problem: most of the book is a narrative that tells a story, one that even a lay person can find interesting.
Now, I have probably had more success than most Austrians in reaching the mainstream. I write for mainstream journals and give papers at mainstream conferences. Without compromising, I generally try to approach the discipline in ways that mainstreamers will not find excessively jarring. This is reflected in the book, which includes low-tech regressions. Incidentally, Murray Rothbard loved it. He would always say to me, if you can tell the Austrian story with regressions, go ahead and do it.
The establishment backlash didn't come for a long time. But eventually, we irritated enough Keynesians that it finally came, in the form of an attack from Brad DeLong, a well-known Keynesian at Berkeley. He wrote a slashing attack on the book. Most of his criticisms would be dismissed out of hand by Austrians. Nonetheless, in the new edition of Out of Work, we added 50 pages of econometrics to go along with the descriptive history. We have done even more technical analysis, and it hasn't changed the message one bit. It is still not going to please everyone.
AEN: Can the essential message of your book be conveyed by econometrics alone?
VEDDER: You cannot reduce economics to equations, not even economic history. Ironically, in the course of doing all this math, I have become more and more skeptical of the efficacy of these techniques. There are all kinds of problems with them which cannot be overcome. At the same time, the more I understand about the Austrian literature, the more I marvel at the theoretical sophistication and subtlety of argument you find in the works of Mises and Hayek.
I'm not entirely against econometrics. Neither do I see it as just a way to raise my Nielsen ratings. For all of its imperfections, econometrics can add some rough support for agnostics who cannot see truth through any other means. But you cannot convey ideas like the discovery process in econometrics.
AEN: In fact, you have written a strong critique of relying exclusively on government data sets.
VEDDER: The most popular statistic in economics is the Gross Domestic Product, but the whole thing is problematic. The idea that we can "add up" the national output is fraught with peril in a society in which government is so heavily involved in the economy.
My article with Lowell Gallaway on The Great Depression of 1946 [PDF format] (Review of Austrian Economics, Vol. 5, No. 2) illustrates this. The official statistics at the time we wrote that article (1991) had GDP crashing in 1946, in real terms, by 17 percent. If you believe that statistic, that is the worst year for national output in our nation's history, worse than any year in the 1930s.
And yet, the stock market was rising. Unemployment was low. Ten million people were leaving government employment from the war and entering the job market. The Keynesians were all predicting massive joblessness. It just didn't happen. In fact, there was no Great Depression except in the government's own data sets. Our title was tongue-in-cheek.
The reason is that the government didn't do anything. The soldiers were sent home and that was it. We moved resources from public to private use. We went from a command economy back to a mixed-market economy. And the power of the market reasserted itself after a long time in which it laid dormant during the war.
The official statistics ignore the fact that prices were being controlled in 1945 and 1946, and didn't really reflect real scarcity. Businesses reported the value of goods and services as the price the government paid for those goods and services. Yet no rational human being would pay those prices if they had to purchase them on the market.
After the war, resources were being spent, not on tanks and bombs, but washing machines and cars. Government statistics showed this as a sharp drop in output. But it was total fiction. In fact, this year was a triumph of markets over planning. Ironically, this occurred the very year of the Employment Act of 1946, which enshrined Keynesianism in American life.
The really odd thing is how the numbers keep changing. When the numbers first came out in 1946 and 1947, they said that the economy had fallen 5 or 6 percent. But due to some problems with index numbers that I won't go into, by the early 1990s, the data showed a 17 percent drop for the same period. More recently the data has recorded a 20 percent drop. The government kept revising the figures to suggest it was even a worse depression. Since then, the government has gone to chain-link price indexes, which gets rid of the some of these distortions. The bottom line is that it's all nonsense.
AEN: How much credit does Truman deserve?
VEDDER: Very little or none. In 1946, Truman wanted to keep wage controls on. Congress passed a bill that retained them but not as vigorously as Truman wanted. Truman vetoed it because it didn't go far enough and Congress didn't override the veto. The effect, however, was that wage controls expired statutorily. We went to zero-wage controls, not because of a political commitment to free markets but because of a strategic miscalculation.
Also, when the bomb was dropped and the war was ended, the planners were caught off guard. They had talked about erecting a vast apparatus of peacetime planning after the war. But the war ended so suddenly, they didn't have time to mobilize and put it into place. That was marvelous because it meant that government was not meddling as much as it had been.
Government spending fell more than 70 percent over a two-year period. In fact, if you look at the numbers alone, you might think that Murray Rothbard was president of the United States. He wasn't working on getting rid of government completely, but he was moving in that direction! In fact, the whole thing was a fluke but a very fortunate one for the American economy. We entered into a long period of prosperity. All of this is submerged in American economic history because it isn't obvious from the data, which are highly misleading.
AEN: What other examples of statistical manipulation have you found?
VEDDER: You can support any theory of economics you want to depending on how you manipulate the data. Consider the great controversy over whether we have been richer or poorer since 1973. To support Malthus's position, I could cite data showing the average hourly wage falling 13 percent since 1973, showing that wages are moving toward subsistence. Or I could show that Marx was actually right, by pointing out that output per hour has risen even as wages have fallen. Or I could cite real compensation per hour in the business sector and show wages outpacing profits, which suggests business is being exploited by workers, sort of a reverse Marxism. If you add to this the adjustments made by those who claim the CPI is not being measured properly, matters become even more complicated. You can even show what both neoclassical and Austrian economists would expect: real-wage data and productivity data are moving in the same direction.
I'm not suggesting that the truth is not out there somewhere. I just doubt that government statistics are the magic means for finding it out. Data are highly subject to manipulation. Mainstream economists do this all the time. As Mises warned us, it is a mistake to let the data determine your theory instead of using data to illustrate a principle of economics you can explain through good sense. In pursuing this path, I would say Austrians are more intellectually honest and more straightforward than most mainstreamers.
AEN: Do you worry about what today's students will regard as the economic lessons of the 1990s?
VEDDER: To some extent. I can just see historians of the next decade putting their spin on matters. The 1980s have already been called the Decade of Greed, and that moniker has stuck. I can imagine the 1990s boom being regarded as the consequence of Clinton's mixed economy, while blaming the financial crisis on the Republicans. This is a distortion.
In some ways, of course, Clinton has been better than Bush. Under Clinton, government spending as a percentage of total output has fallen. In 1992, the government spent 22 percent of the GDP. In 1998, the government spent 19.5 percent of the GDP. My interpretation of the prosperity of the 1990s is in this single statistic. The overall size of government fell. (By the way, these numbers may be fundamentally erroneous, but since the distortions occur every year, certain patterns emerge over time that can be useful to examine.)
Clinton's philosophy of government has always been: do whatever is necessary to retain power. The one mark he attempted to make on the country was through his health-care proposal, and he was beaten back pretty badly. When that happened, the stock market was 3,800, about what it was when he took over as president. Since then the stock market has more than doubled.
After the health-care fiasco, the crazies fell out of favor within the administration, and the Republicans took control of Congress. Clinton began to give speeches proclaiming the era of big government to be over. He didn't mean it, of course. But political forces were pushing him in the right direction. The result was a government gridlock, with government growth suddenly lacking that ideological push it needs in order to outpace economic growth. The economy grew at 5 percent and the government at 3 percent, and the result over time has been a relative shrinkage in the government's take.
Two-and-a-half cents of every dollar got taken out of the public sector and put into the private section. This is no revolution but it is a step in the right direction. It provided some impetus for the boom. By the way, the boom is overstated: we haven't had a year of four or more percent of real increases in output. This is the first long-term expansion where this has been the case. Nonetheless, we've been reasonably prosperous, and I think it's been because the big-government liberals have been spooked.
AEN: What about efficiency gains from dramatic technological changes?
VEDDER: Technological changes have always been around. I think the difference may be that the government has been relatively unsuccessful in trying to regulate the new technologies in computers and information. Regulation in some areas has declined. For example, the Interstate Commerce Commission is gone.
The best thing the Republicans did was shut down the government in 1995. The stock market rose three days in a row. I wondered in an article I wrote at the time: since the market went up 100 points with a third of the government shut down, how much would it rise if the whole thing were shut down? In any case, some progress has been made.
I'm not optimistic that this will continue. This notion that we have moved into a free-market age is wildly overstated. The reality is that the forces of interventionism are very much on the march. You can see it in regulatory activity and you can see the political left gaining in Europe. Germany practically has a communist as a foreign minister.
Many of the worst aspects of American regulatory law--for example, the Americans With Disabilities Act--were approved by George Bush, who, I think, was a worse president than Clinton in terms of the economy. There's more to being president, of course. I do think issues of moral turpitude are relevant. Nonetheless, we're talking about economics, and Bush was very bad on that front.
AEN: What do you make of the Commerce Department's data showing historically low savings?
VEDDER: It is true that the rise in equity prices have made people seem wealthier. And there is a well-known rule in economics that people's consumption and income depend not only on their income levels but also on their perceived well-being. If people perceive themselves to be well-off, they feel they don't need to save out of current income.
The way the government defines savings is subject to some debate and scrutiny. Economists usually think of savings as the changes in the flow of wealth minus consumption over a period of time. Well, that's not the way the Commerce Department looks at it. The government says savings is the residual income that isn't consumed. That creates all sorts of inaccuracies. That's why the Fed's superior data diverge sharply from the Commerce Department's.
Again, aggregate statistics have to be handled with care.
AEN: You're not suggesting that the savings decline is entirely artificial.
VEDDER: I think we can still grant that our savings rate is low. I think the main reason is that we tax savings as capital at punitive rates in this country. The double, triple, and quadruple taxing of capital punishes savings because savings is converted into investments and financial capital in the process of creating real physical capital. If you tax capital high, the incentives to save are going to be reduced.
We have corporation income taxes at 35 percent, on top of state income taxes. If the corporation makes $100, $40 are taxed away. Let's say half of the remainder is given to the shareholders in the form of dividends, leaving only $30 to keep as retained earnings to build new machines and expand production. The shareholders will pay a tax of about a third on those earnings. If the shareholder sells the stock, the capital is taxed again.
If you somehow survive all of this with some money intact, you get taxed again if you try to pass wealth on after your death. The federal estate tax table starts at 37 percent and runs as high as 55 percent.
Remember too that some of these gains are mythical because they are brought about through inflation. Let's say your aunt bought $10,000 in stock in 1971. She kept it until 1997, when the stock was now worth $40,000. She then decided to sell it. The government tells her that she made a $30,000 profit, and 20 percent is due to the federal government. After the state government gets its cut, she ends up paying about $7,000 in taxes.
The reality is that because of inflation, the price of everything has quadrupled since 1971. The purchasing power of the initial value is nearly identical to its purchasing power in 1997. There are no real capital gains, and yet she pays the government anyway. Under these conditions, why save? Why not consume?
Many other countries have higher taxes than we do. But they don't have as high taxes on capital as the U.S. does. As a consequence--again granting the problems with this data--most every developed country has higher savings than we do. Until recently, we have saved about a nickel on the dollar. Well, France and Germany save over 12 cents. Italians save 14 cents--three times as much as Americans. Japan and Britain save between 10 and 15 cents. The reason: taxes on capital are very high in the U.S.
AEN: What about indirect taxes on capital and savings?
VEDDER: Certainly, there is the regulatory tax. OSHA regulations require companies to spend billions, not to expand output, but to meet some government mandate. This is a disguised tax. If you add these taxes, you've got something on the level of quintuple taxation on capital. This is gross over-taxation.
Forced savings programs like Social Security end up discouraging savings too. Martin Feldstein, who has limitations, has nonetheless made his reputation demonstrating that this program directly reduces personal savings. The aggregate national savings rate is not increased in the way that people think. I think he is right. There's this fiction that companies don't really pay the Social Security tax, but in fact they do.
The tragedy for younger people is that the money taxed for Social Security is not going to be given back at any respectable rate of return. One solution, that of diverting revenue to higher-return investments, could potentially lead to a government takeover of the stock market. This would be a disaster. The devil is in the details of these plans.
Ideally, I would like to see a total opt-out option: young people surrender their claim to future benefits in exchange for no longer paying the tax. That would eliminate a huge portion of the liabilities in the system. It's possible to do it without a costly transition.
A quick warning: take all predictions about Social Security's future with a grain of salt. If you change assumptions modestly--such as assumptions about the growth in future benefits--the numbers change dramatically. All these calculations you read about in the newspapers are very sensitive.
AEN: To your mind, is there a preferred level of savings?
VEDDER: The Austrian position is that there is not, which is why I am a little uncomfortable with warning about declining savings. Mises and Rothbard were right: there is no optimal level of savings. I believe that Americans save too little, not because I in my wisdom think people ought to save more, but because it is manifestly clear that the government discourages savings, causing them to be below what they otherwise would be.
The optimal rate of savings depends on human action as it operates through the subjective notion of time preference. Whether people want things now or later determines how they allocate their consumption and savings decisions. Part of the idea of the free market is that we allow the price system to signal people to make their own choices. The prices in this case are interest rates, which variously reward and discourage the saving-consumption choice.
This is where Austrians have so much to contribute. A lot of the problems we have in macroeconomics are due to mainstream economists' lack of understanding in this area. When the central bank manipulates the interest rate, it creates distortions very much like those that are created by price controls. The Federal Reserve interferes as much with the market system as a price-control board.
AEN: How does international trade affect economic data?
VEDDER: It causes great difficulties. How can you tell where dollars are earned these days? With economies integrated at all levels within the structure of production, it is hard to know. The Gross Domestic Product statistic measures all output by Americans within a given year, including those living overseas. How do you value what's going on in Japan?
When you consider a company like Daimler Chrysler, you are left to wonder: what nation does this company belong to? Germany or the U.S.? I think the right answer is neither. Corporations are taking on an identity of their own, and part of the reason is that companies are fleeing the tax state as best they can and playing different jurisdictions off each other. They are trying to become transnational. I think all this is wonderful, but it does cause administrative difficulties for corporations.
The great example of skewed data in international economics is the balance of payments data. Within this data, there is something called "errors and omissions," which signals where the bureaucrats couldn't get the numbers to balance out. Well, some years, the errors and omissions reach $50 billion.
Then there is the problem of grey and black markets. I'm not just talking about drug lords in Colombia. This includes people who go to Europe and buy a $10,000 diamond and bring it here in a sock because they don't want to declare it at customs. As the state has grown, we have become a world of liars and thieves. This makes all this data suspect.
AEN: Do you see mergers among international corporations affecting union power?
VEDDER: Internationalization accelerates the decline of labor unions. From a company's perspective, if unions get too strong, it will just move its operations to another region or country. The unions are not really in a position to stop them because union power is seriously on the wane.
In the private sector, union membership is down to about 10 percent of the labor force. That is below the number in 1920, a decade before the Wagner Act and the New Deal and its labor-protection laws. The only argument that could be made for them pointed to the lack of labor mobility in company towns and the like. But now, even the poorest of Americans can afford a jalopy. Anyone can move today, so the notion that a person is "trapped" is absurd.
Americans now realize that we don't need labor unions. However, there is one area where the union thrives, and that is in the public sector. For the first time in U.S. history, one half of union membership is not in the private sector.
AEN: Is your work in labor economics influenced by W.H. Hutt?
VEDDER: He was influential in Out of Work. He once told me that the Depression in the 1930s was in part due to the artificial propping up of wages. I couldn't believe that was true, but as I looked into it, I realized he was exactly right. Murray Rothbard's book America's Great Depression helped me in this regard too. That book was an important precursor to a whole new revisionist school on Herbert Hoover. I think Murray was the first to argue that Hoover was an early New Dealer. Even mainline historians now agree.
Oddly, I never set out to be a labor economist. It was not my focus in graduate school. As I became interested in macroeconomics, I realized that unemployment is a key factor in sorting out the theoretical issues. That's when I read Hutt, as well as Hayek, and the early writings of Edwin Cannan, Lord Beveridge, and Lionel Robbins. They all pointed to the fact that markets are the way to deal with labor problems.
AEN: Labor economics frequently intersects with moral issues, like justice and equality.
VEDDER: I have never understood the appeal of a goal like "equality." People are inherently different. They have different talents, different interests, different degrees of marginal productivity. This is what makes exchange possible. It's what makes life interesting and complex. Variety is the spice of life. Cindy Crawford makes much more money than I do, but I don't resent it. I don't think everyone in the world ought to be forced to look like Richard Vedder.
This obsession with equality is very destructive for the human race. Mises is correct that free societies need to learn to deal with and even celebrate the existence of enormously wealthy individuals. They are a driving force behind rising wealth of the whole society.
By the way, I could give a two-hour lecture on the fallacies inherent in income-equality statistics. In brief, what is the point of taking a snapshot of a one-year period as opposed to a ten-year period? Some people who win the lottery one year are digging ditches the next year. Some people who are college students go from $3,000 to $100,000 per year.
AEN: You seem to have a talent for cutting through the conventional story.
VEDDER: This is what I mean about economics being powerful and interesting. For example, on the Great Depression, there was no need for there to be this decade of mass suffering. It was a consequence of massive government intervention in the economy. This is not just a story of data and number crunching. It is a tragic human drama and ought to be taught that way.
AEN: Certainly the students at our summer program come away from your classes with that feeling.
VEDDER: The great thing about the Mises University is that I feel liberated to teach the way I want to, without fear of reprisal. Like all professors these days, I feel somehow limited in what I can say in my own university, even though I have never been threatened. I have just finished reading The Shadow University, a book by Alan Charles Kors and Harvey A. Silverglate (The Free Press, 1998). I could only read 25 pages per night because it made my blood pressure too high.
What the authors describe is an overall atmosphere on campus of intimidation, brainwashing, political indoctrination, and browbeating, of both students and professors, by an entrenched university bureaucracy. The biggest surprise is how oppressed the students themselves are, with disciplinary boards, dormitory social police, etc. My university is better than most, but even here you worry about taking particular positions on affirmative action and the like.
When I am at the Mises University, I get to say whatever I want to. It has the feel of academic freedom. I go to all those social functions in the evening, and I find it exhilarating. The students want to talk about ideas and concepts. They want to learn. I wish we could have a whole university that operates this way.
Volume 23, Number 2 (Summer 2003)
Morgan O. Reynolds is interviewed about his life in academia and his work with the U.S. Government.
