Appendix: Four Critical Replies I. DEMONSTRATED PREFERENCE AND PRIVATE PROPERTY1

Professor Osterfeld, after generously acknowledging the “pathbreaking” nature of my a priori defense of the ethics of private property, concentrates on four objections to my arguments.

I will comment on all four objections that Professor Osterfeld addresses. However, since they depend on a correct understanding of my central argument and its logical force, I will first restate my case in the briefest possible way.

As Osterfeld correctly notices, I give a praxeological proof for the validity of the essentially Lockean private property ethic. More precisely, I demonstrate that only this ethic can be argumentatively justified because it is the praxeological presupposition of argumentation, and any deviating ethical proposal can hence be shown to be in violation of demonstrated preference. Such a proposal can be raised, but its propositional content would contradict the ethic for which one would demonstrate a preference by virtue of one’s own act of proposition-making, i.e., by the act of engaging in argumentation. In the same way as one can say “I am and always shall be indifferent towards doing things” though this proposition contradicts the act of proposition-making, which reveals subjective preferences (saying this rather than saying something else or not saying anything at all), deviationist ethical proposals are falsified by the reality of actually proposing them.

To reach this conclusion and properly understand its importance, two insights are essential.

First, the question of what is just or unjust (or what is valid or not) only arises insofar as I am and others are capable of propositional exchanges—of argumentation. The question does not arise for a stone or fish because they are incapable of producing validity-claiming propositions. Yet if this is so—and one cannot deny that it is without contradicting oneself, for one cannot argue the case that one cannot argue—then any ethical proposal, or indeed any proposition, must be assumed to claim it can be validated by propositional or argumentative means. In producing any proposition, overtly or as an internal thought, one demonstrates one’s preference for the willingness to rely on argumentative means to convince oneself or others of something. There is then no way of justifying anything unless it is a justification by means of propositional exchanges and arguments. It must be considered the ultimate defeat for an ethical proposal if one can demonstrate that its content is logically incompatible with the proponent’s claim that its validity be ascertainable by argumentative means. To demonstrate such incompatibility would amount to an impossibility proof, and such proof is deadly in the realm of intellectual inquiry.

Second, the means with which a person demonstrates preference by engaging in argumentation are those of private property. Obviously, no one could propose anything or become convinced of any proposition by argumentative means if a person’s right to exclusive use of his physical body were not presupposed. Furthermore, it would be equally impossible to sustain argumentation and rely on the propositional force of one’s arguments if one were not allowed to appropriate other scarce goods through homesteading action, by putting them to use before somebody else does, or if such goods and the right of exclusive control regarding them were not defined in objective physical terms. If such a right were not presupposed, or if latecomers had legitimate claims to things, or things owned were defined in subjective evaluative terms, no one could survive as a physically independent decision-making unit; hence, no one could ever raise any validity-claiming proposition.

Thus, by being alive and formulating propositions, one demonstrates that any ethic except that of private property is invalid.

Osterfeld’s fourth objection states that my argument is an instance of ethical naturalism, but that I then fall afoul of the naturalistic fallacy of deriving an “ought” from an “is.” The first part of this proposition is acceptable, but not the second. What I offer is an entirely value-free system of ethics. I remain exclusively in the realm of isstatements and nowhere try to drive an “ought” from an “is.” The structure of my argument is this: (a) justification is propositional or argumentative (a priori true is-statement); (b) argumentation presupposes the recognition of the private property ethic (a priori true is-statement); (c) no deviation from a private property ethic can be justified argumentatively (a priori true is-statement). Thus, my refutation of all socialist ethics is a purely cognitive one. That Rawls or other socialists may still advocate such ethics is completely beside the point. That one plus one equals two does not rule out the possibility that someone says it is three, or that one ought not attempt to make one plus one equal three the arithmetic law of the land. However, this does not affect the fact that one plus one still is two. In strict analogy to this, I “only” claim to prove that whatever Rawls or other socialists say is false and can be understood as such by all intellectually competent and honest men. It does not change the fact that incompetence or dishonesty and evil still may exist and may even prevail over truth and justice.

The second objection suffers from the same misunderstanding of the value-free nature of my defense of private property. Osterfeld agrees that argumentation presupposes the recognition of private property. But then he wonders about the source of this right. Yet how can he raise such a question? Only because he, too, is capable of argumentation. Without argumentation there would be nothing but silence or meaningless noise. The answer is that the source of human rights is and must be argumentation as the manifestation of our rationality. It is impossible to claim anything else to be the starting point for the derivation of an ethical system because claiming so would once again have to presuppose one’s argumentative capability. Could rights not be derived from a contract behind a “veil of ignorance” asks Osterfeld? Yes and no. Of course, there can be rights derived from contracts, but in order for a contract to be possible, there must already be private owners and private property; otherwise there would be no physically independent contractors and nothing to contractually agree upon. And “no”: no rights can be derived “from behind a veil of ignorance” because no one lives behind such a thing except epistemological zombies, and only a Rawlsian zombie ethic can be derived from behind it. Can rights emerge from tradition a la Hume or Burke? Of course, they always do. But the question of the factual emergence of rights has nothing to do with the question of whether or not what exists can be justified.

In his third objection, Osterfeld claims that I construct an alternative between either individual ownership or world community ownership but that such an alternative is not exhaustive. This is a misrepresentation. Nowhere do I say anything like this. In the section to which Osterfeld refers, I am concerned with explaining the entirely different alternative between property as defined in physical terms and as originating at definite points in time for definite individuals in contrast to property as defined in value terms and nonspecific with respect to its time of origin, and the refutation of the latter as absurd and self-contradictory. I do not at all rule out the possibility of ownership of “intermediate communities.” However, such ownership presupposes individual private ownership. Collective ownership requires contracts, and contracts are only possible if there are already prior noncontractually acquired ownership claims. Contracts are agreements between physically independent units which are based on the mutual recognition of each contractor’s private ownership claim to things acquired prior to the agreement and which concern the transfer of these property titles from a specific prior to a specific later owner or owners.

Regarding Osterfeld’s first objection, I did not write that the fundamental goals of political economy and political philosophy are “complementary” ones. What I said is that they are different. No one trying to answer ‘What is just?” is logically committed to insisting that his answer must also contribute to the greatest possible production of wealth (at least I don’t contend anywhere that there is any such logical commitment!). Hence, it is no valid objection to my remarks on the relationship between political philosophy and economy that Hobbes, Rousseau, and others suggest that political systems do not increase wealth but rather scarcity. Their claim that such systems are just cannot be made good, and as it turns out, the ethic which alone can be justified indeed helps maximize wealth production. Fortunately, this is a matter of fact. It does not change in the least the fact that political philosophy and political economy are concerned with completely separate issues.

This and only this has been my thesis: While political philosophers as such need not be concerned with the problem of alleviation of scarcity, political philosophy and economy have in common the fact that without scarcity neither discipline would make any sense. There would be no interpersonal conflict over anything, and no question as to what norms should be accepted as just in order to avoid such possible clashes! It is no stretching of the point to say that political philosophers have invariably been concerned with the assignment of rights of exclusive control over scarce goods. Such is the case when a Lockean proposes to accept the private property ethic, and no less when a Hobbesian suggests, instead, to make some person the supreme Führer, whose commands everyone else must follow.

II. UTILITARIANS AND RANDIANS VS. REASON²

It is neither possible nor worthwhile to address all of the points brought up in the foregoing discussion. I will concentrate on those critics who come out most vehemently against my argument—all of them utilitarians of sorts. I will then comment briefly on the Randian type of reaction.

Amazingly, Friedman, Yeager, Steel, Waters, Virkkala, and Jones believe I must have overlooked the fact that all existing societies are less than fully libertarian (that there is slavery, the gulag, or that husbands own wives, etc.), and that this somehow invalidates my argument. Obviously, I would hardly have written this article if it had been my opinion that libertarianism were already prevalent. Thus, it should have been clear that it was precisely this nonlibertarian character of reality which motivated me to show something quite different: why such a state of affairs cannot be justified. Citing facts like slavery as a counter-example is roughly on a par with refuting the proof that 1+1=2 by pointing out that someone has just come up with 3 as an answer—and about as ridiculous.

To restate my claim: Whether or not something is true, false, or undecidable; whether or not it has been justified; what is required in order to justify it; whether I, my opponents, or none of us is right—all of this must be decided in the course of argumentation. This proposition is true a priori, because it cannot be denied without affirming it in the act of denying it. One cannot argue that one cannot argue, and one cannot dispute knowing what it means to raise a validity claim without implicitly claiming at least the negation of this proposition to be true.

This has been called “the a priori of argumentation,” and it was because of the axiomatic status of this proposition, analogous to the “action axiom” of praxeology, that I invoked Mises in my article. (Virkkala’s outrage over this disqualifies itself because I explicitly stated that Mises thought what I was trying to do was impossible. Moreover, it is his understanding of Mises that is amusing. While it is true that praxeology talks about marginalism, it is obviously not the case that praxeology as a body of propositions is in any way affected by marginal choices. Praxeology contains universally true propositions, and whether or not we choose to accept them does not affect this at all. It is beyond me why that should be any different when it comes to ethical propositions. Virkkala might just as well attack Mises for a “retreat from marginalism” because of his claim that praxeology is true.)

With the a priori of argumentation established as an axiomatic starting point, it follows that anything that must be presupposed in the act of proposition-making cannot be propositionally disputed again. It would be meaningless to ask for a justification of presuppositions which make the production of meaningful propositions possible in the first place. Instead, they must be regarded as ultimately justified by every proposition maker. Any specific propositional content that disputed their validity could be understood as implying a performative contradiction (in the sense explained by David Gordon), and hence, as ultimately falsified.

The law of contradiction is one such presupposition. One cannot deny this law without presupposing its validity in the act of denying it. But there is another such presupposition. Propositions are not freefloating entities. They require a proposition maker who in order to produce any validity claiming proposition whatsoever must have exclusive control (property) over some scarce means defined in objective terms and appropriated (brought under control) at definite points in time through homesteading action. Thus, any proposition that would dispute the validity of the homesteading principle of property acquisition or that would assert the validity of a different incompatible principle would be falsified by the act of proposition making in the same way as the proposition “the law of contradiction is false” would be contradicted by the very fact of asserting it. As the praxeological presupposition of proposition making, the validity of the homesteading principle cannot be argumentatively disputed without running into a performative contradiction. Any other principle of property acquisition can then be understood—reflectively—by every proposition maker as ultimately incapable of propositional justification. (Note, in particular, that this includes all proposals which claim it is justified to restrict the range of objects which may be homesteaded. They fail because once the exclusive control over some homesteaded means is admitted as justified, it becomes impossible to justify any restriction in the homesteading process—except for a selfimposed one—without thereby running into a contradiction. For if the proponent of such a restriction were consistent, he could have justified control only over some physical means which he would not be allowed to employ for any additional homesteading. Obviously, he could not interfere with another’s extended homesteading simply because of his own lack of physical means to do anything about it justifiably. But if he did interfere, he would thereby inconsistently extend his ownership claims beyond his own justly homesteaded means. Moreover, in order to justify this extension he would have to invoke a principle of property acquisition incompatible with the homesteading principle whose validity he would already have admitted.)

My entire argument, then, claims to be an impossibility proof. It is not, as the mentioned critics seem to think, a proof that means to show the impossibility of certain empirical events so that it could be refuted by empirical evidence. Instead, it is a proof that it is impossible to justify nonlibertarian property principles propositionally without falling into contradictions. Whatever such a thing is worth (and I’ll come to this shortly), it should be clear that empirical evidence has absolutely no bearing on it. So what if there is slavery, the gulag, taxation? The proof concerns the issue that claiming such institutions can be justified involves a performative contradiction. It is purely intellectual in nature, like logical, mathematical, or praxeological proofs. Its validity, like theirs, can be established independent of any contingent experiences. Nor is its validity in any way affected, as several critics—most notoriously Waters—seem to think, by whether or not people like, favor, understand, or come to a consensus regarding it, or whether or not they are actually engaged in argumentation.

Since considerations such as these are irrelevant in order to judge the validity of a mathematical proof, for instance, so are they beside the point here. In the same way as the validity of a mathematical proof is not restricted to the moment of proving it, so is the validity of the libertarian property theory not limited to instances of argumentation. If correct, the argument demonstrates its universal justification. (Of all utilitarian critics only Steele takes up the challenge that I had posed for them: that the assignment of property rights cannot be dependent on any later outcome because in this case no one could ever know before the outcome what he was or was not justified to do; and that in advocating a consequentialist position utilitarianism is [strictly speaking] no ethic at all if it fails to answer the alldecisive question “what am I justified to do now?” Steele solves this problem in the same way as he proceeds throughout his comment: by misunderstanding what it is. He misconceives my argument as subject to empirical testing and misrepresents it as claiming to show that “I favor a libertarian ethic” follows from “I am saying something,” while in fact it claims that entirely independent of whatever people happen to favor or utter “the libertarian ethic can be given an ultimate propositional justification” follows from “I claim such and such to be valid, i.e., capable of propositional justification.” His response to the consequentialist problem is yet another stroke of genius: No, says Steele, consequentialism must not involve a praxeologically absurd waiting-for-the-outcome ethic. His example: Certain rules are advocated first, then implemented, and later adjusted depending on outcomes. While this is indeed an example of consequentialism, I fail to see how it should provide an answer to “what are we justified in doing now?” and so escape the absurdities of a waiting-for-the-outcome ethic. The starting point is unjustified [Which rules? Not only the outcome depends on this!]; and the consequentialist procedure is unjustified, too. [Why not adopt rules and stick to them regardless of the outcome?] Steele’s answer to the question “what am I justified in doing?” is “that depends on whatever rules you start out with, then on the outcome of whatever this leads to, and finally on whether or not you care about such an outcome.” Whatever this is, it is no ethic.)

The reaction from the other Randian side, represented by Rasmussen, is different. He has fewer difficulties recognizing the nature of my argument but then asks me in turn “So what? Why should an a priori proof of the libertarian property theory make any difference? Why not engage in aggression anyway?” Why indeed?! But then, why should the proof that 1+1=2 make any difference? One certainly can still act on the belief that 1+1=3. The obvious answer is “because a propositional justification exists for doing one thing, but not for doing another.” But why should we be reasonable, is the next comeback. Again, the answer is obvious. For one, because it would be impossible to argue against it; and further, because the proponent raising this question would already affirm the use of reason in his act of questioning it. This still might not suffice and everyone knows that it would not, for even if the libertarian ethic and argumentative reasoning must be regarded as ultimately justified, this still does not preclude that people will act on the basis of unjustified beliefs either because they don’t know, they don’t care, or they prefer not to know. I fail to see why this should be surprising or make the proof somehow defective. More than this cannot be done by propositional argument.

Rasmussen seems to think that if I could get an “ought” derived from somewhere (something that Yeager claims I am trying to do though I explicitly denied this), then things would be improved. But this is simply an illusory hope. For even if Rasmussen had proven the proposition that one ought to be reasonable and ought to act according to the libertarian property ethic, this would still be just another propositional argument. It can no more assure that people will do what they ought to do than my proof can guarantee that they will do what is justified. Where is the difference, and what is all the fuss about? There is and remains a difference between establishing a truth claim and instilling a desire to act upon the truth—with “ought” or without it. It is surely great if a proof can instill this desire. But even if it does not, this can hardly be held against it. It also does not subtract anything from its merit if in some or even many cases a few raw utilitarian assertions prove more successful in persuading anyone of libertarianism than it can do. A proof is still a proof and social psychology remains social psychology.

III. INTIMIDATION BY ARGUMENT³

Loren Lomasky was intimidated and angered by my book A Theory of Socialism and Capitalism. For one, because the book is more ambitious than its title indicates. “It is,” he laments, “no less than a manifesto for untrammeled anarchism.” So be it. But so what? As explained in my book but conveniently left unmentioned by Lomasky, untrammeled anarchism is nothing but the name for a social order of untrammeled private property rights, i.e., of the absolute right of selfownership and the absolute right to homestead unowned resources, of employing them for whatever purpose one sees fit so long as this does not affect the physical integrity of others’ likewise appropriated resources, and of entering into any contractual agreement with other property owners that is deemed mutually beneficial. What is so horrifying about this idea? Empirically speaking, this property theory constitutes the hard core of most people’s intuitive sense of justice and so can hardly be called revolutionary. Only someone advocating the trammeling of private property rights would take offense, as does Lomasky, with my attempt to justify a pure private-property economy.

Lomasky is not only enraged at my conclusions, however. His anger is further aggravated because I do not merely try to provide empirical evidence for them, but a rigorous proof, Lomasky chides, “validated by pure reason and uncontaminated by any merely empirical likelihoods.” It is not surprising that an opponent of untrammeled private property rights, such as Lomasky, should find this undertaking doubly offensive. Yet what is wrong with the idea of a priori-theorizing in economics and ethics? Lomasky points out that failed attempts to construct a priori theories exist. But so what? This only reflects on those particular theories. Moreover, it actually presupposes the existence of a priori reasoning in that the refutation of an a priori theory must itself be a proof. For Lomasky, however, nothing but intellectual hyperbole can possibly be responsible for “eschewing the low road of empiricism, soaring instead with Kant, and von Mises through the realm of a priori necessities.” A book on political philosophy or economy, then, should never come up with unambiguous conclusions as to what to do or what rules to follow. Everything should be left vague and at a nonoperational stage of conceptual development, and no one should ever try to prove anything but instead should follow the forever open-minded empiricist approach of trial and error, of tentative conjectures, of refutations, and of confirmations. Such, for Lomasky, is the proper path, the low and humble road, along which one is to travel. Sure enough, most contemporary political philosophers seem to have wholeheartedly followed this advice on their way to fame. Taking the high road instead, I present an unambiguous thesis, stated in operational terms, and attempt to prove it by axiomatic-deductive arguments. If this makes my book the ultimate insult in some philosophical circles, so much the better. Apart from other advantages, such that this might actually be the only appropriate method of inquiry, it at least forces one to say something specific and to open oneself up wide to rigorous logical-praxeological criticism instead of producing, as Lomasky and his fellow low roaders, meaningless nonoperational moonshine talk and distinctions.

Besides finding fault with the arrogance of someone writing a book that presents a praxeologically meaningful and easily understandable thesis concerning the central problems of political philosophy and economy, and that vigorously defends it to the point of excluding any other answers as false, Lomasky also has some specific nits to pick. As might be expected from an intimidated low roader, they are either unsystematic cheap shots, or they display a complete miscomprehension of the problem.

I am criticized for not paying enough attention to Quine, Nozick, and entire bodies of philosophic thought. Maybe so, though Nozick, if only in a footnote as Lomasky notes indignantly, is actually systematically refuted. However, one would like to know why that should have made a difference for my argument. Mere reading suggestions are all too easy to come up with in these times. I am criticized for misinterpreting Locke by not mentioning his famous proviso, but I am not engaged in an interpretation of Locke. I construct a positive theory and in so doing employ Lockean ideas; and assuming my theory correct for the sake of argument, there can be no doubt as to my verdict on the proviso. It is false, and it is incompatible with the homesteading principle as the central pillar of Locke’s theory. Lomasky does not demonstrate that it is not so. He is annoyed at my dissolution of the public goods problem as a pseudo-problem without so much as mentioning my central contention regarding the matter, i.e., that the notion of objectively distinct classes of private vs. public goods is incompatible with subjectivist economics and so must fall by the wayside along with all distinctions based on it. He finds my arguments in support of the thesis of the ever-optimality of free markets wanting because they must rely on the assumption of “the universal optimality of voluntary transactions.” They must indeed. I never claimed anything else. Yet this assumption happens to be true—in fact, as I argue, indisputably true. So what then? Or is Lomasky willing to take on the task of proving it to be false?! How dare I—in a footnote—criticize Buchanan and Tullock for Orwellian double-talk, Lomasky complains. Only he forgets to mention that I give rather specific reasons for this characterization: among others, the use of the notion of “conceptual” agreements and contracts in their attempt to justify a state when according to ordinary speech, such agreements and contracts are nonagreements and noncontracts. Noncontracting means contracting! Similarly, for my oh-so-disrespectful remarks regarding Chicago-style property theories I give reasons (their assumption of the measurability of utility, for instance), which Lomasky simply suppresses. The rest, regarding my theory of justice, is either miscomprehension or deliberate misrepresentation. From reading Lomasky’s reconstruction of my central argument, which revealingly employs no direct quotes, no one would grasp its main thrust and structure: Without scarcity there can be no interpersonal conflict and hence no ethical questions (what am I justified doing and what not?). Conflicts are the result of incompatible claims regarding scarce resources, and there is but one possible way out of such predicaments: through the formulation of rules that assign mutually exclusive ownership titles regarding scarce, physical resources so as to make it possible for different actors to act simultaneously without thereby generating conflict. (Like most contemporary philosophers, Lomasky gives no indication that he has grasped the elementary yet fundamental point that any political philosophy which is not construed as a theory of property rights fails entirely in its own objective and thus must be discarded from the outset as praxeologically meaningless moonshine.)

Yet scarcity, and the possibility of conflicts, is not sufficient for the emergence of ethical problems. Obviously, one could have conflicts regarding scarce resources with an animal, yet one would not consider it possible to resolve these conflicts by means of proposing property norms. In such cases, the avoidance of conflicts is merely a technical, not an ethical, problem. For it to become an ethical problem, it is also necessary that the conflicting actors be capable, in principle, of argumentation. (Lomasky’s mosquito example is thus silly: Animals are no moral agents, because they are incapable of argumentation. My theory of justice explicitly denies its applicability to animals and, in fact, implies that they have no rights!)

Further, that there can be no problem of ethics without argumentation is indisputable. Not only have I been engaged in argumentation all along, but it is impossible, without falling into a contradiction, to deny that whether or not one has any rights and, if any which ones, must be decided in the course of argumentation. Thus, there can be no ethical justification of anything, except insofar as it is argumentative. This has been called “the a priori of argumentation.” (Insofar as Lomasky has at all understood this, he most definitely appears to be unaware of the axiomatic status of this proposition, i.e., of the fact that the a priori of argumentation provides an absolute starting point, neither capable of, nor requiring, any further justification!)

Arguing is an activity and requires a person’s exclusive control over scarce resources (one’s brain, vocal cords, etc.). More specifically, as long as there is argumentation, there is a mutual recognition of each other’s exclusive control over such resources. It is this which explains the unique feature of communication: that while one may disagree about what has been said, it is still possible to independently agree at least on the fact that there is disagreement. (Lomasky does not seem to dispute this. He claims, however, that it merely proves the fact of mutually exclusive domains of control, not the right of self-ownership. He errs. Whatever [the law of contradiction, for instance] must be presupposed insofar as one argues cannot be meaningfully disputed because it is the very precondition of meaningful doubt; hence, it must be regarded as indisputable or a priori valid. In the same vein, the fact of self-ownership is a praxeological precondition of argumentation. Anyone trying to prove or disprove anything must be a self-owner. It is a self-contradictory absurdity to ask for any further-reaching justification for this fact. Required, of necessity, by all meaningful argumentation, self-ownership is an absolutely and ultimately justified fact.)

Finally, if actors were not entitled to own physical resources other than their bodies, and if they as moral agents—categorically different from Lomasky’s mosquitoes—were to follow this prescription, they would be dead and no problem whatsoever would exist. For ethical problems to exist, then, ownership in other things must be justified. Further, if one were not allowed to appropriate other resources through homesteading action, i.e., by putting them to use before anybody else does, or if the range of objects to be homesteaded were somehow limited, this would only be possible if ownership could be acquired by mere decree instead of by action. However, this does not qualify as a solution to the problem of ethics, i.e., of conflict-avoidance, even on purely technical grounds, for it would not allow one to decide what to do if such declarative claims happened to be incompatible. More decisive still, it would be incompatible with the already justified self-ownership, for if one could appropriate resources by decree, this would imply that one could also declare another person’s body to be one’s own. Thus, anyone denying the validity of the homesteading principle—whose recognition is already implicit in arguing two persons’ mutual respect for each other’s exclusive control over his own body—would contradict the content of his proposition through his very act of proposition making. (For one thing, in a stroke of genius, Lomasky finds fault with the fact that the first part of this argument provides no justification for unlimited homesteading. True. But then it also does not claim to do any such thing. The second part—the argumentum a contrario—does. Regarding my argument in its entirety Lomasky claims that I have only shown the validity of the nonaggression principle for the act of argument itself and not beyond... it does not extend to the object of discussion. At best, this objection indicates a total failure to grasp the nature of performative contradictions: If justification of anything is argumentative justification, and if what must be presupposed by any argumentation whatsoever must be considered ultimately justified, then any validity claiming proposition whose content is incompatible with such ultimately justified facts is ultimately falsified as involving a performative contradiction. And that is that.)

Philosophic and economic theorizing is indeed serious work.

IV. ON THE INDEFENSIBILITY OF WELFARE RIGHTS⁴

David Conway claims that my argument intending to show the unrestricted validity of the homesteading principle, i.e., the first-use-first-own rule regarding unowned, nature-given resources, is flawed, and that he can demonstrate the defensibility of welfare rights. I remain unconvinced and contend that it is his counterargument which is faulty.

While I have no quarrel with his presentation of my argument, I will first briefly restate my proof. Second, I will point out the central errors in his reply. Third, I wish to offer an explanation for Conway’s rejection of my argument as resulting from a rather common misconception regarding the logic of ethical reasoning.

Whether or not one has any rights, and, if any, which ones, can only be decided in the course of argumentation. It is impossible to deny the truth of this without falling into a contradiction. Arguing requires a person’s exclusive control (ownership) over scarce resources (one’s brain, vocal cords, etc.). Denying this would again merely prove the point. Further, a person must have acquired this ownership simply by virtue of the fact that he began using these resources before anyone else had done so; otherwise, he could never say or argue anything to begin with. Thus, anyone denying the validity of the homesteading principle at least with respect to some resources would contradict the content of his proposition through his very act of proposition making. So far, it appears, Conway would agree. But he would impose limitations on the range of objects that may legitimately be homesteaded. Unfortunately for Conway’s case, however, once exclusive control over some homesteaded means is admitted as justified, it becomes impossible to justify any restrictions in the homesteading process—except for a self-imposed, voluntary one—without thereby running into contradictions. For if the proponent of such a restriction were consistent, he could have justified control only over some, albeit limited, scarce resources which he would not be allowed to employ for additional homesteading. Yet obviously, he could not then interfere with another’s extended homesteading simply because of his own lack of means to do anything about this. And if he did interfere, he would thereby (inconsistently) extend his ownership claims beyond his own justly homesteaded resources. Moreover, in order to justify his interference he would have to invoke a principle of property acquisition incompatible with the homesteading principle: He would have to claim (inconsistently) that a person who extends his homesteading, and who does so in accordance with a principle that no one can argue to be generally invalid, is, or at least can be, an aggressor (even though in doing so this person could not possibly be said to have taken anything away from anyone because he would have merely appropriated previously unowned resources, i.e., things that no one up to that point had even recognized as scarce and which anyone else could have appropriated as well if only he had recognized their scarcity earlier, including anyone such as Conway, who was concerned about the fate of late-comers and wanted to preserve these resources for their later benefit). Furthermore, that a person who interferes with such an action and who does so in accordance with a principle that no one could possibly argue to be generally valid is, or at least can be, acting legitimately (even though he would always take something away from someone whose appropriations had occurred at no one’s expense).

