Author Archive for David Gordon

Kirzner on Rothbard

What did Israel Kirzner think of Murray Rothbard? Robert Wenzel has linked to a video interview of Kirzner that answers this question.  Kirzner calls Rothbard  “an extraordinarily brilliant person” and says that “genius is perhaps not too extravagant a word to use” about him.

Krugman and the Babysitters

749px-Paul_Krugman_BBF_2010_ShankbonePaul Krugman in End This Depression Now! and elsewhere uses a story about a babysitting cooperative near Washington, D.C., to illustrate how Keynesian stimulus policies work.  Each of the families in the cooperative needed a babysitter if it wanted to go out for an evening. Every family was given a certain amount of scrip, each unit of which was good for half an hour of babysitting services. If a family wanted to go out, it could use its scrip to purchase the hours of babysitting services it needed.

Unfortunately, the families got so little scrip to begin with that almost everybody preferred to offer to be a babysitter, in order to accumulate scrip, than to go out.  But if almost no one wants to go out, there will be almost no demand for babysitters and people will be unable to accumulate scrip. The system was at an impasse.

As Krugman tells the tale, the problem was solved by giving everybody more scrip. After doing this, people were more willing to go out, because they now had enough scrip to purchase babysitting time; and then those who wanted to accumulate scrip were able to find purchasers for their services. Krugman uses the story to show the merits of a Keynesian policy of stimulus. An increase in government spending can, he says, get us out a situation where almost no one wants to spend but almost everyone wants to save.

According to Tim Harford, in his recent The Undercover Economist Strikes Back, Krugman did not tell the full story. Just as Krugman says, the increased distribution of scrip got the babysitting cooperative going. What he failed to mention was that the cooperative soon broke down again. The amount of scrip grew beyond the amount needed to balance supply and demand for babysitting , and now people wanted to go out but there were few babysitters available. Because people had large amounts of scrip already, they saw no need to add to their supply of scrip through offering to babysit.

Krugman’s story, though designed to show the merits of Keynesian stimulus, actually shows, as Austrians have long pointed out, that. a stimulus policy can quickly become inflationary.


Binswanger on Anarchism

456px-BlackFlagSymbol.svgHarry Binswanger, a leading Objectivist philosopher, advances a simple argument that he thinks suffices to undermine libertarian anarchism. The argument is found in his article of January 24 for Forbes, “Sorry, Libertarian Anarchists, Capitalism Requires Government.”

Binswanger’s argument starts from a correct premise. In a free market exchange, each party to the exchange expects to benefit. In Objectivist language, a trade is an exchange of value for value. But force is not a value — it is the negation of value. Therefore, protective services are not a proper subject for market competition. They must be provided by a government monopoly.

As Binswanger puts his argument:

Production is the creation of value, and trade is the voluntary exchange of value for value, to mutual benefit. Force is destruction, or the threat of it. It may be the destruction of a value, as when a hoodlum throws a rock through a store window. Or it may be the destruction of destruction, as when a policeman pulls a gun on that hoodlum and hauls him off to jail. But in either case, it is the opposite of wealth-creation and voluntary trade.

Force properly employed is used only in retaliation, but even when retaliatory, force merely eliminates a negative, it cannot create value. The threat of force is used to make someone obey, to thwart his will. The only moral use of force is in self-defense, to protect one’s rights. . . . The wielding of force is not a business function. In fact, force is outside the realm of economics. Economics concerns production and trade, not destruction and seizure.

Ask yourself what it means to have a “competition” in governmental services. It’s a “competition” in wielding force, a “competition” in subjugating others, a “competition” in making people obey commands. That’s not “competition,” it’s violent conflict. On a large scale, it’s war.

I’m surprised that Binswanger missed the obvious mistake in this argument. A policeman arresting a suspect is not engaged in an economic exchange with him. So far, Binswanger is entirely right. But someone who purchases defense services from a protection agency is not using force. He is exchanging money for the service of protection; and that is, contrary to Binswanger, an exchange of value — money — for value — protection. The fact that protection may involve the use of force on criminals does not change its status as an economically valued good. Binswanger, in brief, confuses, the economic transaction of purchasing protection with the use of force .

