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Home | Library | Rothbard's Last Triumph, Part 2

Rothbard's Last Triumph, Part 2

September 22, 2009

Tags History of the Austrian School of EconomicsOther Schools of ThoughtPhilosophy and MethodologyPraxeology

[An Austrian Perspective on the History of Economic Thought, Volume II: Classical Economics, Murray N. Rothbard, Edward Elgar, 1995, xvi + 528 pp.]

Classical Economics 

The reader of this, the second volume[1] of Rothbard's last great work, 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 they are convenient for mathematical manipulation. In Rothbard's view, the adoption of this wrong method was the besetting vice of the economics of David Ricardo, and the main impediment to the development of economic science in the 19th 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 Say took to be axiomatic. Thus, he 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, notoriously including 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 the 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 pseudoscience. 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, as Dr. Leavis has taught us, characterize the great critic.

When Rothbard turns to Ricardo, he once again reverses conventional opinion. Say was not a popularizer, but a great economist. Likewise, Ricardo was not a truly scientific economist. His much-praised logic is mere "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 in such a way as to leave others as residuals. (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: he "solved" his equations by oversimplified assumptions. 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)

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 a 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 nonexistent 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).

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)

$50 $47

 

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 him:

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 Mill's enormous popularity and stature in the British intellectual world was partially due to his very mush-headedness. (p. 277)

You will not encounter another intellectual historian who writes like that. Murray Rothbard's two volumes are a monument of 20th-century scholarship.

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This article was first published in Mises Review, Summer 1995, Volume 1, Number 2.

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Notes

[1] Here is our review of the first volume.


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