The central error in Conway’s rejection of this argument is his refusal to acknowledge the logical incompatibility of his idea of welfare rights on the one hand—the notion that one can have enforceable claims against homesteaders—and of the homesteading principle on the other. Either the first idea is right or the second is. However, the first cannot be said to be right because in order for anyone to say so, the second one must be presupposed as valid. There can be no such thing as a right to life, then, in Conway’s sense of a right to having one’s life sustained by others. There can only be each person’s right to own his physical body, and everything homesteaded with its help, and to engage in mutually beneficial exchanges with others. Suppose, for instance, that I am terminally ill and the only way for me to survive is to have my brain short-circuited with Conway’s. Does he have the right to refuse? I think so, and I am sure that he thinks so, too. But he cannot have this right on welfare grounds (assuming that his life would not be threatened by such an operation), but only on the basis of the homesteading principle as the precondition of one’s existence as an independently reasoning and arguing physical being. Further, his claim that welfare rights are “every bit as objective” as those implied by mixing one’s labor with scarce resources (contrary to my thesis that the former are subjective, arbitrary, verbal, derived out of thin air) is fallacious. Through homesteading an objective link between a particular person and a particular resource is created. But how in the world can one say that my need can give rise to a claim regarding any specific resource or resource owner X, rather than Y, or Z, if I had not homesteaded or produced either one?! Not only is neediness incapable of objective identification or measurement: Who determines who is or is not needy? Everyone for himself? But what if I happened to disagree with someone’s self-assessment? People have died from love-sickness. Do they have a right to a lover-conscript? People have survived by eating grass, bark, rats, roaches, or others’ garbage. Are there no needy people then so long as there is enough grass or garbage to eat? If not, why not? For how long would the support for the needy have to last? Forever? And what about the rights of the supporters who would thereby become permanently enslaved to the needy? Or what if my support for the needy caused me to become needy myself, or somehow increased my own future needs? Would I still have to continue to support them? And how much work can I expect the destitute to perform in return for my support, given the fact that one is not dealing here with a mutually beneficial employment relation or voluntary charity to begin with? As much as the needy feel is appropriate?

Moreover, even if all these difficulties were overcome, more are lying in the wings because need does not connect the needy with any resource or resource owner in particular, yet it must invariably be particular resources that provide relief. The needy may be needy without any fault of their own, but the non-needy may be non-needy without any fault of theirs, too. So how can the needy claim support from me rather than from you? Surely that would be utterly unfair toward me in particular! In fact, either the needy can have a claim against no one in particular, which is to say they have no claim whatsoever; or else their claim would have to be directed equally against each one of the world’s non-needy.

Yet how can the needy possibly enforce such a claim? After all, they lack resources. For this to be possible, an all-resourceful, worldwide operating agency would be required. The owners of such an agency obviously would have to be classified as among the non-needy and could hence have no direct claim against anyone. Supposedly, only need creates such claims. In fact, this agency would have to be considered one of the foremost debtors to the needy, and it could only legitimately act against other non-needy if it had previously voluntarily paid its share of welfare debts and the needy had contractually entrusted it with such an enforcement task. Hence, the welfare problem would have to wait for a solution until this institution arrived. So far it has not arrived, and there is nothing to indicate that it will arrive in the near future. Even if it did, welfare rights would still be incompatible with the homesteading rule as an indisputably valid, axiomatic principle.

The explanation for Conway’s refusal to accept the homesteading ethic lies in a misconception regarding the nature of ethical theory. Instead of recognizing ethics as a logical theory, deductively derived from incontestable axioms (akin to praxeology), Conway implicitly shares a popular, empiricist-intuitionist (or gut-feeling) approach toward ethics. Accordingly, an ethical theory is tested against moral experience such that if the theory yields conclusions at variance with one’s moral intuitions, it should be regarded as falsified. However, this view is entirely mistaken and, much like in economics, the role of theory and experience in ethics is almost precisely the opposite: It is the very function of ethical theory to provide a rational justification for our moral intuitions, or to show why they have no such basis and make us reconsider and revise our intuitive reactions. This is not to say that intuitions can never play a role in the building of ethical theory. In fact, counterintuitive theoretical conclusions may well indicate a theoretical error. But if after one’s theoretical reexamination errors are found neither in one’s axioms nor in one’s deductions, then it is one’s intuitions that must go, not one’s theory.

In fact, what strikes Conway as a counterintuitive implication of the homesteading ethic, and then leads him to reject it, can easily be interpreted quite differently. It is true, as Conway says, that this ethic would allow for the possibility of the entire world’s being homesteaded. What about newcomers in this situation who own nothing but their physical bodies? Cannot the homesteaders restrict access to their property for these newcomers and would this not be intolerable? I fail to see why. (Empirically, of course, the problem does not exist: if it were not for governments restricting access to unowned land, there would still be plenty of empty land around!) These newcomers normally come into existence somewhere as children born to parents who are owners or renters of land (if they came from Mars, and no one wanted them here, so what?; they assumed a risk in coming, and if they now have to return, tough luck!). If the parents do not provide for the newcomers, they are free to search the world over for employers, sellers, or charitable contributors, and a society ruled by the homesteading ethic would be, as Conway admits, the most prosperous one possible! If they still could not find anyone willing to employ, support, or trade with them, why not ask what’s wrong with them, instead of Conway’s feeling sorry for them? Apparently they must be intolerably unpleasant fellows and should shape up, or they deserve no other treatment. Such, in fact, would be my own intuitive reaction.

Notes

Chapter 1

[Reprinted from the Journal of Libertarian Studies 9, no. 1 (Winter 1989).]

¹ Gustave de Molinari, The Production of Security, trans. J. Huston McCulloch (New York: Center for Libertarian Studies, Occasional Paper Series No. 2, 1977), p. 3.

² Ibid., p. 4.

³ For various approaches of public goods theorists, see James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962); James M. Buchanan, The Public Finances (Homewood, Ill.: Richard Irwin, 1970); idem, The Limits of Liberty (Chicago: University of Chicago Press, 1975); Gordon Tullock, Private Wants, Public Means (New York: Basic Books, 1970); Mancur Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965); William J. Baumol, Welfare Economics and the Theory of the State (Cambridge: Harvard University Press, 1952).

⁴ See on the following, Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), pp. 883ff.; idem, “The Myth of Neutral Taxation,” Cato Journal (1981); Walter Block, “Free Market Transportation: Denationalizing the Roads,” Journal of Libertarian Studies 3, no. 2 (1979); idem, “Public Goods and Externalities: The Case of Roads,” Journal of Libertarian Studies 7, no. 1 (1983).

⁵ See for instance, William J. Baumol and Alan S. Blinder, Economics, Principles and Policy (New York: Harcourt, Brace, Jovanovich, 1979), chap. 31.

⁶ Another frequently used criterion for public goods is that of “nonrivalrous consumption.” Generally, both criteria seem to coincide: When free riders cannot be excluded, nonrivalrous consumption is possible; and when they can be excluded, consumption becomes rivalrous, or so it seems. However, as public goods theorists argue, this coincidence is not perfect. It is, they say, conceivable that while the exclusion of free riders might be possible, their inclusion might not be connected with any additional cost (the marginal cost of admitting free riders is zero, that is), and that the consumption of the good in question by the additionally admitted free rider will not necessarily lead to a subtraction in the consumption of the good available to others. Such a good would be a public good, too. And since exclusion would be practiced on the free market and the good would not become available for nonrivalrous consumption to everyone it otherwise could—even though this would require no additional costs—this, according to statist-socialist logic, would prove a market failure, i.e., a suboptimal level of consumption. Hence the state would have to take over the provision of such goods. (A movie theater, for instance, might be only half full, so it might be “costless” to admit additional viewers free of charge, and their watching the movie also might not affect the paying viewers; hence the movie would qualify as a public good. Since, however, the owner of the theater would be engaging in exclusion, instead of letting free riders enjoy a “costless” performance, movie theaters would be ripe for nationalization.) On the numerous fallacies involved in defining public goods in terms of nonrivalrous consumption see notes 12 and 17 below.

⁷ On this subject Walter Block, “Public Goods and Externalities.”

⁸ See for instance Buchanan, The Public Finances, p. 23; Paul Samuelson, Economics (New York: McGraw Hill, 1976), p. 166.

⁹ See Ronald Coase, “The Lighthouse in Economics,” Journal of Law and Economics 17 (1974).

¹⁰ See, for instance, the ironic case that Block makes for socks being public goods in “Public Goods and Externalities.”

¹¹ To avoid any misunderstanding here, every single producer and every association of producers making joint decisions can, at any time, decide whether or not to produce a good based on an evaluation of the privateness or publicness of the good. In fact, decisions on whether or not to produce public goods privately are constantly made within the framework of a market economy. What is impossible is to decide whether or not to ignore the outcome of the operation of a free market based on the assessment of the degree of privateness or publicness of a good.

¹² In fact, then, the introduction of the distinction between private and public goods is a relapse into the pre-subjectivist era of economics. From the point of view of subjectivist economics, no good exists that can be categorized objectively as private or public. This is essentially why the second proposed criterion for public goods—permitting nonrivalrous consumption (see note 6 above)—breaks down too. For how could any outside observer determine whether or not the admittance of an additional free rider at no charge would not indeed lead to a subtraction in the consumption of a good to others? Clearly there is no way that he could objectively do so. In fact, it might well be that one’s enjoyment of a movie or of driving on a road would be considerably reduced if more people were allowed in the theater or on the road. Again, to find out whether or not this is the case one would have to ask every individual—and not everyone might agree (what then?). Furthermore, since even a good that allows nonrivalrous consumption is not a free good, as a consequence of admitting additional free riders “crowding” would eventually occur, and hence everyone would have to be asked about the appropriate “margin.” In addition, my consumption may or may not be affected depending on who it is that is admitted free of charge, so I would have to be asked about this, too. And finally, everyone might change his opinion on all of these questions over time. It is thus in the same way impossible to decide whether or not a good is a candidate for state (rather than private) production based on the criterion of nonrivalrous consumption as on that of nonexcludability (see also note 17 below).

¹³ See Paul Samuelson, “The Pure Theory of Public Expenditure,” Review of Economics and Statistics (1954); idem, Economics, chap. 8; Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), chap. 2; F.A. Hayek, Law, Legislation and Liberty (Chicago: University of Chicago, 1979), vol. 3, chap. 14.

¹⁴ Economists in recent years, particularly the Chicago School, have been increasingly concerned with the analysis of property rights. Harold Demsetz, “The Exchange and Enforcement of Property Rights,” Journal of Law and Economics 7 (1964); idem, “Toward a Theory of Property Rights,” American Economic Review (1967); Ronald Coase, “The Problem of Social Cost,” Journal of Law and Economics 3 (1960); Armen Alchian, Economic Forces at Work (Indianapolis: Liberty Fund, 1977), part 2; Richard Posner, Economic Analysis of the Law (Boston: Brown, 1977). Such analyses, however, have nothing to do with ethics. On the contrary, they represent attempts to substitute economic efficiency considerations for the establishment of justifiable ethical principles [on the critique of such endeavors see Murray N. Rothbard, The Ethics of Liberty (Atlantic Highlands, N.J.: Humanities Press, 1982), chap. 26; Walter Block, “Coase and Demsetz on Private Property Rights,” Journal of Libertarian Studies 1, no. 2 (1977); Ronald Dworkin, “Is Wealth a Value,” Journal of Legal Studies 9 (1980); Murray N. Rothbard, “The Myth of Efficiency,” in Mario Rizzo, ed., Time Uncertainty and Disequilibrium (Lexington, Mass.: D.C. Heath, 1979). Ultimately, all efficiency arguments are irrelevant because there simply exists no nonarbitrary way of measuring, weighing, and aggregating individual utilities or disutilities that result from some given allocation of property rights. Hence any attempt to recommend some particular system of assigning property rights in terms of its alleged maximization of “social welfare” is pseudo-scientific humbug. See in particular, Murray N. Rothbard, Toward a Reconstruction of Utility and Welfare Economics (New York: Center for Libertarian Studies, Occasional Paper Series No. 3, 1977); also Lionel Robbins, “Economics and Political Economy,” American Economic Review (1981).

The “Unanimity Principle” which Buchanan and Tullock, following Knut Wicksell (Finanztheoretische Untersuchungen, Jena: Gustav Fischer, 1896), have repeatedly proposed as a guide for economic policy is also not to be confused with an ethical principle proper. According to this principle only such policy changes should be enacted which can find unanimous consent—and that surely sounds attractive; but then, mutatis mutandis, it also determines that the status quo be preserved if there is less than unanimous agreement on any proposal of change—and that sounds far less attractive, because it implies that any given, present state of affairs regarding the allocation of property rights must be legitimate either as a point of departure or as a to-be-continued-state. However, the public choice theorists offer no justification in terms of a normative theory of property rights for this daring claim as would be required. Hence, the unanimity principle is ultimately without ethical foundation. In fact, because it would legitimize any conceivable status quo, the Buchananites’ most favored principle is no less than outrightly absurd as a moral criterion. See on this also Rothbard, The Ethics of Liberty chap. 26; idem, “The Myth of Neutral Taxation,” pp. 549f.

Whatever might still be left for the unanimity principle, Buchanan and Tullock, following the lead of Wicksell again, then give away by reducing it in effect to one of “relative” or “quasi” unanimity.

¹⁵ Hans-Hermann Hoppe, “From the Economics of Laissez Faire to the Ethics of Libertarianism,” in Walter Block and Llewellyn H. Rockwell, Jr., eds., Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard (Auburn, Ala.: Ludwig von Mises Institute, 1988); infra chap. 8.

¹⁶ See on this argument Rothbard, “The Myth of Neutral Taxation,” p. 533. Incidentally, the existence of one single anarchist also invalidates all references to Pareto optimality as a criterion for economically legitimate state action.

¹⁷ Essentially the same reasoning that leads one to reject the socialist-statist theory built on the allegedly unique character of public goods as defined by the criterion of nonexcludability, also applies when, instead, such goods are defined by means of the criterion of nonrivalrous consumption (see notes 6 and 12 above). For one thing, in order to derive the normative statement that they should be so offered from the statement of fact that goods that allow nonrivalrous consumption would not be offered on the free market to as many consumers as could be, this theory would face exactly the same problem of requiring a justifiable ethics. Moreover, the utilitarian reasoning is blatantly wrong, too. To reason, as the public goods theorists do, that the free-market practice of excluding free riders from the enjoyment of goods that would permit nonrivalrous consumption at zero marginal costs would indicate a suboptimal level of social welfare and hence would require compensatory state action is faulty on two related counts. First, cost is a subjective category and can never be objectively measured by any outside observer. Hence, to say that additional free riders could be admitted at no cost is totally inadmissible. In fact, if the subjective costs of admitting more consumers at no charge were indeed zero, the private owner-producer of the good in question would do so. If he does not do so, this reveals that the costs for him are not zero. The reason may be his belief that to do so would reduce the satisfaction available to the other consumers and so would tend to depress the price for his product; or it may simply be his dislike for uninvited free riders as, for instance, when I object to the proposal that I turn over my less-thancapacity-filled living room to various self-inviting guests for nonrivalrous consumption. In any case, since for whatever reason the cost cannot be assumed to be zero, it is then fallacious to speak of a market failure when certain goods are not handed out free of charge. On the other hand, welfare losses would indeed become unavoidable if one accepted the public goods theorists’ recommendation of letting goods that allegedly allow for nonrivalrous consumption to be provided free of charge by the state. Besides the insurmountable task of determining what fulfills this criterion, the state, independent of voluntary consumer purchases as it is, would first off face the equally insoluble problem of rationally determining how much of the public good to provide. Clearly, since even public goods are not free goods but are subject to “crowding” at some level of use, there is no stopping point for the state, because at any level of supply there would still be users who would have to be excluded and who, with a larger supply, could enjoy a free ride. But even if this problem could be solved miraculously, in any case the (necessarily inflated) cost of production and operation of the public goods distributed free of charge for nonrivalrous consumption would have to be paid for by taxes. And this then, i.e., the fact that consumers would have been coerced into enjoying their free rides, again proves beyond any doubt that these public goods, too, are of inferior value from the point of view of consumers to the competing private goods that they now no longer can acquire.

¹⁸ The most prominent modern champions of Orwellian double talk are Buchanan and Tullock (see their works cited in note 3 above). They claim that government is founded by a “constitutional contract” in which everyone “conceptually agrees” to submit to the coercive powers of government with the understanding that everyone else is subject to it too. Hence government is only seemingly coercive but really voluntary. There are several evident objections to this curious argument. First, there is no empirical evidence whatsoever for the contention that any constitution has ever been voluntarily accepted by everyone concerned. Worse, the very idea of all people voluntarily coercing themselves is simply inconceivable, much in the same way as it is inconceivable to deny the law of contradiction. For if the voluntarily accepted coercion is voluntary, then it would have to be possible to revoke one’s subjection to the constitution, and the state would be no more than a voluntarily joined club. If, however, one does not have the “right to ignore the state”—and that one does not have this right is, of course, the characteristic mark of a state as compared to a club—then it would be logically inadmissible to claim that one’s acceptance of state coercion is voluntary. Furthermore, even if all this were possible, the constitutional contact could still not claim to bind anyone except the original signers of the constitution.

How can Buchanan and Tullock come up with such absurd ideas? By a semantic trick. What was “inconceivable” and “no agreement” in pre-Orwellian talk is for them “conceptually possible” and a “conceptual agreement.” For a most instructive short exercise in this sort of reasoning in leaps and bounds, see James Buchanan, “A Contractarian Perspective on Anarchy,” in idem, Freedom in Constitutional Contract (College Station: Texas A&M University Press, 1977). Here we learn (p. l7) that even the acceptance of the 55 mph speed limit is possibly voluntary (Buchanan is not quite sure) since it ultimately rests on all of us conceptually agreeing on the constitution, and that Buchanan is not really a statist, but in truth an anarchist (p. 11).

¹⁹ Rothbard, Man, Economy, and State, p. 887.

²⁰ This, first of all, should be kept in mind whenever one has to assess the validity of statist-interventionist arguments such as the following, by John Maynard Keynes (“The End of Laissez Faire,” in idem, Collected Writings, London: Macmillan, 1972, vol. IX, p. 291):

The most important Agenda of the state relates not to those activities which private individuals are already fulfilling but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the state does not make them. The important thing for government is not to do things which individuals are doing already and to do them a little better or a little worse: but to do those things which are not done at all.

This reasoning not only appears phony, it truly is.

²¹ Some libertarian minarchists object that the existence of a market presupposes the recognition and enforcement of a common body of law, and hence a government as a monopolistic judge and enforcement agency. (See, for example, John Hospers, Libertarianism [Los Angeles: Nash, 1971]; Tibor Machan, Human Rights and Human Liberties [Chicago: Nelson-Hall, 1975].) Now it is certainly correct that a market presupposes the recognition and enforcement of those rules that underlie its operation. But from this it does not follow that this task must be entrusted to a monopolistic agency. In fact, a common language or sign-system is also presupposed by the market; but one would hardly think it convincing to conclude that hence the government must ensure the observance of the rules of language. Like the system of language, then, the rules of market behavior emerge spontaneously and can be enforced by the “invisible hand” of self-interest. Without the observance of common rules of speech, people could not reap the advantages that communication offers, and without the observance of common rules of conduct, people could not enjoy the benefits of the higher productivity of an exchange economy based on the division of labor. In addition, as I indicated above, independent of any government the nonaggression principle underlying the operation of markets can be defended a priori as just. Moreover, as I will argue in the conclusion of this chapter, it is precisely a competitive system of law-administration and law-enforcement that generates the greatest possible pressure to elaborate and enact rules of conduct that incorporate the highest degree of consensus conceivable. And of course the very rules that do just this are those that a priori reasoning establishes as the logically necessary presupposition of argumentation and argumentative agreement.

²² Incidentally, the same logic that would force one to accept the idea of the production of security by private business as economically the best solution to the problem of consumer satisfaction also forces one, so far as moral-ideological positions are concerned, to abandon the political theory of classical liberalism and take the small but nevertheless decisive step (from there) to the theory of libertarianism, or private property anarchism. Classical liberalism, with Ludwig von Mises as its foremost representative in the twentieth century, advocates a social system based on the nonaggression principle. And this is also what libertarianism advocates. But classical liberalism then wants to have this principle enforced by a monopolistic agency (the government, the state)—an organization, that is, which is not exclusively dependent on voluntary, contractual support by the consumers of its respective services, but instead has the right to unilaterally determine its own income, i.e., the taxes to be imposed on consumers in order to do its job in the area of security production. Now, however plausible this might sound, it should be clear that it is inconsistent. Either the principle of nonaggression is valid, in which case the state as a privileged monopolist is immoral, or business built on and around aggression—the use of force and of noncontractual means of acquiring resources—is valid, in which case one must toss out the first theory. It is impossible to sustain both contentions and not to be inconsistent unless, of course, one could provide a principle that is more fundamental than both the nonaggression principle and the states’ right to aggressive violence and from which both, with the respective limitations regarding the domains in which they are valid, can be logically derived. However, liberalism never provided any such principle, nor will it ever be able to do so, since, to argue in favor of anything presupposes one’s right to be free of aggression. Given the fact then that the principle of nonaggression cannot be argumentatively contested as morally valid without implicitly acknowledging its validity, by force of logic one is committed to abandoning liberalism and accepting instead its more radical child: libertarianism, the philosophy of pure capitalism, which demands that the production of security be undertaken by private business too.

²³ On the problem of competitive security production, see Gustave de Molinari, Production of Security; Murray N. Rothbard, Power and Market (Kansas City: Sheed Andrews and McMeel, 1977), chap. 1; idem, For A New Liberty (New York: Macmillan, 1978), chap. 12; W.C. Woolridge, Uncle Sam the Monopoly Man (New Rochelle, N.Y.: Arlington House, 1970), chaps. 5–6; Morris and Linda Tannehill, The Market for Liberty (New York: Laissez Faire Books, 1984), part 2.

²⁴ See Manfred Murck, Soziologie der Öffentlichen Sicherheit (Frankfurt: Campus, 1980).

²⁵ To say that the process of resource allocation becomes arbitrary in the absence of the effective functioning of the profit-loss criterion does not mean that the decisions that somehow have to he made are not subject to any kind of constraint and hence are pure whim. They are not, and any such decisions face certain constraints imposed on the decision maker. If, for instance, the allocation of production factors is decided democratically, then it evidently must appeal to the majority. But if a decision is constrained in this way or if it is made in any other way, it is still arbitrary from the point of view of voluntarily buying or not-buying consumers.

Regarding democratically controlled allocations, various deficiencies have become quite evident. As, for example, James Buchanan and Richard E. Wagner write (The Consequences of Mr. Keynes [London: Institute of Economic Affairs, 1978], p. 19):

Market competition is continuous; at each purchase, a buyer is able to select among competing sellers. Political competition is intermittent; a decision is binding generally for a fixed number of years. Market competition allows several competitors to survive simultaneously…. Political competition leads to an all-or-nothing outcome…. In market competition the buyer can be reasonably certain as to just what it is that he will receive from his purchase. In political competition, the buyer is in effect purchasing the services of an agent, whom he cannot bind…. Moreover, because a politician needs to secure the cooperation of a majority of politicians, the meaning of a vote for a politician is less clean than that of a “vote” for a private firm.

See also James M. Buchanan, “Individual Choice in Voting and the Market,” in idem, Fiscal Theory and Political Economy (Chapel Hill: University of North Carolina Press, 1962); for a more general treatment of the problem Buchanan and Tullock, The Calculus of Consent.

What has commonly been overlooked, though—especially by those who try to make a virtue of the fact that a democracy gives equal voting power to everyone, whereas consumer sovereignty allows for unequal “votes”—is the most important deficiency of all: Under a system of consumer sovereignty people might cast unequal votes but, in any case, they exercise control exclusively over things that they acquired through original appropriation or contract and hence are forced to act morally. Under a democracy of production everyone is assumed to have something to say regarding things one did not so acquire; hence, one is permanently invited thereby not only to create legal instability with all its negative effects on the process of capital formation, but, moreover to act immorally. See on this also Ludwig von Mises, Socialism (Indianapolis: Liberty Fund, 1981), chap. 31.

²⁶ Sums up Molinari, Production of Security, pp. 13–14, If … the consumer is not free to buy security wherever he pleases, you forthwith see open up a large profession dedicated to arbitrariness and bad management. Justice becomes slow and costly, the police vexatious, individual liberty is no longer respected, the price of security is abusively inflated and inequitably apportioned, according to the power and influence of this or that class of consumers.

²⁷ See the literature cited in note 22; also Bruno Leoni, Freedom and the Law (Princeton, N.J.: D. Van Nostrand, 1961); Joseph Peden, “Property Rights in Celtic Irish Law,” Journal of Libertarian Studies 1, no. 2 (1977).

²⁸ See Terry L. Anderson and Peter J. Hill, “The American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West,” Journal of Libertarian Studies 3, no. 1 (1980).

²⁹ On the following, see Hans-Hermann Hoppe, Eigentum, Anarchie, und Staat (Opladen: Westdeutscher Verlag, 1986), chap. 5.

³⁰ Contrast this with the state’s policy of engaging in battles without having everyone’s deliberate support because it has the right to tax people; and ask yourself if the risk of war would be lower or higher if one had the right to stop paying taxes as soon as one had the feeling that the states’ handling of foreign affairs was not to one’s liking.

³¹ And it may be noted here again that norms that incorporate the highest possible degrees of consensus are, of course, those that are presupposed by argumentation and whose acceptance makes consensus on anything at all possible, as indicated above.

³² Again, contrast this with state-employed judges who, because they are paid from taxes and so are relatively independent of consumer satisfaction, can pass judgments that are clearly not acceptable as fair by everyone; and ask yourself if the risk of not finding the truth in a given case would be lower or higher if one had the possibility of exerting economic pressure whenever one had the feeling that a judge who one day might have to adjudicate in one’s own case had not been sufficiently careful in assembling and judging the facts of a case, or simply was an outright crook.

³³ See on the following in particular Rothbard, For A New Liberty, pp. 233ff.

³⁴ See Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge, Mass.: Harvard University Press, 1967); Jackson Turner Main, The Anti-Federalists: Critics of the Constitution (Chapel Hill: University of North Carolina Press, 1961); Murray N. Rothbard, Conceived in Liberty (New Rochelle, N.Y.: Arlington House, 1975–1979).

³⁵ Naturally, insurance companies would assume a particularly important role in checking the emergence of outlaw companies. Note Morris and Linda Tannehill (The Market of Liberty, pp. 110–11):

Insurance companies, a very important sector of any totally free economy, would have a special incentive to dissociate themselves from any aggressor and, in addition, to bring all their considerable business influence to bear against him. Aggressive violence causes value loss, and the insurance industry would suffer the major cost in most such value losses. An unrestrained aggressor is a walking liability, and no insurance company, however remotely removed from his original aggression, would wish to sustain the risk that he might aggress against one of its own clients next. Besides, aggressors and those who associate with them are more likely to be involved in situations of violence and are, thus, bad insurance risks. An insurance company would probably refuse coverage to such people out of a foresighted desire to minimize any future losses which their aggression might cause. But even if the company were not motivated by such foresight, it would still be forced to rate their premiums up drastically or cancel their coverage altogether in order to avoid carrying the extra risk invoked in their inclination to violence. In a competitive economy, no insurance company could afford to continue covering aggressors and those who had dealings with aggressors and simply pass the cost on to its honest customers; it would soon lose these customers to more reputable firms which could afford to charge less for their insurance coverage.