Binswanger falls into a related confusion in another passage of his article. He says:

The anarchists object to the very idea of a monopoly on force. That only shows that they cannot grasp what force is. Force is monopoly. To use force is to attempt to monopolize. The cop or the gunman says: “We’ll do it my way, not your way–or else.” There is no such thing as force that allows dissenters to go their own way. If a man wants to have sex with a woman who doesn’t want it, only one of them can have their way. It’s either “Back off” or rape. Either way, it’s a monopoly.

This is not correct. Someone using force does not allow those whom the force is directed against to go their own way, true enough. But the user of force need not claim a monopoly. He need not claim that no one else is free to use force against his target. By the way, I would have thought that after The Fountainhead, Objectivists would stay away from examples that involve rape.

Binswanger’s article contains other mistakes as well. He says that a free market presupposes objective law, but he fails to show that objective law requires a government. But he devotes his principal attention to the argument that contrasts force with economic value.

As an Objectivist in good standing, Binswanger had better hope that this argument fails. The sort of government that Ayn Rand and her followers favor does not extract resources from people through taxation. It depends on voluntary funding, e.g, user-fees for its protective and judicial services. If Binswanger were right, such services could not be the object of market purchase. Because they involve the use of force, they are not a value. How then can they be offered for sale? Or does Binswanger think that it is all right to purchase protection from a monopoly, but not from a competitive enterprise?

By the way, readers who come across philosophical arguments that try to refute Austrian economics or libertarianism are invited to send them to me.

Economics and Value Freedom

3824791020_dc042b8cf6_bMises and Rothbard taught that economics is a value-free science. Propositions of economics, such as the law of diminishing marginal utility, neither state nor imply any judgments about what is good or bad, right or wrong. Robert Grant, an Irish philosopher who teaches at Trinity College, Dublin, disagrees. In an article that appeared January 23 on the Irish news website ,  Grant claimed that “the view of economics as value-free is, at best, illusory and, at worst, dangerous.” Economics is not value-free, according to him; and the myth that it is helps nefarious supporters of the free market occlude the truth that the free market helps the rich, not the poor.

Grant’s argument against value-freedom in economics is not very good. He points out that economists choose to investigate certain topics rather than others, Their choices reflect the values they hold. “The very decision about what aspect of the world to examine is an expression of what is important to us, ie, an expression of our values. . ., economists can choose to aim their analysis at the private financial markets and the banking system, or they could focus on public issues such as welfare economics, or how to make healthcare affordable. Each analysis may display incredible intellectual and mathematical sophistication, yet the choice is a normative one. It means that you deem some particular issue to be more worth your time and effort than the myriad of other issues you could investigate. Values are inescapable.”

Grant has fallen into an elementary confusion. Of course he is right that your choice to study something expresses your values. It hardly follows from this, though, the results of your investigation are, in whole or in part, value judgments. When it is claimed that economics is value-free, the claim is about the propositions of economics, not the reasons economists have for studying these propositions.

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Rothbard on Coase

Murray Rothbard was an early admirer of Ronald Coase, who died Monday at age 102. In a memo in two parts for the Volker Fund, dated July 16, 1957, Rothbard reported on two series of lectures delivered by Coase.  He praised Coase’s insight that “under planning, government, if it cannot force labor directly, must. . .condemn any public criticism as subversive.” A free press requires free enterprise. Coase was a pioneer in calling for privatization of air frequencies, and Rothbard enthusiastically agrees with this proposal. Coase was of course a keen observer of the British scene, and the BBC came in for withering scorn from him. In the lectures, “the personality of the guiding genius of the BBC is deftly pointed up as the prototype of the arrogant bureaucrat.’”(This is apparently a  reference to Lord Reith, called by Churchill “that human Alp.”)

Rothbard reports on a second series of lectures in which Coase “shows that the post office originated in government thought control attempts and that the government still continues to censor and suppress communications it does not like.” Although Rothbard thinks that Coase erred by conceding that advertising can be “wasteful”, he applauds Coase for a “caustic statement that political propaganda is far worse, and consistently so, than any business propaganda in advertising.”

