Austrian Economics Newsletter
Radical Economics: An Interview with Walter Block
Volume 19, Number 2 (Summer 1999)
An Interview with Walter Block
Walter 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.