Chapter 2

[Reprinted from the Journal des Economistes et des Etudes Humaines 1, no. 2 (1990.)]

¹ Exclusively descriptive analyses of taxation are given, for instance, by Paul Samuelson, Economics, 10th ed. (New York: McGraw Hill, 1976), chap. 9; Roger L. Miller, Economics Today, 6th ed. (New York: Harper and Row, 1988), chap. 6.

² Jean Baptiste Say, A Treatise on Political Economy (New York: Augustus M. Kelley, 1964), pp. 446–47.

³ Ibid., p. 446; on Say’s economic analysis of taxation see also Murray N. Rothbard, “The Myth of Neutral Taxation,” Cato Journal (Fall, 1981), esp. pp. 551–54.

⁴ See on this also Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), chap. 12.8; idem, Power and Market (Kansas City: Sheed Andrews and McMeel, 1977), chap. 4, 1–3.

⁵ See Say, A Treatise on Political Economy, p. 448.

⁶ See on this point also Rothbard, Power and Market, pp. 95f.

⁷ One might object here that the tax receipts will come into someone’s hands—those of government officials or of governmental transfer-paymentrecipients—and that their increased income, resulting in a lower effective time preference rate for them, may offset the increase in this rate on the taxpayers’ side and hence leave the overall rate and the structure of production unchanged. Such reasoning, however, is categorically flawed: For one thing, insofar as government expenditure is concerned, it cannot be regarded as investment at all. Rather, it is consumption, and consumption alone. For, as Rothbard has explained,

[i]n any sort of division-of-labor economy, capital goods are built, not for their own sake by the investor, but in order to use them to produce lower-order and eventually consumers’ goods. In short, a characteristic of an investment expenditure is that the good in question is not being used to fulfill the needs of the investor, but of someone else—the consumer. Yet, when government confiscates resources from the private market economy, it is precisely defying the wishes of the consumers; when government invests in any good, it does so to serve the whims of government officials, not the desires of consumers. (Man, Economy, and State, pp. 816–17)

Thus, government expenditure, by definition, cannot be conceived of as lengthening the production structure and hence as counterbalancing the taxpayers’ raised time preference rate.—On the other hand,

as for the transfer expenditures made by the government (including the salaries of bureaucrats and subsidies to privileged groups), it is true that some of this will be saved and invested. These investments, however, will not represent the voluntary desires of consumers, but rather investments in fields of production not desired by the producing consumers…. Once let the tax be eliminated, and … the new investments called forth by the demands of the specially privileged will turn out to be malinvestments. (Power and Market, p. 98)

Consequently, transfer expenditures also cannot be conceived of as compensating for the fact that taxpayers shorten the length of the production structure. All such expenditures can do is to lengthen the structure of mal-production. “At any rate” concludes Rothbard,

the amount consumed by the government insures that the effect of income taxation will be to raise time-preference ratios and to reduce saving and investment. (Ibid., p. 98)

⁸ See for such—irrelevant—empirical studies regarding the relative importance of income vs. substitution effects George F. Break, “The Incidence and Economic Effects of Taxation,” in The Economics of Public Finance (Washington, D.C.: Brookings, 1974), pp. 180ff.; A.B. Atkinson and Joseph E. Stiglitz, Lectures on Public Economics (New York: McGraw Hill, 1980), pp. 48ff.; Stiglitz, Economics of the Public Sector (New York: Norton, 1986), p. 372.

⁹ Here once again what has already been explained in a somewhat different connection in note 7 above becomes evident: why it is a fundamental mistake to think that taxation might have a “neutral” effect on production such that any “negative” effects on taxpayers may be compensated by corresponding “positive” effects on tax spenders. What is overlooked in this sort of reasoning is that the introduction of taxation not only implies favoring nonproducers at the expense of producers. It simultaneously changes, for producers and nonproducers alike, the cost attached to different methods of attaining an income, for it is then relatively less costly to attain an additional income through nonproductive means, i.e., not through actually producing more goods but by participating in the process of noncontractual acquisitions of already produced goods. If such a different incentive structure is applied to a given population, then the length of the production structure will necessarily be shortened, and a decrease in the output of goods produced must result. See on this also Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Boston: Kluwer Academic Publishers, 1989), chap. 4.

¹⁰ See for instance William Baumol and Alan Blinder, Economics: Principles and Policy (New York: Harcourt Brace Jovanovich, 1979), pp. 636ff.; Daniel R. Fusfeld, Economics: Principles of Political Economy, 3rd ed. (Glenview, Ill.: Scott, Foresman, 1987), pp. 639ff.; Robert Ekelund and Robert Tollison, Microeconomics, 2nd ed. (Glenview, Ill.: Scott, Foresman, 1988), pp. 463ff. and 469f.; Stanley Fisher, Rudiger Dornbusch, and Richard Schmalensee, Microeconomics, 2nd ed. (New York: McGraw Hill, 1988), pp. 385f.

¹¹ On the impossibility of a pure consumption tax see also Rothbard, Power and Market, pp. 108ff.

¹² Baumol and Blinder, Economics: Principles and Policy, p. 636, present the demand curve as changing in response to a tax.

¹³ To avoid any misunderstanding then: Insofar as the textbook analyses of tax-incidence point out this fact they are of course entirely correct. It is the interpretation of this phenomenon they give which is fundamentally confused!

¹⁴ See on this point also Rothbard, Man, Economy, and State, p. 809.

¹⁵ Should a tax not immediately affect supply at all, as can happen in the short run, then it follows from the above analysis that the price charged will not change at all. For to raise it in response to the tax would once again imply pushing it into an elastic region of the demand curve. In the long run the supply will have to be relatively reduced and prices must move into this region. In any case, no forward shifting takes place. See on this also Rothbard, Man, Economy, and State, pp. 807ff.; idem, Power and Market, pp. 88ff.

¹⁶ To make this distinction between economics and history or sociology is not to say, of course, that economics is of no importance for these latter disciplines. In fact, economics is indispensable for all other social sciences. While the reverse is not the case, economics can be developed and advanced without historical or sociological knowledge. The only consequence of doing so is that such economics would probably not be very interesting, as it would be written without consideration of real examples or instances of application (as if one were to write on the economics of taxation even though there had never been an actual example of it in all of history), for it would formulate what could not possibly happen in the social world, or what would have to happen provided that certain conditions were in fact fulfilled. Thus, any historical or sociological explanation is logically constrained by the laws as espoused by economic theory, and any account by a historian or sociologist in violation of these laws must be treated as ultimately confused. On the relationship between economic theory and history see also Ludwig von Mises, Theory and History (Auburn, Ala.: Ludwig von Mises Institute, 1985); Hans-Hermann Hoppe, Praxeology and Economic Science (Auburn, Ala.: Ludwig von Mises Institute, 1988).

¹⁷ See on this also Franz Oppenheimer, The State (New York: Vanguard Press, 1914) esp. pp. 24–27; Rothbard, Power and Market, chap. 2; Hoppe, A Theory of Socialism and Capitalism, chap. 2.

¹⁸ On the theory of the state as developed in the following see—in addition to the works cited in note 17—in particular Herbert Spencer, Social Statics (New York: Schalkenbach Foundation, 1970); Auberon Herbert, The Right and Wrong of Compulsion by the State (Indianapolis: Liberty Fund, 1978); Albert J. Nock, Our Enemy, the State (Tampa, Fla.: Hallberg Publishing, 1983); Murray N. Rothbard, For a New Liberty (New York: Macmillan, 1978); idem, The Ethics of Liberty (Atlantic Highlands, N.J.: Humanities Press, 1982); Hans-Hermann Hoppe, Eigentum, Anarchie und Staat (Opladen: Westdeutscher Verlag, 1987); Anthony de Jasay, The State (Oxford: Blackwell, 1985).

¹⁹ This central idea of the public choice school has been expressed by its foremost representatives as follows:

Both the economic relation and the political relation represent cooperation on the part of two or more individuals. The market and the state are both devices through which co-operation is organized and made possible. Men co-operate through exchange of goods and services in organized markets, and such co-operation implies mutual gain. The individual enters into an exchange relationship in which he furthers his own interest by providing some product or service that is of direct benefit to the individual on the other side of the transaction. At base, political or collective action under the individualistic view of the State is much the same. Two or more individuals find it mutually advantageous to join forces to accomplish certain common purposes. In a very real sense, they “exchange” and devote resources to the construction of the common good. (James M. Buchanan and Gordon Tullock, The Calculus of Consent [Ann Arbor: University of Michigan Press], p. 192)

Surely, the most amazing thing about such a “new theory of politics” is that anyone takes it seriously. Remarks Joseph A. Schumpeter on such views:

The theory which construes taxes on the analogy of club dues or the purchase of the service of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind. (Capitalism, Socialism and Democracy [New York: Harper, 1942], p. 198)

And H.L. Mencken has this to say regarding a thesis such as Buchanan’s and Tullock’s:

The average man, whatever his errors otherwise, at least sees clearly that government is something lying outside him and outside the generality of his fellow men—that it is a separate, independent and often hostile power, only partly under his control, and capable of doing him great harm…. Is it a fact of no significance that robbing the government is everywhere regarded as a crime of less magnitude than robbing an individual, or even a corporation? … When a private citizen is robbed a worthy man is deprived of the fruits of his industry and thrift; when the government is robbed the worst that happens is that certain rogues and loafers have less money to play with than they had before. The notion that they have earned that money is never entertained; to most sensible men it would seem ludicrous. They are simply rascals who, by accidents of law, have a somewhat dubious right to a share in the earnings of their fellow men. When that share is diminished by private enterprise the business is, on the whole, far more laudable than not. (A Mencken Chrestomathy [New York: Vintage Books, 1949] pp. 146–47)

²⁰ See on this also Murray N. Rothbard, “The Anatomy of the State” in idem, Egalitarianism as a Revolt Against Nature and Other Essays (Washington, D.C.: Libertarian Review Press, 1974), esp. pp. 37–42.

²¹ It might be thought that the government could accomplish such a feat by merely improving its weaponry: by threatening with atomic bombs instead of with guns and rifles, so to speak. However, since realistically one must assume that the technological know-how of such improved weaponry can hardly be kept secret, especially if it is in fact applied, then with the state’s improved instruments for instilling fear the victims’ ways amid means of resisting improve as well. Hence, such advances must be ruled out as an explanation of what must be explained.

²² Witness the all-too-numerous states that go so far as to shoot everyone down without mercy who has committed no other sin than that of trying to leave a territory and move elsewhere!

²³ On the intimate relationship between state and war see the important study by Ekkehart Krippendorff, Staat und Krieg (Frankfurt/M.: Suhrkamp, 1985); also Charles Tilly, “War Making and State Making as Organized Crime” in Peter Evans et al., eds., Bringing the State Back In (Cambridge: Cambridge University Press, 1985).

²⁴ This insight (which refutes all talk about the impossibility of anarchism in showing that intra-governmental relations are, in fact, a case of—political—anarchy) has been explained in a highly important article by Alfred G. Cuzán, “Do We Ever Really Get Out of Anarchy,” Journal of Libertarian Studies 3, no. 2 (1979).

Wherever earthly governments are established or exist, anarchy is officially prohibited for all members of society, usually referred to as subjects or citizens. They can no longer relate to each other on their own terms…. Rather, all members of society must accept an external “third party”—a government—into their relationships, a third party with the coercive powers to enforce its judgments and punish detractors…. However, such a “third party” arrangement for society is non-existent among those who exercise the power of government themselves. In other words, there is no “third party” to make and enforce judgments among the individual members who make up the third party itself. The rulers still remain in a state of anarchy vis-à-vis each other. They settle disputes among themselves, without regard for a Government (an entity outside themselves). Anarchy still exists. Only whereas without government it was market or natural anarchy, it is now a political anarchy, an anarchy inside power. (Cuzán, pp. 152–53)

²⁵ One of the classic expositors of this idea is David Hume. In his essay, “Of The First Principles of Government,” he writes:

²⁶ See on the following in particular also Murray N. Rothbard, “Left and Right: The Prospects for Liberty” in idem, Egalitarianism as a Revolt Against Nature and Other Essays.

Nothing appears more surprising to those, who consider human affairs with a philosophical eye, than the easiness with which the many are governed by the few; and the implicit submission, with which men resign their own sentiments and passions to those of their rulers. When we enquire by what means this wonder is effected, we shall find, that as FORCE is always on the side of the governed, the governors have nothing to support them but opinion. It is therefore, on opinion only that government is founded; and this maxim extends to the most despotic and most military governments, as well as to the most free and most popular. The soldan of EGYPT, or the emperor of ROME, might drive his harmless subjects, like brute beasts, against their sentiments and inclination: but he must, at least, have led his mamalukes, or praetorian bands, like men, by their opinion. (Essays, Moral, Political and Literary [Oxford: Oxford University Press, 1971], p. 19)

²⁷ The importance of international anarchy for the erosion of feudalism and the rise of capitalism has been justly emphasized by Jean Baechler, The Origins of Capitalism (New York: St. Martin’s Press, 1976), esp. chap. 7. He writes: “The constant expansion of the market, both in extensiveness and in intensity, was the result of an absence of a political order extending over the whole of Western Europe” (p. 73). “The expansion of capitalism owes its origin and raison d’etre to political anarchy…. Collectivism and state management have only succeeded in school textbooks” (p. 77).

All power tends toward the absolute. If it is not absolute, this is because some kind of limitations have come into play … those in the positions of power at the center ceaselessly tried to erode these limitations. They never succeeded, and for the reason that also seems to me to be tied to the international system: a limitation of power to act externally and the constant threat of foreign assault (the two characteristics of a multi-polar system) imply that power is also limited internally and must rely on autonomous centers of decision-making and so may use them only sparingly. (p. 78)

²⁸ The central characteristic of the modern natural law tradition (as represented by St. Thomas Aquinas, Luis de Molina, Francisco Suarez, and the late sixteenth century Spanish Scholastics, and the Protestant Hugo Grotius) was its thorough rationalism: its idea of universally valid, absolute, and immutable principles of human conduct that are—ultimately independent of any theological beliefs—to be discovered by and founded in and reason alone. “Man,” writes Frederick C. Copleston, [Aquinas (London: Penguin Books, 1955), pp. 213–14] cannot read, as it were, the mind of God … (but) he can discern the fundamental tendencies and needs of his nature, and by reflecting on them he can come to a knowledge of the natural moral law…. Every man possesses … the light of reason whereby he can reflect … and promulgate to himself the natural law, which is the totality of the universal precepts of dictates of right reason concerning the good which is to be pursued and the evil which is to be shunned.

On the origin and development of the natural rights doctrine and its idea of justice and property (including all the statist failings and slips of its aforementioned heroes) see Richard Tuck, Natural Rights Theories (Cambridge: Cambridge University Press, 1979); on the revolutionary character of the idea of natural law see Lord (John) Acton, Essays on Freedom and Power (Glencoe, Ill.: Free Press. 1948); as an eminent contemporary natural rights philosopher see Henry Veatch, Human Rights (Baton Rouge: Louisiana State University Press, 1985).

²⁹ On the rise of the cities see C.M. Cipolla, Before the Industrial Revolution: European Society and Economy 1000–1700 (New York: Norton, 1980), chap. 4. Europe around 1000, writes Cipolla,

was poor and primitive … made up of numberless rural microcosms—the manors…. Society was dominated by a spirit of resignation, suspicion, and fear toward the outside world…. The arts, education, trade, production, and the division of labor were reduced to a minimal level. The use of money almost completely disappeared. The population was small, production meager, and poverty extreme…. The prevailing ideas reflected a brutal and superstitious society—fighting and praying were the only respectable activities…. Those who labored were regarded as despicable serfs…. In this depressed and depressing world, the rise of cities between the tenth and thirteenth centuries represented a new element which changed the course of history. (p. 144)

At the root of urban growth was a massive migratory movement. (p. 145)

The town was to the people of Europe from the eleventh to the thirteenth centuries what America was to Europeans in the nineteenth century. The town was the “frontier,” a new and dynamic world where people felt they could break their ties with an unpleasant past, where people hoped they could find opportunities for economic and social success, where sclerotic traditional institutions and discriminations no longer counted, and where there would be ample reward for initiative, daring, and industriousness (p. 146). In the feudal world, a vertical arrangement typically prevailed, where relations between men were dictated by the concepts of fief and service; investiture and homage; lord, vassal, and serf. In the cities, a horizontal arrangement emerged, characterized by cooperation among equals. (p. 148)

See also Henri Pirenne, Medieval Cities (Princeton, N.J.: Princeton University Press, 1952), chap. 5; Michael Tigar and Madeleine Levy, Law and the Rise of Capitalism (New York: Monthly Review Press, 1977).

³⁰ See on this Carolyn Webber and Aaron Wildavsky, A History of Taxation and Expenditure in the Western World (New York: Simon and Schuster, 1986), pp. 235–41; Pirenne, Medieval Cities, pp. 179–80, pp. 227f.

³¹ As the outstanding champion of this tradition see John Locke, Two Treatises of Government, ed. Peter Laslett (Cambridge: Cambridge University Press, 1960).

[E]very man has a property in his own person. This nobody has any right to but himself. The labour of his body and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left in it, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature placed it in, it hath by his labour something annexed to it that excludes the common right of other men. For this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to. (p. 305)

See also Ernest K. Bramsted and K.J. Melhuish, eds., Western Liberalism (London: Longman, 1978).

³² See on these developments of economic theory Marjorie Grice-Hutchinson, The School of Salamanca: Readings in Spanish Monetary History (Oxford: Clarendon Press, 1952); Raymond de Roover, Business, Banking, and Economic Thought (Chicago: University of Chicago Press, 1974); Murray N. Rothbard, “New Light on the Prehistory of the Austrian School” in Edwin Dolan, ed., The Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976); on the outstanding contributions in particular of Richard Cantillon and A.R.J. Turgot see Journal of Libertarian Studies 7, no. 2 (1985) (which is devoted to Cantillon’s work) and Murray N. Rothbard, The Brilliance of Turgot (Auburn, Ala.: Ludwig von Mises Institute, Occasional Paper Series, 1986); see also Joseph A. Schumpeter, A History of Economic Analysis (New York: Oxford University Press, 1954).

³³ On the Industrial Revolution and its misinterpretation by the orthodox (school-book) historiography see F.A. Hayek, ed., Capitalism and the Historians (Chicago: University of Chicago Press, 1963).

³⁴ In fact, though the decline of liberalism began around the mid-nineteenth century, the optimism that it had created survived until the early twentieth century. Thus, John Maynard Keynes could write [The Economic Consequences of the Peace (London: Macmillan, 1919)]:

What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, convenience, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages…. But, most important of all, he [man] regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice. (pp. 6–7)

For a similar account see also J.P. Taylor, English History 1914–15 (Oxford: Clarendon Press, 1965), p. 1.

³⁵ Characterizing nineteenth-century America Robert Higgs (Crisis and Leviathan [New York: Oxford University Press, 1987]) writes:

There was a time, long ago, when the average American could go about his daily business hardly aware of the government—especially the federal government. As a farmer, merchant, or manufacturer, he could decide what, how, when, and where to produce and sell his goods, constrained by little more than market forces. Just think: no farm subsidies, price supports, or acreage controls; no Federal Trade Commission; no antitrust laws; no Interstate Commerce Commission. As an employer, employee, consumer, investor, lender, borrower, student, or teacher, he could proceed largely according to his own lights. Just think: no National Labor Relations Board; no federal consumer “protection” laws; no Securities and Exchange Commission; no Equal Employment Opportunity Commission; no Department of Health and Human Services. Lacking a central bank to issue national paper currency, people commonly used gold coins to make purchases. There were no general sales taxes, no Social Security taxes, no income taxes. Though governmental officials were as corrupt then as now—maybe more so—they had vastly less to be corrupt with. Private citizens spent about fifteen times more than all governments combined. (p. IX)

³⁶ On the following see in particular A.V. Dicey, Lectures on the Relation Between Law and Public Opinion in England (New Brunswick, N.J.: Transaction Books, 1981); Elie Halevy, A History of the English People in the 19th Century, 2 vols. (London: Benn, 1961); W.H. Greenleaf, The British Political Tradition, 3 vols. (London: Methuen, 1983–87); Arthur E. Ekirch, The Decline of American Liberalism (New York: Atheneum, 1976); Higgs, Crisis and Leviathan.

³⁷ On the worldwide excesses of statism since World War I see Paul Johnson, Modern Times: The World from the Twenties to the Eighties (New York: Harper and Row, 1983).

³⁸ On the relation between state and education see Murray N. Rothbard, Education, Free and Compulsory: The Individual’s Education (Wichita, Kans.: Center for Independent Education, 1972).

³⁹ On the relation between state and intellectuals see Julien Benda, The Treason of the Intellectuals (New York: Norton, 1969).

⁴⁰ On the following see in particular Hoppe, Eigentum, Anarchie, und Staat, chaps. 1, 5; idem, A Theory of Socialism and Capitalism, chap. 8.

⁴¹ On this trend see Webber and Wildavsky, A History of Taxation and Expenditure in the Western World, pp. 588f.; on redistribution in general see also de Jasay, The State, chap. 4.

⁴² On this trend see Reinhard Bendix, Kings or People (Berkeley: University of California Press, 1978).

⁴³ On the social psychology of democracy see Gaetano Mosca, The Ruling Class (New York: McGraw Hill, 1939); H.L. Mencken, Notes on Democracy (New York: Knopf, 1926); on the tendency of democratic rule to “degenerate” to oligarchic rule see Robert Michels, Zur Soziologie des Parteiwesens (Stuttgart: Kroener, 1957).

⁴⁴ Bertrand de Jouvenel, On Power (New York: Viking Press, 1949), pp. 9–10.

⁴⁵ On nationalism, imperialism, colonialism—and their incompatibility with classical liberalism—see Ludwig von Mises, Liberalism (San Francisco: Cobden Press, 1985); idem, Nation, State and Economy (New York: New York University Press, l983); Joseph A. Schumpeter, Imperialism and Social Classes (New York: World Publishing, 1955); Lance E. Davis and Robert A. Huttenback, Mammon and the Pursuit of Empire: The Political Economy of British Imperialism 1860–1912 (Cambridge: Cambridge University Press, 1986).

⁴⁶ See Krippendorff, Staat und Krieg; Johnson, Modern Times.

⁴⁷ This process is the central topic of Higgs, Crisis and Leviathan.

⁴⁸ The most vicious of such agreements is very likely that of restricting entry for noncriminal persons wanting to immigrate into a given territory—and the chance for those living in this territory to offer employment to them—and of extraditing them back to their home-countries.

⁴⁹ On the problem of the so-called Third World see Peter T. Bauer and B.S. Yamey, The Economics of Under-Developed Countries (London: Nisbet and Co., 1957); P.T. Bauer, Dissent on Development (Cambridge, Mass.: Harvard University Press, 1972); idem, Equality, The Third World and Economic Delusion (Cambridge, Mass.: Harvard University Press, 1981); Stanislav Andreski, The African Predicament (New York: Atherton Press, 1969); idem, Parasitism and Subversion (New York: Pantheon, 1966).

⁵⁰ On regulation and taxation as different forms of aggression against private property and their economics and sociology see Rothbard, Power and Market; Hoppe, A Theory of Socialism and Capitalism.

⁵¹ On the imperialistic foreign policy of, in particular, the U.S. see Krippendorff, Staat und Krieg, chap. III, p. 1; and Rothbard, For a New Liberty, chap. 14.

⁵² See on this also Etienne de la Boétie, The Politics of Obedience: The Discourse of Voluntary Servitude, ed. Murray N. Rothbard (New York: Free Life Editions, 1975).

Resolve to serve no more, and you are at once freed. I do not ask that you place bands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great colossus whose pedestals have been pulled away, fall of his own weight and break into pieces. (pp. 52–53)

⁵³ On the—a prioristic—rational justification of the private property ethic see Hans-Hermann Hoppe, “From the Economics of Laissez Faire to the Ethics of Libertarianism,” in Walter Block and Llewellyn H. Rockwell, Jr., eds., Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard (Auburn, Ala.: Ludwig von Mises Institute, 1988); idem, “The Justice of Economic Efficiency,” Austrian Economics Newsletter (Winter, 1988); infra chaps. 8 and 9.

Chapter 3

[Reprinted from the Review of Austrian Economics 4 (1990).]

¹ On the free-market development of money, see Carl Menger, Principles of Economics (New York: New York University Press, 1976), pp. 257–85; “Geld,” in Carl Menger, Gesammelte Werke, vol. IV (Tübingen: Mohr, 1970).

² On the gold standard, see Llewellyn H. Rockwell, Jr., ed., The Gold Standard: An Austrian Perspective (Lexington, Mass.: D.C. Heath, 1985), Ron Paul and Lewis Lehrman, The Case for Gold (San Francisco: Cato Institute, 1983).

³ On banking and in particular the different function of loan and deposit banking, see Murray N. Rothbard, The Mystery of Banking (New York: Richardson and Snyder, 1983).

⁴ See Murray N. Rothbard, The Case for a 100 Percent Gold Dollar (Meriden, Conn.: Cobden Press, 1984), pp. 32–34.

⁵ A highly prominent example for this misconception is F.A. Hayek, Denationalization of Money (London: Institute of Economic Affairs, 1976); for a critique see Murray N. Rothbard, “Hayek’s Denationalized Money,” Libertarian Forum XV, nos. 5–6 (August 1981–January 1982).

⁶ On the counterfeiting process, see Rothbard, The Mystery of Banking, chap. IV; also Elgin Groseclose, Money: The Human Conflict (Norman: University of Oklahoma Press, 1934), pp. 178 and 273.

⁷ On the Austrian business cycle theory, see Ludwig von Mises, The Theory of Money and Credit (lrvington-on-Hudson, N.Y.: Foundation for Economic Education, 1971); idem, Human Action (Chicago: Regnery, 1966), chap. XX; F.A. Hayek, Monetary Theory and the Trade Cycle (New York: Augustus M. Kelley, 1975); Prices and Production (New York: Augustus M. Kelley, 1967); Richard von Strigl, Kapital und Produktion (Vienna: Julius Springer, 1934); Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), vol. 2, chap. 12.

⁸ What about cartels? Could not the competing banks form a cartel and agree on a joint venture in counterfeiting? Again, under free banking this is most unlikely, because a system of free banking is characterized by the complete absence of any economic incentive for cartelization. With no restrictions of entry in existence, any such bank cartel would have to be classified as voluntary and would suffer from the same problems as any voluntary cartel: Faced with the threat of noncartelists and/or new entrants, and recognizing that like all cartel agreements, a banking cartel would favor the less efficient cartel members at the expense of the more efficient ones, there is simply no economic basis for successful action, and any attempt to cartelize would quickly break down as economically inefficient. Moreover, insofar as the counterfeit money would be employed to expand credit, banks acting in concert would set off a full-scale boom-bust cycle. This, too, would deter cartelization. See on the theory of free banking Mises, Human Action, pp. 434–48; Rothbard, The Mystery of Banking, chap. VIII.

⁹ Contrary to the claim of the public choice school, states and private firms are not doing essentially the same sort of business, but instead are engaged in categorically different types of operations. Both types of institutions are the outcome of different, antagonistic interests. The “political” interest in exploitation and expropriation underlying the formation of states obviously requires and presupposes the existence of wealth, and hence an “economic” interest of at least one person in producing such wealth in the first place (while the reverse is not true). But at the same time, the more pronounced and successful political interests are, the more destructive of economic interests this will be. The public choice school is perfectly correct in pointing out that everyone—a government employee no less than an employee of an economic firm—normally prefers a higher to a lower income and that this interest explains why government should be expected to have no less of a tendency to grow than any other enterprise.

