Rothbard's Last Triumph
Summer 1995
AN AUSTRIAN PERSPECTIVE ON THE HISTORY OF ECONOMIC THOUGHT, VOLS I & II
Murray N. Rothbard
Edward Elgar, 1995, xvi + 556 pp.
Murray Rothbard tells us that this gigantic work was first
envisioned as a "standard
Adam Smith-to-the-present moderately sized book, a sort of
contra-[Robert]
Heilbroner" (p. xv). When we see what has emerged from that
plan, a
parallel at once springs to mind. Cervantes began Don
Quixote as a short
story, according to Ramón Menéndez-Pidal; but he
gradually
expanded it into one of the great books of the world. Likewise,
the "moderately-sized
book" has become one of the great intellectual enterprises
of our age.
For Rothbard, the history of economics has an unusually broad
scope. To him
it include not only economic theory but virtually all of
intellectual history as
well. As he often did in conversation, Murray Rothbard here
advances definite
and well-thought out interpretations of major historical
controversies.
As an example, Machiavelli was in his view a "preacher of
evil"—not
for him the fashionable portrayal of the Florentine as the
founder of value-free
political science (p. 189). With characteristic acuity, Rothbard
asks: "Who
in the history of the world, after all, and outside a Dr. Fu
Manchu novel, has
actually lauded evil per se and counselled evil and vice
at every step
of life's way? Preaching evil is to counsel precisely as
Machiavelli has done:
be good so long as goodness doesn't get in the way of something
you want, in the
case of the ruler that something being the maintenance and
expansion of power"
(p. 190).
And he concludes his discussion with a stinging rebuke to
modern political
scientists, who "eschew moral principle as being
`unscientific' and
therefore outside their sphere of interest" (p. 192).
Rothbard firmly rejects the Weber thesis, according to which
the "inner-worldly
asceticism" that Calvinism encouraged played a key role in
the rise of
modern capitalism. Capitalism began long before Calvinism; and
the stress upon "God
and profit" that Weber found distinctively Protestant was
present in the
Catholic Middle Ages.
For the Weber thesis, Rothbard substitutes another contrast
between
Catholics and Protestants, here following Emil Kauder. The
Calvinist stress on
the calling led to emphasis on work and saving and distrust of
consumption:
Catholic Europe, in the Aristotelian and scholastic tradition,
found nothing
wrong with consumption. This difference led to a crucial split in
the growth of
economics, between utility and cost-of-production theories of
price.
I fear that readers will have become impatient because I have
yet to treat
economic theory. But one last topic before doing so, covered in
what to my mind
is the single most brilliant page in Rothbard's two volumes. With
a few bold
strokes, Rothbard demolishes oceans of misinterpretation about
the quarrel
between the ancients and moderns. "The pitting of
`tradition' vs.
`modernity' is largely an artificial antithesis. `Moderns' like
Locke or perhaps
even Hobbes may have been individualists and `right-thinkers,'
but they were
also steeped in scholasticism and natural law" (p. 314).
Further, on the same page our author strikes at another theory
of vast but
unmerited influence. "Neither are John Pocock and his
followers convincing
in trying to posit an artificial distinction and clash between
the libertarian
concerns of Locke or his later followers on the one hand, and
devotion to
`classical virtue' on the other . . . why can't libertarians and
opposers of
government intervention also oppose government `corruption' and
extravagance?
Indeed, the two generally go together" (p. 314). I wish that
everyone
interested in European history would study this marvelous
page.
Rothbard firmly opposes the Whig view of the history of
economics, in which "later"
is inevitably "better," thus rendering the study of the
past
unnecessary. In his view, much of economics consists of wrong
turnings; and the
present volume ends with a tale of decline that will surprise
many readers. Yet
paradoxically, Rothbard's own method is in another way Whiggish
itself. He has
his own firmly held positions on correct economic theory, based
on his
surpassing command of Austrian economics. He accordingly is
anxious to see how
various figures anticipate key Austrian themes or, on the
contrary, pursue blind
alleys.
The dominant theme in Rothbard's appraisal of economics is the
nature of
value. Economic actors, endeavoring to better their own position,
guide
themselves by their subjective appraisals of goods and services.
The pursuit of
an "objective" measure of value is futile: what
influence can such an
alleged criterion have, unless it is reflected in the minds of
economic agents?
Rothbard especially emphasizes, in this connection, the
so-called paradox of
value. How can it be that water costs little or nothing while
gold is
extraordinarily expensive? Life cannot exist without the former,
while the
latter is the merest luxury. The answer, fully developed by the
Austrian
school, depends on the fact that subjective appraisals of
particular units of a
good, not the supposed value of the whole stock of the good,
determined price.
Since water is abundant while gold is scarce, there is no anomaly
at all in the
greater price of the latter.
Our author never fails to praise those who reach or approach
this insight.
The scholastics fare especially well: Pierre de Jean Olivi, e.g.,
realized that
the "important factor in determining price is
complacibilitas, or
subjective utility, the subjective desirability of a product to
the individual
consumers. . . . utility, in the determination of price, is
relative to supply
and not absolute" (p. 61). Again, he lauds Jean Buridan for
extending the
subjective utility analysis to money (p. 74).