Volume 1, No. 1 (Spring 1998)This Festschrift is dedicated to one of the outstanding champions of liberty in Germany. For most of his scientific life, Gerard Radnitzky has been known as a philosopher of science in the tradition of Karl Popper. In recent years, however, he has won a reputation as a staunch defender of individual liberty through many publications in books and scholarly journals like Aufklärung und Kritik. Most notably, with his disciple Hardy Bouillon, he edited the three-volume Values and the Social Order, which contributed significantly to the spreading of Austrian ideas about society, economy, and government.This emphasis is reflected both in the title of the Festschrift and in the contributing authors. The book is organized in three sections. Section 1 features articles dealing with the links and lapses of libertarians and liberalism. Section 2 centers around a critical analysis of social choice-democracy, and section 3 examines the future of freedom. Most of the authors are either American scholars like Walter Block, Hans-Hermann Hoppe, and Hans F. Sennholz, or German scholars like Gerd Habermann, Hardy Bouillon, Roland Baader, Herbert Giersch, Manfred Streit, and Detmar Doering. Among the other contributors are Prime Minister Václav Klaus from the Czech Republic, Arthur Seldon, and Angelo M. Petroni. Although most of the articles merit careful study, my remarks will focus on the articles by Habermann, Bouillon, and Doering, which appear to be particularly interesting from a theoretical point of view.In Libertarians and Liberalism, Gerd Habermann critically examines the premises and tenets of Rothbardian anarcho-capitalism. In his conclusion he defends classical liberalism, although recognizing many merits of libertarian political philosophy. States Habermann: “Every liberal will gain much from an intensive study of this current of thought, but its limits should be equally clear to him, limits also known by all forms of constructivism” (pp. 72f.). Habermann’s main argument for the rejection of anarcho-capitalism is that it is a “generalization of the free-market model and economic motivation” (p. 72). Therefore,
anarchist capital ism fails to find application in areas of society where market forces are not at work Its theory hinders appreciation of the value of communities founded on real fellowship and of their claims in a world in which groups compete with one another. (p. 73)
This statement will certainly surprise readers acquainted with the work of Murray N. Rothbard. Rothbard conceived of anarcho-capitalism as the economic aspect of a society built on natural law. He argued that markets cannot work without a natural-law legal framework. Therefore, economic science is a corollary, and not the basis, of political philosophy. Habermann seems to confuse Rothbard’s views with the arguments of David Friedman. He contends: “Contemporary libertarian anarchism, as forwarded by Rothbard, David Friedman, and others, is characterized by its bolstering of traditional individualist-anarchist positions with a modern economic foundation” (p. 51). Similarly, Habermann notes that the “same subject comes up for discussion with insistent monotony: the individual and his property. Discussion is limited to economic questions” (p. 65). Habermann seems to imply that private property is merely the basis for market transactions.Nothing could be further from the truth, though, as even the most insensitive reader will grasp from a short glance at Rothbard’s Ethics of Liberty. For it is precisely in this important work that Rothbard demonstrates that private property is the basis of all kinds of non-aggressive human interaction—and not only of market behavior. Rothbardians need not assume, as Habermann stipulates, an “anarchist ideal of the lonely gunfighter ‘going it alone’” (p. 72), or the “fiction of an autonomous individual who creates his individuality ex nihilo” (p. 71). Rather, from the point of view of Rothbard’s argumentation, it is entirely irrelevant whether people act alone or in concert. A free society is not characterized by isolated individuals but by individuals who, in all manner of social bonds, respect the property of their fellows.[1] Of all this, Habermann has grasped nothing. Instead he builds up and bashes his own straw men. Voilà, one of the pictures that Habermann attacks:
Everything that the individual does not freely choose and agree to is regarded [by the libertarians] as an arbitrary, oppressive burden. Individuals have no attachment to society, are literally free and independent, themselves the only ones to create and shape their own lives without criteria, unaided by collective norms and standards. (p. 71)
No doubt, such a theory hinders appreciation of the value of communities founded on real fellowship. But what has this to do with Rothbard’s political philosophy? The reader of Habermann’s article is struck with astonishment. How can one explain such a serious misunderstanding? I am tempted to believe that Habermann is not acquainted with The Ethics of Liberty, as one finds in his references no mention of this book. Of course, this is a grave omission considering the purpose of Habermann’s article and the conclusions he derives from it. The omission can be excused only by the fact that the book is for a long time out of print and—especially in Germany—practically not available.[2]It would be vain to speculate further about the question of whether Habermann misunderstands Rothbard’s libertarianism to such an extent. The fact is that he does misunderstand it, and consistently so. Thus, according to Habermann, an “important premise” of libertarianism is that in a free society “non-domination and non-aggression are the rule” (p. 52). If this were the case, then libertarianism would indeed be a philosophy for nirvana and meaningless for human life. But this alleged premise is, of course, immaterial for libertarianism. Rather, libertarians assert that, no matter how much violence exists in any given society, violent producers of security (governments) merely increase this level. Therefore, they should be abolished in favor of non-violent producers of security.But what would be different and what would be gained, Habermann asks, if the private security agencies turned into violent ones and made their clients into “private subjects” (p. 68)? Habermann does not see that, even if nothing was different and nothing was gained in such a case (which is not true), this possibility could not be an argument in favor of government. For this would imply the somewhat weird logic that the mere possibility that someone might exercise violence in the future justifies another person or group to exercise violence right now.It is regrettable that Habermann does not abstain from using the most ridiculous of all charges against the libertarians: their “constructivism.” According to Habermann, this kind of thinking “assumes that all relevant facts can be known to an individual and that it should be possible for the individual to derive from the knowledge thus gained a definitely ‘right’ and eternally valid social order” (p. 64). Yet, what is wrong with constructivism in this sense? Does Habermann not share these very assumptions when he claims that libertarianism is the wrong, and democratic government the right, social order? He would probably retort that it does not “detract from the value of a purely normative principle to admit that it is inherently subjective” (ibid). In other words, there is no such thing as justice and natural law: “The claim that an individualistic natural law, as interpreted in Western countries, is universally applicable is simple presumption” (ibid). Well roared, lion! Yet, before one makes such a general statement one should try to refute the existing counter-arguments. This holds true especially in the present case, since there exists a private-property ethic that claims universal validity, that is, Hoppe’s libertarian argumentation ethic. But again, Habermann shows astounding lacunae. He makes no attempt to refute Hoppe’s tenets, nor does he even mention Hoppe’s Theory of Socialism and Capitalism in his article. Thus, Habermann’s denial of natural law is mere assertion. Here as in all the other topics he raises, he fails to make one valid point against the libertarian social philosophy of the Rothbardian brand.Hardy Bouillon recently published a book entitled Freiheit, Liberalismus und Wohlfahrtsstaat (Baden-Baden: Nomos, 1996) in which he developed a new definition of liberty. His article in the festschrift “Defining Libertarian Liberty” is a short, English-language exposition of the main thesis of his book. Starting from a critique of the Hayekian definition of liberty, he distinguishes between two levels of decision: “object-decisions” and “meta-decisions.” On the basis of this distinction, he arrives at the following definition of liberty: “Freedom is the absence of artificial interference in the private sphere of another that would mean artificial costs to him if he opted for a negative meta-decision” (p. 102).[3]Hayek’s concept of liberty has in the past been the subject of several thorough refutations.[4] Therefore, I shall concentrate my discussion on Bouillon’s own proposal. The most original aspect of his definition is the distinction of decision levels. What are, then, object-decisions and meta-decisions? According to Bouillon, an object-decision “is characterised by the fact that it constitutes a decision among different objects. . . . The number of objects does not influence the character of an object-decision” (p. 101). As an example, he gives the choice between apples, oranges, or bananas when buying at a merchant’s shop. By contrast, a meta-decision “is a decision between staying to [one’s] original plan or deviating from it, hence an ‘either-or-choice’. Having these two, and only these two, alternatives is a constitutional character of a meta-decision” (ibid). Having established these definitions, Bouillon proceeds to illustrate their usefulness for the distinction between liberty and coercion:
Suppose, you liked to keep your money and your life. Suppose also, an armed robber asked for your “Money or your life!” That would be a clear case of what we used to call coercion
Suppose now, that, ceteris paribus, the same person would be unarmed and obviously unable to threaten or extort from you in any possible way, and suppose, that very person would kindly ask you to give him either your money or your life. Then we would not say that he coerces you.
Now, let us separate the meta-decision from the object-decision. With regard to the object-decision, the two cases (A and B) do not differ. In both cases you have the choice either to give your money or your life. Hence, in both cases the costs of your object-decision will be the same.With regard to the possible meta-decisions, we notice a difference. The costs of a positive meta-decision (i.e., to consider the offer of the person), however huge, are the same in both cases. Nonetheless, the costs of a negative meta-decision (i.e., to ignore the offer of the person) differ decisively. In the first case you have to expect additional costs imposed by the person (e.g., being shot or hurt). In the second case you do not have to expect such costs. Hence, under the above mentioned preconditions, the difference between a case of coercion and a case of free choice is in the artificial costs that are to be expected in a case of a negative meta-decision (pp. 101f.).From this discussion he derives the definition of liberty that we have quoted above. Now, let us first of all examine the validity of Bouillon’s distinction between object-decisions and meta-decisions. I venture to deny this validity for three related reasons. First, a meta-decision does not merely concern the choice between staying to the original plan and deviating from it. For each deviation from a plan implies, ipso facto, adherence to another plan. Therefore, a meta-decision is a choice between two plans. Second, there is no such thing as a meta-decision that does not, ipso facto, imply a decision about objects. For example, if I cling to my plan not to buy apples from the merchant, then this implies that I keep my money and do not have his apples. Third, there is no such thing as an object-decision that does not, ipso facto, imply a meta-decision. For either the choice of the object is part of my original plan or it is not. There is no third possibility. Hence, Bouillon errs when he states that the two decision levels “might” coincide chronologically (p. 101). In fact, they always do. Each meta-decision is also an object-decision.It follows that those differences between the above cases A and B, that Bouillon identifies on the meta-level, must be accompanied by corresponding differences on the object-level. This is indeed so. The object-decisions in the cases A and B do differ. For the choice in case B is not, as Bouillon suggests, to give one’s life or to give one’s money. There is also a third option, that is, to keep one’s life and one’s money. It is therefore impossible to distinguish between free and coerced choice on the basis of meta-decisions alone. The distinction between meta-decisions and object-decisions is useless for the definition of liberty. Bouillon’s definition loses its ground.However, let us grant Bouillon’s distinction between object-decisions and meta-decisions for the sake of argument. Then, still, the definition of freedom he derives from it would not be valid. The reason is his futile attempt to take cost as a criterion for this definition, for cost is always subjective. It is the value of the next most important alternative foregone by the choice of the most important one. Thus, if the absence of “artificial cost” is the criterion for freedom, then we must invariably identify all kinds of peaceful action as coercion. Let us illustrate this with the following example:
Suppose, you liked to reserve your kisses for your wife and to be married to her. Suppose also, a wealthy lady urged you “kiss me or marry me—otherwise you won’t get my money.”
Suppose now, that, ceteris paribus, the same person would be poor and obviously unable to help or subsidize you in any possible way, and suppose, that very person would kindly ask you to either kiss or marry her.
Obviously, the costs of a “negative meta-decision” differ decisively. In the first case, you have to expect more costs than in the second case. Do we therefore have to infer that either case is a case of coercion? This would lead to a strange conception of liberty. However, this is not all there is to it. Bouillon focuses entirely on the point of view of the criminal’s victim. What about the criminal himself? Where will Bouillon’s cost analysis lead if we take the criminal’s point of view? Let us use another illustration:
Suppose, you liked to rob other people. Suppose also, an armed victim told you “stay away or run a way—otherwise I shoot you!”
Suppose now, that, ceteris paribus, the same person would be weak and obviously unable to defend himself or hinder you in any possible way, and suppose, that very person would kindly ask you to either stay away or run away.
Clearly, the costs of a “negative meta-decision” differ decisively. In the first case, you have to expect more costs than in the second case. Do we therefore have to infer that you—the would-be victim—are coerced in either case? Again, Bouillon’s analysis would fail by all common-sense standards.Bouillon might object that in my first example the rich lady in no case violated my property (a term that Bouillon accepts, see p. 99) and that, in the second example, the criminal violates property in both cases. This objection would lead us to the insight that property, not the cost of negative meta-decisions, is the correct criterion to distinguish liberty from coercion. What are Bouillon’s objections to the to the Rothbardian definition of coercion as invasion of justly acquired private property rights without permission of the owner? He thinks that this definition would imply circular reasoning in certain cases. Suppose that I voluntarily give other people permission to invade my property. Their invasion would then not be counted as aggression. But the term “voluntarily” suggests the very freedom that Bouillon ventures to define (p. 100). Therefore, he rejects this definition. However, it seems that Bouillon has fallen prey to a semantic confusion between “freedom to choose” and “liberty in society.” In fact, a definition of liberty, that is, of a free society, does not consist in a definition of freedom to choose. (On the one hand, in all forms of human interaction one is in a way free to choose and, on the other hand, anyone might claim that he “involuntarily” accepts the use that other persons make of their bodies.) Rather a definition of a free society must delimit the proper exercise of one’s choice in society. And in order to define which actions are proper in society one does not have to refer to terms like “voluntary,” “free will,” and not even to the term liberty, but to property. Thus there is no circle at all involved. All actions performed with one’s own property are just and constitutive of a free society, and all actions performed with the property of other persons, who do not consent, is unjust and coercive.In “A Dog’s Choice: Which Constitution is the Best?” Detmar Doering sets himself the truly Herculean task of a comparison of various constitutional choices in 16 pages. Yet his synthesis is clearly worked out, and any reader will enjoy his wit and excellent style.It is obvious that Doering feels uncomfortable with any kind of institutional setting. He sees the institution of a state as being “always the second-best of all solutions,” (p. 341) but he is also highly skeptical about the fortunes of anarchism. There are but two maxims that Doering ventures to advocate, although he does not pretend to derive them from principle: pluralism of government-types and decentralization. He does not believe it possible to reestablish a mixed government (ibid). The following discussion will critically examine the outlines of the argument he gives us.In his discussion of anarchy he sees, by and large, the same problems as Habermann. Doering fears that private producers of security are, or could become, corrupt and establish a coercive power structure. No wise person denies that this possibility is ever present in human life. Only daydreamers look for guarantees. They think that other human beings can give them “security” if only they consent to bondage in exchange. Doering cites Professor Radnitzky as saying “there is no such guarantee in any system” (p. 343). The real issue is whether one can reduce any degree of human corruptibility and fallibility by imposing a state. An advocate of any form of government would have to deliver such a proof. Doering, however, makes not even the slightest attempt to give us this kind of argument.A very large part of Doering’s article deals with Hans-Hermann Hoppe’s comparative analysis of democratic and monarchical régimes. Hoppe has argued that since monarchs are private owners of their countries, they have a longer planning horizon, and thus a lower time preference than do democratic governments. Consequently, they will tend to exploit their countries less than do democrats.[5] Doering sees “a fundamental flaw in this argument. . . . It would mean the loss of the individual’s right to self-ownership and property for everybody except the monarch. No libertarian could possibly accept this” (p. 337). Does Doering imply that the lower time preference in monarchies is bought at the expense of higher exploitation? For the loss of the right to self-ownership is not limited to monarchies at all. There are many examples of past democracies that brought about the loss of this right; and without much exaggeration one could claim that modern democracies are not far from this, either. In other terms, Doering seems to overlook that Hoppe’s argument—as any economic theorem—is valid only ceteris paribus. Assuming the same character structure of the rulers, the theorem goes, monarchs will exploit less than will democrats.The same flaw underlies Doering’s statement that monarchism “always found mercantilism to be the economic system appropriate for its purposes” (p. 338). Even if one neglects the question of whether Doering’s observation is correct, one has to point out that Doering apparently does not grasp what a refutation of Hoppe’s thesis would require. One would have to show that monarchism logically implies a higher propensity for the establishment of a mercantilist system. Doering does not even attempt to deliver such a proof. He quotes Gordon Tullock in his support, who claims that the “‘granting of monopolies’ is as much a feature of monarchy as is the appearance of ‘friends of the ruler’ whose ‘enterprise’ is to ‘court’ the ruler in hopes of getting . . . special privileges”; and Doering refers to David Hume “who observed . . . that even an absolute ruler has to act in a way to keep his ‘mamelukes and praetorian bands’ satisfied” (p. 338). These references are proofs of Doering’s scholarly erudition, but not of his tenet. In both quotes one could replace the word “monarchy” with the word “democracy,” and the word “ruler” with the words “federal government”—without changing the validity of the statements.Let us emphasize again that Doering is no admirer of democracies. However, his reluctance to accept Hoppe’s analysis—or to refute it by theoretical means—leads him to some otherwise inexplicable contentions. He believes that democracy “as a means of self-defence . . . is still the best thing we have,” neglecting that democracy favors irresponsibility and thus breaks the neck of civil virtues. He further believes that this erroneous view has been “confirmed by history. It was a democratic force that made American Independence after 1776; it was democratic force democracies that brought about the loss of this right; and without much exaggeration one could claim that modern democracies are not far from this, either. In other terms, Doering seems to overlook that Hoppe’s argument—as any economic theorem—is valid only ceteris paribus. Assuming the same character structure of the rulers, the theorem goes, monarchs will exploit less than will democrats.The same flaw underlies Doering’s statement that monarchism “always found mercantilism to be the economic system appropriate for its purposes” (p. 338). Even if one neglects the question of whether Doering’s observation is correct, one has to point out that Doering apparently does not grasp what a refutation of Hoppe’s thesis would require. One would have to show that monarchism logically implies a higher propensity for the establishment of a mercantilist system. Doering does not even attempt to deliver such a proof. He quotes Gordon Tullock in his support, who claims that the “‘granting of monopolies’ is as much a feature of monarchy as is the appearance of ‘friends of the ruler’ whose ‘enterprise’ is to ‘court’ the ruler in hopes of getting . . . special privileges”; and Doering refers to David Hume “who observed . . . that even an absolute ruler has to act in a way to keep his ‘mamelukes and praetorian bands’ satisfied” (p. 338). These references are proofs of Doering’s scholarly erudition, but not of his tenet. In both quotes one could replace the word “monarchy” with the word “democracy,” and the word “ruler” with the words “federal government”—without changing the validity of the statements.Let us emphasize again that Doering is no admirer of democracies. However, his reluctance to accept Hoppe’s analysis—or to refute it by theoretical means—leads him to some otherwise inexplicable contentions. He believes that democracy “as a means of self-defence . . . is still the best thing we have,” neglecting that democracy favors irresponsibility and thus breaks the neck of civil virtues. He further believes that this erroneous view has been “confirmed by history. It was a democratic force that made American Independence after 1776; it was democratic force that brought down the Soviet Empire” (pp. 340f.).Although this review has been very selective, and mostly critical, the overall judgment is a positive one. Libertarians and Liberalism is a valuable contribution to the discussion of several important problems of political philosophy. It honors a man who has done much for libertarian thought. May he long continue to do so.Jörg Guido HülsmannUniversity of Paris-Assas[1] This point has been stated lucidly by Walter Block in his article “Libertarian Perspective on Political Economy,” in the book under review.[2] The author of this review can attest to the difficulties of accessing Rothbard’s work through German public libraries. In the biggest libraries of Berlin, for example, only Rothbard’s economics books are available. Fortunately, The Ethics of Liberty will be reprinted again in 1998, by New York University Press, in cooperation with the Mises Institute and the Center for Libertarian Studies. There is also a French translation, published by Les belles lettres, édition laissez-faire.[3] Bouillon defines “artificial interference” as “intentional interference in the private property of another person, sufficient to produce the intended effect” (p. 102). “Artificial costs” are costs that “must be intended and sufficiently caused by that person in question” (p. 103, n. 13).[4] See, for example, Murray N. Rothbard, “F.A. Hayek and the Concept of Coercion,” in idem, The Ethics of Liberty (Atlantic Highlands, N.J.: University Press of America, 1982), pp. 219ff.; Hans-Hermann Hoppe, “F.A. Hayek on Government and Social Evolution: A Critique,” Review of Austrian Economics 7, no. 1 (1994): 67–93.[5] See Hans-Hermann Hoppe, “The Political Economy of Monarchy and Democracy, and the Idea of a Natural Order,” Journal of Libertarian Studies 11, no. 2 (1995): 94ff.
Volume 5, Number 1 (Spring 1984)Henry Hazlitt is interviewed about his life, the Austrian School, and his recent book, Is Politics Insoluble?
Volume 11, Number 1 (Winter/Spring 1990)Professor Karl Socher of the University of Innsbruck, Austria discusses Austrian Economics in its homeland.
Volume 11, Number 2 (Summer 1990)Murray N. Rothbard is interviewed on various economic concepts, Ludwig von Mises, and many of his articles and books.
Volume 20, Number 3 (Fall 2000)George Kother is interviewed on his encounters with Ludwig von Mises and the evolution of Austrian Economics in the United States.
Volume 20, Number 4 (Winter 2000)Roger W. Garrison is interviewed on his contributions to Austrian Economics.
Volume 21, Number 2 (Summer 2001)Mark Thornton is interviewed about Government intervention and the War on Drugs.
Volume 21, Number 3 (Fall 2001)George Reisman is interviewed about his interest in Ludwig von Mises at a young age as well as his many encounters with him.
Volume 15, Number 1 (Summer 1995)Mark Brandly discusses Murray N. Rothbard's legacy as well as his contributions to Austrian theory.
Volume 14, Number 2 (Spring 1994)Brettina Bein Greaves discusses Ludwig von Mises's young life in Vienna dealing with Socialism.
Volume 14, Number 1 (Spring 1993)Peter G. Klein discusses F.A. Hayek's life and legacy.
Volume 11, Number 2 (Summer 1990)Murray N. Rothbard is interviewed on various economic concepts, many of his articles and books, and Ludvig von Mises.
Volume 9, Number 3 (Spring/Summer 1988)Morgan O. Reynolds discusses W. H. Hutt's life work, his contributions to economics, and the legacy he will leave behind.
Volume 10, Number 1 (Fall 1988)F.A. Hayek recounts the life and works of Ludwig von Mises.
Volume 4, Number 1 (Spring 1983)Richard Ebelling interviews G.L.S. Shackle about his time at the London School of Economics and his views on economics as a science.
Volume 5, Number 1 (Spring 1984)Henry Hazlitt is interviewed about his life, the Austrian School, and his recent book, Is Politics Insoluble?
Volume 22, Number 1 (Spring 2002)Hans F. Sennholz in interviewed about Austrian Theory, Government intervention, and how Ludwig von Mises affected his life.
Volume 22, Number 2 (Summer 2002)Edward Stringham, Shawn Ritenour, and Peter Calcagno are interviewed about their experiences and study of the Austrian School.
Volume 22, Number 3 (Fall 2002)William L. Anderson, Christoper Westley, and Gregory Dempster are interviewed about their experiences and study of the Austrian School.
Volume 23, Number 1 (Spring 2003)
Timothy D. Terrell is interviewed about fiat money and money creation, Libertarianism, and Government intervention.
Volume 4, Number 1 (Spring 1983)Richard Ebelling interviews G.L.S. Shackle about his time at the London School of Economics and his views on economics as a science.
Volume 23, Number 4 (Winter 2003)
Sudha Shenoy is interviewed in this edition of the Austrian Economics Newsletter.
Volume 23, Number 3 (Fall 2003)
Roger W. Garrison discusses his experience being the first Hayek Visiting Fellow at the London School of Economics.
Volume 11, Number 1 (Winter/Spring 1990)Professor Karl Socher of the University of Innsbruck, Austria discusses Austrian Economics in its homeland.
Volume 21, Number 4 (Winter 2001)Dr. Alexander Kouryaev is interviewed about his translation of Human Action to Russian as well as Marxism in the USSR.
Volume 21, Number 1 (Spring 2001)Paul A. Cantor discusses economic literature in an interview with the Austrian Economics Newsletter.
Volume 1, No. 2 (Summer 1998)As substantial as economist as Schumpeter could claim that interest is a disequilibrium phenomenon and fantasize about a long-run equilibrium where market forces have pushed the interest rate to zero. John Maynard Keynes imagined interest to be a purely monetary phenomenon. Creating what Hayek called a "mythology of capital," Frank Knight held that production and consumption occur simultaneously, that the period of production is irrelevant, and that the interest rate is wholly determined by technological considerations. F.A. Hayek found it necessary to repeat with Knight the debate that had earlier taken place between Böhm-Bawerk—and give timeless value to the critical assessment of the Austrian theory offered by Klaus Hennings.