However, this discovery—that politicians and bureaucrats are no more altruistic or concerned about the public good than are people in other walks of life—is hardly new even if it has sometimes been overlooked. Yet what is in fact new with public choice is the inference drawn from this correct insight then, that all institutions should hence be regarded as an outgrowth of identical motivational forces and be treated analytically on a par with each other—is false to the point of being ridiculous. Regardless of a person’s subjective beliefs, integrating one’s actions into the institutional framework of either the state or a “normal” economic enterprise and pursuing one’s wealth maximizing interests here or there will in fact produce categorically different outcomes. On a representative statement of the public choice school regarding the idea of the “state as a firm” and of “political exchange” as essentially the same as economic exchange, see James Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1965), p. 19; for a critique of this view and the fundamental difference between economic and political means, see Franz Oppenheimer, The State (New York: Vanguard Press, 1914), pp. 24–27; Murray N. Rothbard, Power and Market (Kansas City: Sheed Andrews and McMeel, 1977), chap. 2.

¹⁰ On the following theory of the state, see Murray N. Rothbard, For a New Liberty (New York: Macmillan, 1978); The Ethics of Liberty (Atlantic Highlands: Humanities Press, 1982); Hans-Hermann Hoppe, Eigentum, Anarchie und Staat (Opladen: Westdeutscher Verlag, 1987); A Theory of Socialism and Capitalism (Boston: Kluwer, 1989); Anthony de Jasay, The State (Oxford: Blackwell, 1985).

¹¹ On the semantic confusion spread through the term “conceptual agreement” in particular by James Buchanan, see Hans-Hermann Hoppe, “The Fallacies of the Public Goods Theory and the Production of Security,” Journal of Libertarian Studies 9, no. 1 (1989); supra, chap. 1.

¹² See Hoppe, Eigentum, Anarchie, und Staat, chap. 5.3; A Theory of Socialism and Capitalism, chap. 8.

¹³ On democratization as a means of expanding state power, see Bertrand de Jouvenel, On Power (New York: Viking Press, 1949), pp. 9–10.

¹⁴ On the state’s inherent tendency toward achieving an unrestricted counterfeiting monopoly, see Murray N. Rothbard, The Mystery of Banking; idem, What Has Government Done to Our Money? (San Rafael, Calif.: Libertarian Publishers, 1985).

¹⁵ On the impossibility of money originating as a fiat paper money, see the regression theorem: Mises, The Theory of Money and Credit, pp. 97–123; Human Action, pp. 408–10; Rothbard, Man, Economy, and State, vol. I, pp. 231–37.

¹⁶ On the enthusiastic participation of the banking elite in the creation of the Federal Reserve System, see Rothbard, Mystery of Banking, chaps. XV, XVI.

¹⁷ On the formation of the state-banking-business coalition, see Gabriel Kolko, The Triumph of Conservatism (Chicago: Free Press, 1967); Railroads and Regulations (Princeton, N.J.: Princeton University Press, 1965); James Weinstein, The Corporate Ideal in the Liberal State (Boston: Beacon Press, 1968); Richard Radosh and Murray N. Rothbard, eds., A New History of Leviathan (New York: Dutton, 1972).

¹⁸ In the Marxist tradition this stage of social development is termed “monopoly capitalism,” “finance capitalism,” or “state monopoly capitalism.”

The descriptive part of Marxist analyses is generally valuable. In unearthing the close personal and financial links between state and business, they usually paint a much more realistic picture of the present economic order than do the mostly starry-eyed “bourgeois economists.” Analytically, however, they get almost everything wrong and turn the truth upside down.

The traditional, correct pre-Marxist view on exploitation was that of radical laissez-faire liberalism as espoused by, for instance, Charles Comte and Charles Dunoyer. According to them, antagonistic interests do not exist between capitalists as owners of factors of production and laborers, but between, on the one hand, the producers in society, i.e., homesteaders, producers and contractors, including businessmen as well as workers, and on the other hand, those who acquire wealth nonproductively and/or noncontractually, i.e., the state and stateprivileged groups, such as feudal landlords. This distinction was first confused by Saint-Simon, who had at some time been influenced by Comte and Dunoyer, and who classified market businessmen along with feudal lords and other stateprivileged groups as exploiters. Marx took up this confusion from Saint-Simon and compounded it by making only capitalists exploiters and all workers exploited, justifying this view through a Ricardian labor theory of value and his theory of surplus value. Essentially, this view on exploitation has remained typical for Marxism to this day despite Böhm-Bawerk’s smashing refutation of Marx’s exploitation theory and his explanation of the difference between factor prices and output prices through time preference (interest). To this day, whenever Marxist theorists talk about the exploitative character of monopoly capitalism, they see the root cause of this in the continued existence of the private ownership of means of production. Even if they admit a certain degree of independence of the state apparatus from the class of monopoly capitalists (as in the version of “state monopoly capitalism”), for them it is not the state that makes capitalist exploitation possible; rather it is the fact that the state is an agency of capitalism, an organization that transforms the narrow-minded interests of individual capitalists into the interest of an ideal universal capitalist (the ideelle Gesamtkapitalist), which explains the existence of exploitation.

In fact, as explained, the truth is precisely the opposite: It is the state that by its very nature is an exploitative organization, and capitalists can engage in exploitation only insofar as they stop being capitalists and instead join forces with the state. Rather than speaking of state monopoly capitalism, then, it would be more appropriate to call the present system “state financed monopoly socialism,” or “bourgeois socialism.”

For representative Marxist studies, see Rudolf Hilferding, Finance Capital (London: Routledge and Kegan Paul, 1981); V.I. Lenin, Imperialism Last Stage of Capitalism (Moscow: Foreign Languages Publishing House, 1947); Paul M. Sweezy, The Theory of Capitalist Development (New York: Monthly Review Press, 1942); Paul A. Baran and Paul M. Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966); Ernest Mandel, Marxist Economic Theory (London: Merlin, 1962); Late Capitalism (London: New Left Books, 1975); Herbert Meissner, ed., Bürgerliche Ökonomie ohne Perspektive (East Berlin: Dietz, 1976); on the perversion of the classical liberal class analysis through Marxism, see Murray N. Rothbard, “Left and Right” in Egalitarianism As a Revolt Against Nature and Other Essays (Washington, D.C.: Libertarian Review Press, 1974); on the refutation of the Marxist theory of exploitation, see Eugen von Böhm-Bawerk, Karl Marx and the Close of His System, ed. Paul M. Sweezy, (New York: Augustus M. Kelley, 1948).

¹⁹ To recognize the far-reaching integration of state interests and those of the economic power elite, which is brought about by the monopolization of money and banking, is not to say that there cannot be conflicts arising within this coalition. As mentioned earlier, the state is also characterized, for instance, by the necessity of democratizing its constitution. And the democratic process could well bring egalitarian or populist sentiments to the surface which were opposed to the state’s favorable treatment of banks and big business. However, it is precisely the financial nature of the state-business connection that makes such an occurrence unlikely. For not only would this pose an immediate threat to the economic power elite; it would also imply severe financial losses in state income, even if it did not threaten the stability of the state as such. Hence a powerful incentive exists for both sides to join forces in filtering any such sentiment out of the political process before it ever becomes widely heard and to ensure with all resources at their command that the range of political alternatives admitted to public discussion is so restricted as to systematically exclude any scrutinizing of their joint counterfeiting racket.

See on this also such—in spite of their characteristic leftist misconceptions—informative studies as C. Wright Mills, The Power Elite (New York: 1965); G. William Domhoff, Who Rules America? (New York: 1967); E.E. Schattschneider, The Semi-Sovereign People (New York: Holt 1960); Peter Bachrach and Morton Baratz, Power and Poverty (New York: 1970); C. Offe, Strukturprobleme des Kapitalistischen Staates (Frankfurt/M. Suhrkamp, 1972).

²⁰ On the intimate relationship between state and war, see the important study by Ekkehart Krippendorff, Staat and Krieg (Frankfurt/M.: Suhrkamp, 1985); also Charles Tilly, “War Making and State Making as Organized Crime,” in Peter Evans, et al. eds., Bringing the State Back In (Cambridge: Cambridge University Press, 1985); Robert Higgs, Crisis and Leviathan (New York: Oxford University Press, 1987).

²¹ The term “liberal” is here and the following used in its traditional European sense and not in the present day U.S. sense as a synonym for “socialist” or “social-democratic.”

²² A highly characteristic example of this connection between a policy of internal deregulation and increased external aggressiveness is provided by the Reagan administration.

²³ On the following see also Hans-Hermann Hoppe, “The Economics and Sociology of Taxation,” in Journal des Economistes et des Etudes Humaines 1, no. 2 (1990); supra chap. 2.

²⁴ On the importance of “political anarchy” for the origin of capitalism, see Jean Baechler, The Origins of Capitalism (New York: St. Martin’s, 1976), chap. 7.

²⁵ On British imperialism, see Lance E. Davis and Robert A. Huttenback, Mammon and the Pursuit of Empire: The Political Economy of British Imperialism 1860–1912 (Cambridge: Cambridge University Press, 1986).

²⁶ See on this and the following E. Krippendorff, Staat and Krieg, pp. 97–116.

²⁷ See the table in Ekkehart Krippendorff, Die amerikanische Strategie (Frankfurt/M. Suhrkamp, 1970), pp. 43ff.

²⁸ On twentieth-century U.S. foreign policy, see Leonard P. Liggio, “American Foreign Policy and National Security Management” in Radosh and Rothbard, A New History of Leviathan; Rothbard, For a New Liberty, chap. 14.

²⁹ See on this Rothbard, Mystery of Banking, pp 230–47; on the role of the Morgans in pushing the Wilson administration into war, in particular see Charles Tansill, America Goes to War (Boston: Little, Brown, 1938), chaps. II–IV.

³⁰ On the purchasing power parity theory, see Mises, Human Action, pp. 452–58; Rothbard, Man, Economy, and State, pp. 715–22.

³¹ On Gresham’s law see Mises, Theory of Money and Credit, pp. 75, 77; Human Action, pp. 78l–83; Rothbard, Power and Market, pp. 29–31.

³² On the dollar standard established with the Bretton Woods system, see Henry Hazlitt, From Bretton Woods to World Inflation (Chicago: Regnery, 1984).

³³ Since 1971, at which time the gold standard was finally suspended, more money has been created than had previously been accumulated by all nations of the world since the beginning of time.

³⁴ On the imperialist nature of these institutions, see also Gabriel Kolko, The Politics of War, the World and United States Foreign Policy 1943–1945 (New York: Random House, 1968), pp. 242–340.

³⁵ See Paul A. Baran, Political Economy of Growth (New York: Monthly Review Press, 1957), chaps. V–VI.

³⁶ See Hazlitt, From Bretton Woods to World Inflation.

³⁷ A sample of prominent U.S. members of the Trilateral Commission includes David M. Abshire, counselor to the President; Frank C. Carlucci, national security advisor; J.C. Whitehead, Deputy Secretary of State; Alan Greenspan, Chairman of the Federal Reserve System; Winston Lord, Ambassador to China; George Bush, President; Paul A. Volcker, former Chairman of the Federal Reserve System; Alexander Haig, former Secretary of State; Jean Kirkpatrick, former Ambassador to the U.N.; David A. Stockman, former head of OMB; Caspar Weinberger, former Secretary of Defense; W. Michael Blumenthal, former Secretary of the Treasury; Zbigniew Brzezinski, former national security advisor; Harold Brown, former Secretary of Defense; James E. (Jimmy) Carter, former President; Richard N. Cooper, former Undersecretary of State for Economic and Monetary Affairs; Walter Mondale, former Vice President; Anthony M. Solomon, former Undersecretary of the Treasury for Monetary Affairs; Cyrus Vance, former Secretary of State; Andrew Young, former Ambassador to the U.N.; Lane E. Kirkland, head of AFL-CIO: Flora Lewis, New York Times; Thomas Johnson, Los Angeles Times; George Will, ABC television and Newsweek.

³⁸ See on this also Jeffrey Tucker, “The Contributions of Menger and Mises to the Foundations of Austrian Monetary Theory Together With One Modern Application,” (manuscript 1988), presented at the 13th annual conference of The Association for Private Enterprise Education, Cleveland, Ohio; and Ron Paul, “The Coming World Monetary Order,” A Special Report from the Ron Paul Investment Letter (1988). Prominent Europeans explicitly supporting the idea of a European Central Bank, the ECU, and finally a one-world currency include: G. Agnelli, Chairman of FIAT, TC; J. Deflassieux, Chairman of the BIS, TC; G. FitzGerald, former Prime Minister of Ireland, TC; L. Solana, President of Compania Telefonica Nacional de Espana, TC; G. Thorn, President of the European Community and former Prime Minister of Luxembourg, TC; N. Thygesen, Professor of Economics, Copenhagen University, TC; U. Agnelli, Vice President of FIAT; E. Balladour, Financial Minister of France; N. Brady, Dillon Read Investments; J. Callaghan, former Prime Minister of Britain; K. Carstens, former President of West Germany; P. Coffey, Professor of Economics University of Amsterdam; E. Davignon, former European Commissioner; J. Delors, former President of the European Community; W. Dusenberg, President of BIS; L. Fabius, former Prime Minister of France; J.R. Fourtou, President of Rhone-Poulence; R. d. La Jemere, former Governor of the Banque de France; V. Giscard d’Estaing, former President of France; Ch. Goodhart, Professor of Banking, London School of Economics; P. Guimbretiere, Director of the European Community’s ECU project; W. Guth, President of the Deutsche Bank; E. Heath, former British Prime Minister; M. Kohnstamm, former President of European University Institute, Florence; N. Lawson, British Chancellor of the Exchequer; L.M. Leveque, President of Credit Lyonnais; L. Lucchini, President of Confindustria Italy; F. Maude, British Minister for Corporate and Consumer Affairs; P. Mentre, Chairman of Credit National, France; H.L. Merkle, Chairman of Bosch Gmbh, West Germany; F. Mitterand, President of France; J. Monet, founder of the European Community; P.X. Ortoli, President of Total Oil and former Commissioner of the European Community; D. Rambure, Credit Lyonnais; H. Schmidt, former Chancellor of West Germany and Editor of die ZEIT; P. Sheehy, Chairman of BAT Industries; J. Solvay, Chairman of Solvay, Belgium; H.J. Vogel, Chairman of the German Social Democratic Party; J. Zijlstra, former President of the Nederlandse Bank.

³⁹ Jeffrey Tucker of the Ludwig von Mises Institute had an important influence on my understanding of the dynamics of the international monetary system—through frequent discussions as well as through granting me access to his own related research. Needless to say, all shortcomings are entirely my own.

Chapter 4

[First printed in the Journal of Libertarian Studies 9, no. 2 (Fall, 1990). Also reprinted in Requiem for Marx, edited by Yuri N. Maltsev (Auburn, Ala.: Ludwig von Mises Institute, 1993).]

¹ See on the following Karl Marx and Frederic Engels, The Communist Manifesto (1848); Karl Marx, Das Kapital, 3 vols. (1867; 1885; 1894); as contemporary Marxists, Ernest Mandel, Marx’s Economic Theory (London: Merlin, 1962); idem, Late Capitalism (London: New Left Books, 1975); Paul Baran and Paul Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966); from a non-Marxist perspective, Leszek Kolakowski, Main Currents of Marxism (Oxford: Clarendon Press, 1995); G. Wetter, Sovietideologie heute (Frankfurt/M.: Fischer, 1962), vol. 1; W. Leonhard, Sovietideologie heute (Frankfurt/M.: Fischer, 1962), vol. 2.

² Marx and Engels, The Communist Manifesto (section 1).

³The Communist Manifesto (section 2, last 2 paragraphs); Frederic Engels, Von tier Autorität, in Karl Marx and Frederic Engels, Ausgewählte Schriften, 2 vols. (East Berlin: Dietz, 1953), vol. I, p. 606; idem, Die Entwicklung des Sozialismus von der Utopie zur Wissenschaft, ibid., vol. 2, p. 139.

⁴ See Marx, Das Kapital, vol. I; the shortest presentation is his Lohn, Preis, Profit (1865). Actually, in order to prove the more specific Marxist thesis that exclusively the owner of labor services is exploited (but not the owner of the other originary factor of production: land), yet another argument would be needed. For if it were true that the discrepancy between factor and output prices constitutes an exploitative relation, this would only show that the capitalist who rents labor services from an owner of labor, and land services from an owner of land would exploit either labor, or land, or labor and land simultaneously. It is the labor theory of value, of course, which is supposed to provide the missing link here by trying to establish labor as the sole source of value. I will spare myself the task of refuting this theory. Few enough remain today, even among those claiming to be Marxists, who do not recognize the faultiness of the labor theory of value. Rather, I will accept for the sake of argument the suggestion made, for instance, by the self-proclaimed “analytical Marxist” John Roemer (A General Theory of Exploitation and Class [Cambridge, Mass.: Harvard University Press, 1982]; idem, Value, Exploitation and Class [London: Harwood Academic Publishers, 1985]) that the theory of exploitation can be separated analytically from the labor theory of value; and that a “generalized commodity exploitation theory” can be formulated which can be justified regardless of whether or not the labor theory of value is true. I want to demonstrate that the Marxist theory of exploitation is nonsensical even if one were to absolve its proponents from having to prove the labor theory of value and, indeed, even if the labor theory of value were true. Even a generalized commodity exploitation theory provides no escape from the conclusion that the Marxist theory of exploitation is dead wrong.

⁵ See on the following Eugen von Böhm-Bawerk, The Exploitation Theory of Socialism-Communism (South Holland, Ill.: Libertarian Press, 1975); idem, Shorter Classics of Böhm-Bawerk (South Holland, Ill.: Libertarian Press, 1962).

⁶ Ludwig von Mises, Human Action (Chicago: Regnery, 1966), p. 407; see also Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), pp. 300–01.

⁷ See on the time preference theory of interest in addition to the works cited in notes 5 and 6; also Frank Fetter, Capital, Interest and Rent (Kansas City: Sheed Andrews and McMeel, 1977).

⁸ See on the following Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Boston: Kluwer Academic Publishers, 1989); idem, “Why Socialism Must Fail,” Free Market (July 1988); idem, “The Economics and Sociology of Taxation,” Journal des Economistes et des Etudes Humaines (1990); supra chap. 2.

⁹ Mises’s contributions to the theory of exploitation and class are unsystematic. However, throughout his writings he presents sociological and historical interpretations that are class analyses, if only implicitly. Noteworthy here is in particular his acute analysis of the collaboration between government and banking elite in destroying the gold standard in order to increase their inflationary powers as a means of fraudulent, exploitative income and wealth redistribution in their own favor. See for instance his Monetary Stabilization and Cyclical Policy (1928) in idem, On the Manipulation of Money and Credit, ed. Percy Greaves (Dobbs Ferry, N.Y.: Free Market Books 1978); idem, Socialism (Indianapolis: Liberty Fund, 1981), chap. 20; idem, The Clash of Group Interests and Other Essays (New York: Center for Libertarian Studies, Occasional Paper Series No. 7, 1978). Yet Mises does not give systematic status to class analysis and exploitation theory because he ultimately misconceives of exploitation as merely an intellectual error which correct economic reasoning can dispel. He fails to fully recognize that exploitation is also and probably even more so a moral-motivational problem that exists regardless of all economic reasoning. Rothbard adds his insight to the Misesian structure of Austrian economics and makes the analysis of power and power elites an integral part of economic theory and historical-sociological explanations; and he systematically expands the Austrian case against exploitation to include ethics in addition to economic theory, i.e., a theory of justice next to a theory of efficiency, such that the ruling class can also be attacked as immoral. For Rothbard’s theory of power, class and exploitation, see in particular his Power and Market (Kansas City: Sheed Andrews and McMeel, 1977); idem, For a New Liberty (New York: Macmillan, 1978); idem, The Mystery of Banking (New York: Richardson and Snyder, 1983); idem, America’s Great Depression (Kansas City: Sheed and Ward, 1975). On important nineteenth-century forerunners of Austrian class analysis, see Leonard Liggio, “Charles Dunoyer and French Classical Liberalism,” Journal of Libertarian Studies 1, no. 3 (1977); Ralph Raico, “Classical Liberal Exploitation Theory,” Journal of L ibertarian Studies 1, no. 3 (1977); Mark Weinburg, “The Social Analysis of Three Early 19th Century French Liberals: Say, Comte, and Dunoyer,” Journal of Libertarian Studies 2, no. 1 (1978); Joseph T. Salerno, “Comment on the French Liberal School,” Journal of Libertarian Studies 2, no. 1 (1978); David M. Hart, “Gustave de Molinari and the Anti-Statist Liberal Tradition,” 2 parts, Journal of Libertarian Studies 5, nos. 3 and 4 (1981).

¹⁰ See on this also Hoppe, A Theory of Socialism and Capitalism; idem, “The Justice of Economic Efficiency,” Austrian Economics Newsletter 1 (1988); infra chap. 9; idem, “The Ultimate Justification of the Private Property Ethics,” Liberty (September 1988): infra chap. 10.

¹¹ See on this theme also Lord (John) Acton, Essays in the History of Liberty (Indianapolis: Liberty Fund, 1985); Franz Oppenheimer, System der Soziologie, vol. II: Der Staat (Stuttgart: G. Fischer, 1964); Alexander Rüstow, Freedom and Domination (Princeton, N.J.: Princeton University Press, 1986).

¹² See on this Murray N. Rothbard, “Left and Right: The Prospects for Liberty,” in idem, Egalitarianism As a Revolt Against Nature and Other Essays (Washington, D.C.: Libertarian Review Press, 1974).

¹³ All socialist propaganda to the contrary notwithstanding, the falsehood of the Marxist description of capitalists and laborers as antagonistic classes also comes to bear in certain empirical observations: Logically speaking, people can be grouped into classes in infinitely different ways. According to orthodox positivist methodology (which I consider false but am willing to accept here for the sake of argument), that classification system is better which helps us predict better. Yet the classification of people as capitalists or laborers (or as representatives of varying degrees of capitalist- or laborer-ness) is practically useless in predicting what stand a person will take on fundamental political, social and economic issues. Contrary to this, the correct classification of people as tax producers and the regulated vs. tax consumers and the regulators (or as representatives of varying degrees of tax producer- or consumer-ness) is indeed also a powerful predictor. Sociologists have largely overlooked this because of almost universally shared Marxist preconceptions. But everyday experience overwhelmingly corroborates my thesis: Find out whether or not somebody is a public employee (and his rank and salary), and whether or not and to what extent the income and wealth of a person outside of the public sector is determined by public sector purchases and/or regulatory actions; people will systematically differ in their response to fundamental political issues depending on whether they are classified as direct or indirect tax consumers or as tax producers!

¹⁴ Franz Oppenheimer, System der Soziologie, vol. II. pp. 322–23, presents the matter thus:

The basic norm of the state is power. That is, seen from the side of its origin: violence transformed into might. Violence is one of the most powerful forces shaping society, but is not itself a form of social interaction. It must become law in the positive sense of this term, that is, sociologically speaking, it must permit the development of a system of “subjective reciprocity,” and this is only possible through a system of self-imposed restrictions on the use of violence and the assumption of certain obligations in exchange for its arrogated rights; in this way violence is turned into might, and a relationship of domination emerges which is accepted not only by the rulers, but under not too severely oppressive circumstances by their subjects as well, as expressing a “just reciprocity.” Out of this basic norm secondary and tertiary norms now emerge as implied in it: norms of private law, of inheritance, criminal, obligational and constitutional law, which all bear the mark of the basic norm of power and domination, and which are all designed to influence the structure of the state in such a way as to increase economic exploitation to the maximum level which is compatible with the continuation of legally regulated domination.

The insight is fundamental that “law grows out of two essentially different roots.” On the one hand, out of the law of the association of equals, which can be called a “natural right,” even if it is no natural right, and on the other hand, out of the law of violence transformed into regulated might, the law of unequals.

On the relation between private and public law, see also F.A. Hayek, Law, Legislation and Liberty, 3 vols. (Chicago: University of Chicago Press, 1973–79), esp. vol. I, chap. 6 and vol. II, pp. 85–88.

¹⁵ See James Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962), p. 19.

¹⁶ See Hans-Hermann Hoppe, Eigentum, Anarchie, und Staat (Opladen: Westdeutscher Verlag, 1987); idem, A Theory of Socialism and Capitalism.

¹⁷ See Hans-Hermann Hoppe, “Banking, Nation States and International Politics,” Review of Austrian Economics 4 (1990); supra chap. 3; Rothbard, The Mystery of Banking, chaps. 15–16.

¹⁸ See on this in particular Rothbard, Man, Economy, and State, chap. 10, esp. the section “The Problem of One Big Cartel”; also Mises, Socialism, chaps. 22–26.

¹⁹ See on this Gabriel Kolko, The Triumph of Conservatism (Chicago: Free Press, 1967); James Weinstein, The Corporate Ideal in the Liberal State (Boston: Beacon Press, 1968); Ronald Radosh and Murray N. Rothbard, eds., A New History of Leviathan (New York: Dutton, 1972); Leonard Liggio and James J. Martin, eds., Watershed of Empire (Colorado Springs, Colo.: Ralph Myles, 1976).

²⁰ On the relationship between state and war see Ekkehart Krippendorff, Staat Und Krieg (Frankfurt/M.: Suhrkamp, 1985); Charles Tilly, “War Making and State Making as Organized Crime,” in Peter Evans et al., eds., Bringing the State Back In (Cambridge: Cambridge University Press, 1985); also Robert Higgs, Crisis and Leviathan (New York: Oxford University Press, 1987).

²¹ On a further elaborated version of this theory of military and monetary imperialism see Hoppe, Banking, Nation States and International Politics (supra chap. 3).

²² See on this in particular Ludwig von Mises, Theory and History (Auburn, Ala.: Ludwig von Mises institute, 1985), esp. part 2.

²³ It may be noted here that Marx and Engels, foremost in their Communist Manifesto, championed the historically progressive character of capitalism and were full of praise for its unprecedented accomplishments. Indeed, reviewing the relevant passages of the Manifesto concludes Joseph A. Schumpeter,

Never, I repeat, and in particular by no modern defender of the bourgeois civilization has anything like this been penned, never has a brief been composed on behalf of the business class from so profound and so wide a comprehension of what its achievement is and what it means to humanity. (“The Communist Manifesto in Sociology and Economics,” in idem, Essays of Joseph A. Schumpeter, ed. Richard Clemence [Port Washington, N.Y.: Kennikat Press, 1951], p. 293)

Given this view of capitalism, Marx went so far as to defend the British conquest of India, for example, as a historically progressive development. See Marx’s contributions to the New York Daily Tribune, of June 25, 1853, July 11, 1853, August 8, 1853 (Marx and Engels, Werke [East Berlin: Dietz, 1960], vol. 9). As a contemporary Marxist taking a similar stand on imperialism see Bill Warren, Imperialism: Pioneer of Capitalism (London: New Left Books, 1981).

²⁴ See on the theory of revolution in particular Charles Tilly, From Mobilization to Revolution (Reading, Mass.: Addison-Wesley, 1978); idem, As Sociology Meets History (New York: Academic Press, 1981).