A key corollary of the subjectivist position is that an
exchange does not
consist of an equality: each party values more highly what he
obtains than what
he surrenders. Those who miss the point arouse our author to
protest. Even
Aristotle, whom he much admires as a philosopher, does not escape
censure: "Aristotle's
famous discussion of reciprocity in exchange in Book V of his
Nicomachean
Ethics is a prime example of descent into gibberish.
Aristotle talks of a
builder exchanging a house for the shoes produced by a shoemaker.
He then
writes: `the number of shoes exchanged for a house must therefore
correspond to
the ratio of builder to shoemaker. . . .' How eh? can there
possibly be a ratio
of `builder' to `shoemaker'?" (p. 16). Those who knew Murray
Rothbard can
almost hear him asking this.
The subjectivist insight by no means died with the close of
the Middle Ages.
On the contrary, the School of Salamanca upheld it in the
sixteenth century; and
in the eighteenth, Cantillon and Turgot considerably extended it.
But the path
of economics was not one of continued progress. Theory suffered a
major setback
through the work of one of Rothbard's main villains, Adam
Smith.
Far from being the founder of economics, Smith in the eyes of
Rothbard was
almost its gravedigger. Although Smith in his classroom lectures
solved the
paradox of value in standard subjectivist fashion, "in the
Wealth of
Nations, for some bizarre reason, all this drops out and
falls away"
(p. 449). Smith threw out subjective utility and instead sought
to explain price
through labor cost. Because of Smith's mistake, the "great
tradition [of
subjectivism] gets poured down the Orwellian memory hole"
(p. 450).
Rothbard's discussion of utility constitutes only one strand
in his
powerfully argued case that Smith derailed economics from the
analytical
achievements of the scholastics and their French and Italian
successors. And
even in the discussion of utility, I have had to omit much. (The
brilliant
dissection of Daniel Bernoulli's mathematical approach to utility
[pp. 380–81],
e.g., should not be missed). But no review can do justice to the
scores and
scores of insights and scholarly discoveries in this volume.
Murray N. Rothbard
Edward Elgar, 1995, xvi + 556 pp.
The reader of this volume will at once face a puzzle: how was
one person
able to unify so vast a mass of material into a tightly organized
narrative? I
cannot pretend to provide a full answer, but one part of the
solution lies in
the fact that Rothbard follows a few main themes with iron
consistency.
One of these central themes emerges in the book's initial
chapter: "J.B.
Say: the French Tradition in Smithian Clothing."
Jean-Baptiste Say, far
from being a mere popularizer of Adam Smith, "was the first
economist to
think deeply about the proper methodology of his discipline, and
to base his
work, as far as he could, upon that methodology" (p.
12).
And what is the procedure that Say advocated? One starts from
certain "general
facts" that are incontestably known to be true. From these,
the economist
reasons deductively. Since the beginning axioms are true,
whatever is validly
deduced from them also is true. Here, in brief compass, Say
discovered the
praxeological method that came to full fruition in the work of
Mises and
Rothbard himself.
To understand praxeology, a key point about the initial axioms
must be kept
in mind. The starting points are common sense,
"obvious" truths, e.g.,
that people engage in exchange in order to benefit themselves.
The economist
should not begin from oversimplified hypotheses about the economy
as a whole,
chosen because convenient for mathematical manipulation. To
adopt this wrong
method was the besetting vice of the economics of David Ricardo,
the main
impediment, in Rothbard's view, to the development of economic
science in the
nineteenth century.
This conflict of method had a fundamental effect on the
content of Say's and
Ricardo's economics. Say began from the individual in action, the
subject of the
common sense propositions he took to be axiomatic. Thus, Say
placed great
emphasis on the entrepreneur. One cannot assume that the economy
automatically
adjusts itself: only by the foresight of those able and willing
to take risks
can production be allocated efficiently. "It seems to us
that Say is
foursquare in the Cantillon-Turgot tradition of the entrepreneur
as forecaster
and risk-bearer" (p. 26).
Again, Say's stress on the individual underlies his analysis
of taxation,
which Rothbard rates among his greatest contributions. Some,
including
notoriously Adam Smith, consider taxes a way to benefit the
public; but Say
would have nothing of this nonsense. Taxation, in essence, is
theft: the
government forcibly seizes property from its rightful owners. If
the
powers-that-be then condescend to spend some of their ill-gotten
gains for the "public
benefit," they are in reality purchasing people's goods with
the people's
own money. Taxation, accordingly, should be as low as possible:
the search of
Smith and his followers for "canons of justice" in
taxation must be
rejected. Rothbard characteristically adds: why have any taxes at
all?
As any reader will discover after a few pages, Rothbard spurns
the
desiccated neutrality of much contemporary pseudo-science. He has
his heroes and
villains, chosen not by arbitrary preference but according to his
carefully
reasoned conception of economic principles. Yet he is no
uncritical partisan of
his heroes: he is a master of the fine discriminations that Dr.