Jeff Deist and Guido Hülsmann discuss Hülsmann's years spent writing Mises's biography (Mises: The Last Knight of Liberalism), the serendipitous discovery of Mises's papers in Moscow that made the book possible, how Mises endured and kept working as Europe burned, and how Mises's personal sacrifices helped pave the way for Austrian academics working today.
Jeff Deist and Yuri Maltsev discuss not only his defection from the former USSR, but also his defection from the Marxist economic mindset, the crime of reading Hayek, why so many westerners still have a naïve, uninformed, and romantic view of socialism, how the Ruble was nothing more than a fiat rationing coupon, and why people with contempt for consumerism never visited a Soviet grocery store.
Say’s insights continue to challenge interventionist economists to this day. Everl Schoorl’s new biography sheds new light on Say’s life and works, writes Carmen Dorobat. This audio Mises Daily is narrated by Keith Hocker.
Jeff Deist and Brian Doherty discuss Brian's role as both a participant in—and observer of—libertarian circles, the impact of Austrian economics on today's intellectual debate, Ron Paul's lasting legacy, and why for the first time ever it's cool to be a young libertarian.
Jeff Deist and Justin Raimondo discuss the early history of the modern libertarian movement, Justin's time working with Murray Rothbard on libertarian strategy, and the chances for developing a broad new anti-war coalition.
Jeff Deist and Mark Thornton discuss Mark's recent experience as an opponent of the drug war at the Oxford Union debating society, his influence on Wikipedia founder Jimmy Wales, and how Wikipedia demonstrates a kind of stateless spontaneous order, complete with private dispute resolution.
Jim Bovard talks with Jeff Deist about his incendiary career as a journalist, the American people as Mencken's "Booboisie", and why the Nanny State has him stocking-up on cigars.
Interviewed by host Robert Wenzel, Jeff Deist discusses the Mises Institute's growth and popularity, the legacies of Mises and Rothbard, and the future.
Peter Klein discusses the contributions of economist F. A. Hayek. Klein is the Mises Institute's Executive Director and Carl Menger Research Fellow.
Gary Becker passed away on May 4, 2014 at age 83. There will be many obituaries written about this Nobel Prize winning economist, focusing on his numerous and important contributions to the dismal science. Here, instead, I will tell a more personal story, my own private interactions with my first mentor, Gary Becker.
I entered the Columbia University graduate program in economics in 1965. There were about 100 of us, so they assigned the new entrants to three different sections. The top one was taught by Becker, the middle one by William Vickery who also later won the Nobel Prize in economics, and the section for the least prepared of the students was taught by Roger Alcaly. I lucked out and landed in Becker’s microeconomics course. Those were heady days for me. This was the time before I met Murray Rothbard, and became an Austrian economist; I was a staunch follower of Gary’s: a logical positivist, an empiricist, a follower of the Chicago School of thought, as was this teacher of mine.
One of my recollections of being in his course was the time a thought just sort of burst out of me without forethought. I said, “I never knew that!” (I forget which of his teachings this reaction of mine involved.) Gary’s immediate response was “You’re learning something Block,” which cracked up the class although in retrospect it does not now seem all that funny to me in the written word. But the way he said it certainly entertained the class.
Prof. Becker gave out problem sets as homework and encouraged us students to work together on them. I figured that as a group effort he could not really count these efforts in the final grade he assigned, so I didn’t really put much if any effort into them. My mistake. I think I had the lowest grades of anyone who passed that course, maybe a B minus to the best of my recollection.
Despite this, Gary agreed to become my thesis advisor. My topic was rent control. One of the highlights of working with him on this was the time that my econometric equations did not show the ill effects of this pernicious legislation. Gary told me to go out and do this all over again until I got it right. Later, I realized that this was one of the cracks in logical positivism in economics: if we knew what the effects of rent control were, and we certainly did based on basic supply and demand analysis, what was testing what: was my pathetic empirical study testing what theory told us, or was the theory testing my econometric analyses? Obviously the latter.
Another high point in my experience at Columbia was the Gary Becker-Jacob Mincer workshop in labor economics. Graduate students would present their thesis findings, out-of-town professors would present their latest research, and Becker, more often than not, would jump all over everyone — me certainly included when it was my turn. I now run a seminar at Loyola University which is very much patterned after that experience.
But I am getting ahead of myself. Before anyone could begin writing a dissertation, he had to pass an oral examination. I presented four fields: Becker in labor, and three others. While one of the others was grilling me, I could see Gary folding his arms against his chest, frowning, and shaking his head “no.” This was a bit unnerving, to say the least. Needless to say, I failed on that occasion. But I did pass on my second try, and thus qualified to write a dissertation.
At around the time he won the John Bates Clark award for being the economist under the age of 40 who had made the greatest contribution to economics, Gary had a bunch of us students over to his house. I got to see where this great man composed some of his publications and met members of his family. This was another high point in my intellectual career; and a practice I try to emulate with my own students.
Another interaction I had with Gary was that he and some other family members owned a four-family commercial building in Brooklyn. Knowing of my interest in real estate, he asked me to get him a tenant for an empty suite. I did so. I think few of his students ever had any commercial relationship with him. I was fortunate to see this dimension of him.
Gary Becker left Columbia for the University of Chicago in 1970, when I was in the middle of writing my dissertation. I used to joke that Columbia wasn’t big enough for me and Gary, and that he had to leave. Gary assigned me to William Landes as my next dissertation advisor, and, sure enough, Bill also soon departed from Columbia for the University of Chicago. Like the mouse who helped the elephant shake the bridge when he rode over it on his back, I claimed responsibility for both of these departures. I’m pretty sure that neither went west just to escape me.
Several years later, I forget exactly when, perhaps in the 1990s, I attended a conference, and, as luck would have it, I sat right next to Gary. Someone said something in the question and answer period, and I muttered my thoughts out loud in front of him. I said something to the effect: “Drat, I was going to say just what that guy said.” Gary’s response: “Raise your hand and say this in your own words; we can’t have too much of the truth.” This is but one small example of how this man supported his students. I was not one of his more successful students in terms of prestige accomplishments (by the standards of mainstream economics) that would make him proud of me. Indeed, I think I was one of his worst students, in terms of not following in his philosophical path. My embracing of Austrian economics was a disappointment to him, I have always thought. And, yet, Gary was almost always entirely encouraging to me.
My main mentor in economics is of course Murray Rothbard. But Gary Becker was there first, before I had met Murray. I learned a valuable lesson from both of them: to encourage my own students, to support them, even if I do not agree with them. The teacher-student relationship is a very important and powerful one in the realm of ideas, and I am very lucky that for about five years I fell under the sway of one of the most creative economists on the planet, and surely one of the nicest, Gary S. Becker.
I did have one occasion upon which I publicly criticized my old teacher and mentor. He had called Austrian economics a “cult” and this did not sit too well with me. Here is the op-ed I wrote in response. However, I am happy to say that we remained on good terms even despite this philosophical parting of our ways, as can be seen from the correspondence we included in the above-mentioned op-ed.
One last thought: I debated Richard Epstein at the University of Chicago in 2004. Purely on a lark, and completely unannounced, I looked up Gary’s courses, and went to the room where he was teaching five minutes before his class was scheduled to start. I went with my young cousin Dan Levine, who was enrolled at the University of Chicago Law School at the time. Not only did Gary make his class wait for 15 minutes while he talked to me, but went out of his way to offer my cousin Dan any help he could give him. This meant quite a bit to me, as I very much wanted, and still do, Gary to like me, to be proud of me, despite the fact that I followed his path in economics and politics only partially. This extraordinary kindness of his gave me evidence that this was true.
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The Henry Hazlitt Memorial Lecture, sponsored by James Rodney. Recorded at the 2014 Austrian Economics Research Conference in Auburn, Alabama, on 20 March 2014.
Herbert Spencer was born into a nineteenth-century world where the traditional logic of imperialism interacted with new developments like the Industrial Revolution, and new ideas like free trade and liberalism that emerged out of the Enlightenment of the previous century. The key to understanding Spencer’s importance is to realize that he was a radical proponent of laissez faire, individualism, natural rights, and capitalism. His call for the limitation of state power was so extensive that it included an individual’s right to “ignore the state,” that is, to “drop connection with the state — to relinquish protection and refuse paying toward its support.” These views were strongly articulated in his book Social Statics, considered by Murray Rothbard to be "the greatest single work of libertarian political philosophy ever written.Murray Rothbard (1971). Recommended Reading. (M. Rothbard, Ed.) The Libertarian Forum, vol. II, p. 5.
This meant that while many developments, such as the burgeoning trade relations of the time, would fall in line with Spencer’s outlook, his radical and purist laissez-faire ideology put him at odds with the philosophy of imperialism that accompanied the perpetuation of overseas territorial expansion and militaristic activities of the British Empire.
At a time of great economic transformation brought about by the Industrial Revolution, nineteenth-century Britain saw an expansion of trade and commerce. This was in part due to the embracing of relatively free markets that arose in the decades following Adam Smith’s Wealth of Nations, and which were radically propounded by Herbert Spencer. Spencer believed that human progress is best achieved through the spontaneous activities of individuals, since such free competition, absent excessive government regulation, provides powerful incentives for individuals to seek constant development.R.F Cooney (1973). ”Herbert Spencer: Apostle of Liberty.” Freeman 23.
Spencer anticipated Friedrich Hayek’s concept of “spontaneous order,The idea of a “spontaneous order,” i.e., an order that emerges as result of the voluntary activities of individuals and not one which is created by a government, is a key idea in the classical-liberal and free-market tradition, of which Spencer is a part. The key contemporary figure is Austrian School economist and Nobel Prize winner F.A. Hayek, who described it as an extended order consisting of those institutions and practices that are the result of human action but not the result of some specific human intention. and explained that socio-political order depends not on deliberate design or a rational blueprint, but rather emerges spontaneously over years of evolution. Thus, industrial civilization, which was clearly taking form in Britain, emerged not due to the “devising of any one,” but rather through “the individual efforts of citizens to satisfy their own wants ... in spite of legislative hindrances.Herbert Spencer (2000). Illustrations of Universal Progress: A Series of Discussions. Chestnut Hill, MA: Elibron Classics, p. 320. Even the famous steel entrepreneur Andrew Carnegie, who desired to know what propelled human development, was so inspired by Spencer particularly, that he was convinced his work served a grander purpose.
Thus, Spencer welcomed the repeal of the Corn Laws, and the unprecedented increase in the standard of living in Victorian Britain that accompanied rapid population growth and urbanization. He saw these developments as part of a long-run tendency of social evolution toward industrial society, and thus peace. This is related to his belief that there are two chief modes of social organization: the “militant” and the “voluntary.”Herbert Spencer (1992). The Principles of Ethics, Vol. II (T. R. Machan, Ed.) Indianapolis: Liberty Fund, p. 6. The former is one of compulsory cooperation directed by the State, and oriented toward violent conflict, while the latter is one that is governed by his Law of Equal Freedom, that “every man has freedom to do all that he wills, provided he infringes not the equal freedom of any other man.”Herbert Spencer (1970). Social Statics: The Conditions Essential to Human Happiness Specified, and the First of Them Developed. New York: Robert Schalkenbach Foundation. p. 95.
The selective pressures of social evolution would help mankind progress from the former mode to the latter mode, since “a society in which life, liberty, and property, are secure and all interests justly regarded, must prosper more than one in which they do not.Herbert Spencer (1884). The Principles of Sociology, Vol. II. New York: D. Appleton, p. 608.
At this point a tension arises. While Britain was traveling on the long-run path toward industrialism and peace, the traditional structure of empire and Britain’s short-run activities vitiated this potential for progress.
Accordingly, Spencer attacked the foreign military adventurism that Britain continued to engage in, since it ran counter to the spirit of liberal progress. Britain had engaged in overseas wars in India, Afghanistan, and South Africa (the Boer War), and elsewhere. He denounced the hypocrisy in imperial policy which often used euphemisms like “defensive war” to mask, what to him was the true nature of imperial aggrandizement. Herbert Spencer, (1992). The Principles of Ethics Vol. II. (T. R. Machan, Ed.) Indianapolis: Liberty Fund, p. 67, and R. Long (2004, July). “Herbert Spencer: Libertarian Prophet,” The Freeman: Ideas on Liberty, pp. 25-28. The following becomes clear: Spencer’s radical stance struck at the heart of the essence of empire, for it denounced the foreign occupation of colonial territories. At a time when the race for colonial lands was seen to be a prerequisite for the glory and prestige of empire, especially during the late 1800s, Spencer argued that such foreign expansionism fostered tyranny over the domestic people. Britain’s need to maintain overseas colonies would inescapably necessitate establishing increasing controls on the British citizens themselves, until the “army is simply the mobilized society and the society is the quiescent army.”Herbert Spencer (1992). The Principles of Ethics (Vol. II). (T. R. Machan, Ed.) Indianapolis: Liberty Fund, p. 74 Colonial empires subjugating other parts of the earth were unlikely to “have so tender a regard” for the rights of their own citizens.Ibid., pp. 239-240.
Spencer would ask: how could the pursuit of trade, which is in essence voluntary, and the concomitant drive toward industrialism, which brings peace, sit well with the practice of militarism that makes imperialism and colonialism possible? The uneasy relationship between the spirit of free commerce and the very essence of the imperial structure of Britain is thus brought to light. Free trade was desired for the twin purposes of imperial power and profit; yet, “free trade imperialism,” as Spencer contended, is a contradiction in terms, since free trade in essence need not require military action for its promotion. Thus, British naval and military expeditions to secure foreign trading opportunities obscured the hidden motive to “benefit powerful special interests” at the expense of “the poor, starved, overburdened people.”Ibid., p. 220. Spencer’s criticism of state-directed commerce provokes a question: might the new forces of trade undermine the traditional logic of imperialism itself?
In light of these considerations, it is then possible to understand Spencer’s pessimism and even despair during his later years. Though Spencer believed that modern civilization, which was taking shape in Britain, was headed toward peaceful industrial society after a long period of liberalization, there would be “temporary reverses and detours” along this upward path. Besides the continued persistence of overseas colonialism, Spencer was also disheartened by what seemed to be the rising tide of Fabian socialism.The late 19th century saw the rise of the “Social Gospel,” which called for government not to keep order in society but to transform society. The Fabian society operated on the principle that the people of England would not accept socialism under its own colors but would accept it under the guise of social programs claiming to help the poor and laborers. The Fabians thus committed themselves to achieving socialism in small steps. (McBriar, 1966) In many ways, it was Germany and Britain, in the waning years of the 19th century, that led the way in turning away from reliance on free markets and individual initiative toward governmental planning. (Veryser, 2012). This movement was accompanied by state interventions into charity and education, which only provoked Spencer’s ire: at a time when liberal individualism should be consistently championed, these increasing regulations of society could result only in a “lapse of self-ownership into ownership by the community.”Spencer, Social Statics, p. 605. Examining Spencer’s intellectual radicalism highlights the ambivalence of empire at a time when vestiges of the old and forces of the new intersected in an uneasy relationship. It was a time when the new spirit of liberal trade and commerce sat tenuously with the use of state power to gain foreign markets; it was a time when the language of modern civilization was used to subjugate other nations for motivations that ran against civility itself, and it was a time when the individual was asserting his dominance against an imperial state that clung on for relevance.
Republicans are today almost always fervent supporters of big military budgets and an interventionist foreign policy.
But many Republicans forget a period before and after World War II when dozens of Republican lawmakers were against military alliances and a save-the-world American foreign policy. They ignore a time when many of their predecessors were called isolationists. Later, these Cold War isolationists criticized an interventionist foreign policy. They were sometimes labeled “apologists” for Moscow. The accurate term for these forgotten Republicans is “non-interventionists.” One of the leaders of the isolationists/non-interventionists was Republican Senator Robert Alphonso Taft (1889-1953).
Taft is now a forgotten Republican, but in the 1940s and 1950s he was known as “Mr. Republican.” Taft has few scions in the modern GOP.
Still, echoes of Taft recently re-surfaced, even though many of the people subscribing to these ideas had never heard of Taft. Millions of Americans inadvertently became “isolationists” for a short period. After President Obama suggested that the United States should start bombing Syria, they flooded Washington with communications, insisting that we stay out. Taft likely would have been delighted. He believed that when foreign policy issues were extensively debated by the public the potential for war declined.
However, “most Republicans,” Wall Street Journal columnist Bret Stephens recently wrote during the Syrian debate, “don’t want to become again the party of isolationists.” Nevertheless, Taft has been acclaimed as one of the great leaders of the modern Republican Party by numerous historians. He represented a GOP wing that embraced a peaceful way of engaging the world. This was a philosophy that once was very popular with most Americans. Still, the John McCain/Mitch McConnell rationale for still another American military intervention was that “the prestige of the presidency” would be hurt if President Obama backed down.
Taft viewed the prestige of the presidency and the world in a different way. He was not only a critic of big federal budgets, he frequently complained about defense spending after WWII. Taft consistently warned of the tragic nature of war, saying “[w]e should never forget what an awful catastrophe war is.”
Taft also warned of the long term domestic effects of following an imperial foreign policy. “Just as our nation can be destroyed by war it can also be destroyed by a political or economic policy at home which destroys liberty or breaks down the fiscal and economic structure of the United States,” Taft wrote in his only published book, A Foreign Policy for Americans. Taft continued: “We cannot adopt a foreign policy which gives away all of our people’s earnings or imposes such a tremendous burden on the individual American as, in effect, to destroy his incentive and his ability to increase production and productivity and his standard of living.”
Once committed to an interventionist foreign policy. Taft believed defense spending would stay at permanently high levels if the United States entered into military alliances. The use of U.S military power, he said, should be very limited.
“I do not believe any policy which has behind it the threat of military force is justified as part of the basic foreign policy of the United States except to defend the liberty of our people,” Taft wrote. It is that comment, along with his 1949 vote against joining NATO, which explains why Taft is usually cited by Republicans today as an example of the so-called bad old days. Taft also didn’t want the United States to have a peacetime draft. The domestic consequences of an aggressive foreign policy, he warned, would lead to the curtailment of civil liberties.
Taft scholar Professor John Moser of Ashland University writes that Taft believed that war tended to concentrate power in the hands of the central state. It threatened, Taft believed, “the cherished American ideals of limited government and separation of powers.” It reduced the powers of state and local governments, Taft said. Decentralized government, Taft held, was one of the guarantees of liberty. Moser also wrote that Taft had an “innate anti-militarism.”
Centralization would be furthered by the American state entering into military alliances, Taft said. By turning its back on its non-interventionist history, the nation would be bogged down in needless wars.
Taft also had an innate decency. He opposed war-crime trials and criticized the War Department’s jailing of Japanese-Americans during WWII. Taft called the treatment of Japanese Americans the product of “the sloppiest criminal law I have read or seen anywhere,” according to Secretary Stimson by Richard N. Current.
Who was Robert Taft? The son of a president and U.S. Supreme Court justice, Taft was elected in 1938 to the Senate from Ohio. Beginning his congressional career as a critic of FDR’s New Deal, he would warn of the dangers of an aggressive foreign policy. Taft opposed FDR’s backdoor foreign policy just before WWII.
This was a policy in which FDR proclaimed America’s intent to stay out of European wars—clearly a policy favored by most Americans in the late 1930s and early 1940s as shown in public opinion polls—while he privately supported the British. He also often ignored Congress while his policy became deliberately provocative.
After World War II, Taft ended his career by questioning the Truman Doctrine—which committed the United States to opposing communism in Greece and Turkey as well as almost anywhere else—and later urged president Dwight Eisenhower not to send troops to Indochina to save the French. Their Asian empire was collapsing in the early 1950s. Although initially supportive of President Truman in the Korean War, Taft later complained that the president had never asked for Congressional authorization in sending troops into war. Taft also questioned the legitimacy of the UN resolution calling for American intervention.
Taft hated the term “isolationist,” but said he accepted it if it meant “isolating the United States from the wars of Europe.” Still, isolationism was a sentiment that was in the political mainstream through a large part of the 20th century. Taft was three times a failed aspirant for his party’s presidential nomination. His last try was in 1952. The GOP’s internationalist wing triumphed, giving the nomination to Eisenhower. Here was a turning point in American history. “Taft,” wrote Michael Burleigh in Small Wars, Faraway Places, was a “serious anti-interventionist presidential candidate.”
Taft also complained of a modern presidency with seemingly unlimited powers. By contrast, Taft believed America should continue its historic no-military-alliance policy as stated in George Washington’s Farewell Address.
Taft also criticized bipartisan support for aggressive American foreign policy. Taft, in a debate that would recur prior to numerous wars, argued that a president’s foreign policy should face the same political constraints as his domestic policy. “There are some who say politics should stop at the water’s edge, and that nation must present a united front. I do not agree,” Taft said in a radio address in September 1939.
Taft also warned that the United States, supposedly trying to help struggling democracies and fight totalitarian regimes after WWII, could easily slip into the 19th-century role of the British Empire. The United States, Taft said, could become the self-appointed world policeman, a new John Bull (Novelist Washington Irving had written in his sketch John Bull, “He [John Bull] is continually volunteering his services to settle his neighbors’ affairs and take it in great dudgeon if they engage in any matter of consequence without asking his advice.”)
Many years later, amongst the angst caused by the Vietnam War, a few Americans did start to reconsider Taft. It was Washington Post columnist Nicholas von Hoffman who aptly described Taft’s so-called isolationism after it was repeatedly dismissed.