²⁵ For a neo-Marxist assessment of the present era of “late capitalism” as characterized by “a new ideological disorientation” born out of permanent economic stagnation and the exhaustion of the legitimatory powers of conservatism and social-democratism, (i.e., “liberalism” in American terminology) see Jürgen Habermas, Die Neue Unübersichtlichkeit (Frankfurt/M.: Suhrkamp, 1985); also idem, Legitimation Crisis (Boston: Beacon Press, 1975); C. Offe, Strukurprobleme des kapitalistischen Staates (Frankfurt/M.: Suhrkamp, 1972).

²⁶ For an Austrian-libertarian assessment of the crisis-character of late capitalism and on the prospects for the rise of a revolutionary libertarian class consciousness see Rothbard, “Left and Right”; idem, For a New Liberty, chap. 15; idem, The Ethics of Liberty (Atlantic Highlands, N.J.: Humanities Press, 1982), part V.

²⁷ On the internal inconsistencies of the Marxist theory of the state see also Hans Kelsen, Sozialismus und Staat (Vienna, 1965).

Chapter 5

[A slightly different version appears in Dissent on Keynes: A Critical Appraisal of Keynesian Economics, edited by Mark Skousen (New York: Praeger, 1992).]

¹ See in particular Ludwig von Mises, Human Action (Chicago: Regnery, 1966); Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970).

² See on the foundations of economics Ludwig von Mises, Epistemological Problems of Economics (New York: New York University Press, 1981); idem, Theory and History (Auburn, Ala.: Ludwig von Mises Institute, 1985); idem, The Ultimate Foundation of Economic Science (Kansas City: Sheed Andrews and McMeel, 1978); Murray N. Rothbard, Individualism and the Philosophy of the Social Sciences (San Francisco: Cato Institute, 1979); Hans-Hermann Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung. Untersuchugen zur Grundlegung von Soziologie und Ökonomie (Opladen: Westdeutscher Verlag, 1983); idem, Praxeology and Economic Science (Auburn, Ala.: Ludwig von Mises Institute, 1988).

On the competing, positivist view of economics, according to which economic laws are hypotheses subject to empirical confirmation and falsification (much like the laws of physics), see Milton Friedman, “The Methodology of Positive Economics,” in idem, Essays in Positive Economics (Chicago: University of Chicago Press, 1953).

³ John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt, Brace and World, 1964), esp. chap. 23.

⁴ Mises, Human Action, p. 599.

⁵ Ibid., p. 611.

⁶ On time preference, see the following section 1.3.

⁷ The claim that involuntary unemployment is possible in the framework of a private property economy as characterized above is due to an elementary logical-conceptual confusion: It ignores the fact that employment is a two-party affair; i.e., an exchange which, like any voluntary exchange, can only take place if it is deemed mutually, bilaterally beneficial. It makes no more sense to classify someone as involuntarily unemployed if he cannot find anybody willing to meet his unilaterally fixed demands for employment, than to call a person in search of a wife, a house, or a Mercedes involuntarily wifeless, homeless, or Mercedesless because no one wants to marry him or supply him with a house or a Mercedes at terms which this person has unilaterally determined as agreeable to him. Absurdity and contradiction would result if one were to do so. For then one would not only have to accept, as the other side of the same coin, that the boycotting employer, woman, or owner of a house or a Mercedes in turn would have to be regarded as an involuntary nonemployer, nonwife, or nontrader of a house or a Mercedes because his/her unilateral demands had not been met by the wouldbe employee, would-be husband, or would-be house or Mercedes owner just as much as they had not met his. Moreover, with both the would-be employee as well as the would-be employer classified as involuntarily being what they are because no mutual agreement had been reached between them, to create “voluntary employment” would imply coercing either one or both parties to accept an exchange whose terms one or both of them regard as unacceptable. Hence, to say involuntary unemployment is possible on the unhampered market is to say coercion means voluntariness and voluntariness coercion, which is nonsense.

⁸ See Mises, Human Action, pp. 244–50.

In a system without change in which there is no uncertainty whatever about the future, nobody needs to hold cash. Every individual knows precisely what amount of money he will need at any future date. He is therefore in a position to lend all the funds he receives in such a way that the loans fall due on the date he will need them. (p. 249)

See also Rothbard, Man, Economy, and State, p. 280.

⁹ Ludwig von Mises, The Theory of Money and Credit (Irvington, N.Y.: Foundation for Economic Education, 1971), pp. 32–33; see also Carl Menger, Principles of Economics (New York: New York University Press, 1981); idem, Geld, in Carl Menger, Gesammelte Werke, ed. F.A. Hayek (Tübingen: Mohr, 1970), vol. 4.

¹⁰ See Rothbard, Man, Economy, and State, pp. 669–71.

Goods are useful and scarce, and any increment in goods is a social benefit. But money is useful not directly, but only in exchanges…. When there is less money, the exchange-value of the monetary unit rises; when there is more money, the exchange-value of the monetary unit falls. We conclude that there is no such thing as “too little” or “too much” money, that, whatever the social money stock, the benefits of money are always utilized to the maximum extent. (p. 670)

See also Murray N. Rothbard, The Mystery of Banking (New York: Richardson and Snyder, 1983).

¹¹ On the time preference theory of interest see William Stanley Jevons, Theory of Political Economy (New York: Augustus M. Kelley, 1965); Eugen von Böhm-Bawerk, Capital and Interest, 3 vols. (South Holland, Ill.: Libertarian Press, 1959); Richard von Strigl, Kapital und Produktion (Vienna: Julius Springer, 1934 [Engl. trans., Ludwig von Mises Institute, 1988]); Frank Fetter, Capital, Interest, and Rent (Kansas City: Sheed Andrews and McMeel, 1971); Roger Garrison, “In Defense of the Misesian Theory of Interest,” Journal of Libertarian Studies 3, no. 2 (1979); idem, “Professor Rothbard and the Theory of Interest,” in Walter Block and Llewellyn H. Rockwell, Jr., eds., Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard (Auburn, Ala.: Ludwig von Mises Institute, 1988).

¹² Mises, Human Action, p. 483.

¹³ To be sure, not all lengthier production processes are more productive than shorter ones; but under the assumption that man, constrained by time-preference, will invariably and at all times select the shortest conceivable methods of producing some given output, any increase in output then can—praxeologically—only be achieved if the production structure is lengthened.

¹⁴ Mises, Human Action, pp. 490ff.

¹⁵ See also Rothbard, Man, Economy, and State, pp. 663f.

¹⁶ See also Mises, Human Action, pp. 530–32; Rothbard, Man, Economy, and State, pp. 385–86.

¹⁷ See also Murray N. Rothbard, America’s Great Depression (Kansas City: Sheed and Ward, 1975), pp. 39–41.

¹⁸ See also Rothbard, America’s Great Depression, pp. 12–17.

¹⁹ On the role of government as destructive of wealth formation, see in particular Murray N. Rothbard, Power and Market (Kansas City: Sheed Andrews and McMeel, 1977); Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Boston: Kluwer Academic Publishers, 1989); idem, “The Economics of Sociology and Taxation,” Journal des Economistes et des Etudes Humaines (1990); supra chap. 2.

²⁰ See in particular Rothbard, The Mystery of Banking; Hans-Hermann Hoppe, “Banking, Nation States, and International Politics,” Review of Austrian Economics 4 (1990); supra chap. 3; idem, “Marxist and Austrian Class Analysis,” Journal of Libertarian Studies 9, no. 2 (1990); supra chap. 4; idem, “European Economic Integration and the ECU,” Austrian Economics Newsletter (1989).

²¹ On the theory of the business cycle see Mises’s original contribution in his Theory of Money and Credit, part III, chap. 5; his first elaborate version is Geldwertstabilisierung und Konjunkturpolitik (Jena: Gustav Fischer, 1928), the English translation of which did not appear until 1978 in Ludwig von Mises, On the Manipulation of Money and Credit (Dobbs Ferry, N.Y.: Free Market Books, 1978); F.A. Hayek, Monetary Theory and the Trade Cycle (New York: A.M. Kelley, 1966); idem, Prices and Production (New York: Augustus M. Kelley, 1967); Hayek’s works were first published in 1929, resp. l93l; it is interesting to note that Hayek, who received the Nobel prize in 1974, the year after Mises’s death, for his contributions to the Mises-Hayek theory of the business cycle, obviously misrepresents Mises’s achievements as regards the development of this theory: In his Prices and Production of 1931, the first presentation of the Austrian business cycle theory to appear in English, he acknowledges Mises’s prior claim to fame. Yet even though he cites Mises’s above mentioned 1928 work, he falsely claims that Mises’s contributions to the theory were essentially confined to a few remarks in his original work of 1912; see chap. 3 fn. 1 in Prices and Production; Strigl, Kapital und Produktion; Lionel Robbins, The Great Depression (Freeport, N.Y.: Books for Libraries Press, 1971); Rothbard, America’s Great Depression; Ludwig von Mises, et al., The Austrian Theory of the Trade Cycle and Other Essays (Auburn, Ala.: Ludwig von Mises Institute, 1983); Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung, chap. 3; Roger Garrison, “Hayekian Trade Cycle Theory: A Reappraisal,” Cato Journal 6, no. 2 (1986); idem, “The Austrian Theory of the Business Cycle in the Light of Modern Macroeconomics,” Review of Austrian Economics 3 (1988).

²² See also Roger Garrison, “‘Rational Expectations’ Offers Nothing That’s Both New and True,” Austrian Economics Newsletter 6, no. 1 (1985); idem, “The Austrian Theory of the Business Cycle in Light of Modern Macroeconomics” esp. pp. 19–23. See also the critique of psychological—as opposed to praxeological—business cycle theories below.

²³ For pro-Keynesian literature see in particular Seymour P. Harris, ed., The New Economics (New York: Alfred Knopf, 1947); Alvin Hansen, A Guide to Keynes (New York: McGraw-Hill, 1953); for anti-Keynesian literature see in particular Henry Hazlitt, The Failure of the “New Economics” (Princeton, N.J.: D. Van Nostrand, 1959); idem, ed., The Critics of Keynesian Economics (Lanham, Md.: University Press of America, 1983).

²⁴ Keynes, The General Theory, p. 21; also pp. 6, 15.

²⁵ Ibid., p. 15. Keynes at this point promises an alternative definition to be given on p. 26; revealingly, no such definition appears there or anywhere else in the book!

²⁶ See also Hazlitt, The Failure of the “New Economics,” p. 30.

²⁷ Keynes, The General Theory, pp. 242–43; also p. 28.

²⁸ See also Hazlitt, The Failure of the “New Economics,” p. 52.

²⁹ Keynes, General Theory, p. 293.

³⁰ Ibid., p. 294.

³¹ Mises explains:

Let us assume that there is only gold money and only one central bank. With the successive progress toward the state of an evenly rotating economy all individuals and firms restrict step by step their holding of cash and the quantities of gold thus released flow into nonmonetary—industrial—employment. When the equilibrium of the evenly rotating economy is finally reached, there are no more cash holdings; no more gold is used for monetary purposes. The individuals and firms own claims against the central bank, the maturity of each part of which precisely corresponds to the amount they will need on the respective dates for the settlement of their obligations. The central bank does not need any reserves as the total sum of the daily payments of its customers exactly equals the total sum of withdrawals. All transactions can in fact be effected through transfer in the bank’s books without any recourse to cash. Thus the “money” of this system is not a medium of exchange; it is not money at all; it is merely a numéraire, an ethereal and undetermined unit of accounting of that vague and indefinable character which the fancy of some economists and the errors of many laymen mistakenly have attributed to money. (Human Action, p. 249)

³² Keynes recognizes that money also has something to do with uncertainty. The fundamental mistake in his theory of money pointed out here, however, surfaces again when he relates money not to uncertainty as such, but, more specifically, to uncertainty of interest rates. “The necessary condition” [for the existence of money] he writes, “is the existence of uncertainty as to the future rate of interest” (General Theory, p. 168; also p. 169). See also the following discussion.

³³ Ibid., p. 174.

³⁴ On the absurd implications of the assumption of functional—rather than causal—relations, see the discussion below.

³⁵ Keynes, The General Theory, p. 174.

³⁶ Ibid., p. 167.

³⁷ See also Hazlitt, The Failure of the “New Economics,” pp. 188f.

³⁸ See also Rothbard, America’s Great Depression, pp. 40–41; Mises, Human Action, pp. 521–23.

³⁹ Keynes, The General Theory, p. 296.

⁴⁰ See also W.H. Hutt, The Theory of Idle Resources (Indianapolis: Liberty Fund, 1977).

⁴¹ Keynes, The General Theory, p. 173; see also his laudatory remarks on mercantilist economics, and in particular, Silvio Gesell, as precursors of this view on pp. 341, 355.

⁴² See on this also Rothbard, Man, Economy, and State, pp. 687–89.

⁴³ Keynes, The General Theory, p. 173.

⁴⁴ See also below.

⁴⁵ Keynes, The General Theory, p. 328.

⁴⁶ Ibid., p. 220.

⁴⁷ Ibid., p. 221.

⁴⁸ lbid., p. 376.

⁴⁹ Ibid., p. 376.

⁵⁰ Keynes, The General Theory, p. 325.

⁵¹ See also Hazlitt, The Failure of the “New Economics,” pp. 231–35. What about the seemingly obvious objection, that the expansion of monetary credit through which Keynes wants to bring about the reduction of the interest rate to zero is nothing but an expansion of paper, and that the problem of scarcity is a matter of “real” goods, which can only be overcome through “genuine savings”? To this he has the following funny answer in The General Theory:

The notion that the creation of credit by the banking system allows investment to take place to which “no genuine saving” corresponds, i.e., the idea that saving and investment … can differ from one another, is to be explained, I think, by an optical illusion. (p. 81)

[T]he savings which result from this decision are just as genuine as any other savings. No one can be compelled to own the additional money corresponding to the new bank-credit unless he deliberately prefers to hold more money rather than some other form of wealth. (p. 83)

The new money is not “forced” on anyone. (p. 328)

As Henry Hazlitt remarks,

[o]n the same reasoning we can create any amount of new “savings” we wish overnight, simply by printing that amount of new paper money, because somebody will necessarily hold that new paper money! (The Failure of the “New Economics,” p. 227)

⁵² See Keynes, The General Theory, pp. 129ff., 336ff., 348f. On Keynes’s role in the actual destruction of the gold standard see Henry Hazlitt, From Bretton Woods to World Inflation (Chicago: Regnery, 1984).

⁵³ Keynes, The General Theory, p. 161.

⁵⁴ Ibid., p. 157.

⁵⁵ Ibid., p. 374.

⁵⁶ Ibid., p. 217.

⁵⁷ Keynes, The General Theory, pp. 308–09.

⁵⁸ Ibid., p. 309, and he adds, in a footnote, “The nineteenth-century saying, quoted by Bagehot, that ‘John Bull’ can stand many things, but he cannot stand 2 per cent.” On Keynes’s conspiracy theory see also Hazlitt, The Failure of the “New Economics,” pp. 3, 16–18.

⁵⁹ Keynes, The General Theory, p. 376, also p. 221.

⁶⁰ Ibid., p. 317.

⁶¹ Ibid., p. 316.

⁶² Ibid., p. 157.

⁶³ Ibid., p. 162.

⁶⁴ Ibid., p. 320.

⁶⁵ Ibid., p. 378.

⁶⁶ Ibid., p. 164.

⁶⁷ Keynes’s socialism, however, is not the egalitarian-proletarian version as espoused by the Bolsheviks. For this Keynes has nothing but contempt. His socialism is of the fascist or Nazi variety. In the preface to the German edition of his General Theory (which appeared in late 1936) he wrote:

The theory of aggregate production that is the goal of the following book can be much more easily applied to the conditions of a totalitarian state than the theory of the production and distribution of a given output turned out under the conditions of free competition and of a considerable degree of laissez-faire. (quoted from Hazlitt, The Failure of the “New Economics,” p. 277)

⁶⁸ Keynes, The General Theory, p. 368. On the Keynesian theory of stagnation see also Alvin H. Hanson, Fiscal Policy and Business Cycles (New York: Norton, 1941); for a critique see George Terborgh, The Bogey of Economic Maturity (Chicago: Machinery and Allied Products Institute, 1945); also Murray N. Rothbard, “Breaking Out of the Walrasian Box: The Cases of Schumpeter and Hansen,” Review of Austrian Economics 1 (1987).

⁶⁹ Keynes, The General Theory, pp. 372–73.

⁷⁰ Ibid., p. 96.

⁷¹ Ibid., p. 97; also pp. 27f.

⁷² In fact, Keynes informs us that savings is by definition identical to investment (p. 63), “that the excess of income over consumption, which we call saving, cannot differ from the addition to capital equipment which we call investment” (p. 64). Then, however, a reduced proportion of consumption expenditures must by definition go hand in hand with accordingly increased investments, and this would lead to a higher future income, to still more absolute consumption and still more absolute and relative saving and investment. Where, indeed, is the problem here?

⁷³ Keynes writes,

If in a potentially wealthy community the inducement to invest is weak, then, in spite of its potential wealth, the working of the principle of effective demand will compel it to reduce its actual output, until, in spite of its potential wealth, it has become so poor that its surplus over its consumption is sufficiently diminished to correspond to the weakness of the inducement to invest. (The General Theory, p. 31)

Or:

The greater, moreover, the consumption for which we have provided in advance, the more difficult it is to find something further to provide for in advance, and the greater our dependence on present consumption as a source of demand. Yet the larger our incomes, the greater, unfortunately, is the margin between our incomes and our consumption. So, failing some novel expedient, there is, as we shall see, no answer to the riddle, except that there must be sufficient unemployment to keep us so poor that our consumption falls short of our income by no more than the equivalent of the physical provision for future consumption which it pays to produce to-day. (p. 105)

⁷⁴ Ibid., p. 325; or “the remedy would lie in various measures designed to increase the propensity to consume by the redistribution of incomes or otherwise” (p. 324).

⁷⁵ Ibid., p. 63. It is typical of Keynes’s philosophy of abundance that he gets things upside down here as well. For the correct definitions are: product produced = income; income - consumption = saving; saving = investment. Where does Keynes’s income come from?

⁷⁶ See on this also Hazlitt, The Failure of the “New Economics,” pp. 120–23.

⁷⁷ Keynes, The General Theory, p. 347.

⁷⁸ Ibid., p. 357.

⁷⁹ See on this note 51.

⁸⁰ On his program of permanent inflation see also this remark on the trade cycle: “The right remedy for the trade cycle is not to be found in abolishing booms and keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom” (p. 322). The answer to credit expansion, that is, is still more credit expansion.

⁸¹ Ibid., p. 20.

⁸² Ibid., p. 210; second emphasis added.

⁸³ Contrary to Keynes’s fanciful fears, the demand for money can never be infinite, because everyone must obviously consume sometimes (and cannot delay consumption further); and at such points liquidity preference is definitely finite.

⁸⁴ The second element of Keynes’s stagnation theory is equally false. It may be that that saving in the definition of equaling investment increases overproportionally with increasing incomes—while it can never reach 100 percent. Yet this situation certainly should give no one concern regarding the social income produced. It is, however, not true that savings in the sense of hoarding increases with increasing incomes, and that the greatest leakage then occurs among the rich and in wealthy societies. The opposite is true. If real income increases because the economy, supported by additional savings, is expanding, the purchasing power of money increases (the money stock being given). But at a higher purchasing power of the money unit, the amount of cash demanded actually falls (the demand for money schedule being given). Thus, if anything, the leakstagnation nonproblem should actually diminish rather than increase with increasing wealth.

Chapter 6

[Reprinted from the Review of Austrian Economics 7, no. 2 (1994).]

¹ See on the following, in particular Carl Menger, Principles of Economics (New York: New York University Press, 1981); idem, Geld, in Carl Menger, Gesammelte Werke, F.A. Hayek, ed. (Tübingen: Mohr, 1970), vol. 4; Ludwig von Mises, The Theory of Money and Credit (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1971); idem, Human Action: A Treatise on Economics (Chicago: Regnery, 1966).

² Mises, The Theory of Money and Credit, pp. 32–33.

³ See Murray N. Rothbard, “New Light on the Prehistory of the Austrian School,” in The Foundations of Modern Austrian Economics, Edwin G. Dolan, ed. (Kansas City: Sheed and Ward, 1976); Joseph T. Salerno, “Two Traditions in Modern Monetary Theory,” Journal des Economistes et des Etudes Humaines 2, nos. 2–3 (1991).

⁴ On commodity reserve proposals see Benjamin Graham, Storage and Stability (New York: McGraw Hill, 1937); Frank D. Graham, Social Goals and Economic Institutions (Princeton, N.J.: Princeton University Press, 1942); also F.A. Hayek, “A Commodity Reserve Currency,” Economic Journal 210 (1943); Milton Friedman, “Commodity-Reserve Currency,” Journal of Political Economy (1951).

⁵ See Milton Friedman, “The Case for Flexible Exchange Rates,” in Friedman, Essays in Positive Economics (Chicago: University of Chicago Press, 1953); idem, A Program for Monetary Stability (New York: Fordham University Press, 1959); also Policy Implications of Trade and Currency Zones: A Symposium (Kansas City: Federal Reserve Bank of Kansas City, 1991).

⁶ See Irving Fisher, The Purchasing Power of Money (New York: Augustus M. Kelley, 1963); idem, Stabilizing the Dollar (New York: Macmillan, 1920); idem, The Money Illusion (New York: Adelphi, 1929); Milton Friedman, “A Monetary and Fiscal Framework for Economic Stability,” American Economic Review 38 (1948).

⁷ Mises, The Theory of Money and Credit, pp. 187–94; idem, Human Action, pp. 219–23.

⁸ See Neil Wallace, “A Legal Restrictions Theory of the Demand for ‘Money’,” Federal Reserve Bank of Minneapolis Quarterly Review (1983); Eugene Fama, “Financial Intermediation and Price Level Control,” Journal of Monetary Economics 9, no. 1 (1983); for a critique see Lawrence White, “Accounting for Non-Interest-Bearing Currency” Journal of Money, Credit, and Banking 19, no. 4 (1987).

⁹ Mises, The Theory of Money and Credit, p. 111.

¹⁰ See Friedman, “Essays in Positive Economics, p. 210; idem, A Program for Monetary Stability, pp. 4–8; idem, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p. 40.

¹¹ Indeed, historically this has been the case: Traditionally, notes have always been widely distrusted, and their acceptability—as compared to that of genuine money such as gold or silver coins—was severely limited.

In order to increase the popularity of money substitutes two complementary measures were actually required: First, the note-issuing depositing institution had to overvalue deposit notes against genuine money by either charging no depositing fee or by even paying interest on deposits. Secondly, because the guarding of money is actually not costless and deposited money cannot possibly generate an interest return, the bank, in order to cover its otherwise unavoidable losses, had to engage in fractional reserve banking, i.e., it had to issue and bring into circulation new, additional deposit tickets that, while physically indistinguishable from any other notes, were actually not covered by genuine money.

On the ethical and economic status of the practice of fractional-reserve banking see the section, “From Deposit and Loan Banking to Fractional-Reserve Banking: The Devolution of Credit,” below.

¹² It might be argued that a monopoly agreement would be possible (conceivable), if the monopolistic bank of issue were owned by—and its profits distributed to—everyone. Wouldn’t everyone, then, not just the monopolist, profit from the savings of substituting paper for gold?

In fact, such an agreement is illusionary. Joint ownership of the monopoly bank would imply that tradeable stock certificates must be issued and distributed. But who should get how much stock? Bank clients, according to their deposit size? Yet all private holders of notes help save on gold and would want to be included among the bank owners according to the size of their note holdings. What about the owners and sellers of nonmoney goods? In showing themselves willing to accept paper instead of gold, they, too, play their part in the resource cost savings. But how in the world is one to determine how many shares to award them when their contribution consists, as it does, of various quantities of heterogeneous consumer and producer goods? Here, at the very latest it would become impossible to reach agreement.

Moreover, why would any new market participant—any later deposit, note and/or nonmoney good owner not initially endowed with bank stock—want to consent to and support this arrangement? Why should he pay for banking stock, while it was distributed to the initial wealth owners free of charge, even though he is now involved in resource cost savings just as much as they were then? Such an arrangement would involve a systematic redistribution of income and wealth in favor of all initial wealth owners and at the expense of all later ones. Yet if new additional bank stock were issued for each new deposit, note, or nonmoney good owner, such stock would be worthless from the outset and any bank offering it would be a nonstarter.

In addition, as will be explained below, regardless of how the ownership problem is resolved, the very operation of the bank will—indeed must—have effects on the interpersonal income and wealth distribution.

¹³ See Milton Friedman and Anna Schwartz, “Has Government Any Role in Money?” Journal of Monetary Economics (1986); for Hayek’s proposal see his Denationalization of Money (London: Institute of Economic Affairs, 1976).

¹⁴ See Friedman, Essays in Positive Economics, p. 216; also Friedman and Schwartz, “Has Government Any Role in Money?”

¹⁵ Milton Friedman, “The Resource Cost of Irredeemable Paper Money,” Journal of Political Economy (1986).

¹⁶ Monetarists had predicted that, as the result of the demonetization of gold and the transition to a pure fiat money system, the price of gold would fall—from the then official rate of $35 per ounce to an estimated nonmonetary value of gold of around $6. In fact, the price of gold rose. At one point it reached $850 per ounce, and for most of the time it has lingered between $300 and $400. As of this writing the price is $375.

¹⁷ Friedman, “The Resource Cost of Irredeemable Paper Money,” p. 648.

¹⁸ Friedman, Essays in Positive Economics, p. 250.

¹⁹ Friedman, “The Resource Cost of Irredeemable Paper Money,” p. 646; also idem, Money Mischief Episodes in Monetary History (New York: Harcourt Brace Jovanovich, 1992), chap. 10.

Among the suggestions for an alternative fiat money “anchor” recently considered by Friedman, the “frozen monetary base rule” deserves a brief comment (see Friedman, “Monetary Policy for the 1980s” in To Promote Prosperity, John H. Moore, ed. [Stanford: Hoover Institution, 1984]). In one respect this rule represents an advance over his earlier 3 to 5 percent monetary growth rule. His advocacy of the latter rule was based essentially on the erroneous proto-Keynesian notion that money constitutes part of social capital, such that an economy cannot grow by 5 percent unless it is accommodated to do so by a proportional increase in the money supply. In contrast, the frozen monetary base rule indicates a recognition of the old Humean insight that any supply of money is equally optimal or, in Friedman’s own words, that money’s “usefulness to the community as a whole does not depend on how much money there is (Friedman, Money Mischief, p. 28). Otherwise, the proposal represents no advance at all, for how in the world can a monopolist be expected to follow a frozen monetary base rule any more than a less stringent 3 to 5 percent growth rule?

Moreover, even if this problem were solved miraculously, this would still not alter the monopoly’s character as an instrument of unilateral expropriation and income and wealth redistribution. The monopolist, apart from offering depositing and clearing services (for which his customers would pay him a fee), would also have to perform the function, for customers and noncustomers alike, of replacing old, worn-out notes—one-to-one and free of charge—with new, identical ones (otherwise, who would want to replace a permanent commodity money by a perishable fiat money?). However, while the costs associated with this task may be low, they are definitely not zero. Accordingly, in order to avoid losses and recoup his expenses, the monopolist cannot but increase the monetary base—and hence one would essentially be back at the older monetary growth rule.