Rothbard’s enthusiasm for Coase is not unalloyed. He  finds “grave collectivist deviations” in Coase’s thinking. Coase wrongly allows a large role for the State to counter private efforts that make the economic system less competitive. Rothbard will have none of this.”But since the State can and has defined almost any act as reducing competition, this opens the gates for tyranny, or, as Coase admits, ‘a very considerable regulation of business by the State.’”

Rothbard’s memo on Coase is available in the collection Strictly Confidential (Mises Institute, 2010), pp.253-256.

Krugman on Economic Policy Uncertainty

In his column “Phony Fear Factor,” published in The New York Times on August 8, 2013, Paul Krugman mocks the view that “economic policy uncertainty” helps to explain the failure of the American economy to recover from the collapse of 2008. Unfortunately, Krugman displays little knowledge of the view he wishes to challenge. He says very little about it. As he sees it, it is the “the Great Whinethe declaration by one leading business figure after another that President Obama was undermining confidence by saying mean things about businesspeople and doing outrageous things like helping the uninsured.” Cutting away the rhetoric, Krugman is saying that the view he wishes to challenge claims that business is unwilling to invest because of a hostile “climate of opinion” in the Administration, as well as policies that business dislikes.

But this is not the uncertainty hypothesis, at least as this is found in the best version of it, the brilliant work of Robert Higgs on “regime uncertainty”. Krugman nowhere refers to Higgs; instead, he cites, if only to dismiss, the paper “Measuring Economic  Policy Uncertainty” by Scott R. Baker, Nicholas Bloom, and Steven J. Davis, economists from Stanford and Chicago.. The uncertainty view, as the word suggests, is that business is reluctant to invest because it isn’t possible to foresee what the government intends to do. The view is not that the government follows policies that business doesn’t like: if these were known, it would be possible for investors to take them into account. The claim, rather, is that investment is lacking because people are in the dark about the government’s intentions.

Krugman, following a paper of 1943 by the Polish Marxist Michal Kalecki, claims that business propagandists appeal to the lack of business confidence in order to deter the government from instituting policies that go against the interests of the wealthy. No doubt they do, but Kalecki’s point does not speak at all to the surely plausible hypothesis that doubt about the government’s intentions may adversely affect investment.

Krugman has another argument against the uncertainty view.  Recovery has been “slow”, he euphemistically says; but this is merely “the normal aftermath of a debt-fueled asset bubble”. Besides, we have failed to spend enough money. The logic of Krugman’s argument is hard to discern. It is hardly a point against the view that regime uncertainty inhibits investment to say that current investment has not been more lacking  than in periods that followed past economic collapses.

One implication of Kalecki’s paper should not be missed. Kalecki said that business assertions of lack of confidence could be countered by an increase in government spending. In other words, if private business will not invest, the government can  through increased spending step in to do the job. The is a recipe for government control of large parts of the economy, a state of affairs no doubt welcome to Kalecki and his latter-day successor.

Judge Napolitano at Mises University

Mises University this year featured a  “conference within the conference”.  The distinguished jurist and television commentator Judge Andrew Napolitano offered a course of five lectures on “The Growth of the Commerce Clause as an Instrument of Federal Power.” Judge Napolitano presented a masterful survey of how the Supreme Court has interpreted the commerce clause, from Gibbons v.Ogden (1824) to the present. In clear defiance of the plain meaning of the constitutional text, the Court expanded the scope of the clause so that the power of Congress to regulate the entire economy had by the 1940s become little short of plenary. Wickard v. Filburn (1942) was perhaps the culminating case in this sorry record of biased construction. Fortunately, the Court has recently indicated some willingness to recognize limits to the power of Congress in this area. In his final lecture, Judge Napolitano noted that in its recent opinion upholding the individual mandate of Obamacare  as an exercise of the taxing power, the Court also held that use of the commerce clause for this purpose was unconstitutional.