“It is a full generation later,” von Hoffman wrote, “and it turns out that Taft was right on every question all the way from inflation to the terrible demoralization of the troops.” He noted that Dean Acheson in the 1970s, still condemned isolationism and President Nixon disparaged Taft’s foreign policy. Von Hoffman concluded both were wrong.
Taft’s foreign policy, the columnist said, “was a way to defend the country without destroying it, a way to be part of the world without running it.” It’s time for a reconsideration of this forgotten Republican.
Jeff Deist, president of the Mises Institute, recently spoke with The Free Market about his introduction to the Austrian School and his work with Ron Paul.
Mises Institute: How did you become interested in Austrian economics?
Jeff Deist: My journey with Austrian economics and the Mises Institute began in 1992. I was fortunate to have a good friend, Joe Becker, studying in the graduate economics program at University of Nevada, Las Vegas. Joe was a burgeoning Austrian scholar, and of course had chosen the program strictly because Murray Rothbard was on the faculty. At the time a small group of Austro-libertarian students had assembled in Las Vegas to study under Murray. With the addition of Hans Hoppe, UNLV clearly had become the top economics program in the US for graduate students interested in Austrian training. I was able to attend a few of Murray’s course lectures, which not surprisingly (to those familiar with his lifestyle) were held in the evening! Needless to say the lectures were fast-paced and filled with references beyond the mainstream, giving only a hint of Murray’s vast range of knowledge. Encouraged by Joe and his excitement for Rothbard’s teaching, I decided to explore further.
At the time I was already a committed libertarian, but lacked any real intellectual framework to integrate free market economics with ethics, philosophy, law, and political liberty.
Remember that much of what passed for free-market or libertarian thought at the time remained mired in 1980s Reaganite clichés. Supply-side economics was still the focus of the Right, with many otherwise sensible people talking about the Laffer Curve and maximizing tax revenue! Quasi-utilitarian arguments flourished in the economics mainstream, ceding the intellectual high ground in favor of arguments that free markets merely “worked” better. “Law and economics” theories were trendy, with strict liability tort models offered as the supposed remedy to judicial overreach and externalities. Tax cuts and enterprise zones typified the weak-tea fiscal policy ideas coming from the political class, even as Clinton outfoxed the elder Bush by co-opting limited government rhetoric. Of course both Alan Greenspan and the Fed were wildly popular across the political spectrum, with some pundits promising not only an end to poverty (through monetary policy) but an end to history itself. Democracy, so we were told, had triumphed.
Against this backdrop Austrian economics opened up a whole new world for me. It became clear that antipathy toward government and support for free markets was not enough: it was necessary to understand and explain the harm caused by all kinds of government intervention in economic terms, which is to say, human terms. Reading breezy libertarian books and articles could never substitute for more rigorous academic self-study.
MI: Describe how your interest in Austrian economics evolved.
JD: Like so many before me, I began reading the great works of Mises, Hayek, and Hazlitt. These works demolished, point by point, the case for communism and socialism, while warning against the abandonment of the old liberal order. They also effectively predicted the failure of social democracy models that had replaced monarchies in Europe and constitutionalism in America. Once one understood and accepted Austrian teaching regarding the fundamental choice between laissez-faire and statism, the conclusion became clear: there was no “third way.”
Traditional Austrian explanations of capital, interest, and time preference refuted the tired yet sometimes subtle fallacies and class arguments underpinning not only Marx and Keynes, but even most neoclassical schools. The subjective theory of value showed that consumers, not intrinsic material or labor components, determined value. Austrian business cycle theory explained not only particular booms and busts (such as the S&L bust), but also the broader need for commodity money and the inherently destructive effects of central banks. Meanwhile, Austrian methodology taught that markets are not mysterious, anonymous, or inhuman: on the contrary, they simply reflect human action, however imperfect, in economic terms.
Perhaps most importantly, the Austrian School helped me understand the impossibility of socialism as an economic system. By demonstrating the critical need for price signals and profit/loss feedback among business owners, Austrians demolished the entire range of modern arguments for state economic planning.
Reading Murray Rothbard took my Austrian education to another level. He literally laid out the ethics of liberty, explaining the legal and political conclusions necessarily flowing from self-ownership, the natural rights tradition, and the principle of nonaggression. He made the clear case for property rights as the foundation of a free society, applying the same standards to government and private actors. The state, Rothbard argued, is virtually always an aggressor. Only the willing blindness and inertia of individuals in society allow the state to mask this aggression as benevolence, and tax us for the privilege.
Of course Rothbard also produced a staggering array of books and articles on the topics of money and banking, the Great Depression, history, philosophy, law, and anarcho-capitalism, just to name a few. Yet his work was always highly accessible to me as a layperson, and readable in a way earlier Austrians sometimes were not.
In short, Austrian economics provided the exposition and defense of capitalism I had been looking for. Austrianism transcended individual vs. utilitarian arguments, explaining the destructive nature of state intervention for the whole of society. It provided the intellectual and conceptual foundation for a consistent defense of freedom, a foundation that seemed lacking among so many conservatives and libertarians.
MI: How did you end up working with Ron Paul?
JD: In the early 2000's, I joined Ron Paul’s congressional staff in Washington,rdd4 DC. Ron had been involved with the Mises Institute since its founding, and in fact made his initial decision in the 1970s to run for Congress largely based on his interest in the Austrian School. Ron had the opportunity to see Mises speak in 1972, and of course later he became well acquainted with Murray Rothbard and Henry Hazlitt, among others. Lew Rockwell had been an early supporter and confidant, serving as Ron’s first congressional chief of staff.
Many of Ron’s staff at the time already were dedicated Austrians, and at his urging we all attended Mises Institute events in Auburn. All of us shared Ron’s view that his role was to educate people, and the Austrian message played a central part in that mission.
MI: How did this work lead you to the Mises Institute?
JD: Mises.org became an invaluable resource for us, and we made a concerted effort to add Austrian content to Ron’s speeches, statements, and articles. As a result, C-SPAN viewers sometimes were amazed to hear Ron quoting Mises, Rothbard, Rockwell, or Tom Woods in the middle of otherwise laughably nonintellectual congressional debates! We also developed great relationships with many of the academics associated with the Mises Institute, often inviting them to provide testimony before the monetary policy subcommittee Ron chaired. In many ways the Institute served as the intellectual home for Ron’s congressional office.
Through Ron’s growing popularity, thousands of Americans, especially young Americans, were exposed to the great scholarship of Mises, Hayek, Hazlitt, and Rothbard. Equally important, the Austrian School gave Ron the intellectual ammunition to explain the great calamities of those years: Greenspan’s tech stock bust; the Enron accounting scandal; the terrible folly of a Fed-financed war in Iraq; the enormous malinvestment in the housing market; and ultimately the global crash of 2008/2009. In all of these instances Ron Paul laid down historical markers, using the principles of the Austrian School. For this the world owes him a debt of gratitude.
On a personal level, working for Ron Paul enabled me to develop friendships far and wide with libertarians around the world. It was through Ron that I became acquainted with Lew Rockwell, and it is because of Ron that I now find myself joining the Mises Institute at a time when the Austrian School is growing rapidly. I am deeply humbled and honored to work with the Institute’s staff, donors, and supporters as we take the Austrian vision of a truly free society forward in 2014.
Ludwig von Mises and Joseph Schumpeter are the most famous economists trained by the older Austrian School, although generally Schumpeter has received the lion’s share of attention. The best source on Schumpeter’s life is Robert Loring Allen’s outstanding 2-volume work, Opening Doors: the Life and Work of Joseph Schumpeter Opening Doors: the Life and Work of Joseph Schumpeter Opening Doors: the Life and Work of Joseph Schumpeter. Guido Hülsmann’s Mises: the Last Knight of Liberalism is the authoritative study of Mises’s life.This is especially true, for example, in the field of entrepreneurship. To this day, the term entrepreneurship is almost synonymous with Schumpeter, whose fame was built on the success of his Theory of Economic Development (1911) and Capitalism, Socialism, and Democracy (1942). In particular, the 1911 book defined much of the theoretical framework for entrepreneurship research in economics for decades to come. Unfortunately, it also overshadowed numerous other economists in the Austrian tradition who were writing about the entrepreneur at the time, including Herbert Davenport, Frank Fetter, and Viktor Mataja. I’ve argued in a recent paper that Mises too has been unduly neglected, as he was already beginning to think seriously about the problems of entrepreneurial calculation and judgment in The Theory of Money and Credit (1912).
While plenty has been written about the theoretical differences between Mises and Schumpeter (for example here and here), I want to comment on their personal relationship. We don’t have a great deal of information about their interactions over the years, but we do have a few intriguing hints regarding how they felt about each other. What is most interesting is that despite serious differences on economic issues that endured throughout their respective careers, they seem to have been reasonably friendly, especially in their Vienna years.
The two presumably met at the University of Vienna, where both participated in Böhm-Bawerk’s seminar. Although they drew on different economic traditions in their own works, they shared common research interests, and each showed a certain amount of respect for the other’s early work. In fact, as late as 1933 Mises described Theory of Economic Development as one of the top four German-language contributions to economics.Jörg Guido Hülsmann, Mises: The Last Knight of Liberalism (Auburn, Ala.: Mises Institute, 2007), p. 172. In turn, Schumpeter applauded The Theory of Money and Credit, saluting “its ‘power and originality,’ [and] noticing that ‘as usual’ the critics had overlooked these qualities in their discussion of unsubstantial side issues.”Ibid., p. 208.
They continued to interact as each played a role in trying to solve the wartime economic problems of the Austro-Hungarian Empire, serving in various public offices or policy committees. To take one more public example, in 1916, after returning from his military service, Mises took part — at Schumpeter’s invitation — in a debate on monetary policy held by the Austrian Society for Politics. Schumpeter, as host of the debate, emphasized the need to avoid wartime inflation. Mises added his own cautions about the negative effects of foreign exchange controls.Ibid., pp. 272-273. This sort of interaction continued for a number of years, including during Schumpeter’s brief tenure as Austrian minister of finance in 1919.
Another fact that may not be well-known is that Schumpeter attended Mises’s famous privatseminar. At the time, due to the intellectual milieu fostered by the German Historical School, the Mises circle was one of the few places in Viennese academia where discussions of economic theory were welcome. Simply being theoretical economists apparently constituted enough common ground to continue to bring the two together, despite their significant methodological and theoretical differences. On one occasion, Schumpeter even wrote to Mises to apologize for having to cancel his appearance, commenting that he had very much wanted “to speak to our circle and graze in congenial company on a theoretical meadow.”Ibid., p. 262. Typical Schumpeterian prose!
However, unlike many of the other Austrian economists who emigrated from Vienna (many of whom were his students), Mises worked in relative isolation from his former colleagues after arriving in the U.S. Economists Fritz Machlup and Gottfried Haberler, for example, remained friendly with him, but had in many respects moved on from Mises’s early influence. Interestingly, both remained in close contact with Schumpeter until the latter’s death in 1950. The only interaction Mises and Schumpeter seem to have had in the U.S. occurred at Harvard, where Schumpeter was professor during the last decades of his life. Mises and his wife Margit visited when Mises was invited to lecture, and while staying they had lunch at Schumpeter’s house. Margit von Mises remembers the meeting:
On December 5 we went to Cambridge, where he delivered a lecture at Harvard’s Littauer Hall, arranged for him by his brother Richard, who since 1938 had been professor of mathematics and aviation at Harvard. During our stay in Cambridge I met, for the first and only time, Professor Joseph A. Schumpeter, who had just been married for the third time. His new wife was an elegant and intelligent American. They kept a lovely, well-run home. The discussion at lunch was lively but careful, both men aware of their parts as host and guest. Schumpeter knew of course that Lu did not agree with many of his views.Margit von Mises, My Years with Ludwig von Mises (New Rochelle, N.Y.: Arlington House, 1976), p. 64.
It seems that by this time, the differences between the two men had grown significant enough to cool their friendship, although as Margit intimates, there does not seem to have been any hostility, only a silent acknowledgment of differences. For his part, Mises seems to have been disenchanted with Schumpeter, especially after his business and professional failures. Margit also relates this story from Mises’s days at NYU:
One night in his seminar, Lu was commenting on the late Professor Schumpeter. “There are many people,” he humorously disclosed, “who stand steadfastly by the social doctrines of Professor Schumpeter. They do not seem to remember that when the great professor was minister of finance he was not able to protect Austria against the most disastrous inflation in its history and that, when the great professor was president of a bank (Biedermann Bank), the bank failed.”Ibid.
Mises attributes Schumpeter’s professional difficulties to his underlying economic doctrines,This claim is debatable: Robert Allen argues that Schumpeter played mostly a token role both as finance minister and president of the Biedermann Bank, and had little practical influence in either position.which had developed in ways Mises must have found increasingly frustrating. After all, Schumpeter had argued for the feasibility (in fact, the inevitability) of socialist planning in Capitalism, Socialism, and Democracy, and his business cycle theory was very different from that developed by Mises and Hayek in the interwar period (Mises in fact makes a number of critical comments about Schumpeter throughout his works). In this sense, it is not surprising that the two men should have drifted apart in their later years.
There is some irony in tracing the career paths of these two men. While the less-famous Mises profoundly influenced the relatively small Austrian School, the more-famous Schumpeter, for all his influence in the social sciences, did not inspire a school of thought as such, or a distinct approach to economic theory. Instead, when asked once why he had never attempted to found a “Schumpeterian school of thought,” he quipped, “only fish swim in schools.” On the other hand, although Mises did not found the Austrian School, his work continued the tradition started by Menger, and has remained highly influential for recent generations of Austrian scholars, many of whom regard his work as fundamental. This is a testament to the power of his ideas, as well as his status as one of the great system-builders of economics.
The James E. Kluttz Lecture, presented at the 2012 Mises Institute Supporters Summit. Recorded at Callaway Gardens, Georgia, on 26 October 2012.
[Editor’s Note: Mary Sennholz, wife of Austrian economist Hans Sennholz and friend of Margit and Ludwig von Mises, recently spoke with Senior Fellow Jeffrey Herbener and Associated Scholar Shawn Ritenour about her long career as a writer and editor, and as a friend and colleague of many other giants of the Austrian School. The interview was recorded as part of the Mises Institute’s Oral History Project for release in 2014.]
Mary Sennholz has never been one to sit on the sidelines watching life pass her by. Although the decision to climb on board was not always in her hands. After being forced by a violent storm to land their private plane on a small, grass runway in the highlands of Colorado, her husband and pilot had made two unsuccessful attempts to take off in the heavy, wet grass. Before the third attempt, Hans had told Mary that if it failed, she and her luggage would have to be left behind to catch up with him and their young son, Robert, on the west coast where Hans, the important Austrian economist and student of Mises, was scheduled to deliver a lecture. As Mrs. Sennholz relates the story in her interview, the relief in her voice is palatable as she recounts the moment she felt the wheels become airborne.
Even before she met Hans, Mary Homan was living an interesting life. A few days after Pearl Harbor, she was hired to manage a pool of secretaries in the executive office of the president. She worked in that capacity for the administrations of both Franklin Roosevelt and Harry Truman. After the war, she was part of Adlai Stevenson’s committee of American officials in London working to establish the United Nations. She resigned in 1947 to join Leonard Read at the Foundation for Economic Education. Her admiration for the founder of FEE was clear. In the foreward to her biography, Leonard Read: Philosopher of Freedom, published in 1993, she wrote, “Leonard Read, the offspring of New England pioneers, was to become the leader who, at a crucial moment in American history, rallied the demoralized and tired forces of individual freedom and the private property order. This book is dedicated to his memory, which will live as long as the Foundation for Economic Education or one of its offshoots carries his message to anyone willing to listen.”
One of her duties at FEE was to organize the seminars in which Ludwig von Mises and other luminaries would speak. In her work, she rubbed shoulders with Frank Chodorov, Baldy Harper, Henry Hazlitt, Israel Kirzner, Edmund Opitz, Gary North, Benjamin Rogge, and Murray Rothbard among others. The only unpleasant encounter she mentions in the interview was with Milton Friedman.
Like Read, however, Mises was more than a casual acquaintance. She faithfully attended his NYU seminar with her friend Bettina Bien. The fruits of the seminar were not merely intellectual for Mary. It was there that she became acquainted with her future husband. Margit von Mises played matchmaker for Leonard Read’s assistant and her husband’s Ph.D. student. What began as a contractual relationship, Miss Homan editing the manuscript that would become Dr. Sennholz’s dissertation, blossomed into a beautiful partnership.
The friendship between the Mises’s and the Sennholz’s lasted a lifetime. Margit became a devoted godmother to Mary and Hans’s son, Robert. The couples traveled together to Guatemala and Mexico. As Mary tells it, the calm, cerebral Lu found his complement on the lecture circuit in the passionate, inspiring Hans. Margit and Lu visited Grove City several times over the years. The most memorable was in June of 1957 when Hans arranged for Grove City College to award Mises an honorary doctorate degree at commencement. Hans and Mary hosted a post-commencement reception for Mises at their home.
In February 1956, the fruits of Mary’s labor in soliciting the 19 contributions for, and editing the resulting Festschrift volume for Mises, On Freedom and Free Enterprise, were born. After all the hard work, she took delight in playing host to Mises in March 1956 at a banquet in his honor held at the University Club in NYC.
In addition to Leonard Read and Ludwig von Mises, another luminary of the liberty movement whose life intertwined with that of the Sennholz’s was J. Howard Pew. He was a trustee of FEE and chairman of the board of trustees at Grove City College. Pew was responsible for Hans being hired as chairman of the department of economics at GCC. Mary entertained him as a guest at the Sennholz’s reception for Mises in June 1957. As with Leonard Read, her admiration led her to write a biography of Pew from material gathered by the Pew family, Faith and Freedom: The Journal of a Great American, published in 1975. In the acknowledgements, she wrote that writing the book, “has been much more than an enjoyable experience. For almost a year it has meant living with the thoughts and actions of a great man who, as was said of Saul, son of Kish, ‘From his shoulders and upward he was higher than any of the people.’”
FEE served as bookends for Mrs. Sennholz’s professional activity in the liberty movement: starting just after its founding in 1946 working with Read for nearly a decade and returning to work with her husband who served as president from 1992 to 1997. Her last book to date is a collection of The Freeman articles she edited, Faith of Our Fathers, published in 1997.
Mrs. Sennholz reached her 100th birthday on November 2, and it is the hope of many that for a third time she will be driven by her admiration to write a biography: one of her husband, Hans.
(The Economics of Edwin Chadwick: Incentives Matter by Robert B. Ekelund, Jr. and Edward O. Price III, Edward Elgar, 2012, 246 pp.)
This book is the first full-length study of the economic writings of Edwin Chadwick, the 19th-century utilitarian social reformer. Although not an economist in the strict sense of the term, Chadwick wrote a voluminous amount on all manner of economic subjects, especially with regard to the problems of public goods and the promotion of the general welfare. To those ends, Chadwick used innovative economic ideas and empirical methods to explain and improve conditions in 19th-century England.
In terms of his practical approach to economic reform, Chadwick distinguished himself through his pioneering use of statistics in economic analysis. Chadwick’s work was simply unparalleled in terms of his ability to gather data on economic conditions: his “web of medical and other contacts throughout England were constantly pressed for data on disease, mortality statistics, and information on practically every subject imaginable” (p. 43). He did not merely assemble this data, however, but consistently deployed it in an effort to promote economic reform. And although Chadwick’s empirical methods were not modern, his noteworthy efforts to incorporate statistics into policy analysis are obvious in practically all the topics discussed in this book. Incorporating empirical evidence did not, however, always result in sound economic analysis, and Chadwick does seem to have made some hasty generalizations based on data that were biased, either through accident or deliberate massaging (p. 44).
Another central theme in this book is that Chadwick’s peculiar approach to reform led him to view undesirable economic conditions — and the policies necessary to improve them — as matters of effective remuneration; in other words, as incentive problems. Chadwick did not use the term “incentives” to describe his ideas, but he nevertheless viewed the problems of industrial-era economic reform as fundamentally intertwined with remuneration and punishment.
Chadwick’s thorough-going appreciation for the complex and ubiquitous nature of incentives might seem unremarkable by today’s standards, but in the mid-19th century economists had not yet begun to think in the now-conventional language of incentives, and certainly had not begun to advance the mantra “incentives matter” (which is also the subtitle of this book). This fact makes Chadwick’s attention to incentives that much more interesting for historians of economic thought.
Despite displaying great originality of thought in considering economic policy, Chadwick was not alone in his focus on incentive-based social reform. As Ekelund and Price explain, the role played by incentives was an important theme in the British utilitarian tradition, especially in the work of Bentham, whose social reforms often emphasized the proper arrangement of incentives. Bentham recognized the existence of what we would today call “externalities,” and his social reforms were intended to ensure that proper incentives would bring about a harmony of personal and public interest (pp. 27–29).
The notion of incentives can be seen, for example, in the structure of the panopticon, where prisoners’ behavior is molded by the authorities through (seemingly) constant monitoring. The panopticon is simply a version of the conventional moral hazard problem in which agents alter their output when unobserved. Much of the literature on moral hazard revolves around the problem of the cost of monitoring agents, which can be prohibitively high, thus effectively allowing or encouraging undesired behavior. Bentham’s panopticon, however, actually provides a novel and entrepreneurial solution to this problem: in the panopticon, prisoners do not actually know when they are being observed; but at any given time, they might be. Because the prisoners cannot be sure, and so long as they are at least sometimes punished for any offenses, they must take care to act as if they always are being observed. Thus the actual cost of monitoring may be reduced without sacrificing good behavior.