²⁰ On the following see in particular Murray N. Rothbard, The Mystery of Banking (New York: Richardson and Synder, 1983); idem, The Case for a 100 Percent Gold Dollar (Auburn, Ala.: Ludwig von Mises Institute, 1991); Mises, The Theory of Money and Credit; idem, Human Action; also Walter Block, “Fractional Reserve Banking: An Interdisciplinary Perspective,” in Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard, Walter Block and Llewellyn H. Rockwell, Jr., eds. (Auburn, Ala.: Ludwig von Mises Institute, 1988); S. Koch, Fractional Reserve Banking: A Practical Critique (Master’s thesis, University of Nevada, Las Vegas, 1992).

²¹ On the theory of the business cycle see in particular Ludwig von Mises, Geldwertstabilisierung und Konjunkturpolitik (Jena: Gustav Fischer, 1928); idem, Human Action, chap. 20; F.A. Hayek, Prices and Production (London: Routledge and Kegan Paul, 1931); Murray N. Rothbard, America’s Great Depression (Kansas City: Sheed and Ward, 1975).

²² On the fundamental distinction between commodity credit and circulation credit, see Mises, The Theory of Money and Credit, pp. 263ff.

²³ See Lawrence White, Competition and Currency (New York: New York University Press, 1989); George Selgin, The Theory of Free Banking (Totowa, N.J.: Rowman and Littlefield, 1988).

²⁴ For a critique of White and Selgin as misinterpreting the fundamental thrust of Mises’s theory of money and banking see Joseph Salerno, “The Concept of Coordination in Austrian Macroeconomics,” in Austrian Economics: Perspectives on the Past and Prospects for the Future, Richard Ebeling, ed. (Hillsdale, Mich.: Hillsdale College Press, 1991); idem, “Mises and Hayek Dehomogenized,” Review of Austrian Economics 6, no. 2 (1993): 113–46.

²⁵ White, Competition and Currency, p. 156, also pp. 55–56; George Selgin, “Short-Changed in Chile: The Truth about the Free-Banking Episode,” Austrian Economics Newsletter (Winter/Spring, 1990): 5.

²⁶ White, Currency and Competition, p. 157; Selgin, The Theory of Free Banking, p. 137.

²⁷ See Block, “Fractional Reserve Banking: An Interdisciplinary Perspective,” p. 30.

²⁸ For a critique of this error see Rothbard, America’s Great Depression, pp. 39–43; Hans-Hermann Hoppe, “Theory of Employment, Money Interest, and the Capitalist Process: The Misesian Case Against Keynes,” in The Economics and Ethics of Private Property, Hoppe, ed. (Boston: Kluwer, 1993), pp. 119–20, 137–38.

²⁹ Selgin, The Theory of Free Banking, p. 55.

³⁰ Ibid., pp. 61–62.

³¹ See Friedman and Schwartz, “Has Government Any Role in Money?”

Chapter 7

[This article was written with the assistance of Jörg Guido Hülsmann and Walter Block and is reprinted from the Quarterly Journal of Austrian Economics 1, no. 1 (Spring, 1998).]

¹ George Selgin and Lawrence White, “In Defense of Fiduciary Media—or, We are Not Devo(lutionists), We are Misesians!” Review of Austrian Economics 9 no. 2 (1996): 83–107.

Curiously, in the reply to their various critics, Selgin and White selected as their central target an article by Hans-Hermann Hoppe (“How is Fiat Money Possible?—or, The Devolution of Money and Credit,” Review of Austrian Economics 7, no. 2 (1994): 49–74, that deals only cursorily with their position. Other Austrian critics of fractional reserve banking explicitly dealt with in Selgin and White’s article including Walter Block, “Fractional Reserve Banking: An Interdisciplinary Perspective,” in Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard, Walter Block and Llewellyn H. Rockwell, Jr., eds. (Auburn, Ala.: Ludwig von Mises Institute, 1988) and Jesús Huerta de Soto, “A Critical Analysis of Central Banks and Fractional-Reserve Free Banking from the Austrian Perspective,” Review of Austrian Economics 8, no. 2 (1995): 25–36. Murray N. Rothbard, the most prominent critic of fractional reserve banking, is targeted only indirectly; and although several of his works are mentioned in their bibliography, Rothbard’s later writings on the subject (“The Myth of Free Banking in Scotland,” Review of Austrian Economics 2 [1988]: 229–57; idem, “Aurophobia: or, Free Banking on What Standard?” Review of Austrian Economics, 6, no. 1 [1992]: 97–108; idem, “The Present State of Austrian Economics,” Journal des Economistes et des Etudes Humaines 6, no. 2 [1995]) are not mentioned. Likewise ignored entirely are the criticisms by Joseph T. Salerno (“Two Traditions in Modern Monetary Theory: John Law and A.R.J. Turgot,” Journal des Economistes et des Etudes Humaines 2, no. 2/3 [1991]; idem, “The Concept of Coordination in Austrian Macroeconomics,” in Austrian Economics: Perspectives on the Past and Prospects for the Future, Richard Ebeling, ed. [Hillsdale, Mich.: Hillsdale College Press, 1991]; and idem, “Mises and Hayek Dehomogenized,” Review of Austrian Economics 6, no. 2 [1993]: 113–46). Selgin and White also do not address, and in this case could not have done so, the most recent and most extensive criticism of their work by Jörg Guido Hülsmann (“Free Banking and the Free Bankers,” Review of Austrian Economics 9, no. 1 [1996]: 3–53).

² As a doctrinal matter, Selgin and White also suggest that their view of fractional reserve banking coincides with Ludwig von Mises’s view; hence, they call themselves Misesians and claim it is the defenders of 100-percent-reserve banking who are deviationists. This claim can be rejected. In fact, Selgin (The Theory of Free Banking: Money Supply under Competitive Note Issue [Totowa, N.J.: Rowman and Littlefield, 1988], pp. 60–63) has frankly acknowledged that Mises’s and his own views concerning fiduciary media are contradictory and White’s attempt to claim Mises as a proponent of fractional reserve free banking has been addressed by Salerno (“Mises and Hayek Dehomogenized,” Review of Austrian Economics 6, no. 2 [1993]: 113–46). Here it suffices to provide a quotation from Mises:

The main thing is that the government should no longer be in a position to increase the quantity of money in circulation and the amount of cheque-book money not fully—i.e., 100 percent—covered by deposits paid in by the public…. No bank must be permitted to expand the total amount of its deposits subject to cheque or the balance of such deposits of any individual customer … otherwise than by receiving cash deposits … or by receiving a cheque payable by another domestic bank subject to the same limitations. This means a rigid 100 per cent reserve for all future deposits; i.e., all deposits not already in existence on the first day of the reform. (The Theory of Money and Credit [Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1978], pp. 438 and 48)

See also notes 11, 25, 37, 47, and 48 below.

³ Lawrence H. White, Competition and Currency (New York: New York University Press, 1989).

⁴ See Salerno, “Ludwig von Mises’s Monetary Theory in Light of Modern Monetary Thought,” Review of Austrian Economics 8, no. 1 (1994): 71–115. Selgin and White highlight the fact that Hoppe referred to them as proponents of “partial fiat money,” but then are ultimately compelled to admit that he did in fact not misrepresent their position as advocates of fractional reserve banking based on an underlying gold standard. Their complaint amounts to no more than a dispute over semantics. We will treat it as such here, too, and will concentrate instead exclusively on substantive disagreements.

There is actually more to the charge of Selgin and White being fiat money advocates in the article under scrutiny. For, in “the mature free-banking system,” according to Selgin and White (but in contrast to the analysis of the operation of such a system given by Mises), a situation is supposed to emerge in which

At the limit, if inter-clearinghouse settlements were made entirely with other assets (perhaps claims on a super-clearinghouse which itself holds negligible commodity money), and if the public were completely weaned from holding commodity money, the active demand for the old-fashioned money commodity would be wholly nonmonetary. (Lawrence White, Competition and Currency [New York: New York University Press, 1989], p. 235)

Thus, notes Salerno (“Ludwig von Mises’s Monetary Theory in Light of Modern Monetary Thought,” Review of Austrian Economics 8, no. 1 [1994]: 71–115, p. 76, n. 7) regarding Selgin and White’s ultimate objective, “the public would presumably finally be freed from its shackles of gold to enjoy the virtues of an invisible-hand-generated private fiat money.” Moreover, as far as semantic innovations and deviations from orthodox Misesian terminology, and hence potential sources of confusion are concerned, we have to consider Selgin and White’s own writings. For in referring to money and money substitutes as “outside and “inside” money respectively, in talking of “base money,” “basic money,” “bank money,” “high-powered” and “low-powered” money, and, yes, the gold dollar “as a substitute for bank deposits,” they display an unusual degree of semantic creativity. Moreover, in suggesting, by their selection of terms, that all of these things are somehow equally “money,” their writings actually have become a source of obfuscation. See on this Hülsmann, “Free Banking and the Free Bankers,” pp. 5ff.

⁵ Selgin and White, “In Defense of Fiduciary Media,” pp. 86–87.

⁶ Ibid., p. 87, n. 8.

⁷ It is also “impossible that some time depositor and borrower are entitled to exclusive control over the same resources” (Hoppe, “How is Fiat Money Possible?”, p. 67).

⁸ Even partners cannot simultaneously own the same thing. A and B can each own half of a household, or half the shares in it but they each own a different 50 percent. It is as logically impossible for them to own the same half as for two people to occupy the same space. Yes, A and B can both be in New York City at the same time, but only in different parts of it.

⁹ Jesús Huerta de Soto (“A Critical Analysis of Central Banks,” p. 33) correctly likens the effect of fractional reserve banking to that of the so-called tragedy of the commons. Selgin and White (“In Defense of Fiduciary Media,” pp. 92–93, n. 12) object to de Soto’s analogy on the ground that the tragedy of the commons refers “to a particular sort of technological externality,” according to Selgin and White, involves “a physical or otherwise direct interference with someone’s consumption or production” and represents “interaction outside the market.” In contrast, write Selgin and White, the “externality from fiduciary media” is a harmless pecuniary “effect on someone’s wealth transmitted via the price system,” that is, through changes in the system of relative prices, and represents “an interdependence through the market.” Selgin and White err: an object and a title to an object are not the same thing.

In lumping money and money substitutes together under the joint title of “money,” as if they were somehow the same thing, Selgin and White fail to grasp that the issue of fiduciary media—an increase of property titles—is not the same thing as a larger supply of property and that relative price changes effected through the issue of fiduciary media are an entirely different “externality” matter than price changes effected through an increase in the supply of property. With this the fundamental distinction between property and a property title in mind, de Soto’s analogy between fractional reserve banking and the tragedy of the commons makes perfect sense. As under the scenario of a tragedy of the commons, every issue of fiduciary media—to titles in search of property—sets in motion a rush, always starting with the bank and its client, to fill these empty tickets with existing property; and in the course of this rush, invariably the first-comers will physically enrich themselves (through the appropriation of existing quantities of property) at the expense of a corresponding impoverishment of later-comers, whose quantity of existing property is physically diminished while they have been left with a larger number of property tickets.

¹⁰ Selgin and White, “In Defense of Fiduciary Media,” p. 85.

¹¹ Similar logic-semantic confusions are at work when Selgin and White try to reduce the difference between demand and time liabilities to one of degree rather than kind (“In Defense of Fiduciary Media,” p. 90). Explains Selgin:

Holders of demand liabilities are granters of credit just as are holders of time liabilities. The only difference is that in the former case the duration of individual loans is unspecified; they are “call loans” that may mature at any time;

and “Mises,” who holds the opposite view, “confuses a difference of degree with one of substance” (Selgin, The Theory of Free Banking, p. 62). In fact, it is Selgin who is confused.

To be sure, one might say that it is only a matter of degree whether a loan (of a car or of money) matures in an hour, a day, a week, or a month. Just as surely, however, this does not change the categorical distinction between present—existing—goods and not (yet) existing future goods. At any point in time, a car or a sum of money (gold) either exists or it does not exist. Nor does it alter the praxeological datum that no one, at any time, can act with anything except present goods. Future goods are the goal of actions, but in order to attain them, every actor must first invariably employ present means goods. Nor does Selgin’s observation concerning degrees of time affect in the slightest the fundamental human condition of scarcity. The supply of present goods is at all times limited, and the limited quantity of present goods limits in turn the quantity of possible future goods.

Whereas Mises recognizes the distinction between present goods and future goods as a universal praxeological category, Selgin’s attempt to conflate demand and time deposits (thus distinguish himself fundamentally from Mises) implies a denial that there is no such fundamental difference between present (existing) goods and future (not-existing) goods (or that their existence differs only in degrees). Contrary to Selgin, it is not a matter of degree but rather one of substance whether a car or a sum of money presently exists or not, and whether one person or someone else owns them. Either they exist or they don’t exist, and either A owns them or someone else does. Accordingly if a property title (demand deposit note) then states that one person is the owner of a present car or present money and no car or money exists, or the car or money is presently owned by someone else, this does not represent a degree of truth but a falsehood. Explains Mises:

A depositor of a sum of money who acquires in exchange for it a claim convertible into money at any time which will perform exactly the same service for him as the sum it refers to has exchanged no present good for a future good. The claim that he has acquired by his deposit is also a present good for him. The depositing of money in no way means that he has renounced immediate disposal over the utility that it commands. (The Theory of Money and Credit, p. 268)

See also the two following notes.

¹² See on this point Rothbard. “How,” asks Rothbard,

do these warehouse receipt transactions relate to the T-account balance sheets of the deposit banks? In simple justice, not at all. When I store a piece of furniture worth $5,000 in warehouse, in law and in justice the furniture does not show up as an asset of the warehouse during the time that I keep it there. The warehouse does not add $5,000 to both its assets and liabilities because it in no sense owns the furniture; neither can we say that I have loaned the warehouse the furniture for some indefinite time period. The furniture is mine and remains mine; I am only keeping it there for safekeeping and therefore I am legally and morally entitled to redeem it any time I please. I am not therefore the bank’s “creditor”; it doesn’t owe me money which I may some day collect. Hence, there is no debt to show up on the Equity + Liability side of the ledger. Legally, the entire transaction is not a loan but a bailment. (The Mystery of Banking [New York: Richardson and Snyder, 1983], pp. 88–89)

Interestingly, while Selgin and White manifest a strong positivistic tendency (fractional reserve banking is recognized by the courts, so it must be all right; on this tendency see “The Issue of Fraud III” below), they do not come to terms with legal reality. For if money deposits are debt, why, then, don’t the courts apply the same reasoning to all other fungible commodities such as wheat? Why are wheat warehouse receipts not considered a debt but a bailment by the courts? Why is this treatment peculiar to money and the banking business? Moreover, why is it that the courts, even if they falsely consider money deposits as debts, still insist that they are more than an ordinary debt, and the depositor’s relation to the bank is not identical with that of an ordinary creditor? See Rothbard, Mystery of Banking, p. 275.

¹³ See also William Stanley Jevons (Money and the Mechanism of Exchange [London: Kegan Paul, 1905], pp. 206–12, 221), who lamented the existence of general deposits since it has “become possible to create a fictitious supply of a commodity, that is, to make people believe that a supply exists which does not exist.” On the other hand, special deposits, such as “bills of lading, pawn-tickets, dock-warrants, or certificates which establish ownership to a definite object,” are superior because “they cannot possibly be issued in excess of the good actually deposited, unless by distinct fraud.” And Jevons concluded that “it used to be held as a general rule of law, that a present grantor assignment of goods not in existence is without operation.”

¹⁴ Selgin and White, “In Defense of Fiduciary Media,” p. 87.

¹⁵ Hoppe, “How is Fiat Money Possible?”, p. 70.

¹⁶ Selgin and White, “In Defense of Fiduciary Media,” pp. 92–93.

¹⁷ For instance, Hans-Hermann Hoppe (“From the Economics of Laissez-Faire to the Ethics of Libertarianism,” in Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard, Walter Block and Llewellyn H. Rockwell, Jr., eds. [Auburn, Ala.: Ludwig von Mises Institute, 1988], pp. 69ff.); and White’s review of Hoppe (Lawrence White, “Review of Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard,” Journal of Economic Literature [June 1990]: 664–65).

¹⁸ Also see note 7 above. We will also show that these authors’ meaning of demand for (and supply of) money is misconceived. An increased demand for money (or potatoes or cars) is not just a wish to have more money (or potatoes), but greater effective demand.

¹⁹ Selgin and White, “In Defense of Fiduciary Media,” p. 95.

²⁰ Ibid., p. 93.

²¹ Ibid., p. 88.

²² Ibid., p. 94.

²³ To avoid any misunderstanding, the term monopoly is employed here in its Rothbardian definition as an exclusive privilege (or the absence of free entry). A monopoly of law and order means that one may turn for justice and protection only to one party—the state—and that it is exclusively this party that determines the content of justice and protection.

²⁴ Explains Rothbard:

The champions of free competition in counterfeiting retort that this is simply the market at work, that the market registers a “demand” for more expanded credit, and that the private bankers, those Kirznerian entrepreneurs, are simply “alert” to such market demands. Well, of course, there is always a “demand” for fraud, and embezzlement, on the market, and there will always be plenty of “alert” swindlers who are eager and willing to furnish a supply of these items. But if we define the “market” not simply as a supply of desired goods and services, but as a supply of such goods within a framework of inviolate property rights, then we see a very different picture. (“The Present State of Austrian Economics,” Journal des Economistes et des Etudes Humaines 6, no. 2, [1995]: 77)

²⁵ Selgin and White, “In Defense of Fiduciary Media,” pp. 97–98.

²⁶ A similar confusion characterizes Selgin and White’s view on the relationship between money proper (gold) and banknotes. They criticize Hoppe for claiming that, in a genuine free-market order, most people would use money proper rather than banknotes (without mentioning Hoppe’s theoretical reason). “The facts,” they claim, “are otherwise” (“In Defense of Fiduciary Media,” p. 99). Yet these facts—the historical success of the banknote over genuine money—are the result of an earlier state interference with private-property rights (the legalization of fractional reserve banking). As Ludwig von Mises noted,

[t]he truth is that, except for small groups of businessmen who were able to distinguish between good and bad banks, bank notes were always looked upon with distrust. It was the special charters which governments granted to privileged banks that slowly made these suspicions disappear. (p. 438)

In [governments’] eyes the foremost task of the banks was to lend money to the treasury. The money-substitutes were favorably considered as pace-makers for government-issued paper money. The convertible banknote was merely a first step on the way to the nonredeemable banknote. With the progress of statolatry and the policy of interventionism these ideas have become general and are no longer questioned by anybody. (p. 442)

Governments did not foster the use of bank notes in order to avoid inconvenience to ladies shopping. Their idea was to lower the rate of interest and to open a source of cheap credit to their treasuries. In their eyes the increase in the quantity of fiduciary media was a means of promoting welfare. Banknotes are not indispensable. All the economic achievements of capitalism would have been accomplished if they had never existed. (Human Action: A Treatise on Economics, 3rd rev. ed. [Chicago: Contemporary Books, 1966], p. 447)

Accordingly, Mises’s view regarding sound money is completely different from Selgin and White’s. Whereas the latter believe that gold would—and should—ultimately disappear from circulation altogether (see note 3 above), Mises considered it a requirement of a sound monetary system that

[g]old must be in the cash holdings of everybody. Everybody must see gold coins changing hands, must be used to having gold coins in his pockets, to receiving gold coins when he cashes his pay check, and to spending gold coins when he buys in a store. (The Theory of Money and Credit, pp. 450–51)

²⁷ On the relationship between state money and banking and political centralization see Hans-Hermann Hoppe, “Banking, Nation States, and International Politics,” Review of Austrian Economics 4 (1990): 55–87; and Jörg Guido Hülsmann, “Banking and Political Centralization,” Journal of Libertarian Studies 13, no. 1 (1997). Selgin and White argue:

We also reject the notion … that competitive banks issuing redeemable liabilities can create credit “out of thin air.” By the nature of the balance sheet, all bank loans must be funded by liabilities or equity. Neither source of funds can be conjured out of thin air. No one is forced to hold a competitive bank’s redeemable liabilities or to buy its shares; anyone can hold claims on other banks instead, or on no bank. A competitive bank must therefore expend real resources to attract a clientele by the provision of interest and services. The notion that a bank can extend credit … gratuitously is valid only with respect to the inframarginal credits of a monopoly bank, or to [the] issuer of a forced tender; it does not apply to a bank in a competitive system. (p. 94, n. 13)

Thus competition will beat down the returns to capital invested in fractional-reserve banking until the marginal bank is earning only the normal rate of return. (“In Defense of Fiduciary Media,” p. 97)

While we have no difficulty accepting the distinction drawn here between competitive and monopolistic banking, none of this has any bearing on the issue at hand, that is, the validity of the analogy between states and fractional reserve banks as outlaw organizations. For one, states have to compete for clients (residents). Indeed, competition between states (or banks) for clients only comes to a complete halt with the establishment of a single world state (or central bank). And the intra-state competition between fractional reserve banks is, as explained, competition within a state-privileged industry; that is, monopolistic competition (just as inter-state competition is an example of monopolistic competition). Second and more importantly, the difference between competitive and monopolistic banks (or states), interesting as it may otherwise be, does not affect in the slightest their common characteristic as fractional reserve banks (or states). Counterfeiting and taxation do not change their nature because they are undertaken competitively.

The error can be revealed by analogy. Selgin and White are paraphrased here: We also reject the notion that competitive states issuing tax liabilities can create taxes out of thin air. By the nature of state budgets all expenditures must be funded by conquest, robbery, or theft. Neither source of funds can be conjured out of thin air. No one is forced to hold any particular state’s tax liabilities or buy its shares; anyone can move and pay taxes to another state, or to no state. A competitive state must therefore expend real resources to attract a clientele by the provision of protection and services. The notion that a state can increase taxes gratuitously is valid only with respect to the inframarginal taxes of a monopoly state; it does not apply to a state in a competitive system. Thus, competition will beat down the returns to capital invested in states until the marginal state is earning only the normal rate of return.

According to Selgin and White, it would seem to follow that taxation (like money counterfeiting) is not to be considered a problem until the arrival of a single world monopoly bank. Up until then, under competitive conditions, taxes represent nothing but a normal market income.

²⁸ Murray N. Rothbard, Man, Economy, and State (Auburn, Ala.: Ludwig von Mises Institute, 1993), p. 851.

²⁹ Selgin and White, “In Defense of Fiduciary Media,” pp. 100–01.

³⁰ Ibid., p. 105. As Roger Garrison, another fractional reserve free banker, has put it, “in terms of the equation of exchange [MV=PQ], we can say that free banking adjusts M so as to offset changes in V; but allows changes in Q to be accommodated by changes in P.” Garrison describes the short-run “monetary disequilibrium” in almost identical form:

An increase in the demand for money puts downward pressure on product and factor prices in general. If there were no money-supply response, a general decline in economic activity would follow, since prices and wages could not fully and instantaneously adjust themselves to the new market conditions. Goods in general would go unsold; production would be cut; workers would be laid off…. With a less-than-perfectly flexible price system, general deflationary pressures can push the economy below its potential during the period in which prices are adjusting to the higher monetary demand. And the fact that some prices and some wages are more flexible than others means that the adjustment period will involve changes in relative prices that reflect no changes in relative scarcities. These are precisely the kinds of problems … avoided by free banking’s responsiveness to increases in money demand. (“Central Banking, Free Banking, and Financial Crises,” Review of Austrian Economics 9, no. 2 [1996]: 117)

³¹ Selgin and White, “In Defense of Fiduciary Media,” p. 100.

³² Thus writes Mises:

Buyers and sellers on the market never concern themselves with the elements in the equation of exchange, of which two—velocity of circulation and the price level—do not even exist before market parties act and the other two—the quantity of money (in the whole economy) and the sum of transactions—could not possibly be known to the parties in the market. Only the importance which the various actors in the market attach, on the one hand, to the maintenance of a cash balance of a certain magnitude and, on the other hand, to the ownership of the various goods in question determines the formation of the exchange relationship between money and goods. (“The Position of Money Among Economic Goods,” in Money, Method, and the Market Process, Richard Ebeling, ed. [Boston: Kluwer, 1990], p. 61)

³³ Moreover, from an individualist perspective, the increased demand for money occurs with specific actors at specific times and places. It is not sufficient for banks to accommodate some abstract higher money demand by more money; rather, but the accommodation would have to occur precisely with the correct people and locations. If this is not the case, one can hardly speak of an accommodation but of an additional distortion. This difficulty was recognized by the early Hayek:

in order to eliminate all monetary influences on the formation of prices, and the structure of production, it would not be sufficient merely quantitatively to adapt the supply of money to these changes in demand, it would be necessary also to see that it came into the hands of those who actually require it; that is, to that part of the system where that change in business organization or the habits of payment had taken place. (Prices and Production [London: Routledge, 1935], p. 124)

With the later Hayek, one wonders how banks could possibly have the requisite knowledge of performing this task.

³⁴ As regards the stickiness of prices, and the redistributive consequences of an increased demand for money vis-à-vis an array of prices of varying degrees of stickiness, which Selgin and White as well as Garrison raise as matters of concern, it is of utmost importance to recognize that prices are the outcome of purposive action—and so is their stickiness. That is, the flexibility or inflexibility of various product and service prices is not accidental to, but a deliberate part of, these products and services. Contrary to Garrison’s claim, the stickiness of prices does affect and is related to, real relative scarcities. If more sticky prices suffer more, so to speak, so be it; that will teach them to be less sticky in the future—if the owners of the property in question act in a manner compatible with this end.

³⁵ Selgin and White, “In Defense of Fiduciary Media,” p. 103. The error of confusing property and titles lies also at the bottom of Selgin and White’s attempts to separate analytically the demand for outside money from the demand for inside money, as if these were somehow two different kinds of money with two different and independent demands.

³⁶ Selgin stated the same thesis thus:

Whenever a bank expands its liabilities in the process of making new loans and investments, it is the holders of the liabilities who are the ultimate lenders of credit, and what they lend are the real resources they could acquire if, instead of holding money, they spent it. When the expansion or contraction of bank liabilities proceeds in such a way as to be at all times in agreement with changing demands for inside money, the quantity of real capital funds supplied to borrowers by the banks is equal to the quantity voluntarily offered to the banks by the public. Under these conditions, banks are simply intermediaries of loanable funds. (The Theory of Free Banking: Money Supply under Competitive Note Issue, p. 55)

As for John Maynard Keynes (The General Theory of Employment, Interest, and Money [New York: Harcourt, Brace, 1936], p. 82), he had written that the notion that the creation of credit by banking systems allows investment to take place to which “no genuine saving” corresponds; that is, “the idea that saving and investment … can differ from one another, is to be explained, I think, by an optical illusion” (p. 81).

[T]he savings which result from this decision are just as genuine as any other savings. No one can be compelled to own the additional money corresponding to the new bank-credit, unless he deliberately prefers to hold more money rather than some other form of wealth. (p. 83)

Indeed, Selgin acknowledges that

many Keynesians might accept the prescription for monetary equilibrium offered [by him]. Those who do not regard the liquidity trap as an important factual possibility would probably accept it as entirely adequate. (The Theory of Free Banking, p. 59)

Henry Hazlitt remarked on this Keynesian idea that

[o]n the same reasoning we can create any amount of new “savings” we wish overnight, simply by printing that amount of new paper money, because somebody will necessarily hold that new paper money! (The Failure of the “New Economics”: An Analysis of the Keynesian Fallacies [Lanham, Maryland: University Press of America, 1983], p. 227)

³⁷ Hoppe, “How is Fiat Money Possible?,” pp. 72–73.

