13. Rothbard’s Last Scholarly Triumph

ROTHBARD’S LAST SCHOLARLY TRIUMPH

One last academic triumph remained for Rothbard, though sadly it appeared only after his death. In two massive volumes, Economic Thought Before Adam Smith and Classical Economics²⁹⁹ he presented a minutely detailed and erudite account of the history of economic theory. For Rothbard, the history of economics has an unusually broad scope. To him it includes not only economic theory but virtually all of intellectual history as well. He advances definite and well thought out interpretations of major historical controversies.

As an example, Machiavelli was in his view a “preacher of evil”—not for him the fashionable portrayal of the Florentine as the founder of value-free political science. With characteristic acuity, Rothbard asks:

Who in the history of the world, after all, and outside a Dr. Fu Manchu novel, has actually lauded evil per se and counselled evil and vice at every step of life’s way? Preaching evil is to counsel precisely as Machiavelli has done: be good so long as goodness doesn’t get in the way of something you want, in the case of the ruler that something being the maintenance and expansion of power.³⁰⁰

He concludes his discussion with a stinging rebuke to modern political scientists, who “eschew moral principles as being ‘unscientific’ and therefore outside their sphere of interest.”³⁰¹

Rothbard firmly rejects the thesis of Max Weber, according to which the “inner-wordly asceticism” that Calvinism encouraged played a key role in the rise of capitalism. Rothbard counters that capitalism began long before Calvin; and the stress on “God and profit” that Weber found distinctively Protestant was present in the Catholic Middle Ages.

For the Weber thesis, Rothbard substitutes another contrast between Catholics and Protestants, here following Emil Kauder. The Calvinist stress on the calling led to emphasis on work and saving and distrust of consumption: Catholic Europe, following the Aristotelian and scholastic tradition, found nothing wrong with consumption. This difference led to a crucial split in the growth of economics, between utility and cost-of-production theories of price.

In an insightful passage, Rothbard sets aside oceans of misinterpretation about the quarrel between the Ancients and the Moderns.

The pitting of “tradition” vs. “modernity” is largely an artificial antithesis. “Moderns” like Locke or perhaps even Hobbes may have been individualists and “right-thinkers,” but they were also steeped in scholasticism and natural law³⁰²

Further, on the same page he strikes at another theory of vast but unmerited influence:

Neither are John Pocock and his followers convincing in trying to posit an artificial distinction and clash between the libertarian concerns of Locke or his later followers on the one hand, and devotion to “classical virtue” on the other ... why can’t libertarians and opposers of government intervention also oppose government “corruption” and extravagance? Indeed, the two generally go together.³⁰³

Rothbard firmly opposes the Whig view of the history of economics, in which “later” is inevitably “better,” thus rendering the study of the past unnecessary. In his view, much of the history of economics consists of wrong turnings; and volume I ends with a tale of decline. Yet, paradoxically, Rothbard’s own method is in another way Whiggish itself. He has his own firmly held positions on correct economic theory, based on his adherence to the tenets of the Austrian School. He accordingly is anxious to see how various figures anticipate key Austrian views or, on the contrary, pursue blind alleys.

The dominant theme in Rothbard’s appraisal of economics is the nature of value. Economic actors, endeavoring to better their own positions, guide themselves by their subjective appraisals of goods and services. The pursuit of an “objective” measure of value is futile; what influence can such an alleged criterion have, unless it is reflected in the minds of economic agents?

Rothbard especially emphasizes, in this connection, the so-called paradox of value. How can it be that water costs little or nothing while diamonds are extraordinarily expensive? Life cannot exist without the former, while the latter are the merest luxuries. Does not this paradox show that goods do not exchange according to their subjective values? The answer, fully developed by the Austrian School, depends on the fact that subjective appraisals of particular units of a good, not the supposed value of the whole stock of the good, determine price. Since water is abundant and diamonds are scarce, there is no anomaly at all in the greater price of the latter.

Rothbard never fails to praise those who reach or approach this insight. The scholastics fare especially well: Pierre de Jean Olivi, e.g., realized that the

important factor in determining price is complacibilitas, or subjective utility, the subjective desirability of a product to the individual consumers.... [u]tility, in the determination of price, is relative to supply and not absolute.³⁰⁴

He lauds Jean Buridan for extending the subjective utility analysis to money.