However, Bentham’s incentive-oriented panopticon worked at the administrative level as well, and this aspect is the focus of Ekelund and Price’s analysis. Bentham was primarily concerned with protecting prisoners from abuse and discouraging adminstrative waste. His suggestion was to provide incentives for the prison administrators to promote the well-being of prisoners. Specifically, Bentham advocated a system of contract management, whereby entrepreneurs would pay for the right to use a convict’s labor, providing a monetary impetus to care for the prisoner and thus ensure a sufficient quantity and quality of labor to justify their “investment” (pp. 56–57).
In any case, the notion of self-interest and proper incentives were fundamental for Bentham, and the same type of reasoning about the problems of agency and moral hazard appears in Chadwick’s writings as well. In fact, it might even be said that Chadwick’s “entire career may be characterized as the application of Bentham’s principles to economic and social phenomena” (pp. 34–35).
As a social reformer, Chadwick dealt with many of the uglier aspects of industrial life, including public sanitation and the criminal justice system, which, in terms of quality, were often enough metaphors for each other. Each of these receives its own chapter, through which the authors argue convincingly that Chadwick anticipated many insights of contemporary economics.
Ekelund and Price show that his views often anticipated the work of 20th century economists, and another merit of this book is the way it weaves together historical discussions with the work of contemporary economists like Gary Becker, Ronald Coase, Harold Demsetz, and George Stigler. Further, because of the wide range of Chadwick’s interests, as well as those of his intellectual influences, a review of his contributions leads Ekelund and Price to survey many important events from this most revolutionary time in economic history. This book will capture the curiosity of readers interested in more than the relatively narrow subject of Chadwick himself.
Editor’s note: This article is adapted from a review that appeared in the summer 2013 issue of the Quarterly Journal of Austrian Economics 16, no. 2.
Archived from the live Mises.tv broadcast, this lecture was presented by Robert Murphy at the 2013 Mises University, hosted by the Mises Institute in Auburn, Alabama, on 24 July 2013.
The death of Ludwig von Mises has brought forth numerous essays on his contribution to economics. It is equally in order to discuss his work in the historical sciences, as he called them. Having had the honor and pleasure of attending Mises’ graduate seminar during the years in which he wrote Theory and History and devoted his seminar to that subject, I had the rare opportunity of participating in the final formulation of his long-considered concepts of the historical sciences. But, before discussing that part of his contribution in another article, I shall indicate some of the substantive historical analyses which Mises made.
Faced with the rise of classical liberalism in the 19th century and its collapse since the first world war, Mises had very special motives for examining contemporary history. Mises emphasized that ideas are the base on which all social activity takes place. It is in the realm of ideas that the battle for civilization and progress takes place. Mises emphasized the fact and the necessity that classical liberalism had to be obstinate and uncompromising. Success of liberal ideas required the enlightenment of people who studied ideas who would convince the citizenry of their correctness. Mises advocated a revolution in ideas as the necessary step to the revolution of the practice of freedom. However, the advocates of classical liberalism in the 19th century were not obstinate and uncompromising. The English utilitarians, especially Ricardo, had incomplete and compromised notions leading succeeding liberals not to correct and complete them but to turn away to more compromises as in the case of John Stuart Mill.
One of the important causes of the decline of liberalism, Mises believed, was the illusion that society would necessarily continue to accept and perfect its ideas. Mises believed that as classical liberalism came closer to realization, it was necessary for its advocates not to rest, but to increase their activity and perfect the theoretical base of classical liberalism. Instead, liberalism was swept away by the emergence of parties speaking to special interests. For Mises liberalism meant the abolition of special privileges. In discussing class conflict, Mises emphasized: “Conflicts of interests can occur only in so far as restrictions on the owners’ free disposal of the means of production are imposed by the interventionist policy of the government or by interference on the part of other social forces armed with coercive power.” Coercive power and government intervention are the sole causes of war between interests. For Mises, the supporters of feudalism, privilege and status were clearly defeated by classical liberalism. The rise of the new challenge to classical liberalism came from within itself, from the failures of utilitarian economists. Mises said:
But in Ricardo’s system of catallactics one may find the point of departure for a new theory of the conflict of interests within the capitalist system. Ricardo believed that he could show how, in the course of progressive economic development, a shift takes place in the relations among the three forms of income in his system, viz., profit, rent, and wages. It was this that impelled a few English writers in the third and fourth decades of the nineteenth century to speak of the three classes of capitalists, landowners, and wage-laborers and to maintain that an irreconcilable antagonism exists among these groups. This line of thought was later taken up by Marx.
In the Communist Manifesto, Marx still did not distinguish between caste and class. Only later, when he became acquainted in London with the writings of the forgotten pamphleteers of the twenties and thirties and, under their influence, began the study of Ricardo’s system, did he realize that the problem in this case was to show that even in a society without caste distinctions and privileges irreconcilable conflicts still exist. This antagonism of interests he deduced from Ricardo’s system by distinguishing among the three classes of capitalists, landowners, and workers…. At no time, however, did Marx or any one of his many followers attempt in any way to define the concept and nature of classes. It is significant that the chapter entitled “The Classes” in the third volume of Capital breaks off after a few sentences. More than a generation elapsed from the appearance of the Communist Manifesto, in which Marx first makes class antagonism and class war the keystone of his entire doctrine, to the time of his death. During this entire period Marx wrote volume after volume, but he never came to the point of explaining what is to be understood by a “class.” (Mises, The Free and Prosperous Commonwealth (trans. by Ralph Raico; ed. by Arthur Goddard), Princeton, Van Nostrand Series in the Humane Studies, 1962, pp. 163–64)
However, the wedge of Ricardian concepts of disharmony of interests in a perfect capitalist society, and the existence of special interest political parties in societies claiming to be capitalist, permitted the socialists to appear the champions of the abolition of privilege, of classless society resulting from the withering away of the state. Mises emphasized that in the absence of an uncompromisingly presented liberalism, socialism appeals to people who think more clearly and seek a serious solution to government by special interests. Through the dominant position socialism gained at the Universities, it was able, in Mises’ view, to gain the sincere, honest, and best minds among the youth. In many ways, the success of socialism was due to its ability to appear to be what liberalism actually is. Mises described the many ways that the parties of the special interest state have prevented the presentation and success of liberal ideas and, thus permitted the success of socialism. Mises insisted that liberals must emphasize the fact that since liberalism serves no special interest there is “no class that could champion liberalism for its own selfish interests.” For Mises liberalism could not be the special party of capitalists. Historical reality has demonstrated that the wealthy tend to support any other party except the liberals. Indeed, for capitalists to support liberalism, it is necessary for them to rise above their self-interest to the level of general principles. Mises noted:
The “have’s” do not have any more reason to support the institution of private ownership of the means of production than do the “have-not’s.” If their immediate special interests come into question, they are scarcely liberal. The notion that, if only capitalism is preserved, the propertied classes could remain forever in possession of their wealth stems from a misunderstanding of the nature of the capitalist economy, in which property is continually being shifted from the less efficient to the more efficient businessman. In a capitalist society one can hold on to one’s fortune only if one perpetually acquires it anew by investing it wisely. The rich, who are already in possession of wealth, have no special reason to desire the preservation of a system of unhampered competition open to all…. They do have a special interest in interventionism, which always has a tendency to preserve the existing division of wealth among those in possession of it. But they cannot hope for any special treatment from liberalism, a system in which no heed is paid to the time-honored claims of tradition advanced by the vested interests of established wealth. (Ibid., p. 186)
Mises deduced from history that all governments inherently recognize no limitations on power. Complete domination over property is the goal of all governments, and if they accept limitations it is merely tactical since the admission of any government control over property implies total control. Mises concluded:
Thus, there has never been a political power that voluntarily desisted from impeding the free development and operation of the institution of private property of the means of production. Governments tolerate private property when they are compelled to do so, but they do not acknowledge it voluntarily in recognition of its necessity. Even liberal politicians, on gaining power, have usually relegated their principles more or less to the background…. A liberal government is a contradictio in adjecto. (Ibid., p. 68)
Mises insisted that the concept of self-determination was the most logical derivation from liberalism. Self-determination made sense not as a collective concept, but as an individualist concept. “If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done.” But, Mises considered individual self-determination to be technically impractical; however, as a matter of principle it was irrefutable that the individual must have the right to individual self-determination. In foreign policy, Mises applied this concept to self-determination consistently.
The right of individual self-determination was clearly applicable in the area of education. For Mises, compulsory education in any circumstances was a violation of this right. Compulsory education is a clearly political act. “There is, in fact, only one solution: the state, the government, the laws must not in any way concern themselves with schooling or education. Public funds must not be used for such purposes. The rearing and instruction of youth must be left entirely to parents and to private associations and institutions.”
Mises made an important, if often unrecognized, analysis of imperialism, which is another aspect of the negation of the right of self-determination. Mises indicated that the origins of imperialism can be found in the desire of states to create protected export “markets.” A desire to avoid the effects of competition, Mises said, led states
to the adoption of the policy of using import duties to protect domestic production operating under less favorable conditions against the superior competition of foreign industry, in the hope of thereby making the emigration of workers unnecessary. Indeed, in order to expand the protected market as far as possible, efforts are made to acquire even more territories that are not regarded as suitable for European settlement. We may date the beginning of modern imperialism from the late seventies of the last century, when the industrial countries of Europe started to abandon the policy of free trade and to engage in the race for colonial “markets” in Africa and Asia …
The basic idea of colonial policy was to take advantage of the military superiority of the white race over the members of other races. The Europeans set out, equipped with all the weapons and contrivances that their civilization placed at their disposal, to subjugate weaker peoples, to rob them of their property, and to enslave them. Attempts have been made to extenuate and gloss over the true motive of colonial policy with the excuse that its sole object was to make it possible for primitive peoples to share in the blessings of European civilization…. If, as we believe, European civilization really is superior to that of the primitive tribes of Africa or to the civilizations of Asia—estimable though the latter may be in their own way—it should be able to prove its superiority by inspiring these peoples to adopt it of their own accord. Could there be a more doleful proof of the sterility of European civilization than that it can be spread by no other means than fire and sword? (Ibid., pp. 123, 25)
Mises countered the argument that the liberal solution—immediate withdrawal of government (European colonial) and leaving the inhabitants alone—might lead to chaos or oppression. Since Europe exported the worst of its civilization under imperialism, it is not the fault of the natives that they may adopt all the evils taught them by the Europeans. Since imperialism is the negation of liberalism, there was no possibility for non-Europeans to come into contact with liberal concepts and practices. Imperialism itself was one of the means by which European politicians sought to escape from the logical necessity of completing the liberal revolution in Europe. Just as mercantilism was the overseas extension of feudalism, so imperialism was the overseas extension of neo-mercantilism.
For Mises none of the arguments in support of imperialism could have any basis in liberalism. Abolition of all forms of imperialism was alone consistent with liberalism. Mises felt that the evil consequences of imperialism would become evident only after the withdrawal of European troops and bureaucrats because only then would the full extent of the impact of European illiberalism flower. The longer the Europeans remained the more poisonous the blossoms. Thus, the immediate end of imperialism would reduce the effects, and its prolongation “in the interests of the natives” would intensify it. Mises added:
If all that can be adduced in favor of the maintenance of European rule in the colonies is the supposed interest of the natives, then one must say that it would be better if this rule were brought to an end completely. No one has a right to thrust himself into the affairs of others in order to further their interest, and no one ought, when he has his own interests in view, to pretend that he is acting selflessly only in the interest of others. (Ibid., p. 127)
Mises’s total commitment to classical liberalism, pure and uncompromised, made him an heir in history to the great 19th-century classical liberals who dealt with history generally, such as Acton, or with contemporary history, such as Cobden and Bright. Mises was fearless, as were Acton, Cobden and Bright, in attacking the state in all its aspects, not the least in its more recent manifestation, imperialism. The individual and the state are irreconcilable. History confirms what reason teaches us, that the state is the negation of the individual and his extension, private property, just as where the individual and his property rightfully exist, that the state be abolished. It was because of the failure to pursue and achieve that freedom by 19th-century liberals, that the current struggle is necessary. Mises has emphasized that it is by study of that failure that the lessons will be learned to achieve liberty. Those who dare not study history will be bound to repeat it.
[This originally appeared as “Mises and History,” in the January 1974 edition of the Libertarian Forum.]
What did the diamond and water paradox have to do with an important Austrian tenet that reversed economic thinking?
Recorded at the Mises Institute in Auburn, Alabama, on 20 June 2013. Includes an introduction by Mark Thornton.
Presented to Mr. Henry Getz. Includes remarks by Peter Klein and Lew Rockwell. Recorded at the Mises Institute on 5 June 2013.
Through the Oral History Project, the Mises Institute is preserving the personal recollections and wisdom of the great men and women of our movement for the students and scholars of the future. Mises Institute faculty sat down this year to discuss the past and the future with champions of the Austrian tradition including economist Leland B. Yeager and Mises’s long-time assistant Bettina Bien Greaves. These are two of the many life stories we hope to record. The recorded interviews will be archived on mises.org and transcribed to text so they will be easily accessible, searchable, and usable to researchers everywhere.
In February, David Gordon spoke with the foremost historian of classical liberalism, Ralph Raico, about his life and career, including insights into the views and personalities of Rand, Hayek, and Rothbard. David Gordon provides a bit of a sneak peek at the Raico interview (below).
Raico grew up in the Bronx, but in contrast with the leftist views common in his family’s apartment building and neighborhood, he acquired from an early age a sympathetic grasp of the isolationist wing of the Republican Party. In high school, he joined Youth for Taft, where he encountered George Reisman. While still in high school, Raico and Reisman became interested in Mises, and Raico describes their hilarious attempt to meet Mises, in the guise of door-to-door salesmen for The Freeman.
The attempt failed, but they soon were able to join Mises’s famous seminar at New York University. Here Raico met someone who became one of the dominant intellectual influences on his life—Murray Rothbard. The incredible range of Rothbard’s scholarship, as well as his enthusiasm and humor, impressed Raico deeply. Rothbard was the first person Raico had met who defended “a fully voluntary society—nudge, nudge.”
Raico, along with Reisman, Ronald Hamowy, and several others, became members of the Circle Bastiat and met regularly with Rothbard. When Ayn Rand’s Atlas Shrugged appeared in 1957, Rothbard and his followers met for a while with Rand and her group, “The Collective,” but Rothbard and the Randians soon clashed. He refused their demand that he divorce his wife Joey, who had committed the unpardonable sin of being a Christian.
Raico did his graduate work at the Committee on Social Thought of the University of Chicago, with Friedrich Hayek as his major professor. He found Hayek “more interested in his own research than teaching” and, although friendly, somewhat remote. While at Chicago, he founded the New Individualist Review, which became one of the best of all classical-liberal journals. He was able to attract such luminaries as Hayek and Milton Friedman to contribute.
Listeners to the recording will catch the nostalgia Raico feels for his first teaching position at Wabash College; the quality of the students there was never matched in his later career at Buffalo State College. Raico also describes his many trips to Europe, and listeners will especially enjoy his account of the Gaudi buildings in Barcelona. While in Europe, he lectured widely. Raico became the foremost expert on the history of nineteenth-century German liberalism and published Classical Liberalism and the Austrian School.
Like Rothbard, Raico has been very closely associated with the Mises Institute. The recording conveys a clear impression of Raico’s intelligence and wit. Listening to it is almost like meeting Ralph Raico in person.
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James M. Rodney, Yousif Almoayyed, Anonymous, T.J. and Ida Goss, Keith M. Harnish, Drs. Hans-Hermann Hoppe and Guelcin Imre Hoppe, Richard J. Kossmann, M.D., Thomas McGinn, Francis M. Powers, Jr., M.D., Paul F. Peppard, Walter Riley, G. Keith Smith, M.D., Dr. Thomas L. Wenck, Jonathan Wilcox, and Walter F. Woodul III.
This is the fiftieth anniversary of one of the most scurrilous incidents in academic publishing. The victim was Ludwig von Mises. The perpetrator was Yale University Press.
Yale University Press published the 1949 edition of Human Action. Sales were much higher than the editor had expected. It was a 900-page treatise on economics, written by an immigrant from Austria who was teaching at an undistinguished university. He was out of favor with the now-dominant Keynesian establishment. The book sold for $10, which in 1949 was the equivalent in today's money of $98. Who would have imagined that it would go through six printings?
In 1962, it went out of print. I remember attending a week-long evening seminar by Mises that summer. It was sponsored by Andrew Joseph Galambos. Attendees could not buy Human Action.
Mises wanted to revise the book. The replacement editor allowed this. But he would not allow Mises to see the page proofs in early 1963. Mises had asked to see them.
When the book appeared, it was a typesetting atrocity. The editor did not pay for a new typesetting job. Instead, he hired a typesetter to typeset revised sections. Then the man pasted over the old edition. The changes were made in bold face. They did not match the original edition. The result was an aesthetic disaster.
My edition has this title page. On the page is an addition. It is attached to the page by Scotch tape.
Here are sample pages. (Note: the PDFs do not convey the stark contrast between the bold-faced inserts and the original typesetting.)
In the May 5, 1964 issue of National Review, Henry Hazlitt wrote a detailed account of the incident. Its title told the story: “Mangling a Masterpiece.” His assessment was entirely justified. “The new edition is a typographical disgrace.”
It is full of misprints. On page 322 four lines are omitted. Page 468 is missing altogether. Page 469 is printed twice. On page 563 two paragraphs are transposed. On page 615 eight lines are wrong. The running heads that appeared at the top of each page of the 1949 edition are all gone.
In belated reparation, the Yale University Press has printed errata pages (though they are not bound in). But these make wholly inadequate amends for an inexcusable printing job. On page after page one finds some paragraphs printed in a comparatively light type, and others in a blacker, thicker type that can only be described as at least quasi-boldface. The reader will inevitably assume that this marked contrast is intentional, and that the author meant to give special emphasis to the passages printed in Accidental Bold. Such a misunderstanding cannot be fully removed by the notes on one errata sheet to the effect that the type contrast “has no significance whatsoever for the comprehension of the meaning of the text” and is “entirely due to the method applied in the printing.”
In a footnote, Hazlitt listed 70 pages where this double-font problem was bothersome. He then asked these questions. “What possible human explanation can there be for this typographical botch, which would disgrace a third-rate commercial publisher? Who reads galley proofs? Who saw page proofs? Who let this mess pass?” It gets worse.
I asked Professor Mises what light he could throw on the matter. He was able to supply very little, because the publishers had been extraordinarily reticent. It appears that, in order to do as cheap a job as possible, the press had resorted to some mixture of photo-offset and reset never tried before. When Dr. Mises’ asked for page proofs, they were denied “for mechanical reasons.” When he protested, Chester Kerr, director of the press, replied on Jan. 22, 1963: “We are entirely willing to take responsibility for seeing that the new edition of Human Action is printed without error. I am confident that you will have no cause to regret not having seen page proofs.” When the first copies were sent out to the distributors, the author did not receive one.
He ended his article with a series of questions.
A final question. Why, in a press that has shown itself capable of producing first-rate work, did this particular book go wrong? Do the present editors of the Yale University Press (who are not those who originally accepted the book) know that this is the most important work on general economic theory that has appeared in our generation? They know it is commercially profitable; they know it sold six printings and brought in revenues from translation and quotation. But if they had any idea of its true greatness, if they even had any real respect for its author and its readers, if they had any respect for their press’ own reputation, would they have permitted such a slovenly edition to go out under its imprint?
This travesty was quite self-conscious. The editor knew exactly what he was doing. He was in control. Mises was not.
In her 1976 autobiography of her years with Mises, his widow provided an account of how deeply this hurt Mises.
I was with Lu during all those days of upset. No one else will know what he went through at that time, for he was not a man to show his feelings in public. Outsiders may have considered the misprinting of Human Action an episode in the life of a great man, accepted and forgotten. But it was not so. It was the only time in his life that he had sleeping problems, though he steadfastly refused to take any pills. He was angry. It was an ice-cold, quiet anger directed against what he felt was an unknown enemy at Yale University Press, menacing his great book, his creative strength, his very existence. He only recovered his composure after he signed a new contract with Regnery and saw the active interest that Henry Regnery took in bringing out a new edition of Human Action. And when I noticed that Lu’s sleep was sound and regular as in former years, I knew he had regained his philosophical inner balance. But he never forgot this traumatic experience. Nor have I.
She quoted from a letter to a friend, which he sent in 1963.
If we were to assume that it was unintentional, we would imply that all the people who cooperated in the production of the volume are clumsy, inept, inefficient and negligent in the highest degree. Against such an assumption stands the fact that the Press published and still publishes books of normal quality. To a professor who complained to the Press about the poor appearance of the book and told them that their reputation will suffer, the Press answered (September 12) that its reputation does not depend on “this one instance” but “on the accumulative flow of high-quality work which comes from us steadily.”
Thus the Press itself comes near to admitting that its failure to produce the new edition of Human Action as a book of normal American shape was the result of a purposeful design to prejudice both the circulation of the book and the reputation and the material interests of the author.
The present management of the Press regrets for political reasons the fact that their predecessors published my books. They are especially angry about the great success of Human Action. If they had any sense of propriety at all, they would openly tell the author that they do not want any longer to publish his books and that he is free to look for another publisher. When in the course of seeing the book through the various phases of publication, I noticed how the Press insidiously delayed from month to month the publication of the new edition of Human Action and how it muddled the printing process, I suggested this solution to them. But the Press does not want to lose the very lucrative rights to Human Action. While the Press, as it told the representative of a distributor who ordered copies of the book, loses money on about 90% of its publications, Human Action sold six printings and brought in revenues from translation and quotation. It was a very profitable job for the Press. . . .