Leavis has
taught us characterize the great critic.
When, we turn to Rothbard on Ricardo, the atmosphere is
entirely different.
Once again, our author reverses conventional opinion. Say was not
a popularizer,
but a great economist; likewise, Ricardo was not the first truly
scientific
economist. His much-praised logic is "verbal
mathematics" that
fundamentally misconceives economics. "Ricardo was stuck
with a hopeless
problem: he had four variables, but only one equation with which
to solve them:
Total output (or income) = rent + profits + wages. To solve, or
rather pretend
to solve, this equation, Ricardo had to `determine' one or more
of these
entities from outside his equation, and in such a way as to leave
others as
residu<als" (p. 82).
Rothbard explains with crystal clarity the path by which
Ricardo sought to
escape. He simply held fixed as many of his variables as he
could: by
oversimplified assumptions, he could "solve" his
equations. In
particular, he adopted a theory of rent based on differential
productivity,
which Rothbard neatly skewers; and he made price largely a
function of the
quantity of labor time embodied in a commodity's production.
Ricardo's labor theory of value had a consequence that would
no doubt have
shocked its author: it paved the way for Marxism. "Marx
found a crucial
key to this mechanism [by which the capitalist class would be
expropriated] in
Ricardo's labor theory of value, and in the Ricardian socialist
thesis that
labor is the sole determinant of value, with capital's share, or
profits, being
the `surplus value' extracted by the capitalist from labor's
created product"
(p. 409). And with his stress on the Ricardian roots of Marxism,
Rothbard begins
a devastating assault on "scientific socialism," the
like of which has
not been seen since Böhm-Bawerk.
As Rothbard notes, Marx's economics falls into error from the
start. Marx
assumed that in an exchange, the commodities traded have equal
value. Moreover,
he took this postulated equality in a very strong sense: both of
the goods must
be identical to some third thing. This, by spurious reasoning
that Rothbard
deftly exposes, he claimed could only be labor.
But the flaw in Marx's derivation does not lie in the details
of his
argument. A leitmotif of Rothbard's work is that an
exchange consists
not of an equality, but rather of a double inequality. Marx's
whole edifice thus
rests on a spurious assumption, and the three volumes of Das
Kapital
constitute an elaborate attempt to conjure a solution to a
non-existent problem.
But the difficulties of Marxist economics are not confined to
its starting
point. Rothbard points out that Marx's theory of wage
determination really
applies not to capitalism but to slavery. "Oddly, neither
Marx nor his
critics ever realized that there is one place in the economy
where the Marxist
theory of exploitation and surplus value does apply: not
to the
capitalist-worker relation in the market, but to the relation of
master and
slave under slavery. Since the masters own the slaves, they
indeed only pay them
their subsistence wage: enough to live on and reproduce, while
the masters
pocket the surplus of the slaves' marginal product over their
cost of
subsistence" (p. 393).
Rothbard does not confine his assault on Marxism to an
exposure of its
economic fallacies. Behind the economics of Marxism, he finds a
heretical
religious myth, the goal of which is "the obliteration of
the individual
through `reunion' with God, the One, and the ending of cosmic
`alienation', at
least on the level of each individual" (p. 351).
One might at first think that abstruse theosophical
speculations that date
back to Plotinus have little to do with Marxism. But Rothbard
convincingly shows
that Marx, through the intermediary of Hegel, presented a
secularized version of
this witches' brew in the guise of "scientific
socialism." In the
course of doing so, Rothbard makes Hegel's philosophy seem
amusing; his remarks
on the "cosmic blob" are worthy of Mencken (p. 349).
Rothbard's
analysis of Marx's philosophy re-enforces the pioneering
investigations of Eric
Voegelin; this parallel between the conclusions of these two
great scholars is
all the more remarkable in that Rothbard, though familiar with
Voegelin, was not
deeply influenced by him
So filled with material is the book that one could easily
write another
detailed review stressing entirely different parts of it, such as
the long and
learned account of the bullionist controversy. I shall, with
regret, confine
myself to two final items. In his discussion of utilitarianism,
Rothbard's
philosophical turn of mind is evident. He notes that according to
that system,
reason "is only a hand-maiden, a slave to the passions. . .
. But what,
then, is to be done about the fact that most people decide on
their ends by
ethical principles, which cannot be considered reducible to an
original personal
emotion" (p. 57)?
Rothbard has here rediscovered an objection to utilitarianism
raised by
Archbishop Whately: how can utilitarianism accommodate
preferences based on
competing ethical systems? John Stuart Mill, though familiar with
the objection,
never answered it in a convincing way.
I cannot resist ending with Rothbard's assessment of Mill:
"John Stuart
was the quintessence of soft rather than hardcore, a woolly
minded man of mush
in striking contrast to his steel-edged father. . . . John Stuart
Mill's
enormous popularity and stature in the British intellectual world
was partially
due to his very mush-headedness" (p. 277).
You will not elsewhere encounter an intellectual historian who
writes like
that. Murray Rothbard's two volumes are a monument of
twentieth-century
scholarship.