³⁸ See also Hoppe, “The Theory of Employment, Money, Interest, and the Capitalist Process: The Misesian Case against Keynes,” in The Economics and Ethics of Private Property (Norwell, Mass.: Kluwer, 1993), and Rothbard, Man, Economy, and State (Auburn, Ala.: Ludwig von Mises Institute, 1993), pp. 167ff., 667ff.; idem, America’s Great Depression (New York: Richardson and Snyder, 1983), pp. 39ff.

As for Selgin and White’s claim of being Misesians, it is worthwhile to quote Mises on

the role cash holding plays in the process of saving and capital accumulation…. [i]f an individual employs a sum of money not for consumption but for the purchase of factors of production, saving is directly turned into capital accumulation. If the individual saver employs his additional savings for increasing his cash holding because this is in his eyes the most advantageous mode of using them, he brings about a tendency toward a fall in commodity prices and a rise in the monetary unit’s purchasing power. If we assume that the supply of money in the market system does not change, this conduct on the part of the saver will not directly influence the accumulation of capital and its employment for an expansion of production. The effect of our saver’s saving, i.e., the surplus of goods produced over goods consumed, does not disappear on account of his hoarding. The prices of capital goods do not rise to the height they would have attained in the absence of such hoarding. But the fact that more capital goods are available is not affected by the striving of a number of people to increase their cash holdings. If nobody employs the goods—the nonconsumption of which brought about the additional saving—for an expansion of his consumptive spending, they remain as an increment in the amount of capital goods available, whatever their prices may be. The two processes—increased cash holding of some people and increased capital accumulation—take place side by side. A drop in commodity prices, other things being equal, causes a drop in the money equivalent of the various individuals’ capital. But this is not tantamount to a reduction in the supply of capital goods and does not require an adjustment of production activities to an alleged impoverishment. It merely alters the money items to be applied in monetary calculation. (Mises, Human Action, pp. 521–22)

³⁹ Selgin and White, “In Defense of Fiduciary Media,” p. 102.

⁴⁰ Ibid., p. 103.

⁴¹ Ibid., p. 102.

⁴² Selgin and White’s view here is quite similar to that of Keynes (The General Theory, pp. 293–94), when he emphasized that “the importance of money essentially flows from its being a link between the present and the future,” and characterized money as “above all, a subtle device for linking the present and the future.”

⁴³ Put differently: rather than, as Selgin and White (“In Defense of Fiduciary Media,” p. 102) say, that “the demand for cash stems from the convenience it allows one in purchasing … goods at uncertain future dates,” the demand for money stems from the convenience it allows one in purchasing goods at uncertain future dates.

⁴⁴ Mises, Human Action, p. 249.

⁴⁵ Mises, The Theory of Money and Credit, pp. 32–33.

⁴⁶ In fact, one can only wonder how Selgin and White could have possibly overlooked money’s character as a uniquely present good. After all, the interest rate as the most visible manifestation of the phenomenon of time preference is expressed in terms of money.

⁴⁷ Mises, Human Action, p. 430. The term uncertainty is employed here in its technical meaning as defined by Frank H. Knight (Risk, Uncertainty, and Profit [Chicago: University of Chicago Press, 1971], esp. chap. 7) and Mises (Human Action, esp. chap. 6); that is, as categorically distinct from risk instances of class probability; also Hoppe (“On Certainty and Uncertainty, Or: How Rational Can Our Expectations Be?” Review of Austrian Economics 10, no. 1 [1979]: 49–78). Insofar as man faces a risky future, he does not need to hold cash. In order to satisfy his desire to be protected against risks, he can instead buy (or produce) insurance. A buyer of insurance demonstrates by his purchase that he is in fact certain about some future events. Hence, in paying a premium, he sacrifices a present good in exchange for a future one (payment in the event of actual risk-damage) and so contributes to and invests in a physical structure of production. Specifically, his premium becomes embodied in the production structure maintained by his insurance agency. In distinct contrast: insofar as man faces uncertainty he is, quite literally not certain concerning his future, that is, as to what will happen to him and when. Hence, in order to be protected against uncertainty, he cannot possibly invest in any future good. Only present goods can insure against instantly arising—unpredictable—events. Nor can he invest in (present) consumer goods (for this would mean that he actually felt certain as to the specific nature of his future contingencies). Only a medium of exchange, on account of its supreme saleability, can insure him against contingencies of an uncertain nature. Hence, just as insurance is the price that must be paid for protection against risks, so cash holdings are the price that must be paid for protection against uncertainty. See also the following final note below.

⁴⁸ Selgin and White never raise the question of why changes in the demand for money occur, and thus never penetrate to their ultimate—microeconomic—sources; that is, changes in individuals’ subjective evaluations of presently perceived personal uncertainty. In contrast, whereas they portray changes in the demand for money as seemingly unmotivated and inexplicable events, Mises is explicit and emphatic about the irrational character:

The advantages and disadvantages derived from cash holding are not objective factors which could directly influence the size of cash holdings. They are put on the scales by each individual and weighed against one another. The result is a subjective judgment of value, colored by the individual’s personality. Different people and the same people at different times value the same objective facts in a different way. Just as knowledge of a man’s wealth and his physical condition does not tell us how much he would be prepared to spend for food of a certain nutritive power, so knowledge about data concerning a man’s material situation does not enable us to make definite assertions with regard to the size of his cash holding. (Mises, Human Action, p. 430)

⁴⁹ Mises summarizes:

The services money renders are conditioned by the height of its purchasing power. Nobody wants to have in his cash holding a definite number of pieces of money or a definite weight of money; he wants to keep a cash holding of a definite amount of purchasing power. As the operation of the market tends to determine the final state of money’s purchasing power at a height at which the supply of and the demand for money coincide, there can never be an excess or a deficiency of money. Each individual and all individuals together always enjoy fully the advantages which they can desire from indirect exchange and the use of money, no matter whether the total quantity of money is great or small. Changes in money’s purchasing power generate changes in the disposition of wealth among the various members of society. From the point of view of people eager to be enriched by such changes, the supply of money may be called insufficient or excessive, and the appetite for such gains may result in policies designed to bring about cash-induced alterations in purchasing power. However, the services which money renders can be neither improved nor repaired by changing the supply of money. There may appear an excess or a deficiency of money in an individual’s cash holding. But such a condition can be remedied by increasing or decreasing consumption or investment. (Of course, one must not fall prey to the popular confusion between the demand for money for cash holding and the appetite for more wealth.) The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do. (Mises, Human Action, p. 421)

Chapter 8

[Reprinted from the Review of Austrian Economics 9, no. 1 (1992).]

¹ See in particular the widely acclaimed 1945 article, “The Use of Knowledge in Society,” reprinted in F.A. Hayek, Individualism and Economic Order (Chicago: University of Chicago Press, 1948).

² Ibid., pp. 85–86.

³ Ibid., p. 80.

⁴ F.A. Hayek, The Counterrevolution of Science (New York: Free Press, 1955), p. 21.

⁵ F.A. Hayek, Law, Legislation, and Liberty (Chicago: University of Chicago Press, 1973), vol. 1, pp. 55–56.

⁶ F.A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960), pp. 20–21.

⁷ Ibid., p. 133.

⁸ See also Hans-Hermann Hoppe, “Hayek on Government and Social Evolution,” Review of Austrian Economics 7, no. 1 (1994): esp. 70ff.

⁹ For some serious doubts on this see Hans-Hermann Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung (Opladen: Westdeutscher Verlag, 1983).

Chapter 9

[First printed in the Meaning of Ludwig von Mises: Contributions in Economics, Epistemology, Sociology, and Political Philosophy, edited by Jeffrey M. Herbener (Auburn, Ala.: Ludwig von Mises Institute, 1993). Also reprinted in Hans-Hermann Hoppe, Economic Science and the Austrian Method (Auburn, Ala.: Ludwig von Mises Institute, 1995).]

¹ See on the following also Hans-Hermann Hoppe, Kritik der kausalwissenschnftlichen Sozialforschung. Untersuchungen zur Grundlegung von Soziologie und Ökonomie (Opladen: Westdeutscher Verlag, 1983); idem, “Is Research Based on Causal Scientific Principles Possible in the Social Sciences?” Ratio (1983): infra chap. 7; idem, Praxeology and Economic Science (Auburn, Ala.: Ludwig von Mises Institute, 1988); idem, in “Defense of Extreme Rationalism,” Review of Austrian Economics 3 (1988).

² On the Vienna Circle see Viktor Kraft, Der Wiener Kreis (Wien: Springer, 1968); for empiricist-positivist interpretations of economics see such representative works as Terrence W. Hutchison, The Significance and Basic Postulates of Economic Theory (London: Macmillan, 1938). Hutchison, an adherent of the Popperian variant of empiricism, has since become much less enthusiastic about the prospects of a Popperized economics—see, for instance, his Knowledge and Ignorance in Economics (Chicago: University of Chicago Press, 1977)—yet he still sees no alternative but to cling to Popper’s falsificationism. See also Milton Friedman, “The Methodology of Positive Economics” in idem, Essays in Positive Economics (Chicago: University of Chicago Press, 1953); Mark Blaug, The Methodology of Economics (Cambridge: Cambridge University Press, 1980); a positivist account by a participant in Mises’s Privat-Seminar in Vienna is Felix Kaufmann, Methodology of the Social Sciences (New York: Humanities Press, 1958); the dominance of empiricism in economics is documented by the fact that there is probably not a single textbook which does not explicitly classify economics as—what else?—an empirical (a posteriori) science.

³ On the relativistic consequences of empiricism-positivism see also Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Boston: Kluwer Academic Publishers, 1989), chap. 6; idem, “The Intellectual Cover for Socialism,” Free Market (February 1988); see also infra chap. 11.

⁴ See Ludwig von Mises, The Historical Setting of the Austrian School of Economics (Auburn, Ala.: Ludwig von Mises Institute, 1984); idem, Erinnerungen (Stuttgart: Gustav Fischer, 1978); idem, Theory and History: An Interpretation of Social and Economic Evolution (Auburn, Ala.: Ludwig von Mises Institute, 1985), chap. 10; Murray N. Rothbard, Ludwig von Mises: Scholar, Creator, Hero (Auburn, Ala.: Ludwig von Mises Institute, 1988); for a critical survey of historicist ideas see also Karl R. Popper, The Poverty of Historicism (London: Routledge and Kegan Paul, 1957); for a representative of the older version of a historicist interpretation of economics see Werner Sombart, Die drei Nationalökonomien (Munich: Duncker and Humblot, 1930); for the modern, hermeneutical twist Donald McCloskey, The Rhetoric of Economics (Madison: University of Wisconsin Press, 1985); Ludwig Lachmann, “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14, no. 1 (1976).

⁵ On the extreme relativism of historicism-hermeneutics see Hans-Hermann Hoppe, “In Defense of Extreme Rationalism”; Murray N. Rothbard, “The Hermeneutical Invasion of Philosophy and Economics,” Review of Austrian Economics 3 (1988); Henry Veatch, “Deconstruction in Philosophy: Has Rorty Made it the Denouement of Contemporary Analytical Philosophy,” Review of Metaphysics (1985); Steven Horwitz and Peter Boettke, “Misesian Integrity: A Comment on Barnes,” Austrian Economics Newsletter (Fall, 1987); David Gordon, Hermeneutics vs. Austrian Economics (Auburn, Ala.: Ludwig von Mises Institute, Occasional Paper Series, 1987); for a brilliant critique of contemporary sociology see Stanislav Andreski, Social Science as Sorcery (New York: St. Martin’s Press, 1973).

⁶ Regarding the epistemological views of such predecessors as Jean Baptiste Say, Nassau W. Senior, John E. Cairnes, John Stuart Mill, Carl Menger, and Friedrich Wieser, see Ludwig von Mises, Epistemological Problems of Economics (New York: New York University Press, 1981), pp. 17–23; also Murray N. Rothbard, “Praxeology: The Methodology of Austrian Economics,” in Edwin Dolan, ed., The Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976); Hoppe, Praxeology and Economic Science.

⁷ In addition to Mises’s works cited at the outset of this chapter and the literature mentioned in note 1, see Murray N. Rothbard, Individualism and the Philosophy of the Social Sciences (San Francisco: Cato Institute, 1979); for a splendid philosophical critique of empiricist economics see Martin Hollis and Edward Nell, Rational Economic Man (Cambridge: Cambridge University Press, 1975); for particularly valuable defenses of rationalism against empiricism and relativism—without reference to economics—see Brand Blanshard, Reason and Analysis (La Salle, Ill.: Open Court, 1964); Friedrich Kambartel, Erfahrung und Struktur. Bausteine zu einer Kritik des Empirismus und Formalismus (Frankfurt/M.: Suhrkamp, 1968).

⁸ For an elaborate defense of epistemological dualism see also K.O. Apel, Transformation der Philosophie, 2 vols. (Frankfurt/M: Suhrkamp, 1973); Jürgen Habermas, Zur Logik der Sozialwissenschaften (Frankfurt/M.: Suhrkamp, 1970).

⁹ See on this in particular Hoppe, “In Defense of Extreme Rationalism.”

¹⁰ See Ludwig von Mises, The Ultimate Foundation of Economic Science (Kansas City: Sheed Andrews and McMeel, 1978), p. 12.

¹¹ See Immanuel Kant, Kritik der reinin Vernunft, in idem, Werke, 12 vols., ed. W. Weischedel (Frankfurt/M.: Suhrkamp, 1968), vol. 3, p. 45; Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: Regnery, l966), p. 38.

¹² On the following see in particular Mises, Human Action, chap. IV; Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1962), chap. 1.

¹³ On the law of marginal utility see Mises, Human Action, pp. 119–27; Rothbard, Man, Economy, and State, pp. 268–71.

¹⁴ Mises writes:

[K]nowledge is a tool of action. Its function is to advise man how to proceed in his endeavors to remove uneasiness. ...The category of action is the fundamental category of human knowledge. It implies all the categories of logic and the category of regularity and causality. It implies the category of time and that of value. ...In acting, the mind of the individual sees itself as different from its environment, the external world, and tries to study this environment in order to influence the course of events happening in it. (The Ultimate Foundation of Economic Science, pp. 35–36)

Or:

Both, a priori thinking and reasoning on the one hand and human action on the other, are manifestations of the mind. Reason and action are congeneric and homogeneous, two aspects of the same phenomenon. (Ibid., p. 42)

Yet he leaves the matter more or less at this and concludes that “it is not the scope of praxeology to investigate the relation of thinking and action” (Human Action, p. 25).

¹⁵ On the a priori of argumentation see also Apel, Transformation der Philosophie, vol. 2.

¹⁶ On this fundamental difference between economic (scarce) means and knowledge see also Mises, Human Action, pp. 128, 661.

¹⁷ Kant, Kritik der reinen Vernunft, p. 25. Whether or not such an interpretation of Kant’s epistemology is indeed correct is a very different matter. Clarifying this problem is of no concern here, however. For an activist or constructivist interpretation of Kantian philosophy see Kambartel, Erfahrung und Struktur, chap. 3; also Hans-Hermann Hoppe, Handeln und Erkennen (Bern: Lang, 1976).

¹⁸ In addition to the works mentioned in note 7 see Brand Blanshard, The Nature of Thought (London: Allen and Unwin, 1921); Morris Cohen, Reason and Nature (New York: Harcourt, Brace, 1931); idem, Preface to Logic (New York: Holt, 1944); A. Pap, Semantics and Necessary Truth (New Haven, Conn.: Yale University Press, 1958); Saul Kripke, “Naming and Necessity,” in Donald Davidson and Gilbert Harman, eds., Semantics of Natural Language (New York: Reidel, 1972); Hugo Dingler, Die Ergreifung des Wirklichen (Frankfurt/M.: Suhrkamp, 1969); idem Aufbau der exakten Fundamentalwissenschaft (Munich: Eidos, 1964); Wilhelm Kamlah and Paul Lorenzen, Logische Propädeutik (Mannheim: Bibliographisches Institut, 1968); Paul Lorenzen, Methodisches Denken (Frankfurt/M.: Suhrkamp, 1968); idem, Normative Logic and Ethics (Mannheim: Bibliographisches Institut, 1969); Apel, Transformation der Philosophie.

¹⁹ On rationalist interpretations of logic see Blanshard, Reason and Analysis, chaps. VI, X; Paul Lorenzen, Einführung in die operative Logik und Mathematik (Frankfurt/M.: Akademische Verlagsgesellschaft, 1970); Kuno Lorenz, Elemente der Sprachkritik (Frankfurt/M: Suhrkamp, 1970); idem, “Die dialogische Rechtfertigung der effektiven Logik,” in Friedrich Kambartel and Jürgen Mittelstrass, eds., Zum normativen Fundament der Wissenschaft (Frankfurt/M.: Athenaum, 1973).

On the propositional character of language and experience, in particular, see Kamlah and Lorenzen, Logische Propädeutik, chap. 1; Lorenzen, Normative Logic and Ethics, chap. 1. Lorenzen writes:

I call a usage a convention if I know of another usage which I could accept instead. However I do not know of another behavior which could replace the use of elementary sentences. If I did not accept proper names and predicators, I would not know how to speak at all. ...Each proper name is a convention... but to use proper names at all is not a convention: it is a unique pattern of linguistic behavior.

Therefore, I am going to call it “logical.” The same is true with predicators. Each predicator is a convention. This is shown by the existence of more than one natural language. But all languages use predicators. (Ibid., p. 16)

See also J. Mittelstrass, “Die Wiederkehr des Gleichen,” Ratio, 1966.

On the law of identity and contradiction, in particular, see Blanshard, Reason and Analysis, pp. 276ff., 423ff.

On a critical evaluation of 3- or more-valued logics as either meaningless symbolic formalisms or as logically presupposing an understanding of the traditional two-valued logic see Wolfgang Stegmüller, Hauptströmungen der Gegenwartsphilosophie (Stuttgart: Kröner, 1975), vol. 2, pp. 182–91; Blanshard, Reason and Analysis, pp. 269–75. Regarding the many-valued or open-textured logic proposed by Friedrich Waismann, Blanshard notes:

We can only agree with Dr. Waismann—and with Hegel—that the black-and-white distinctions of formal logic are quite inadequate to living thought. But why should one say, as Dr. Waismann does, that in adopting a more differentiated logic one is adopting an alternative system which is incompatible with black-and-white logic? What he has actually done is to recognize a number of gradations within the older meaning of the word “not.” We do not doubt that such gradations are there, and indeed as many more as he cares to distinguish. But a refinement of the older logic is not an abandonment of it. It is still true that the colour I saw yesterday was either a determinate shade of yellow or not, even though the “not” may cover a multitude of approximations, and even though I shall never know which was the shade I saw. (Ibid., pp. 273–74)

²⁰ On a rationalist interpretation of arithmetic see Blanshard, Reason and Analysis, pp. 427–31; on the constructivist foundation of arithmetic, in particular, see Lorenzen, Einführung in die operative Logik and Mathematik; idem, Methodisches Denken, chaps. 6, 7; idem, Normative Logic and Ethics, chap. 4; on the constructivist foundation of classical analysis see Paul Lorenzen, Differential und Integral—Eine konstruktive Einführung in die klassische Analysis (Frankfurt/M.: Akademische Verlagsgesellschaft, 1965); for a brilliant general critique of mathematical formalism see Kambartel, Erfahrung und Struktur, chap. 6, esp. pp. 236–42; on the irrelevance of the famous Gödel-theorem for a constructively founded arithmetic see Paul Lorenzen, Metamathematik (Mannheim: Bibliographisches Institut, 1962); also Charles Thiel, “Das Begründungsproblem der Mathematic und die Philosophie,” in Kambartel and Mittelstrass, eds., Zum normativen Fundament der Wissenschaft, esp. pp. 99–101. Kurt Gödel’s proof, which as a proof incidentally supports rather than undermines the rationalist claim of the possibility of a priori knowledge, only demonstrates that the early formalist Hilbert program cannot be successfully carried through because in order to demonstrate the consistency of certain axiomatic theories one must have a metatheory with even stronger means than those formalized in the object-theory itself. Interestingly enough, several years before Gödel’s proof of 1931, the difficulties of the formalist program had led the old Hilbert to recognize the necessity of reintroducing a substantive interpretation of mathematics à la Kant, which would give its axioms a foundation and justification that was entirely independent of any formal consistency proofs. See Kambartel, Erfahrung and Struktur, pp. 185–87.

²¹ Examples of this kind are used by Popper in order to “refute” the rationalist idea of rules of arithmetic being laws of reality. See Karl Popper, Conjectures and Refutations (London: Routledge and Kegan Paul, 1969), p. 211.

²² See on this also Mises, The Ultimate Foundation of Economic Science, pp. 12–14.

²³ On the a prioristic character of Euclidean geometry see Lorenzen, Methodisches Denken, chaps. 8 and 9; idem, Normative Logic and Ethics, chap. 5; Hugo Dingler, Die Grundlagen der Geometrie (Stuttgart: Enke, 1933); on Euclidean geometry as a necessary presupposition of objective, intersubjectively communicable measurements and in particular of any empirical verification of non-Euclidean geometries (after all, the lenses of the telescopes which one uses to confirm Einstein’s theory regarding the non-Euclidean structure of physical space must themselves be constructed according to Euclidean principles) see Kambartel, Erfahrung und Struktur, pp. 132–33; Peter Janich, Die Protophysik der Zeit (Mannhein: Bibliographisches Institut, 1969), pp. 45–50; idem, “Eindeutigkeit, Konsistenz und methodische Ordnung,” in Kambartel and Mittelstrass, eds., Zum normativen Fundament der Wissenschaft.

Following the lead of Hugo Dingler, Paul Lorenzen and other members of the so-called Erlangen School have worked out a system of protophysics, which contains all a prioristic presuppositions of empirical physics, including, apart from geometry, also chronometry and hylometry (i.e., classical mechanics without gravitation, or rational mechanics).

Geometry, chronometry and hylometry are a priori theories which make empirical measurements of space, time and material “possible.” They have to be established before physics in the modern sense of an empirical science, with hypothetical fields of forces, can begin. Therefore, I should like to call these disciplines by a common name: protophysics. (Lorenzen, Normative Logic and Ethics, p. 60)

²⁴ On the fundamental nature of epistemological dualism see also Mises, Theory and History, pp. 1–2.

²⁵ On the a prioristic character of the category of causality see Mises, Human Action, chap. 5; Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung; idem, “Is Research Based on Causal Scientific Principles Possible in the Social Sciences?” (infra chap. 7); on the causality principle as a necessary presupposition in particular also of the indeterminacy principle of quantum physics and the fundamental misconception involved in interpreting the Heisenberg-principle as invalidating the causality principle see Kambartel, Erfahrung and Struktur, pp. 138–40; also Hoppe, “In Defense of Extreme Rationalism,” footnote 36. In fact, it is precisely the indisputable praxeological fact that separate measurement acts can only be performed sequentially which explains the very possibility of irreducibly probabilistic—rather than deterministic—predictions as they are characteristic of quantum physics; however, in order to perform any experiments in the field of quantum mechanics, and in particular to repeat two or more experiments and state this to be the case, the validity of the causality principle must evidently already be presupposed.

²⁶ On the necessary complementarity of the categories of causality and teleology see Mises, Human Action, p. 25; idem, The Ultimate Foundation of Economic Science, pp. 6–8; Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung; idem, “Is Research Based on Causal Scientific Principles Possible in the Social Sciences?” (infra chap. 7); also Georg Henrik von Wright, Norm and Action (London: Routledge and Kegan Paul, 1963); idem, Explanation and Understanding (Ithaca, N.Y.: Cornell University Press, 1971); K.O. Apel, Die Erklären: Verstehen Kontroverse in transzendental-pragmatischer Sicht (Frankfurt/M.: Suhrkamp, 1979).

²⁷ More precisely still, it is structured according to the categories of logic, arithmetic, and protophysics (including geometry). See note 23 above.

²⁸ On the logic of history and sociology as reconstructive disciplines see, in addition to the works of Mises mentioned at the outset of this chapter, Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung, chap. 2.

²⁹ On the categorical distinctiveness of praxeological theory and history (sociology) and the logical constraints that praxeology imposes on historical and sociological research as well as on social and economic predictions, see Mises, Human Action, pp. 51–59, 117–18; Hoppe, “In Defense of Extreme Rationalism”; idem, Praxeology and Economic Science.

Chapter 10

[Reprinted from Ratio 25, no. 1 (1983).]

¹ See Mordecai Ezekiel and Karl Fox, Methods of Correlation and Regression Analysis (New York: John Wiley and Sons, 1966); P. Rao and R.L. Miller, Applied Econometrics (Belmont, Calif.: Wadsworth, 1971); Robert Pindyck and Daniel Rubinfeld, Econometric Models and Economic Forecasts (New York: McGraw-Hill 1976).

² See Lionel Robbins, The Nature and Significance of Economic Science (London: Macmillan, 1935); Ludwig von Mises, Theory and History (New Haven, Conn.: Yale University Press, 1957); idem, The Ultimate Foundation of Economic Science (Kansas City: Sheed Andrews and McMeel, 1978); idem, Human Action: A Treatise on Economics (Chicago: Regnery, 1966).

³ Hubert Blalock, Causal Inferences in Non-Experimental Research (Chapel Hill: University of North Carolina Press, 1964); idem, Theory Construction (Englewood Cliffs, N.J.: Prentice Hall, 1969); N. Krishnan Namboodiri, F. Carter, and Hubert Blalock, Applied Multivariate Analysis and Experimental Designs (New York: McGraw-Hill, 1975); see also David Heise, Causal Analysis (New York: McGraw-Hill, 1975).

⁴ See on this point, for example, Friedrich Kambartel, Erfahrung and Struktur (Frankfurt/M.: Suhrkamp, 1968), chap. 3, in particular pp. 91ff.; also Hans-Hermann Hoppe, Handeln und Erkennen (Bern: Lang, 1976), pp. 85ff., and chap. 4.

⁵ The same illusion would also arise in relation to God, if one assumed that He too could learn.

⁶ Karl R. Popper, Das Elend des Historizismus (Tübingen: Mohr, 1971), p. xii, states in this connection that it is

impossible for any scientific forecaster—whether human being or computer—to predict his or her or us own future results, no matter what methods are used. Any attempt to do so can only achieve its goal post festum.

On the methodological significance of this statement see also K.O. Apel, Die Erklären: Verstehen Kontroverse in transzendental-pragmatischer Sicht (Frankfurt/ M.: Suhrkamp, 1979), note 19, pp. 44ff.

⁷ The transition from one person to the other presupposes the indefensibility of solipsism. There can be no disputing that it is possible to argue with one another that solipsism cannot be defended, since by wanting to argue in its defense one has already thrown it overboard. See on this argument Karl R. Popper, Conjectures and Refutations (London: Routledge and Kegan Paul, 1969), pp. 293ff.; idem, Objective Knowledge (Oxford: Oxford University Press, 1972), pp. 119ff., 235ff. See also K.O. Apel, Transformation der Philosophie (Frankfurt/M.: Suhrkamp, 1973), vol. 2, part II, and Jürgen Habermas, Legitimationsprobleme in Spätkapitalismus (Frankfurt/M.: Suhrkamp, 1973), note 160, p. 1521.