Judge Napolitano followed the Socratic method in teaching the course, but he was a Socratic interlocutor of great kindness, and it was clear that he had won the hearts of his students. His impressive command of the intricate legal issues at stake was everywhere apparent, and no less apparent was his devotion to individual liberty.

Oakley on Pathological Altruism

Barbara Oakley, an engineering professor at Oakland University in Rochester, Michigan, has just published in the Proceedings of the National Academy of Science, a brilliant article on “pathological altruism.” People often act out of a desire to help others, but this by no means ensures that what they do will have good consequences, whether for the intended beneficiaries or for others. Sometimes these bad consequences cannot reasonably be foreseen; but all too often action proceeds in blithe disregard of them. It is this sort of misguided action that Oakley characterizes as pathological.

Several of her examples deal with public policy and are likely to be of great interest to readers of this blog. The Fannie Mae and Freddie Mac loans aimed to promote better access to housing for those unable to meet prevailing standards to obtain mortgages. This misguided attempt to assist the disadvantaged helped to bring on a severe financial crisis. Foreign aid to Africa has served to entrench tyrants in power. More generally, various altruistic measures have led to a massive government deficit with dire consequences to come.

Oakley also gives examples of the baneful effects of pathological altruism in personal conduct. These effects are not confined to the intended beneficiaries or to third parties; the altruist may also in certain cases suffer personality damage. Oakley’s discussion of these various effects  is informed by an extensive knowledge of the literature of evolutionary psychology and other relevant disciplines. She calls for more research on pathological altruism but suggests that such research will confront obstacles. Researchers tend to be sympathetic to altruistically motivated conduct, even if it has bad effects,and as a result studies that challenge such conduct tend to be viewed with disfavor. People who criticize accepted ideas tend to have great difficulty in gaining an audience for their views. This suppression of research into the malign effects of altruism is itself an expression of pathological altruism. Oakley calls for a new research paradigm that will put an end to the harmful taboos that constrain the study of altruism.

Rothbard on Rent Seeking

Murray Rothbard anticipated the concept of “rent seeking,” generally associated with Gordon Tullock. In Man, Economy and State, he says:  “Furthermore, the more government intervenes and subsidizes, the more caste conflict will be created in society, for individuals and groups will benefit only at one another’s expense. The more widespread the tax-and-subsidy process, the more people will be induced to abandon production and join the army of those who live coercively off production. Production and living standards will be progressively lowered as energy is diverted from production to politics and as government saddles a dwindling base of production with a growing and more top-heavy burden of the State-privileged. This process will be all the more accelerated because those who succeed in any activity will invariably tend to be those who are best at performing it. Those who particularly flourish on the free market, therefore, will be those most adept at production and at serving their fellow men; those who succeed in the political struggle for subsidies, on the other hand, will be those most adept at wielding coercion or at winning favors from wielders of coercion. Generally, different people will be in the different categories of the successful, in accordance with the universal specialization of skills. Furthermore, for those who are skilled at both, the tax-and-subsidy system will encourage and promote their predatory skills and penalize their productive ones.” (Scholar’s Edition, p.942)

A similar passage can be found on p.1256. The latter is from Power and Market, which was not published until 1970; but Rothbard completed the manuscript of MES and Power and Market, which were written as part of a single work, in 1959. MES was published in 1962, and Tullock’s seminal article appeared in 1967.

Murray Rothbard in The New Yorker

Kelefa Sanneh,  a music critic and journalist who writes for The New Yorker, has a brief discussion of Murray Rothbard in his article “Paint Bombs” He devotes most of the piece to the anthropologist David Graeber, an anarchist but no friend of the free market, and his influence on the Occupy Wall Street movement. James C. Scott, another anthropologist who sympathizes with anarchism, also comes in for attention. Sanneh says that the  Occupy movement is not influential in electoral politics, but he finds one anarchist “who could be considered influential in Washington.” This is none other than Murray Rothbard, who is identified as Ron Paul’s intellectual mentor. Sanneh doesn’t say much about Rothbard, but discussions of anarcho-capitalism are hardly a regular feature in The New Yorker. As Samuel Johnson said, “it is not done well, but you are surprised to find it done at all.”