The Press cannot help admitting (in a letter to my attorney on September 30) that “the general quality of the work is undeniably below our customary standard.” But it stubbornly refuses to substitute a new normal-quality book for this scandalous botchery.
This was how establishment liberalism worked in 1963.
Mises escaped only when Regnery arranged to publish a third edition, completely typeset from scratch. It appeared in 1966. It is one of my prize possessions.
Today, ebooks, PDFs, and other technologies have broken the hold of traditional paper-based publishers. But there was a time when they called the shots. Mises found out just how completely they called the shots at Yale University Press in 1963.
[Reprinted from GaryNorth.com ] Copyright GaryNorth.com
From the session on "History of Economic Thought," presented at the Austrian Economics Research Conference. Recorded 21 March 2013 at the Ludwig von Mises Institute in Auburn, Alabama.
From the session on "History of Economic Thought," presented at the Austrian Economics Research Conference. Recorded 21 March 2013 at the Ludwig von Mises Institute in Auburn, Alabama.
Presented at the Austrian Economics Research Conference on 21 March 2013 at the Ludwig von Mises Institute in Auburn, Alabama.
Presented at the Austrian Economics Research Conference on 21 March 2013 at the Ludwig von Mises Institute in Auburn, Alabama. Includes an introduction by Joseph T. Salerno.
From the session on "Libertarianism: Intellectual History and Applications," presented at the Austrian Economics Research Conference. Recorded 23 March 2013 at the Ludwig von Mises Institute in Auburn, Alabama.
From the session on "Libertarianism: Intellectual History and Applications," presented at the Austrian Economics Research Conference. Recorded 23 March 2013 at the Ludwig von Mises Institute in Auburn, Alabama.
Rose Wilder Lane in her youth supported the Russian Revolution, but a trip to Russia quickly dispelled her illusions. She realized that the mass politics of socialism necessarily suppressed individual freedom. America was founded on a different principle: individuals should take responsibility for their own lives. On this principle, America became the wealthiest of all nations and the hope of the world. The New Deal of 1933 struck against American individualism, substituting for it the tired collectivist programs of Europe. In Give Me Liberty, originally published in 1936, Lane called for a return to American individualism and a repudiation of the New Deal.
On February 20, 2013, David Gordon, Lew Rockwell, and Joe Salerno spoke extensively with the foremost historian of classical liberalism, Ralph Raico, about his life and career, including insights into the views and personalities of Ayn Rand, F.A. Hayek, and Murray Rothbard.
Raico grew up in the Bronx, but in contrast with the leftist views common in his family’s apartment building and neighborhood, he acquired from an early age a sympathetic grasp of the isolationist wing of the Republican Party. In high school, he joined Youth for Taft, where he encountered George Reisman. While still in high school, Raico and Reisman became interested in Mises, and Raico describes their hilarious attempt to meet Mises, in the guise of door-to-door salesmen for The Freeman.
The attempt failed, but they soon were able to join Mises’s famous seminar at New York University. Here Raico met someone who became one of the dominant intellectual influences on his life — Murray Rothbard. The incredible range of Rothbard’s scholarship, as well as his enthusiasm and humor, impressed Raico deeply. Rothbard was the first person Raico had met who defended "a fully voluntary society — nudge, nudge."
Raico, along with Reisman, Ronald Hamowy, and several others, became members of the Circle Bastiat and met regularly with Rothbard. When Ayn Rand’s Atlas Shrugged appeared in 1957, Rothbard and his followers met for a while with Rand and her group, "The Collective," but Rothbard and the Randians soon clashed. He refused their demand that he divorce his wife Joey, who had committed the unpardonable sin of being a Christian.
Raico did his graduate work at the Committee on Social Thought of the University of Chicago, with Friedrich Hayek as his major professor. He found Hayek "more interested in his own research than teaching" and, although friendly, somewhat remote. While at Chicago, he founded the New Individualist Review, which became one of the best of all classical-liberal journals. He was able to attract such luminaries as Hayek and Milton Friedman to contribute.
Listeners to the recording will catch the nostalgia Raico feels for his first teaching position at Wabash College; the quality of the students there was never matched in his later career at Buffalo State College. Raico also describes his many trips to Europe, and listeners will especially enjoy his account of the Gaudi buildings in Barcelona. While in Europe, he lectured widely. Raico became the foremost expert on the history of nineteenth-century German liberalism and published Classical Liberalism and the Austrian School.
Like Rothbard, Raico has been very closely associated with the Mises Institute. The recording conveys a clear impression of Raico’s intelligence and wit. Listening to it is almost like meeting Ralph Raico in person.
In the fall of 1987 I was a senior economics major at the University of North Carolina, looking at options for graduate school. By chance, I found a flyer for a five-year-old organization called the Ludwig von Mises Institute. I was thrilled — I was already an enthusiastic, if unsophisticated, fan of Mises and the Austrian school of economics, and was amazed that someone had named an institute after him! That someone, of course, was Lew Rockwell, and a letter of inquiry about graduate fellowships led to a phone interview with Murray N. Rothbard, Mises's former student and the Institute's academic vice president, a visit to Stanford University for the Institute's summer instructional conference (what became Mises University), and the most important relationship of my professional life.
I went on to earn my PhD, become a tenured professor, and spend my days researching and teaching Austrian economics, speaking at Mises Institute events, writing for its publications, and following its work. Next year I will go to Auburn to serve as the Institute's Executive Director and the inaugural Carl Menger Fellow. The Mises Institute continues to be the world's leading center of research, teaching, and outreach in the tradition of Mises and the Austrian school, and its beautiful campus in Auburn is the center of the action.
It's hard to believe it's been 30 years since Lew founded the Institute, working from his dining room table, working with indefatigable energy and the help of Rothbard, one of the truly creative geniuses of our time. In those three decades, the Institute has achieved so much. Thank you for making all of this possible. Your continued support is crucial in this fight for sound ideas and sound policies. We can do nothing without the help of good people like you. Thank you!
Based on his book sales, John Kenneth Galbraith was probably the most read economist of the 20th century. From the publication of his first bestselling book The Great Crash in 1954 through the 1980s, the American left-liberal intelligentsia and media breathlessly anticipated and wildly celebrated the publication of each new book. Nonetheless, most technical economists, regardless of their political orientation, did not take his work seriously. By the 1990s Galbraith's work had been thoroughly discredited among professional economists. Indeed, in his 1994 book, Peddling Prosperity, leftist economist Paul Krugman held up Galbraith as the prototype of a left-wing "policy entrepreneur" who, like his supply-sider counterparts on the Right, sought an audience among policymakers and the educated public, outside the cozy circle of academic economists.
In his book, Krugman ridiculed The New Industrial State, Galbraith's magnum opus. He pointed out its wildly erroneous predictions regarding the evolution of the US economy toward greater dominations by giant corporations that were insulated from market forces, manipulated consumer preferences at will through advertising, and whose interlocking managerial and technological elites (the ominously labeled "Technostructure") could make decisions without regard to the interests of stockholders. With rhetorical understatement, Krugman concurred with the sentiments of earlier academic critics, characterizing the book as one that "could safely be ignored."
But discredited economists, much like disgraced politicians, never remain out of favor for long, especially after they have passed from the earthly scene. So it is that Galbraith's reputation has been undergoing something of a rehabilitation in the past decade. Especially among those mainstream academic economists who are vaguely cognizant of the rapidly accumulating failures of their discipline in explaining economic reality, Galbraith is increasingly perceived as a misunderstood thinker whose insights were ahead of their time and whose work was too hastily dismissed.
For example, Nobel laureate Amartya Sen was positively elegiac in his appraisal of Galbraith, exclaiming that he "doesn't get enough praise." In an interview, Sen opined that Galbraith's work would indeed endure and that his book The Affluent Society exemplified Galbraith's "great insight." The book, Sen effused, "has become so much a part of our understanding of contemporary capitalism that we forget where it began. It's like reading Hamlet and deciding it's full of quotations. You realize where they came from."Amartya Sen, quoted in Richard Parker, John Kenneth Galbraith: His Life, His Politics, His Economics, New York: Farrar, Straus and Giroux, 2005, p.669.
J. Bradford DeLong is a Berkeley economist and former Treasury Department functionary during the Clinton administration. He also writes the clumsily titled and soporific blog, Grasping Reality with Both Invisible Hands: Fair, Balanced, and Reality-Based: A Semi-Daily Journal. DeLong is even less restrained and discriminating than Sen in extolling Galbraith's brilliance, declaring that history professors can do no better "than to assign his books The Affluent Society and The New Industrial State to teach students how the midcentury U.S. economy came to dominate the world." Anyone who wants to learn about the Great Depression, according to DeLong, "should start with The Great Crash; there is no other history of the stock-market crash of 1929 that is as short and even half as worthwhile."
DeLong even praises Galbraith's turbulent and ill-fated stint as deputy director in the Office of Price Administration during World War II, where he apparently performed the miracle of "squar[ing] the growth-inflation circle by pushing production far above economists' measures of potential output without sparking runaway price increases that would threaten the economic mobilization."J. Bradford DeLong, "Sisyphus as Social Democrat" Foreign Affairs (May/June205). Although the title of the aforementioned blog doubly touts DeLong's intellectual engagement with "reality," his paean to Galbraith's administration of draconian wartime price controls betrays minimal contact with economic reality.
Recently, prominent mainstream economists with strong inclinations toward behavioral economics have also jumped on the Galbraith bandwagon. George Akerlof and Robert Schiller, for example, have favorably cited Galbraith in their bestselling book Animal Spirits. They refer to Galbraith's Great Crash as one of the "seminal historical accounts of bubbles and panics," and characterize it as "very much in the same spirit as the analysis in [their own] book." They are quite taken with Galbraith's discovery of an alleged causal relationship between the mysteriously waxing and waning prevalence of "bad faith" — defined as "economic activity that, while technically legal, has sinister motives" — and economic cycles.George A. Akerlof and Robert J. Schiller, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, Princeton, NJ: Princeton University Press, pp. 26, 177 n. 7, 181 n. 1.
Robert Frank is another economist with impeccable mainstream credentials who has a predilection for behavioral economics and a soft spot for Galbraith. He has argued that Galbraith's position that the market economy systematically misallocates resources between private and public sectors "was right for the wrong reasons." If only Galbraith's training had been grounded in modern game theory, Frank contends, he would have been better able to defend himself against his academic critics.Robert H. Frank, "Right for the Wrong Reasons: Why Galbraith Never Got the Prize," New York Times (May 11, 2006).
Now there are probably various reasons for the burgeoning Galbraith lovefest among mainstream economists. But, I believe, the primary reason is the growing dissatisfaction within the economics profession with the transmogrification of economics into a hyper-mathematical, model-driven discipline that tells us exactly nothing about the real world, as the financial crisis has plainly revealed. Compared to the arid and mechanistic "theorems" of modern economics, even Galbraith's unsystematic and pedantic musings are a breath of fresh air, because at least they are expressed in English and make reference to real and meaningful phenomena. This is, of course, not an endorsement of Galbraith's approach to economics or his various positions. Indeed far from it: rather it is an attempt to explain the unjustified accolades his work is beginning to receive from professional economists.
For a more accurate view of Galbraith the man and his work, we turn to economists who were masters of verbal-logical economic theory that had reached its high point in the 1930s. Two eminent British economists of widely different political persuasions, Lionel Robbins and James Meade, were steeped in this kind of economic analysis, which used mathematics for illustrative purposes only and sought to explain economic phenomena by tracing them back to their essential causes using logical deduction based on realistic premises. Robbins and Meade each assessed Galbraith in their private wartime diaries based on personal interactions with him.The Wartime Diaries of Lionel Robbins & James Meade 1943–1945, ed. Susan Howson and Donald Moggridge, London: Macmillan (1990). Neither was particularly impressed, although their respective assessments of Galbraith could not take into account the works for which he would later become famous.
For much of the 1930s Robbins was a follower of the Austrian School of economics, having been influenced by the writings of Ludwig von Mises and by Friedrich A. Hayek, with whom he developed a close personal relationship. In the late 1930s and especially during the war, Robbins fell more and more under the personal influence of Keynes whom he had gotten to know personally, although he still remained for the most part a generally market-oriented economist. Robbins did not think much of Galbraith's mental acuity and dismissed him as a shill for New Deal policies, writing,
I knew Galbraith in the old days; he sat for some little time in my seminar. I must say I am not altogether surprised at what has happened; for I have always thought him a dull fellow, well intentioned enough, but a sort of pedant of New Deal economics — just the kind of man to upset the business community without himself bringing any startling administrative ability to offset the loss of that which he had antagonized.Ibid. p. 61. The last sentence refers to Galbraith's unceremonious dismissal from his position as deputy administrator of the US Office of Price Administration (OPA).
Meade was a co-recipient, with Bertil Ohlin, of the 1977 Nobel Prize in economics. Throughout his career Meade was deeply concerned with the inequality of income and wealth and wrote voluminously on the subject. Meade also was a vigorous supporter of "incomes policy," i.e., permanent wage and price controls, as a remedy for "stagflation," which he believed had become an endemic feature of industrialized market economies.For an overview of Meade's life and works, see Mark Blaug, Great Economists since Keynes: An Introduction to the Lives and Works of One Hundred Modern Economists, New York: Cambridge University Press, pp. 161-63. Meade was, therefore, in no sense a conservative or free-market economist and in fact could be classified as a Fabian socialist or social democrat in his policy leanings. Yet he viewed Galbraith in much the same light as Robbins. He wrote in a diary entry,
Later I dined with Galbraith and his wife at the Cosmos Club and then went on to their home in Georgetown to talk. He is the "relentless" type of radical, believes that Russia should be permitted to absorb Poland, the Balkans and the whole of Eastern Europe in order to spread the benefits of Communism, that the outlook for American politics is very black because even if the Roosevelt administration wins the next election the liberal New Dealers are now all a crowd of tired, cautious, conservative liberals etc. I think he may be a little embittered at the punishing experience at the OPA where there was a witch hunt against liberal College professors of which he was the main victim.
In a footnote to this entry inserted right after the word "Communism," the diary editors state, "Meade now suspects that he may have unfairly misinterpreted Galbraith's views, and Galbraith denies that he ever held such views."Howson and Moggridge, p. 153 fn. 74 But whether Meade's suspicions 47 years later about what Galbraith did or did not mean is more accurate than his recollection of what Galbraith said on the day he made the diary entry is beside the point. It is clear that Meade the economist was not favorably impressed by Galbraith.
We might also cite the views expressed about Galbraith's work by two Austrian economists, Friedrich Hayek and Murray Rothbard, both of whom masterfully employed the verbal-logical deductive approach in advancing economic theory.
Hayek, a co-winner of the Nobel Prize in 1974, demolished the central thesis of Galbraith's Affluent Society in a short piece he published in 1961. Galbraith had argued that most consumer wants in a modern economy are the outcome of the "dependence effect," that is that they depended on and were created by the very process of producing the goods that were meant to satisfy them. Therefore, according to Galbraith, the really important needs were already satisfied in an "affluent society," and the only real problem was not producing more for private consumption but rationally distributing the available resources to produce things that are most urgently needed, specifically more collective goods and public services to be provided by the state.
Hayek perceptively identified this argument as a modern version of the naïve socialist argument first put forth by the nutty Utopian socialist Saint-Simon and his followers in the mid-19th century. According to this argument the problem of production had been solved and all that remained was the problem of distribution. Hayek wrote that such a contention was "absurd" and that Galbraith's book embodied "the latest form of this old contention."Friedrich A. Hayek, "The Non-Sequitur of the 'Dependence Effect,'" in idem, Studies in Philosophy, Politics, and Economics, New York: Simon and Schuster, 1969, pp. 313-17. Hayek then went on in his brief article to neatly dispose of Galbraith's argument by demonstrating that most wants in a civilized society are indeed dependent on (but not determined by) the existence of goods intended to satisfy them. And this is not just true of Galbraith's oft-quoted example of cars with oversized tailfins. There would be no demand for literature without the invention of the printing press and the production of books, no demand for cell phones or even telephones in general without their invention and production, no demand for a vaccine against poliomyelitis without its formulation by Jonas Salk and production by pharmaceutical companies, and so on and on. Thus Hayek showed Galbraith's central thesis to be a vacuous "non sequitur," for the fact that most wants "depend" on the production of the goods necessary to satisfy them does not imply that expanding production for (private) consumption is unnecessary. Because of its brevity and incisiveness, Hayek's critique of Galbraith stands as one of the most brilliant examples of economic demolition ever penned. One cannot imagine such a piece being written today by an economist schooled in modern model-building techniques.
Finally, we note Murray Rothbard's opinion of Galbraith's work. Rothbard's multi-volume treatise on economics Man, Economy, and State, which still stands today as the most comprehensive and advanced statement of economic theory in the verbal-logical or "causal-realist" tradition that has its roots in the Austrian School, in early American neoclassicism of John Bates Clark and Frank A. Fetter, and in the London School of Economics in the 1930s.Murray N. Rothbard, Man, Economy and State: A Treatise on Economic Principles with Power and Market: Government and the Economy, Scholar's Edition, 2nd ed. , Auburn AL: Ludwig von Mises Institute, 2009. Rothbard had little use for the style and substance of Galbraithian economics. In a review of books on inflation and the business cycle in the late 1970s, one of which included a book by Robert Heilbronner, Rothbard remarked,
Robert Heilbroner, like John Kenneth Galbraith, might be said to fall into the category of "popular economist": that is, someone who knows virtually nothing about economics, yet manages to write a series of best sellers on the subject, read avidly and almost exclusively by noneconomists, who exclaim over the profundities therein.A review of The Inflation Crisis, and How to Resolve It by Henry Hazlitt (Arlington House, 1978); Beyond Boom and Crash by Robert L. Heilbroner (W.W. Norton, 1978); Manias, Panics, and Crashes: History of Financial Crises by Charles P. Kindleberger (Basic Books, 1978), Inquiry (October 30, 1978), pp. 21–22.
Rothbard goes on to utilize Galbraith as a standard of economic ignorance, describing Heilbronner as "a lightweight, for he knows even less economics than Galbraith does and lacks the mordant wit (derived, if not cribbed, from Veblen) and the aristocratic life style of the famous opponent of affluence."Ibid.
In another article criticizing The Affluent Society, Rothbard points out that Galbraith never provides an objective standard according to which the public sector can be judged to reach its optimum as ever more resources are siphoned off from private consumption to feed its growth.Murray N. Rothbard, "The Fallacy of the Public Sector," in idem, Economic Controversies, Auburn AL: Ludwig von Mises Institute (2011), pp. 419–26. In fact Galbraith categorically denies that a test of the appropriate balance between the satisfaction of private and public needs exists: "The answer is that no test can be applied, for none exists.… The present imbalance is clear.… This being so, the direction in which we move to correct matters is utterly plain."Galbraith quoted in ibid., p. 423. Galbraith does not even make the perfunctory pseudo-scientific appeal to a social-welfare function or the Kaldor-Hicks compensation principle — his own naked and arbitrary personal whim is evidently a sufficient standard to guide society and the economy.
Rothbard also reveals the flaws and contradictions in one of Galbraith's supporting arguments. Galbraith contends that as living standards rise, additional increments of goods decline in value. But Galbraith somehow deduces from this correct principle that satisfaction of additional wants are now worth nothing to the individuals concerned. But, as Rothbard points out, even if Galbraith's unwarranted deduction is granted, what about government services? The US government, for example, has grown much more rapidly than the private sector relative to national income in the 20th century. This prompts Rothbard's query: "But if that is the case, then why should government 'services,' which have expanded at a much faster rate, still be worth so much as to require a further shift of resources to the public sector?"Ibid., p. 425 Needless to say, no answer to this question is forthcoming in Galbraith's book.
So Galbraith is indeed, as Robbins keenly observed, "a dull fellow." More important, what does this reveal about the state of a discipline whose distinguished members have begun to hail him and embrace his doctrines?
[Snoring as a Fine Art, and Twelve Other Essays (1958)]
My first and only presidential vote was cast many, many years ago. It was dictated by pure instinct. I remember the circumstances well. Like all well-brought-up youngsters, I had been told that it was the duty of every citizen to vote — reasons not stated. I was prepared to obey in all good faith, and accordingly, when the time came, I set forth to the polls.
But what was I to vote for? An issue? There was none. You could not get a sheet of cigarette-paper between the official positions of the two parties. A candidate? Well, who were they? Both of them seemed to me to be mediocre timeserving fellows who would sell out their immortal souls, if they had any, for a turn at place and power, and throw in their risen Lord for good measure. Suddenly, the ridiculous truth of the matter struck me: that the whole campaign was based on no political reason at all, but on an astronomical reason. We were voting simply because, since the time we last voted, the earth had gone 1461 times around the sun, or some such number, and for no other reason in the world. As I approached the polls my resentment of this nonsense grew stronger and stronger, and when I arrived I deliberately wrote in a vote for Jefferson Davis of Mississippi.
It was not an ignorant vote, for I was fully aware that Jeff was dead. Nor was it a piece of mere flippancy — far from it. I found out afterward that either Mark Twain or Artemus Ward, I forget which, had once done something of the kind, on the plea that "if we can't have a live statesman, let us by all means have a first-class corpse." There is a great deal to be said for that idea, and I am proud to subscribe to it, but it was not my idea at the time. My vote was a vote of serious protest against what I regarded as an impudent and degrading absurdity, and at this late day I am more than ever prepared to maintain that the instinct which prompted it was sound and enlightened. I am also prepared to show cause for believing that this instinct actually controls the majority of our electorate, whether they are aware of it or not, and to show cause for believing that they are fully justified in letting it control them.
