By David Gordon
Ludwig von Mises Institue
Fall 1996


Making Economic Sense, By Murray N. Rothbard.

Murray Rothbard had a remarkable ability to ask fundamental
questions that others, even those within his own free-market camp,
missed. After Rothbard touched an issue, it could never remain the
same. This quality emerges in the present outstanding collection of
his articles for The Free Market, written between 1982 and 1999.
Many economists have noted that in a free market, consumers have
much greater freedom of choice than in an economy run by government
coercion. But here a misstep threatens. Because consermers have
greater choice in a free market, it is easy to jump to the
conclusion that whatever promotes a free-market measure. Thus,
Milton Friedman, in some circles "the very essence of a modern major
general" of free-market forces, has supported vouchers so that
parents can send their children to the schools they choose for them.

Rothbard at once penetrates to the heart of the matter in his
analysis. "[B]y fatuously focussing on potential `choice,' the
voucher revolutionaries forget that expanding he `choice' of poor
parents by giving them more taxpayer money also restricts the
`choice' of the suberban parents and private- school parents from
having the sort of education that they want for their kids.
The focus, he argues, should not be on the abstract notion of
"choice," but on money and income. The person who earns more money
necessarily has more "choices" on how to spend that money. A simple
point: a free-market society rests on a system of property rights,
not on a futile effort to maximize choices, of whatever sort. Yet
who before Rothbard saw the point so clearly or so well?

Rothbard was ever alert to mistaken arguments for capitalism that,
in an effort to be value free, lack a sound foundation in ethical
theory. He brilliantly illustrates the fallacy of the so-called
Pareto criterion, taken as the sum and substance of welfare
economics, in a comment on a proposal for population control:

"A grotesque example of a `free-market' `expert' on efficiency
slightly moderating totalitarianism was the proposal of the
anti-population fanatic and distinguished economist, the late
Kenneth E. Boulding. Boulding proposed the typical `reform' of an
economist. Instead of forcing every woman to be sterilized after
having two babies, the government would issue each woman . . .two baby rights."

The mother could have two babies, or if she wanted more, she would
purchase a baby right from a woman who wanted to trade hers in. "If
we start from the original ZPG [Zero Population Growth] plan,"
Rothbard comments, "and we introduce the Boulding plan, wouldn't
everyone be better off, and the requirements of `Pareto superiority'
therefore obtain" (p. 149)?

If the key to a free society cannot be found in economic theory,
neither is resort to that contemporary shibboleth, democracy,
sufficient. The mere fact that the majority of a society supports
some measure tells us very little about that measure's desirability:

"What, in fact, is so great about democracy? Democracy is scarcely a
virtue in itself, much less an overriding one, and not nearly as
important as liberty, property rights, a free market, or strictly
limited government. Democracy is simply a process, a means of
selecting government rulers and policies. It has but one virtue, but
this can indeed be an important one: it provides a peaceful means
for the triumph of the popular will" (p. 41, the essay from which
this quotation comes was a Confidential Memo here made available to
the public for the first time).

With Rothbard, you can rarely predict what is coming next. No matter
how carefully you may think you have grasped his thought, he was
always several steps ahead. Thus, what follows from the passage I
have just cited? You might think that, given his view of democracy,
he would call for us sharply to deemphasize democratic reforms.
Quite the contrary, he demands more democracy.

It does not at all follow from the fact that democracy is
theoretically inessential that moves in a democratic direction
cannot be the order of the day. Rothbard was especially concerned to
strip from the judiciary its power to overturn popularly supported
initiatives. In a highhanded way, our judicial lords and masters
find in the Constitution the leftist values that they have imposed
on that document. Rothbard would have none of this: he proposed
measures that would "effectively crush the power of the Supreme
Court" (p. 413).