A key corollary of the subjectivist position is that an exchange does not consist of an equality: each party values more highly what he obtains than what he surrenders. Those who miss this point elicit a protest from Rothbard. Aristotle, whom he much admires as a philosopher, does not escape censure:

Aristotle’s famous discussion of reciprocity in exchange in Book V of his Nicomachean Ethics is a prime example of descent into gibberish. Aristotle talks of a builder exchanging a house for the shoes produced by a shoemaker. He then writes: “The number of shoes exchanged for a house must therefore correspond to the ratio of builder to shoemaker....” Eh? How can there possibly be a ratio of “builder” to “shoemaker”?³⁰⁵

Those who knew Murray Rothbard can almost hear him asking this.

The subjectivist insight by no means died with the close of the Middle Ages. On the contrary, the School of Salamanca upheld it in the sixteenth century; and in the eighteenth, Cantillon and Turgot considerably extended it. But the path of economics was not one of continual progress. Theory suffered a major setback through the work of one of Rothbard’s main antiheroes, Adam Smith.

Far from being the founder of economics, Smith in the eyes of Rothbard was almost its gravedigger. Although Smith in his classroom lectures solved the paradox of value in standard subjectivist fashion, “in the Wealth of Nations, for some bizarre reason, all this drops out and falls away.”³⁰⁶ Smith threw out subjective utility and instead attempted to explain price through labor cost. Because of Smith’s mistake, the “great tradition [of subjectivism] gets poured down the Orwellian memory hole.”³⁰⁷

Rothbard also diverges from the mainstream interpretation of Smith in his account of the “invisible hand.” He views this as expressive of Smith’s Calvinist belief in Divine Providence; he does not regard the concept as an important analytical tool.

The second volume, Classical Economics, continues to emphasize the struggle between subjectivists and their antagonists. Another central theme emerges in the volume’s initial chapter: “J.B. Say: the French Tradition in Smithian Clothing. “Jean-Baptiste Say, far from being a mere popularizer of Adam Smith, “was the first economist to think deeply about the proper methodology of his discipline, and to base his work, as far as he could, upon that methodology.”³⁰⁸

And what is the procedure that Say advocated? One starts from certain “general facts” that are incontestably known to be true. From these, the economist reasons deductively. Since the beginning axioms are true, whatever is validly deduced from them also is true. Here, in brief compass Say discovered the praxeological method that came to full fruition in the work of Mises and Rothbard himself.

To understand praxeology, a key point about the initial axioms must be kept in mind. The starting points are common sense, “obvious” truths, e.g., that people engage in exchange in order to benefit themselves. The economist should not begin from oversimplified hypotheses about the economy as a whole, chosen because convenient for mathematical manipulation. Adoption of the wrong method was the besetting vice of David Ricardo, the main impediment, in Rothbard’s view, to the development of economics in the nineteenth century.

This conflict of method had a fundamental effect on the content of Say’s and Ricardo’s economics. Say began from the individual in action, the subject of the common sense propositions he took to be axiomatic. Thus, Say placed great emphasis on the entrepreneur. One cannot assume that the economy automatically adjusts itself: only by the foresight of those able and willing to take risks can production be allocated efficiently. “It seems to us that Say is foursquare in the Cantillon-Turgot tradition of the entrepreneur as forecaster and risk-bearer.”³⁰⁹

Again, Say’s stress on the individual underlies his analysis of taxation, which Rothbard rates among his greatest contributions. Some, including notoriously Adam Smith, consider taxes a way to benefit the public; but Say would have nothing to do with such nonsense. Taxation, in essence, is theft; the government forcibly seizes property from its rightful owners. If the powers-that-be then condescend to spend some of their ill-gotten gains for the “public benefit,” they are in reality purchasing people’s goods with the people’s own money. Taxation, accordingly, should be as low as possible: the search of Smith and his followers for “canons of justice” in taxation must be rejected. Rothbard characteristically adds: why have any taxes at all?

When we turn to Rothbard on Ricardo, the atmosphere is entirely different. Once again, he reverses conventional opinion. Say was not a popularizer, but a great economist; likewise contrary to the prevailing view, Ricardo was not the first truly scientific economist. His much-praised logic is “verbal mathematics” that fundamentally misconceives economics.