Visiting Englishry, especially English politicians, are usually struck by what they call the American's lack of interest in politics. We seem to them to have no sense of personal concern with national affairs — that is, of course, the majority of us, exclusive of those who have something at stake, like a tariff-schedule, or something in the way of jobhunting, subsidy or graft. The last one I remember as speaking about this was Miss Margaret Bondfield, who was a member of the late Labor cabinet. She used our Sunday press to read us a good schoolmarm's lecture on the subject, and there is no denying that she brought in a true bill.
As these English visitors see it, the American's interest in politics (provided he has no ax to grind) differs from the Englishman's in being occasional, not continuous. It is a sporting interest, like interest in a horse-race. When election-day is over, he forgets it, buckles down to his job, and contentedly leaves Washington to the mercy of such lobbyists, crooks, blacklegs, editors, politicians and desperadoes as normally find their way there, seeking what they may devour.
These foreign visitors also say that the American's interest differs from the Englishman's in being more concerned with men than with issues. They account for this by the fact that the official issues of our national campaigns are so trivial that they are really no issues at all, and that therefore the actual cleavage between our parties is not spacious. In other words, we have nothing that an Englishman would understand by an effective political Opposition. Hence whatever public interest there may be in an election must focus on the personality of the candidates.
There can be no doubt, I repeat, that this is a true bill. It takes a heroic deal of prodding to goad the free-born American sovereign into wielding his royal prerogative on election day. An immense amount of money and energy is spent on getting out the vote, but the result is never impressive. If 40 percent of the total electorate turns out and votes, it is a good haul, and 50 percent is a large one. If local contests did not coincide with national contests, the national vote would be even slimmer than it is.
I shall not take up space to fortify Miss Bondfield's true bill by discussing the official issues of the last campaign, or the width of the cleavage between the two parties. Nothing of all this impressed me particularly, but that is a small matter. I do not think it would have made much more of an impression on the average Frenchman or Englishman, but that need not be considered, either. Beyond doubt, however, the personality of the candidates, or of one candidate, counted for a great deal. It was actually, though not officially, the major issue. A very large proportion of the vote was cast in complete disregard of any question, except that of pure personal sentiment, favorable or unfavorable, towards Mr. Hoover.
As for the post-election lapse of interest which now, once more, mystifies foreign observers, I see nothing mysterious about it. All those who have an ax to grind are of course very busy — job-seekers, bankers, brewers, farmers, railroad men, everyone who stands to gain or lose something. Aside from these, now that the sporting event is over, the general run of the electorate has resumed its customary attitude of profound detachment. As far as it keeps any track at all of national affairs, it views them as a spectator and not as a participant. It waits to "see what they'll do" and makes more or less idle conjectures, shaped largely by the journalists, on what it will be. But, as usual, there is little if any personal concern with "their" doings or misdoings.
II Now, what about this attitude? Does it prove that the American is politically ignorant, shiftless, irresponsible, and gets no better government than he deserves? I say no. All that may be true — in fact, I think it is true — but his attitude towards national politics does not prove it. Moreover, if he be ignorant and undeserving, it is fair to point out that his political institutions give him no incentive to be less so. Furthermore, if he were ever so informed and ever so interested and lively, his institutions give him no adequate means of making his will effective. "American efficiency," as expressed in American political institutions, certainly means the poorest, slowest, most discouraging, and incompetent way of getting anything done.
In the many long years that have elapsed since my one and only presidential vote was cast, I have seen an enormous amount of blame and obloquy shovelled on the nape of the American sovereign for his attitude of detachment. I can speak of this with a certain degree of personal concern, because it has been shovelled on me, I being that American sovereign — one of them — and that attitude being mine. I have waited a long time for some abler person to come out and defend it, but nobody has done so, and I therefore undertake to defend it myself. In so doing I may say that for once in my life, perhaps the only time, I have the pleasing consciousness that I am speaking for many millions of my fellow sovereigns.
We are blamed for laziness, triviality, carelessness, lack of patriotism. If public affairs are ever in a bad way, it is our fault. If we do not express our will at the polls, and do not strive between elections to have it carried out, what may we expect but a reign of corruption, oppression and bureaucracy? Not long ago our fine old friend, Mr. Wickersham, got into such a pucker over our shortcomings that he proposed some scheme of compulsory voting, under penalty, as I recall it, of fine or jail — good sound paternalistic doctrine! Every once in a while somebody publishes a magazine article urging us to take more interest in politics. I remember that the new Governor of New York, Mr. Lehman, published one lately that was very fine and striking. And all sorts of clubs and societies are on foot to educate the apathetic electorate and stir it into action.
If the rest of our delinquent sovereigns feel as I do, I may say that we do not particularly resent these efforts. We are inclined to be rather meek under the odium that is put on us. Mr. Wickersham's idea, now, is perhaps another matter; we might think that would be crowding the mourners a little. But in general we are willing to be patient and reasonable, for we are not so ignorant and stupid as we may appear to be, and we really would like, as much as anybody, to have things go ship-shape and happily. All we ask is that our monitors should be a little patient and reasonable too, and listen to us fairly while we make a very simple plea of extenuating circumstances.
Let us look at the last election. Millions of voters got four years worth of bile out of their systems on election day, and were more chipper and cheerful next morning than they had been for months. This was all to the good, no doubt, but the benefit seems rather in the scope of pathology than in that of politics. A large majority registered their opinion that Mr. Hoover was not a satisfactory public servant, and this also was all very well. But if that is the way we felt towards Mr. Hoover, why should we have had to put up with him for four years before dismissing him?
The French or English can turn out an unsatisfactory public servant at any time. They do not have to wait four years; they can do it in four hours. They have the political machinery for doing that, and we have not; if we had, Mr. Hoover would probably have gone out of office at least two years and a half ago. My point is that people who have no machinery for making their political will immediately effective cannot reasonably be expected to take much interest in a mere hopeful registration of what they want.
The "will of the people" repudiated Republican rule last November, with almost unprecedented emphasis. Why do we have to wait four months before it can really count? In England or France it would get action at once, almost in four minutes. When an English or French government is hit by a vote of no confidence, out it goes on the spot, and the party or combination that has ousted it goes in. We all remember the series of French governments a couple of years ago that one after another went down like a row of dominoes, almost before the members took their seats. One of our newspaper paragraphers said at the time that the French premiership was one turn around in a revolving door. It was commonly understood, though I do not know how true it was, that an international conference had to be postponed until the French found a premier who could hold his job long enough to make the trip from Paris to London and back before he was fired out.
In the last election we voted against Mr. Hoover — that is plain enough — but what did we vote for? Many, presumably, voted for beer; all right, we will find no fault with that. On the contrary, let us assume that the whole prodigious majority voted for beer. But all it got was a vague promise of beer on some uncertain tomorrow. The English have governmental machinery whereby if they vote for beer they get it at once, and without going through any further motions. If the people say beer, they pass the word to the House of Commons, and when the House says beer, beer it is, and that is the end of the matter.
If, by some trick of the politicians, we get only bad beer, or prohibitively costly beer, or no beer at all, there is nothing we can do about it but wait until the end of another "fixed term." Suppose Mr. Roosevelt and his crew find it to their political or personal advantage not to give us a lower tariff, or whatever we all may in good faith have voted for (and this has often happened, e.g., the great tariff-betrayal in 1894, and the war-betrayal under Wilson, who got his second term because "he kept us out of war"), what can we do about it, short of another four years? Nothing. And what kind of executive usurpations, indignities and rascalities does our history show may be practiced on us with impunity meanwhile?
The fixed term means simply that ours is not a representative government at all, but a delegated government. The vote that seats our president, our Congress, our state and municipal officials, is simply a carte blanche, or rather, something in the nature of a letter-of-marque. How can an intelligent citizen be expected to take interest in the conduct of politics under these conditions?
Even if our elected officials all stand by us loyally, we cannot get what we vote for except on the sufferance of nine old men, irresponsible, inaccessible, appointed for life, and concerning whose appointment the people have nothing to say. The intelligent citizen knows this, knows that even with the president and Congress unanimously on his side, his actual sovereignty amounts to exactly nothing. The Supreme Court is the actual sovereign power, the final law-making authority — not law-interpreting, but law-making. How, then, can the citizen be interested? What the British House of Commons says goes, even for the King on his throne, and it goes straight off the bat; the Britisher knows it, and he feels and acts accordingly.
Moreover, not only can the American citizen do nothing between elections to make his will effective, or to bring retribution on those who thwart it, but his party can do nothing. The thing that most keeps the Englishman's interest in politics alive between elections is the power of the Opposition; and the power of the Opposition lies in the fact that it can turn out the government at any moment when it can command a majority in the House. "His Majesty's loyal Opposition" sits in the House like a cat by a rat-hole, waiting for the government to make a break on some question, small or large, that will shift enough sentiment to pass a vote of no confidence — and then, down goes the government. No one can tell when this may happen, and the constant surveillance of the Opposition tends to make the government prayerfully watch its step.
This sort of machinery makes any change possible and practicable at any time the people want it. If the government is fairly sure that the people do not want the change, it can always "go to the country" — that is, hold an election on that issue. The issue is likely to be a pretty real one, and thus it is that the British voter gets the habit of regarding politics as a matter of issues rather than of men.
III Again, how can the American voter be expected to have any interest in the doings of the executive between elections, when the whole executive is irresponsible and ungetatable by any means short of a congressional investigation, which takes dynamite to start, and is a matter of months spent in all sorts of futile and vexatious foolery?
The president picks his cabinet where he likes, and they are utterly inaccessible; they cannot be seen or spoken to unless they choose, let alone called to account. The British prime minister must choose his cabinet from the House, and they keep their seats in the House and can be called to account by any member. Once when I was in London a member got up at question time, took an envelope out of his pocket, and said, "Mr. Speaker, I wish to ask the postmaster general," who was sitting about 15 feet in front of him, "why he did not deliver this letter on time." The letter belonged to some constituent who had kicked about it to his representative, and got him to put the question. The postmaster general asked for time to look the matter up, and in a few days made his reply, and the thing was properly straightened out. He had to do that, or he would have lost his job.
That is the British equivalent of a congressional investigation, whether concerning a small matter like a delayed letter, or a large matter like a profiteering army contract. It is direct, simple, business-like. There you have the machinery of really representative and responsible government. The citizen who has that kind of machinery at his disposal can afford to be interested in politics because he knows he can get action and get it at once.
It is even conceivable that the government might have fallen on the apparently petty occasion of that delayed letter. Such a thing has happened, and it could happen again. Suppose the government has only a small majority and is not very popular; suppose the Opposition has smelt out a few disaffected votes that they think may turn the scale; suppose the postmaster general is evasive and does not give a straight answer. The leader of the Opposition makes a red-hot speech, asking Mr. Speaker what in Heaven's name he thinks the empire is coming to, when a venal and bungling government won't let His Majesty's loyal subjects get their mail. Someone on the government bench, perhaps the Prime Minister, replies as best he can — then a vote of "no confidence," and down goes the government.
I was once told in London that one government had just missed destruction by the closest kind of shave, on what would seem to us the curious issue of a girl having been picked up by the police for soliciting. She told the police that she was a daughter of the rector of some church out in the country, that she had lost her direction on Piccadilly, and had stopped a stranger to ask her way. The police detained her overnight. Next day it turned out that she was that rector's daughter, and that her story was true.
At question time that afternoon, the member for her district was on his feet with fire in his eye, asking the home secretary what in high hell he meant by sloughing up the daughter of his rector, and the government was in a hole, knowing that every newspaper in the Kingdom would be on the warpath next morning. As I got the story, the government compounded handsomely within two hours, with an apology and a cash indemnity, and so saved its neck.
I pass by the Electoral College, that remarkable institution which every once in a while gives us a minority president, like Harrison. Why should any one who voted in that election, when Cleveland got the votes and Harrison got the presidency, ever take the trouble to vote again, at least until the Electoral College is abolished and the president elected by direct vote? I see no reason why he should do so.
Finally, how can we be interested in politics when our Constitution makes the existence of a national issue impossible? The provision which obliges our representatives to reside in their districts automatically converts every issue into a local issue. We have at last learned that General Hancock told the truth — which so mystified the country at the time — when he said that the tariff is a local issue. But so is every issue, and must be; Prohibition, for instance, is notoriously a local issue. What is one to think, really, of the state of politics where the Constitution forbids the legislature to take any but a purely parochial view of every public question?
The United States is often criticized for having no continuous foreign policy. But this provision of the Constitution makes it impossible to have any foreign policy at all. The members of the Foreign Relations committees of Senate and House must live in their districts, and each one must first and foremost reflect the prevailing interests and sentiment of his district, or lose his job. He simply cannot afford to take a national view of any foreign relation, even if he were ever so willing and able to do so. He may take a national view only in so far as it is not incompatible with local interest.Those who feel inclined to doubt this may be referred to the disgraceful history of the dispute with Canada over the fisheries question, in Cleveland's first administration. Examples are plentiful enough, but this one will suffice. Hence every change in the personnel of these committees brings new sets of local interests to the fore, and our policy is merely a series of improvisations.
In England, on the other hand, a representative who falls out with his constituents over a matter of public policy may get himself put up in any other district in the whole Kingdom where he thinks local sentiment will support him. He may be an utter stranger who has never set foot in that district in his life, but that does not matter. If we had that mechanism, a dry Rhode Island congressman, for instance, could go out and put himself up for some safe dry district in Maine or Kansas. A pacifist devotee of the League of Nations, living in an armament-making district of Pennsylvania, could get himself put up in some midwestern district where sentiment ran the other way. This mechanism, obviously, tends to preserve dignity, integrity, self-respect, all round. If we had it we need not have been disgraced by the odious spectacle of the dry-voting, wet-drinking legislator; nor by the more odious spectacle of the rush for the bandwagon.
IV Nevertheless, Mr. Wickersham might say, it all comes back to the people in the end. If our institutions seem expressly designed — as every one who knows their history knows they were designed — to paralyze our activity and suffocate our interest, why do the people put up with them? Why are we not whooping for reform? Why not unite, organize, get up "campaigns of education" and all that sort of thing, in the orthodox American way, and crusade for a brand-new set of political machinery?
This is plausible. It has the right sound, and is all right "in principle," as the diplomats say, but it is actually impracticable. We have seen those crusades before, and we know what happens to them when they meet what Ernest Renan so finely calls la bassesse de l'homme interessé. Suppose the Forgotten Man, who is about 80 percent of our population, asked Mr. Roosevelt and his horde of voracious Democrats to pause on their way to the trough long enough to call a constitutional convention aimed at the reforms I have suggested. Would they do it? Not in the whole history of our republican institutions is there a single incident to warrant the suspicion that they would. But suppose they did, then that same history enables us to forecast exactly what sort of convention we would get. We can see the whole make-up of it in our mind's eye; it would be made up of the very people who have every interest in keeping our political machinery exactly as it is.
No, there is nothing in crusading. The English can have what the Duke of Wellington called "a revolution by due course of law" whenever they think the occasion warrants it. They have the machinery for doing it, and we have not. There remains to us only the recourse to violence, which is no doubt our privilege, but is not to be considered, for we have no confidence in it. Probably our descendents will have to come to something of the kind, but it is nothing for us at the moment. We have learned something from our own revolutions and also from those in other lands; the outcome would be far too uncertain.
It turns out, then, that our practical instinct about politics is sound. All that the Forgotten Man can do is what we so largely find him doing. He can take our national politics as supplying him with a recurrent sporting event, a sort of extravaganza, in which the actors appear to him as more or less clever mountebanks, and his own relation to it is that of a spectator who is only mildly stirred. He may walk out on it, and usually does so whenever anything more attractive comes along; that is to say, as a rule, when he is not wholly idle. He may use it as an occasion for the display of resentment; indeed, the returns seem generally to show that this is the most nearly serious use he ever makes of it. To expect more than this of him seems to me unreasonable, whatever Mr. Wickersham may say; and whether more be expected of him or not, this appears to be about all he will do.
Vlad the Impaler, and his literary incarnation, Count Dracula, are rooted in a dark period of monetary inflation and economic nationalism.Another Halloween is upon us, bringing its late autumnal burst of costumes, candy, and merriment. Ghosts, witches, mummies, zombies, Frankenstein's monster, film and television characters, and others will make appearances, as will the quintessential Halloween figure: Dracula.
Most people are familiar with Count Dracula's first literary appearance in Bram Stoker's 1897 Gothic horror novel Dracula. And many are also aware that the undead villain was loosely based on a real historical figure, Vlad Tepes III — "Vlad the Impaler" (sometimes "Vlad Dracula") — who ruled mid-15th century Wallachia, a region of modern day Romania.
Incredibly, though, there is a real but lesser-known horror story behind Dracula — a story of the long-term effects of inflationary policies and a consequent campaign of economic nationalism, rather than of a mythic, powerful undead creature: interventionism pursued terrifyingly, diligently, to its logical ends.
The Real DraculaIn 1431, Vlad Tepes III, the man who would become the inspiration for Count Dracula, was born in Transylvania. With his father, Vlad II, on the Wallachian throne, early in life he and his brother were sent to the Ottoman court of Mehmet the Conqueror to act as living guarantors of their father's fidelity ("loyalty hostages"). While his brother, Radu, flourished, Vlad III was insolent and regularly experienced beatings and imprisonment.
Typical for that time, a host of intrigues swirled about the court of Vlad II, compounded by Wallachia's critical location as a buffer kingdom between the Ottoman and Holy Roman Empires; changes in leadership could bring about changes in policy, swiftly impacting trade and fortunes. In December of 1447, Vlad II was murdered during a coup. The Ottomans responded swiftly, appointing young Vlad III to his father's former throne. A Hungarian force in turn responded, driving Vlad to flee to Moldavia where he undertook diplomatic duties alongside his uncle.
In 1453, Constantinople fell, and Ottoman forces surged through the Balkans. When the Hungarian occupiers left Wallachia to support their allies and help staunch the flow of invaders, Vlad III, now 23, leapt into action, organizing and leading a successful invasion of his native land.
WreckageOn retaking the throne, Vlad was stunned to find Wallachia in a state of utter social and economic decay. Where once a brisk trade in "salt, cattle … honey, wine … wax" and many other goods had prospered, the economy was now utterly destroyed.Oberländer-Târnoveanu, Ernest, et al. (2009, 31 Aug - 4 Sep). The Early Stage of the Wallachian Coinage (c. 1365-1386), In The Light Of the Atomic Analyses. Paper presented at the Proceedings of the XIV International Numismatics Congress, Glasgow, UK. Retrieved September, 2012 from the Romanian Society of Archeometry website.
In fact, throughout the century prior to Vlad III's return, the Wallachian economy had been systematically destroyed by liberal use of a well-known policy strategy: currency manipulation. Previous rulers of Wallachia had repeatedly implemented monetary "reform,"
each [of which] led to the introduction of a more debased … lighter weight type of ducat … [in order to] increase of the amount of the coinage needed by … expanding political payments.Oberländer-Târnoveanu.
The previous Wallachian leaders' motives were timeworn as well: "Wallachia was confronted, almost permanently, with excessive military expenses … as well as an active international policy."
Thus, there were "serious threats … [to] the monetary stability in Wallachia during the entire 14th–15th century."Ibid.
Consistent expansion of the money supply had created insecurity within the realm, and Vlad immediately took action to create security, making his ruling objectives clear:
My sacred mission is to bring order.… There must be security for all in my land.… When a prince is powerful at home, he will be able to do as he wills. If I am feared by the right people, [we] will be strong.Eric Brothers, "Coins of a Bloodthirsty Prince" The Numismatist Vol 119, No. 10 (2006): 36.
Over the next six years, he implemented policies according to three rough tenets: class warfare/redistribution, protectionism, and welfare statism. Accounts of Vlad III's murderous efforts in these pursuits rival, in their sanguineous ingenuity, the most nightmarish accounts of both La Terreur of revolutionary France and the concentration camps of Nazi Germany. In Roumania Past and Present, historian James Samuelson notes, regarding the legends surrounding Vlad Tepes III, "if one-tenth of what has been related to him [is] true … [he is] one of the most atrocious and cruel tyrants who ever disgraced even those dark ages."James Samuelson, Roumania, Past and Present (London: Longmans, Green and Co., 1882) p. 170.
However, Vlad III was more than just a sadist; his victims were chosen according to their usefulness with respect to fulfilling his vision for a revitalized Wallachia. Indeed, several historians agree that "it is beyond any doubt that [among other] reasons, Vlad the Impaler was … guided by economic ones."Florian Georgescu, An Outline History of Bucharest (Bucharest: Meridiane Publishing House, 1965) p. 6.
Class WarfareA bulwark of the social and economic landscape of Wallachia — and most of Eastern Europe, at this time — was the boyar class: a social rank of landowners, merchants, and military elites one level below the ruling nobility. Vlad III blamed the merchants and elites for the economic troubles of the time. Consequently, a centerpiece of his plan to right the economic ship of Wallachia focused on persecuting the boyars and seizing their property: leveraging the masses' schadenfreud to harness the considerable power of envy and, in turn, greater breadth to the reach of his throne.