Chapter 11

[Reprinted from Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard, Walter Block and Llewellyn H. Rockwell, Jr., eds., Auburn, Ala.: Ludwig von Mises Institute, 1988.]

¹ See Ludwig von Mises, Human Action: A Treatise on Economics, 3rd rev. ed. (Chicago: Regnery, 1966), pp. 357ff.; idem, “Profit and Loss,” in Planning for Freedom (South Holland, Ill.: Libertarian Press, 1974), esp. p. 116. In this essay Mises takes a somewhat different, one might say, a proto-Rothbardian position.

² See Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1972), chap. 10, esp. pp. 604–14.

³ Ibid., p. 607; emphasis added.

⁴ Ibid., p. 614. See also Walter Block, “Austrian Monopoly Theory: A Critique,” Journal of Libertarian Studies 1, no. 4 (1977); Hans-Hermann Hoppe, Eigentum, Anarchie, und Staat (Opladen: Westdeutscher Verlag, 1987), chap. 5; idem, A Theory of Socialism and Capitalism (Boston: Kluwer Academic Publishers, 1989), chap. 9.

⁵ See Rothbard, Man, Economy, and State, pp. 883–90; idem, “The Myth of Neutral Taxation,” Cato Journal (Fall, 1981).

⁶ Mises is by no means a completely orthodox public goods theorist. He does not share their and the public choice theorists’ commonly held naive view of the government being some sort of voluntary organization. Rather, and unmistakably so, he says, “the essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom” (Human Action, p. 719). On this see also the refreshingly realistic assessment by Joseph Schumpeter (Capitalism, Socialism and Democracy [New York: Harper and Bros., 1942], p. 198), that “the theory which construes taxes on the analogy of club dues or the purchase of a service of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of minds.” Nor does Mises overlook, as the public goods theorists almost invariably do, the multitude of fallacies involved in today’s fashionable economic literature on “externalities” (Human Action, pp. 654–61). When Mises’s position is classified as orthodox here, it is due to the fact that he, in this respect not unlike the rest of the public goods theorists, dogmatically assumes that certain goods (law and order, in his case) cannot be provided by freely competing industries; and that he, too, with respect to law and order at least, “proves” the necessity of a government by a non sequitur. Thus, in his “refutation” of anarchism he writes: “Society cannot exist if the majority is not ready to hinder, by the application or threat of violent action, minorities from destroying the social order. This power is vested in the state or government” (Human Action, p. 149). But clearly, from the first statement the second one does not follow. Why cannot private protection agencies do the job? And why would the government be able to do the job better than such agencies? Here the reader looks in vain for answers.

⁷ On the specific problem of a free-market provision of law and order see Murray N. Rothbard, For A New Liberty, rev. ed. (New York: Macmillan, 1978), chap. 12; idem, Power and Market (Kansas City: Sheed Andrews and McMeel, 1977), chap. 1; also Gustave de Molinari, “The Production of Security,” Occasional Paper No. 2 (1849; reprint, New York: Center for Libertarian Studies, 1977).

⁸ Rothbard, Man, Economy, and State, p. 887; see on the above also Walter Block, “Public Goods and Externalities: The Case of Roads,” Journal of Libertarian Studies 7, no. 1 (1983); Hoppe, Eigentum, Anarchie, und Staat, chap. 1; idem, A Theory of Socialism and Capitalism, chap. 10.

⁹ On this see Mises, Human Action, pp. 153–55.

¹⁰ For Rothbard’s Mises-critique see Murray N. Rothbard, The Ethics of Liberty (Atlantic Highlands, N.J.: Humanities Press, 1982), pp. 205–12.

¹¹ For various cognitivist approaches towards ethics see Kurt Baier, The Moral Point of View: A Rational Basis of Ethics (Ithaca, N.Y.: Cornell University Press, 1961); Marcus Singer, Generalization in Ethics (New York: A. Knopf, 1961); Paul Lorenzen, Normative Logic and Ethics (Mannheim: Bibliographisches Institut, 1969); Stephen Toulmin, The Place of Reason in Ethics (Cambridge: Cambridge University Press, 1970); Friedrich Kambartel, ed., Praktische Philosophie and konstruktive Wissenschaftstheorie (Frankfurt/M: Athenäum, 1974); Alan Gewirth, Reason and Morality (Chicago: University of Chicago Press, 1978).

¹² On the natural rights tradition see John Wild, Plato’s Modern Enemies and the Theory of Natural Law (Chicago: University of Chicago Press, 1953); Henry Veatch, Rational Man: A Modern Interpretation of Aristotelian Ethics (Bloomington, Ind.: Indiana University Press, 1962); idem, For An Ontology of Morals: A Critique of Contemporary Ethical Theory (Evanston, Ill.: Northwestern University Press, 1971); idem, Human Rights: Fact or Fancy? (Baton Rouge: Louisiana State University Press, 1985).

¹³ Alan Gewirth, Law, Action, and Morality, in Rocco Porreco, ed., Georgetown Symposium on Ethics: Essays in Honor of Henry B. Veatch (New York: University Press of America, 1984), p. 73.

¹⁴ See the discussion in Veatch, Human Rights, pp. 620–67.

¹⁵ To disassociate myself from the natural rights tradition is not to say that I could not agree with its critical assessment of most of contemporary ethical theory—indeed I do agree with Veatch’s complementary refutation of all desire—(teleological, utilitarian) ethics as well as all duty (deontological) ethics (ibid., chap. 1). Nor do I claim that it is impossible to interpret my approach as falling in a “rightly conceived” natural rights tradition after all (see also footnote 17 below). What is claimed, though, is that the following approach is clearly out of line with what the natural rights approach has actually come to be, and that it owes nothing to this tradition as it stands.

¹⁶ See K.O. Apel, “Das Apriori der Kommunikationsgemeinschaft und die Grundlagen der Ethik,” in idem, Transformation der Philosophie (Frankfurt/M.: Suhrkamp, 1973), vol. 2; also Jürgen Habermas, “Wahrheitstheorien,” in Helmut Fahrenbach, ed., Wirklichkeit und Reflexion (Pfullingen: Neske, 1974); idem, Theorie des kommunikativen Handelns (Frankfurt/M.: Suhrkamp, 1981), vol. 1, pp. 44ff.; idem, Moralbewusstsein und kommunikatives Handeln (Frankfurt/M.: Suhrkamp, 1983).

¹⁷ Of course, since the capability of argumentation is an essential feature of human nature—one could not even say anything about the latter without the former—it could also be argued that norms which cannot be defended effectively in the course of argumentation are also incompatible with human nature.

¹⁸ Methodologically this approach exhibits a close resemblance to what Gewirth has described as the “dialectically necessary method” (Reason and Morality, pp. 42–47)—a method of a priori reasoning modelled after the Kantian idea of transcendental deductions. Unfortunately though, in his important study Gewirth chooses the wrong starting point for his analyses. He attempts to derive an ethical system not from the concept of argumentation but from that of action. However, surely this cannot work, because from the correctly stated fact that in action an agent must, by necessity, presuppose the existence of certain values or goods, it does not follow that such goods are universalizable and hence should be respected by others as the agent’s goods by right. Gewirth might have noticed the ethical “neutrality” of action had he not been painfully unaware of the existence of the well-established “pure science of action” or “praxeology” as espoused by Mises. Incidentally, an awareness of praxeology might also have spared him from many mistakes that derive from his faulty distinction between “basic,” “additive” and “non-subtractive” goods (ibid., pp. 53–58). Rather, the idea of truth or of universalizable rights or goods only emerges with argumentation as a special subclass of actions, but not with action as such, as is clearly revealed by the fact that Gewirth, too, is not engaged simply in action but more specifically in argumentation when he wants to convince us of the necessary truth of his ethical system. However, with argumentation being recognized as the one and only appropriate starting point for the dialectically necessary method, a libertarian (i.e., non-Gewirthian) ethic follows, as will be seen.

On the faultiness of Gewirth’s attempt to derive universalizable rights from the notion of action see also the perceptive remarks by Alasdair MacIntyre, After Virtue: A Study in Moral Theory (London: Duckworth, 1981), pp. 64–65; Habermas, Moralbewusstsein und kommunikatives Handeln, pp. 110–11; and Veatch, Human Rights, pp. 159–60.

¹⁹ See the works cited in footnotes 11 and 12 above.

²⁰ See the works cited in footnote 16 above.

²¹ It might be noted here that only because scarcity exists is there even a problem of formulating moral laws; insofar as goods are superabundant (free goods), no conflict over the use of goods is possible and no action-coordination is needed. Hence, it follows that any ethic, correctly conceived, must be formulated as a theory of property, i.e., a theory of the assignment of rights of exclusive control over scarce means, for only then does it become possible to avoid otherwise inescapable and unresolvable conflicts. Unfortunately, moral philosophers in their widespread ignorance of economics have hardly ever seen this clearly enough. Rather, like Veatch (Human Rights, p. 170), for instance, they seem to think that they can do without a precise definition of property and property rights only to then necessarily wind up in a sea of vagueness and adhoceries.

On human rights as property rights see also Rothbard, The Ethics of Liberty, chap. 15.

²² John Locke, Two Treatises on Government, ed. Peter Laslett (Cambridge: Cambridge University Press, 1970), esp. vols. II, V.

²³ On the nonaggression principle and the principle of original appropriation see also Rothbard, For A New Liberty, chap. 2; idem, The Ethics of Liberty, chaps. 6–8.

²⁴ This is the position taken by Jean-Jacques Rousseau, when he asks us to resist attempts to privately appropriate nature-given resources by, for example, fencing them in. He says in his famous dictum; “Beware of listening to this impostor, you are undone if you once forget that the fruits of the earth belong to us all, and the earth itself to nobody” (“Discourse upon the Origin and Foundation of Inequality Among Mankind,” in Jean-Jacques Rousseau, The Social Contract and Discourses, ed. G.D.H. Cole [New York: 1950], p. 235). However, to argue so is only possible if it is assumed that property claims can be justified by decree. How else could “all” (even those who never did anything with the resources in question) or “nobody” (not even those who made use of it) own something unless property claims were founded by mere decree?

²⁵ Rothbard, The Ethics of Liberty, p. 32; on the method of a priori reasoning employed in the above argument see also, idem, Individualism and the Philosophy of the Social Sciences (San Francisco: Cato Institute, 1979); Hans-Hermann Hoppe, Kritik der kausalwissenschaftlichen sozialforschung. Untersuchungen zur Grundlegung von Soziologie und Ökonomie (Opladen: Westdeutscher Verlag 1983); idem, “Is Research Based on Causal Scientific Principles Possible in the Social Sciences? Ratio (1983); supra chap. 7; idem, A Theory of Socialism and Capitalism, chap. 6.

²⁶ On the problem of deriving “ought” from “is” see W.D. Hudson, ed., The Is-Ought Question (London: Macmillan 1969).

²⁷ See Rothbard, The Ethics of Liberty, p. 45.

²⁸ On the importance of the definition of aggression as physical aggression see also Rothbard, ibid., chaps. 8–9; idem, “Law, Property Rights and Air Pollution,” Cato Journal (Spring, 1982).

²⁹ On the idea of structural violence as distinct from physical violence see Dieter Senghass, ed., Imperialismus und strukturelle Gewalt (Frankfurt/M.: Suhrkamp, 1972). The idea of defining aggression as an invasion of property values also underlies both the theories of justice of John Rawls and Robert Nozick, however different these two authors may have appeared to be to many commentators. For how could Rawls think of his so-called difference-principle (“Social and economic inequalities are to be arranged so that they are reasonably expected to be to everyone’s—including the least advantaged ones—advantage or benefit,” John Rawls, A Theory of Justice [Cambridge, Mass.: Harvard University Press 1971], pp. 60–83, 75ff.), as justified unless he believes that simply by increasing his relative wealth a more fortunate person commits an aggression, and a less fortunate one then has a valid claim against the more fortunate person only because the former’s relative position in terms of value has deteriorated?! And how could Robert Nozick claim it to be justified for a “dominant protection agency” to outlaw competitors, regardless of what their actions would have been like? (Robert Nozick, Anarchy, State, and Utopia [New York: Basic Books, 1974], pp. 55f.) Or how could he believe it to be morally correct to outlaw so-called nonproductive exchanges, i.e., exchanges where one party would be better off if the other one did not exist at all or at least had nothing to do with it (as, for instance, in the case of a blackmailee and a blackmailer), regardless of whether or not such an exchange involved physical invasion of any kind (ibid., pp. 83–86) unless he thought that the right to have the integrity of one’s property values (rather than its physical integrity) preserved existed? For a devastating critique of Nozick’s theory in particular see Rothbard, The Ethics of Liberty, chap. 29; on the fallacious use of the indifference curve analysis, employed both by Rawls and Nozick, idem, Toward a Reconstruction of Utility and Welfare Economics (New York: Center for Libertarian Studies, Occasional Paper Series, No. 3, 1977).

³⁰ See also Rothbard, The Ethics of Liberty, p. 46.

³¹ For an awkward philosophical attempt to justify a late-comer ethic see James P. Sterba, The Demands of Justice (Notre Dame, Ind.: Notre Dame University Press, 1980), esp. pp. 58ff., 137ff.; on the absurdity of such an ethic see Rothbard, Man, Economy, and State, p. 427.

³² It should be noted here that only if property rights are conceptualized as private property rights originating in time does it then become possible to make contracts. Clearly enough, contracts are agreements between enumerable physically independent units which are based on the mutual recognition of each contractor’s private ownership claims to things acquired prior in time to the agreement and which then concern the transfer of property titles to definite things from a definite prior to a definite later owner. No such thing as contracts could conceivably exist in the framework of a late-comer ethic!

Chapter 12

[Reprinted from the Austrian Economics Newsletter (Winter, 1988). Also reprinted in volume 3 of Austrian Economics, edited by Stephen Littlechild (London: Edward Elgar, 1990).]

¹ K.O. Apel, “Das Apriori der Kommunikationsgemeinschaft und die Grundlagen der Ethik,” in idem, Transformation der Philosophie (Frankfurt/M., 1973), vol. II; Jürgen Habermas, Moralbewusstsein und kommunikatives Handeln (Frankfurt/M. 1983).

² Apel and Habermas are essentially silent on the all-decisive question of what ethical prescription actually follows from the recognition of the “a priori of argumentation.” However, there are remarks indicating that they both seem to believe some sort of participatory social democracy is implied in this a priori. The following explains why nothing could be further from the truth.

³ John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971), p. 60, pp. 75f., 83.

⁴ Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974), pp. 55f., 83–86.

Chapter 13

[Reprinted from Liberty 2, no. 1 (1988).]

Chapter 14

[Reprinted from volume 17 of Austrian Economics: Perspectives on the Past and Prospects for the Future, edited by Richard M. Ebeling (Hillsdale, Mich.: Hillsdale College Press, 1991).]

¹ On this in particular Paul Lorenzen, Methodisches Denken (Frankfurt/M.: Suhrkamp, 1968); idem, Normative Logic and Ethics (Mannheim: Bibliographisches Institut, 1969),

Geometry, chronometry and hylometry [rational mechanics] are a priori theories which make empirical measurement of space, time and material “possible.” They have to be established before physics in the modern sense of all empirical science, with its hypothetical fields of forces, can begin. Therefore, I should like to call these three disciplines by the common name: protophysics. The true sentences of protophysics are those sentences which are defendable on the basis of logic, arithmetic and analysis, definitions and the ideal norms which make measurements possible. (p. 60)

See also Peter Janich, Die Protophysik der Zeit (Mannheim: Bibliographisches Institut, 1969); Friedrich Kambartel, Erfahrung und Struktur [Frankfurt/M.: Suhrkamp, 1968]).

² Chicago: University of Chicago Press, 1970; also Imre Lakatos and Alan Musgrave, eds., Criticism and the Growth of Knowledge (Cambridge: Cambridge University Press, 1970).

³ See Paul Feyerabend, Against Method (London: New Left Books, 1975); idem, Science in a Free Society (London: New Left Books, 1978); idem, Wissenschaftals Kunst (Frankfurt/M.: Suhrkamp, 1984).

⁴ See on this also Hans-Hermann Hoppe, “On Praxeology and the Praxeological Foundation of Epistemology and Ethics,” in Jeffrey Herbener, ed., The Meaning of Ludwig von Mises (Boston: Kluwer Academic Publishers, 1991).

⁵ See also Hans-Hermann Hoppe, “In Defense of Extreme Rationalism,” Review of Austrian Economics 3 (1989): esp. 190–92; Wolfgang Stegmüller, Hauptströmungen der Gegenartsphilosophie (Stuttgart: Kröner, 1975), vol. 2, chap. 5, esp. pp. 523ff.

⁶ See Martin Hollis and Steven Lukes, eds., Rationality and Relativism (Oxford: Basil Blackwell, 1982).

⁷ See Hans-Hermann Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung. Untersuchungen zur Grundlegung von Soziologie und Ökonomie (Opladen: Westdeutscher Verlag, 1983), esp. pp. 30–32; on methodological dualism see also Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: Regnery, 1966), p. 18; idem, Theory and History: An Interpretation of Social and Economic Evolution (Auburn, Ala.: Ludwig von Mises Institute, 1985), pp. 1–2, 38–41; further, K.O. Apel, Die Erklären: Verstehen Kontroverse in transzendental-pragmatischer Sicht (Frankfurt/M.: Suhrkamp, 1979).

⁸ See Mises, Theory and History, pp. 44ff.

⁹ See Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), p. 749.

¹⁰ See Henry Veatch, Rational Man: A Modern Interpretation of Aristotelian Ethics (Bloomington: Indiana University Press, 1962), esp. pp. 37–46; Hoppe, “In Defense of Extreme Rationalism,” pp. 84–85.

¹¹ See Viktor Kraft, Der Wiener Kreis (Vienna: Springer, 1968); Stegmüller, Hauptströmungen der Gegenwartsphilosophie (Stuttgart: Kroner, 1965), vol. 1, chaps. IX–X.

¹² See Kambartel, Erfahrung und Struktur, esp. chap. 6; see also note 18 below.

¹³ See Mises, Human Action, chap. III.

¹⁴ See Mises, Human Action, part 7; idem, The Ultimate Foundation of Economic Science (Kansas City: Sheed Andrews and McMeel, 1978), esp. chaps. 5–8, which conclude with the statement:

As far as the empiricist principle of logical positivism refers to the experimental methods of the natural sciences, it merely asserts what is not questioned by anybody. As far as it rejects the epistemological principles of the sciences of human action, it is not only entirely wrong. It is also knowingly and intentionally undermining the intellectual foundations of Western civilization. (p. 133)

¹⁵ See in particular Alfred J. Ayer, Language, Truth, and Logic (New York: Dover, 1946).

¹⁶ See Karl R. Popper, The Logic of Scientific Discovery (New York: Basic Books, 1959); idem, Conjectures and Refutations (London: Routledge and Kegan Paul, 1969); Carl G. Hempel, Aspects of Scientific Explanations (New York: Free Press, 1970); Ernest Nagel, The Structure of Science (New York: Harcourt, Brace and World, 1961).

¹⁷ See Paul Oppenheim and Hilary Putnam, “Unity of Science as a Working Hypothesis,” in H. Feigl, ed., Minnesota Studies in the Philosophy of Science (Minneapolis: University of Minnesota Press, 1967), vol. 2.

¹⁸ See Kambartel, Erfahrung und Struktur, esp. pp. 236–42. The rationalist conception of logic and mathematics is summarized by Gottlob Frege’s dictum that “it follows from the truth of the axioms, that they do not contradict each other.” The positivist-formalist interpretation, on the other hand, is formulated by the young D. Hilbert: “If the arbitrarily assumed axioms do not lead to contradictory implications, then they are true, and the objects defined by the axioms exist” (quoted from Kambartel, p. 239).

The advance of formalism, then, explains Kambartel, has far-reaching consequences.

The retreat of mathematics from all practical justification, and from the corresponding epistemological justification of formalism, is itself a practical decision of the utmost importance. It is the abandonment of practical justification and, since formal systems without a meaningful interpretation of their starting point cannot justify anything, ultimately of the justification of propositions altogether. (p. 241)

In consequence,

many formal analyses become a high-bred game of an interested few, although without the public noticing it, because of its inability to attain the level of discussion that is required here to determine the borderline between theory and game. (p. 238)

¹⁹ See Hans Lenk, “Logikbegründung und Rationaler Kritizismus,” Zeitschrift für Philosophische Forschung 24 (1970); K.O. Apel, Transformation der Philosophie, vol. II, pp. 406–10.

²⁰ See on this the two foremost economic treatises of our times: Mises’s Human Action, and Rothbard’s Man, Economy, and State.

²¹ See also Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Boston: Kluwer Academic Publishers, 1989), chap. 6; idem, “The Intellectual Cover for Socialism,” Free Market (February 1988).

²² See on the following Mises, The Ultimate Foundation of Economic Science; Murray N. Rothbard, Individualism and the Philosophy of the Social Sciences (San Francisco: Cato, 1979); Hans-Hermann Hoppe, Praxeology and Economic Science (Auburn, Ala.: Ludwig von Mises Institute, 1988); idem, “On Praxeology and the Praxeological Foundations of Epistemology and Ethics”; also Martin Hollis and Edward Nell, Rational Economic Man (Cambridge: Cambridge University Press, 1975), Introduction.

²³ See on the following also Hoppe, Kritik der kausalwissenschaftlichen Sozialforschung; see also supra chap. 7.

²⁴ For an interpretation of the twentieth century as the apogee of the philosophy of social engineering and relativism see Paul Johnson’s magnificent Modern Times (New York: Harper and Row, 1983).

²⁵ See also Veatch, Rational Man; idem, For an Ontology of Morals: A Critique of Contemporary Ethical Theory (Evanston, Ill.: Northwestern University Press, 1971); idem, Human Rights: Facts or Fancy? (Baton Rouge: Louisiana State University Press, 1985).

²⁶ For example, Gary North suggests one

take a look at any page by the 1983 economics [Nobel] prize winner, Gerald Debreu, Theory of Value: An Axiomatic Analysis of Economic Equilibrium, which was in its eighth printing in 1979—a testimony to the honors of graduate study in economics. The only hint of reality in the entire book appears on p. 29, the words, “No. 2 Red Winter Wheat.” (Gary North, “Why Murray Rothbard Will Never Win the Nobel Prize!,” in Walter Block and Llewellyn H. Rockwell, Jr., eds., Man, Economy, and Liberty, Essays in Honor of Murray N. Rothbard [Auburn, Ala.: Ludwig von Mises Institute, 1988], pp. 89–90)

²⁷ On the degeneration of the social sciences in particular see the brilliant observations by Stanislav Andreski, Social Science as Sorcery (New York: St. Martin’s Press, 1972); Charles Sykes, ProfScam: Professors and the Demise of Higher Education (Washington, D.C.: Regnery, 1988).

²⁸ See also Murray N. Rothbard, For a New Liberty (New York: Macmillan, 1978), chap. 9; idem, “The Hermeneutical Invasion of Philosophy and Economics,” Review of Austrian Economics 3 (1989): 54–55; idem, “Is There Life After Reaganomics,” in Llewellyn H. Rockwell, Jr., ed., The Free Market Reader (Auburn, Ala.: Ludwig von Mises Institute, 1988), esp. p. 378; idem, “Ronald Reagan; An Autopsy,” Liberty II, no. 4 (March 1989).

²⁹ For a critical evaluation of the new nihilism see Henry Veatch, “Deconstruction in Philosophy: Has Rorty Made It the Denouement of Contemporary Analytical Philosophy?,” Review of Metaphysics 39 (1985); Jonathan Barnes, “A Kind of Integrity,” London Review of Books (November 6, 1986); Rothbard, “The Hermeneutical Invasion of Philosophy and Economics”; Hoppe, “In Defense of Extreme Rationalism.”

³⁰ For a critical assessment of the revolution in Eastern Europe see Hans-Hermann Hoppe, “The Collapse of Socialism and the Future of Eastern Europe,” Kwasny Economics II, no. 6 (October 30, 1989); idem, Desocialization in a United Germany (Auburn, Ala.: Ludwig von Mises Institute, 1991).

³¹ See in particular Mises, Human Action; Rothbard, Man, Economy, and State; idem, The Ethics of Liberty (Atlantic Highlands: Humanities Press, 1982).

³² See Mises, Human Action, part 1.

³³ See in particular Apel, Transformation der Philosophie, vol II.

³⁴ See on the following Hoppe, A Theory of Socialism and Capitalism, chaps. 2, 7.

³⁵ See on the following Mises, Human Action, chap. IV; Rothbard, Man Economy, and State, chap. 1; idem, “Praxeology: The Methodology of Austrian Economics,” in Edwin Dolan, ed., The Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976); Hoppe, Praxeology and Economic Science; also Lionel Robbins, The Nature and Significance of Economic Science (New York: New York University Press, 1982).

³⁶ See also Murray N. Rothbard, Toward a Reconstruction of Utility and Welfare Economics (New York: Center for Libertarian Studies, Occasional Paper Series no. 3, 1977); idem, Power and Market (Kansas City: Sheed, Andrews and McMeel, 1977); idem, “The Myth of Neutral Taxation,” Cato Journal 1, no. 2 (1981); Hoppe, A Theory of Socialism and Capitalism; idem, “Man, Economy, and Liberty: Review Essay,” Review of Austrian Economics 4 (1990).

³⁷ See on the idea of a natural sense of justice also Gustave de Molinari, The Production of Security (Burlingame, Calif.: Center for Libertarian Studies, Occasional Paper Series No. 2, 1977).

³⁸ On this also Rothbard, Man, Economy, and State; idem, Power and Market, idem, For A New Liberty; idem, The Ethics of Liberty; Hans-Hermann Hoppe, Eigentum, Anarchie, und Staat (Opladen: Westdeutscher Verlag, 1987); idem, A Theory of Socialism and Capitalism.

³⁹ Mises, Human Action, p. 67.

⁴⁰ For a strategic assessment of the present age from an Austrian perspective see Murray N. Rothbard, “Left and Right: The Prospects for Liberty,” and “Ludwig von Mises and the Paradigm of Our Age,” in idem, Egalitarianism as a Revolt Against Nature and Other Essays (Washington, D.C.: Libertarian Review Press, 1974).

Chapter 15

[Reprinted from www.LewRockwell.com.]

¹ So much for John Rawls’s claim, in his celebrated Theory of Justice, that we cannot but “acknowledge as the first principle of justice one requiring an equal distribution (of all resources),” and his comment that “this principle is so obvious that we would expect it to occur to anyone immediately.” What I have demonstrated here is that any egalitarian ethic such as this proposed by Rawls is not only not obvious but must be regarded instead as absurd, i.e., as self-contradictory nonsense. If Rawls were right and all resources were indeed equally distributed, then he literally would have no leg to stand on and support him in proposing the very nonsense that he does pronounce.

² Hayek, F.A., “The Intellectuals and Socialism,” in idem, Studies in Philosophy, Politics, and Economics (New York: Simon and Schuster, 1969), p. 194.

Appendix

¹ Reply to David Osterfeld, “Comment on Hoppe,” Austrian Economics Newsletter (Spring/Summer, 1988).

² Reply to “Symposium on Hoppe’s Argumentation Ethic,” Liberty (November 1988).

³ Reply to Loren Lomasky, “The Argument From Mere Argument,” Liberty (September 1989).

⁴ Reply to David Conway, “A Theory of Socialism and Capitalism,” Austrian Economics Newsletter (Winter/Spring, 1990).