As should be by now sufficiently obvious, Rothbard was no
conventional economist. His economic analysis was always embedded
within a careful account of politics and ethics. Thus, many
"free-market" economists, when considering Nafta, saw only that some
tariffs would by its terms be lowered. Was this not a move toward
free trade, that deserved the support of libertarians? Rothbard's
analysis penetrates much deeper: "The worst aspects of Nafta are the
Clintonian side agreements, which have converted an unfortunate Bush
treaty into a horror of international statism. We have the side
agreements to thank for the supra-national commissions and their
coming `upward harmonization.' The side agreements also push the
foreign aid aspect of the establishment's `free trade' hoax" (p.
309). Rothbard's treatment of the politics of economic issues covers
a vast field, but one theme perhaps stands uppermost. Whatever
advances the power of the state was to him a deadly danger. And even
worse than an increase in the power of a single state was the rise
of an imperial power that sought world domination.

Here he saw a prime danger of Nafta, a vital step to a New World
Order. Politically, it suggests that the United States is "totally
committed" to a form of global government. Economically, it means
not free trade but a "managed, cartelized trade and production, the
economy to be governed by an oligarchic ruling coalition of Big
Government, Big Business, and Big Intellectuals/Big Media" (p. 312).

Rothbard locates here the root failing of Keynesian economics, which
he numerous times does battle with in this volume. Lord Keynes and
his disciples spurned the gold standard, which Rothbard sees as the
only basis for a sound currency. Instead, the Keynesians endeavored
to establish a worldwide fiat currency, under the control of an
international bank. To achieve this, the Keynesians thought, would
eliminate a principal obstacle to their economic plans.

As everyone knows, the Keynesian system almost always prescribes
inflation. But if one country inflates and others do not, or do so
only to a lesser extent, it will lose gold or income to them. A
Keynesian World Bank would permit all countries to inflate together:
gone would be the check that independent monetary systems impose on
radical Keynesianism.

Of course, there is the minor matter that a world Keynesian monetary
system spells disaster. "At the end of the road would be a
horrendous world-wide hyper-inflation, with no way of escaping into
sounder or less inflated currencies" (p. 254). Fortunately,
Keynesians have been unable to put their schemes into full
operation; but the manifest failure of their system has not deterred
them, and they must ever be combatted anew. Rothbard's unique
combination of political with economic analysis is an indispensable
weapon in this struggle.

But if Keynesianism leads to disaster, wherein lies salvation? One
false step, appealing to many, is to cast away theory altogether.
The National Bureau of Economic Research has famously attempted to
study the business cycle through strict reliance on fact. The
Bureau's "proclaimed methodology is Baconian: that is, it trumpets
the claim that it has no theories, that it collects myriads of facts
and statistics, and that its cautiously worded conclusions arise
solely, Phoenix-like, out of the data themselves" (p. 232).

Rothbard subjects the alleged scientific approach of the Bureau to
devastating scrutiny. Rothbard, although of course firmly committed
to Austrian economics, had a detailed knowledge of statistics, at
one time his college major (p. 38); and he could meet the
measurement devotees on their own ground.

The section "Our Intellectual Debts" strikes me as especially
appealing. Here Rothbard pays tribute to W. H. Hutt, F. A. Hayek, V.
Orval Watts, and Margit von Mises, all of whom, incidentally, lived
to be at least eighty-nine. Rothbard̓s obituary on Hayek raises
issues of major importance. He fully recognizes Hayek's outstanding
contributions to Austrian business-cycle theory and to the socialist
calculation argument, as well as the impact of his anti-statist
classic, The Road to Serfdom. But after World War II, Rothbard
maintains, Hayek strayed from the path of righteousness. "To the
extent that Hayek remained interested in cycle theory, he began to
engage in shifting and contradictory deviations from the Misesian
paradigm" (p. 378).

And worse was in store. Hayek, "radically scornful of human reason"
(p. 379), rejected natural law arguments in support of classical
liberalism. Instead, he championed a murky doctrine of social
evolution." Rothbard, both here and in "The Consequence of Human
Action: Intended or Unintended?" makes crystal clear his aversion to
undue stress on Hayek's leitmotif, the unintended consequences of
human action.

Rothbard's measured response to an eminent name in the Austrian
tradition may at first evoke surprise. But one of Rothbard's great
strengths was his ability to adopt an independent intellectual
outlook. Even the great Mises himself is, elsewhere in Rothbard's
work, subjected to criticism. Rothbard's willingness to engage in
frank criticism of bad ideas from any source only underscores his
insistence on honesty and independence of mind.