The implicit message behind Vlad III's policy was an enduring one, as states go: that the wealthy and productive live off and at the expense of the multitude. In fact, governments are the true vampires, clandestinely siphoning the productive output of all citizens while pitting them against each other through propaganda and prevarication.
In Easter 1456, Vlad III invited a number of prominent boyars to his castle, some of whom he suspected of taking part in the conspiracy to murder his father. Suddenly, without warning, the
able-bodied were chained together and forced to march for sixty miles through the rugged countryside to the ruins of Poienari in the Argest valley. Many of them died enroute.… The prisoners were forced to form a human chain under the whip to convey building materials up the mountainside. The restoration work lasted for two months and very few of the captives survived the ordeal.Brothers, 37.
Throughout the remainder of his reign, Vlad III decimated the landowning and merchant population and at the same time seized their wealth and property. Throughout his reign, in fact, he devoted extensive time and effort to "systematically eradicate the old boyar class of Wallachia."Vlad Tepes: The Historical Dracula In August of 1459, one account reports that he "had thirty thousand merchants and boyars" killed.Vlad Tepes: The Historical Dracula
Vlad III had something in common with other murderous class avengers throughout history: he was from the very economic stratum that he persecuted. He began his life among the boyars, and like them was traveled, literate, and cultured. Indeed, even while persecuting them, he unwittingly revealed shared social mores. One of his aristocratic pet peeves was against boyar men who, in his opinion, didn't dress fancily enough; their wives were executed.
ProtectionismHe also enacted several protectionist measures. One, which specifically targeted Transylvanian merchants coming to Wallachia, restricted them from trading outside designated market towns. Leslie Carroll, Royal Pains: A Rogues' Gallery of Brats, Brutes, and Bad Seeds (New York: New American Library, 2011). Another imposed high tariffs on goods sold by Saxon German craftsmen who exported raw commodities from Germany to Wallachia for completion, no doubt capitalizing on cheaper labor. This included creating a border patrol to inspect carts entering the region. In response, a small rebellion erupted, composed of the craftsmen who, between trips, gathered in small village settlements in northern Wallachia. It was crushed quickly as Vlad III's troops descended on them, "pillaging, looting, and burning them to the ground."Carroll. The survivors, most of whom fled to Germany, provided some of the earliest accounts of Vlad III's brutality.
Welfare StatismVlad III also launched a hybrid welfare initiative, coupling a "war on poverty" with what might best be dubbed "DraculaCare":
Vlad Dracula … once notice[d] that the poor, vagrants, beggars, and cripples had become very numerous in his land. Consequently, he issued an invitation to all the poor and sick in Wallachia to come to Tirgoviste for a great feast, claiming that no one should go hungry in his land. As the poor and crippled arrived in the city, they were ushered into a great hall where a fabulous feast was prepared for them. The guests ate and drank late into the night.Vlad Tepes: The Historical Dracula
And, in an episode singularly epitomizing the immemorial tradeoff between freedom and security,
Vlad himself then made an appearance and asked them, "What else do you desire? Do you want to be without cares, lacking nothing in the world?" When they responded positively, Vlad ordered the hall boarded up and set on fire. None escaped the flames.Vlad Tepes: The Historical Dracula
That horrific affair over, Vlad met with the hitherto most oppressed class in Wallachia. He "explained his action to the boyars by claiming that he did [it] 'in order that they represent no further burden to other men, and that no one will be poor in my realm.'"Vlad Tepes: The Historical Dracula
BlowbackAs most of the boyars were killed off and survivors both heavily taxed and impressed into military service, they (most unsurprisingly) began shifting their loyalties toward the Ottoman Empire.Wikipedia: "Wallachia" While leading troops in a series of brilliant guerilla campaigns against Ottoman forces in 1476, Vlad III was killed in battle. One wonders if his evil had finally come home to roost. There are several accounts of his death, all somewhat mysterious:
Some reports indicate that he was assassinated by … Wallachian boyars just as he was about to sweep the Turks from the field. Other accounts have him falling … surrounded by the ranks of his loyal Moldavian bodyguard. Still other reports claim that Vlad, at the moment of victory, was accidentally struck down by one of his own men.Vlad Tepes: The Historical Dracula
In the end, the fallout from Vlad III's economic "reforms," which largely consisted of killing of merchants and landowners en masse, as well as erecting barriers to trade, was far-reaching:
[Soon] Wallachia lost a harbor which had been a gateway for its trade with the Eastern world. This is the backdrop against which the main trade directions begin to be gradually retraced, so the economic circuit in Southern and Eastern Europe, from the Mediterranean and the Black Sea, stops being the centre piece. The bulk of international Trade [was] shifted slowly towards the west of the Continent and the Atlantic.Laurențiu Rădvan, At Europe's Borders: Medieval Towns in the Romanian Principalities (Leiden: Koninklijke Brill NV, 2010) p. 241
The central plain of Wallachia was "heavily depopulated" toward the end of the 14th century owing to "frequent military operations" that continued after Vlad III's demise. In addition, his tyranny fed even more of the political intrigue that plagued his father's reign, leading to a succession of "short and unworthy reigns."Economic and social stability returned with the rise of one Neagoe Basarab (1512–1521) who encouraged trade, paid tribute to the Ottomans, and opened diplomatic relations between the Holy Roman Empire and the Italian Papacy.
LegacyIn the centuries after his death, Vlad III's memory has, in some circles, been whitewashed. One may soberly wonder how it is that a man responsible for the brutal deaths of up to 100,000 of his own people might be remembered positively, let alone warmly, but to do so would be to ignore the debauchery of power and politics.
Under the czars in pre-revolution Russia, "[Vlad] Dracula was presented as a cruel but just prince whose actions were directed toward the greater good of his people." Karel Hlobil, Before You (Canada: Self-published, 2010) p. 62. The czars were executed by communists, whose actions were quite explicitly undertaken in the name of the "greater good of the people," and were no less appreciative of bloody tactics. On the 500th anniversary of Vlad III's death, "the man who so terrorized Wallachia's aristocracy [and] was a champion of the craftsmen and the laboring classes" was secularly canonized by the leftist regime in Romania.Carroll.
One incredible example of this admiration was the manner in which the … anniversary of Dracula's death was celebrated in 1976. Throughout Romania eulogies and panegyrics were ordered by Communist Party members; monographs, novels, works of art, a film — even a commemorative stamp was issued — to praise the Impaler.R.T. McNally & Flourescu, R. R., In Search of Dracula (New York: Houghton Mifflin, 1994) p. 5.
Worse yet, imitation remained the sincerest form of flattery:
It is no wonder that Romania's Communist dictator, Nicolae Ceausescu, would emulate Vlad Tepes, for he was able to frighten his own people.… [His] policies constituted a modern and very real version of nationalism that included isolationist economic arrangements and attempts to suppress the ethnic rights of Hungarians and German Saxons in Transylvania, as well as the Swabians in the Banat. The destruction of the predominantly Hungarian-populated Transylvanian villages … was one of the triggers of [the] 1989 uprising.Marcel Cornis-Pope, History of the Literary Cultures of East-Central Europe: Junctures and Disjunctures in the 19th and 20th Centuries. Vol VI, Types and Stereotypes (Amsterdam: John Benjamins Publishing Company, 2004) p. 338.
Vlad the Impaler — and by extension his literary incarnation, Count Dracula — are products of monetary inflation and economic nationalism. But there is a solidly silver (and gold) lining to the black cape of Vlad Tepes III's legacy, and it has taken root over the last century, facilitated by the greatest liberating force in the history of the world: capitalism. The Dracula character, and vampirism as a broader fantasy/horror genre, have vastly outgrown their humble origins in Stoker's novel. Over 200 different film adaptations have been made; countless fiction and interpretive books published (in the former category, the hugely successful Twilight series comes immediately to mind). A 2005 book about Vlad III, in fact, fostered an assemblage of superlatives:
The Historian was the first debut novel to land at number one on The New York Times bestseller list in its first week on sale, and as of 2005 was the fastest-selling hardback debut novel in U.S. history. The book sold more copies on its first day in print than The Da Vinci Code — 70,000 copies were sold in the first week alone. As of the middle of August 2005, the novel had already sold 915,000 copies in the U.S. and had gone through six printings. (For comparison, according to Publishers Weekly, only ten fiction books sold more than 800,000 hardcover copies in the US in 2004.)Wikipedia: "The Historian"
On cable television, True Blood dominates ratings, and Sesame Street's "Count" character has taught tens of millions of children around the world how to read numerals.
Though it hardly passes for justice, being mass-marketed, minimized, and revamped (pun intended) renders a wonderfully sardonic twist to the final memory of a genocidal central planner — better and more ironic still, a memory this productive: many millions are employed by and consume from businesses centered on or involving vampire themes. They include actors, writers, musicians, video-game programmers, retailers and merchandisers, service people in the restaurant and tourism industry, and more. A major component of the Dracula "franchise" will begin shortly after school gets out today; over the past few weeks, an estimated $5 billion dollars has been spent on Halloween candy, decorations, costumes (not least of which plastic fangs, fake blood, rubber bats), and the like.
It is this author's hope that this not an isolated phenomenon — more specifically, that even if it takes a few hundred years, one day Count Chocula might find heated competition at breakfast tables by the productive, market-borne resurrection of another homicidal guerilla fighter — possibly in the form of "Guevara O's."
Happy Halloween!
[This article is excerpted from volume 2, chapter 11 of An Austrian Perspective on the History of Economic Thought (1995).
G.W.F. Hegel, unfortunately, was not a bizarre aberrant force in European thought. He was only one, if the most influential and the most convoluted and hypertrophic, of what must be considered the dominant paradigm of his age, the celebrated Age of Romanticism. In different variants and in different ways, the Romantic writers of the first half of the 19th century, especially in Germany and Great Britain, poets and novelists as well as philosophers, were dominated by a similar creatology and eschatology. It might be termed the "alienation and return" or "reabsorption" myth. God created the universe out of imperfection and felt need, thereby tragically cutting man, the organic species, off from his (its?) pre-creation unity with God. While this transcendence, this Aufhebung, of creation has permitted God and man, or God-man, to develop their (its?) faculties and to progress, tragic alienation will continue, until that day, inevitable and determined, in which God and man will be fused into one cosmic blob. Or, rather, being pantheists as was Hegel, until man discovers that he is man-God, and the alienation of man from man, man from nature, and man from God will be ended as all is fused into one big blob, the discovery of the reality of and therefore the merger into cosmic Oneness. History, which has been predetermined toward this goal, will then come to an end. In the Romantic metaphor, man, the generic "organism" of course, not the individual, will at last "return home." History is therefore an "upward spiral" toward Man's determined destination, a return home, but on a far higher level than the original unity, or home, with God in the pre-creation epoch.
The domination of the Romantic writers by this paradigm has been expounded brilliantly by the leading literary critic of Romanticism, M.H. Abrams, who points to this leading strain in English literature stretching from Wordsworth to D.H. Lawrence. Wordsworth, Abrams emphasizes, dedicated virtually his entire output to a "heroic" or "high Romantic argument," to an attempt to counter and transcend Milton's epochal poem of an orthodox Christian view of man and God. To counter Milton's Christian view of Heaven and Hell as alternatives for individual souls, and of Jesus's Second Advent as putting an end to history and returning man to paradise, Wordsworth, in his own "argument," counterpoises his pantheist vision of the upward spiral of history into cosmic unification and man's consequent return home from alienation.M.H. Abrams, Natural Supernaturalism: Tradition and Revolution in Romantic Literature (New York: Norton, 1971). Milton's depiction of the Fall and the Second Advent is truly eloquent and stirring. On the loss of Eden: "Farewell happy Fields/Where Joy forever dwells … ." And on the Second Advent: "Time will run back and fetch the age of gold," "And then at last our bliss/Full and perfect is,/But now begins … " The eventual eschaton, the Kingdom of God, is taken from its Christian placement in heaven and brought down to earth, thereby as always when the eschaton is immanentized, creating spectacularly grave ideological social, and political problems. Or, to use a concept of Abrams, the Romantic vision constituted the secularization of theology.
Greek and Roman epics, Wordsworth asserted, sang of "arms and the man," "hitherto the only Argument heroic deemed." In contrast, at the beginning of his great Paradise Lost, Milton declares,
That to the height of this great ArgumentI may assert Eternal ProvidenceAnd justify the ways of God to man.
Wordsworth now proclaimed that his own Argument surpassing Milton's was instilled in him by God's "holy powers and faculties," enabling him (presaging Marx's yearnings) to create his own world, even though he realized, in an unwonted flash of realism, that "some call'd it madness." For there "passed within" him "Genius, Power, Creation, and Divinity itself." Wordsworth concluded that "This is, in truth, heroic argument," an "argument/Not less but more Heroic than the wrath/Of stern Achilles." Other Englishmen steeped in the Wordsworthian paradigm were his worshipful follower Coleridge, Shelley, Keats, and even Blake, who, however, tried to blend Christianity and pantheism.
All these writers had been steeped in Christian doctrine, from which they could spin off on their own heretical, pantheistic version of millennialism. Wordsworth himself had been trained to become an Anglican priest. Coleridge was a philosopher and a lay preacher, who had been on the edge of becoming a Unitarian minister, and was steeped in neo-Platonism and the works of Jacob Boehme, Keats was an explicit disciple of the Wordsworthian program, which he called a means toward secular salvation. And Shelley, though an explicit atheist, idolized the "sacred" Milton above all other poets, and was constantly steeped in study of the Bible.
It should also be noted that Wordsworth, like Hegel, was a youthful enthusiast for the French Revolution and its liberal ideals and later, disillusioned, turned to conservative statism and the pantheist version of inevitable redemption through history.
The German Romantics were even more immersed in religion and mysticism than were their English counterparts. Hegel, Friedrich von Schelling, Friedrich von Schiller, Friedrich Hölderlin, Johann Gottlieb Fichte, were all theology students, most of them with Hegel at the University of Tubingen. All of them tried explicitly to apply religious doctrine to their philosophy. Novalis was immersed in the Bible. Furthermore, Hegel devoted a great deal of favorable attention to Boehme in his Lectures on the History of Philosophy, and Schelling called Boehme a "miraculous phenomenon in the history of mankind."
Moreover, it was Friedrich Schiller, Hegel's mentor, who was influenced by the Scot Adam Ferguson to denounce specialization and the division of labor as alienating and fragmenting man, and it was Schiller who influenced Hegel in the 1790s by coining the explicit concept of Aufhebung and the dialectic.On the influence of Schiller's views of organicism and alienation on Hegel, Marx and later sociology, see Leon Bramson, The Political Context of Sociology (Princeton, NJ: Princeton University Press, 1961), p. 30n.
In England, several decades later, the tempestuous conservative statist writer Thomas Carlyle paid tribute to Friedrich Schiller by writing a biography of that Romantic writer in 1825. From then on, Carlyle's writings were permeated with the Hegelian vision. Unity is good, and diversity or separateness is evil and diseased. Science as well as individualism is division and dismemberment. Selfhood, Carlyle ranted, is alienation from nature, from others, and from oneself. But one day there will come the breakthrough, the spiritual rebirth, led by world-historical figures ("great men") by which man will return home to a friendly world by means of the utter cancellation, the "annihilation of self (Selbst-todtung).
Finally, in Past and Present (1843), Carlyle applied his profoundly anti-individualist (and, one might add, anti-human) vision to economic affairs. He denounced egoism, material greed and laissez-faire, which, by fostering the severance of men from each other, had led to a world "which has become a lifeless other, and in severance also from other human beings within a social order in which "cash payment is … the sole nexus of man with man." In opposition to this metaphysically evil "cash nexus" lay the familial relation with nature and fellow men, the relation of "love." The stage was set for Karl Marx.See Abrams, op. cit., note 17, p. 311.
"Obama announced the creation of a national monument in honor of labor organizer Cesar Chavez.… Here's Murray Rothbard, who has a somewhat different take on Cesar Chavez. The word 'floperoo' is used." – Thomas E. Woods, Jr.
[This article originally appeared in the Free Market, July 1993. (You can subscribe by becoming a member.) It is appears as chapter 32 in Making Economic Sense (1995).]
We live, increasingly, in a Jacobin Age. Memory, embodied in birthdays, anniversaries, and other commemorations, is vitally important to an individual, a family, or a nation. These ceremonies are critical for the self-identity and the renewed dedication to that identity, of a person or of a people. It was insight into this truth that led the Jacobins, during the French Revolution, to sweep away all the old religious festivals, birthdays, and even calendar of the French people, and to substitute new and artificial names, days, and months for commemoration.
This Jacobinical process has been going on in the United States, albeit more gradually, in recent years. Festivals important for American self-identity and dedication have been purged or denigrated: e.g. Washington's Birthday has been denatured into an amorphous "President's Day" designed merely to ensure one more holiday weekend. And in stark contrast to the great World Columbian Exposition in Chicago for the quadricentennial of the discovery of America, at its quincentenary in the fall of 1992, the discovery was universally reviled as a vicious genocidal act by a "dead white European male." Every week, it seems, the media come up with little-known substitute people or events whose anniversaries, or whose deaths, we are required to honor.
The latest ersatz hero is Cesar Estrada Chavez, who died last April at the age of 66. For days, TV and the press were filled with the lionization of Chavez and his supposed achievements. President Clinton asserted that "the labor movement and all Americans have lost a great leader," and he called Chavez "an authentic hero to millions of people throughout the world." And we were reminded of Bobby Kennedy's claim, in 1968, that Chavez "is one of the heroic figures of our time."
What had Chavez done to earn all these extravagant kudos? He had, for the first time, supposedly successfully organized low-paid and therefore "exploited" migrant farm workers, in California and other southwestern states, and thereby improved their lot. By living an austere lifestyle, and accepting only a small salary as founder and head of the United Farm Workers, he struck many gullible young left-liberals as a "saint." His admirers didn't realize that love of money is not the only emotion that motivates people; there is also the love of power.
Indeed, the Chavez movement was an "in" cause for New Left idealists in the late 1960s and early 1970s. Trained by the self-styled "professional radical" Saul Alinsky, Chavez successfully cultivated a quasi-political, quasi-religious aura for his union movement: including hymns, marches, fasts, and flags. He popularized such Spanish words as "La Causa" for his cause and "Huelga!" for "strike," and made it veritable radical chic to boycott grapes in support of his five-year strike against the California grape growers. The Chavez farm worker encampments attracted almost as many short-term priests, nuns, and young liberal idealists as the sugarcane-cutting Venceremos Brigade in Cuba.
In 1970, the boycott finally forced the grape growers to sign with UFW: five years later, Chavez reached his peak of seeming success when his newly elected ally, Governor Jerry Brown, pushed through the Agricultural Labor Relations Act, for the first time compelling collective bargaining in agriculture.
Indeed, the new California act came perilously close to imposing a closed shop: its "good standing clause" permitted union leaders to deny work to any worker who challenged decisions of union leaders.
Yet, despite the hosannahs of the nation's liberals, and the coercion supplied by the state of California, Cesar Chavez's entire life turned out to be a floperoo. Whereas he dreamed of his UFW organizing all of the nation's migrant farm workers, his union fell like a stone from a membership of 70,000 in the mid-1970s to only 5,000 today. In the UFW heartland, the Salinas Valley of California, the number of union contracts among vegetable growers has plummeted from 35 to only 1 at the present time. Only half of the meager union revenues now come from dues, the other half being supplied by nostalgic liberals. The UFW has had it.
What went wrong? Some of Chavez's critics point to his love of personal power, which led to his purging a succession of organizers, and to kicking all savvy non-Hispanic officials out of his union.
But the real problem is "the economy, stupid." In the long run, economics triumphs over symbolism, hoopla, and radical chic. Unions are only successful in a market economy where the union can control the supply of labor: that is, when workers are few in number, and highly skilled, so that they are not easily replaceable. Migrant farm workers, on the contrary, and almost by definition, are in abundant, ever-increasing, ever-moving, and therefore "uncontrollable" supply. And with their low skills and abundant numbers, they can be easily replaced.
The low wage of migrant farm workers is not a sign that they are "exploited" (whatever that term may mean), but precisely that they are low-skilled and easily replaceable. And anyone who is inclined to weep about their "exploitation" should ask himself why in the world these workers emigrate seasonally from Mexico to the United States to take these jobs. The answer is that it's all relative: what are "low wages" and miserable living conditions for Americans, are high wages and palatial conditions for Mexicans — or, rather, for those unskilled Mexicans who choose to make the trek each season.
In fact, it's a darned good thing for these migrant workers that their beloved union turned out to be a failure. For "success" of the union, imposed by the boycott and the coercion of the California legislature, would only have raised wage rates or improved conditions at the expense of massive unemployment of these workers, and forcing them to remain, in far more miserable conditions, in Mexico. Fortunately, not even that coercion could violate economic realities.
As the pseudonymous free-market economist "Angus Black" admonished liberals at the time of the grape boycott: if you really want to improve the lot of grape workers, don't boycott grapes; on the contrary, eat as many grapes as you can stand, and tell your friends to do the same. This will raise the consumer demand for grapes, and increase both the employment and the wages of grape workers.
But this lesson, of course, never sunk in. It was and still is easier for liberals to enjoy a pseudo-religious "sense of belonging" to a movement, and to "feel good about themselves" by getting a vicarious thrill of sanctification by not eating grapes, than actually to learn about economic realities and what will really help the supposed objects of their concern.
The real legacy of Cesar Chavez is negative: forget the charisma and the hype and learn some economics.
This article originally appeared in the Free Market, July 1993. (You can subscribe by becoming a member.) It is appears as chapter 32 in Making Economic Sense (1995).