Ricardo was stuck with a hopeless problem: he had four variables, but only one equation with which to solve them:

Total output (or income) = rent + profit + wages

To solve, or rather pretend to solve, this equation, Ricardo had to “determine” one or more of these entities from outside his equation, and in such a way as to leave others as residuals.³¹⁰

Rothbard explains with crystal clarity the path by which Ricardo sought to escape. He simply held fixed as many of his variables as he could: by oversimplified assumptions, he could “solve” his equations. In particular, he adopted a theory of rent based on differential productivity, which Rothbard neatly skewers; and he made price largely a function of the quantity of labor time embodied in a commodity’s production.

Ricardo’s labor theory of value had a consequence that would no doubt have shocked its author. It paved the way for Marxism.

Marx found a crucial key to this mechanism [by which the capitalist class would be expropriated] in Ricardo’s labour theory of value, and in the Ricardian socialist thesis that labour is the sole determinant of value, with capital’s share, or profits, being the “surplus value” extracted by the capitalist from labour’s created product.³¹¹

And with his stress on the Ricardian roots of Marxism, Rothbard begins a devastating assault on “scientific socialism,” the like of which has not been seen since Bohm-Bawerk.

As Rothbard notes, Marx’s economics falls into error from the start. Marx assumed that in an exchange, the commodities traded have equal value. Moreover, he took this postulated equality in a very strong sense: both of the goods must be identical to some third thing. This, by spurious reasoning that Rothbard deftly exposes, he claimed could only be labor.

But the flaw in Marx’s derivation does not lie only in the details of his argument. A leitmotif of Rothbard’s work is that, as previously mentioned, an exchange consists not of an equality, but rather of a double inequality. Marx’s whole edifice thus rests on a spurious assumption, and the three volumes of Das Kapital³¹² constitute an elaborate attempt to conjure a solution to a nonexistent problem.

But the difficulties of Marxist economics are not confined to its starting point. Rothbard acutely notes that Marx’s theory of wage determination really applies not to capitalism but to slavery:

Oddly, neither Marx nor his critics ever realized that there is one place in the economy where the Marxist theory of exploitation and surplus does apply: not to the capitalist-worker relation in the market, but to the relation of master and slave under slavery. Since the masters own the slaves, they indeed only pay them their subsistence wage: enough to live on and reproduce, while the masters pocket the surplus of the slaves’ marginal product over their cost of subsistence.³¹³

Rothbard does not confine his assault on Marxism to an exposure of its economic fallacies. Behind the economics of Marxism, he finds a heretical religious myth, the goal of which is the “obliteration of the individual through ‘reunion’ with God, the One, and the ending of cosmic ‘alienation,’ at least on the level of each individual.”³¹⁴

One might at first think that abstruse theosophical speculations that date back to Plotinus have little to do with Marxism. But Rothbard convincingly shows that Marx, through the intermediary of Hegel, presented a secularized version of this witches’ brew in the guise of “scientific socialism.” In the course of doing so, Rothbard makes Hegel’s philosophy seem amusing; his remarks on the “cosmic blob” are worthy of H.L. Mencken (who was, incidentally, one of Rothbard’s favorite authors). Rothbard’s analysis of Marx’s philosophy reinforces the pioneering investigations of Eric Voegelin; this parallel between the conclusions of these two great scholars is all the more remarkable in that Rothbard, though familiar with Voegelin, was not deeply influenced by him.³¹⁵

In his discussion of utilitarianism, Rothbard’s philosophical turn of mind is evident. He notes that according to that system, reason

is only a hand-maiden, a slave to the passions.... But what, then, is to be done about the fact that most people decide about their ends by ethical principles, which cannot be considered reducible to an original personal emotion?³¹⁶

Rothbard has here rediscovered an objection to utilitarianism raised by Archbishop Whately: how can utilitarianism accommodate preferences based on competing ethical systems? John Stuart Mill, though familiar with the objection, never answered it in a convincing way.

Rothbard viewed Mill with contempt, and his mordant portrayal of him is one of the highlights of the book:

John Stuart was the quintessence of soft rather than hardcore, a woolly minded man of mush in striking contrast to his steel-edged father [James Mill]....John [Stuart] Mill’s enormous popularity and stature in the British intellectual world was partially due to his very mush-headedness.³¹⁷

Rothbard’s two volumes, which he unfortunately did not live to see published, are a monument of twentieth-century scholarship. Roger Backhouse, an eminent historian of economic thought, notes in his review that

the range of authors discussed is immense. Rothbard clearly makes the point that economics is the product of communities of scholars, not simply a small group of pioneering thinkers ... his reading is vast, and there is much to be learned from him.³¹⁸

Backhouse disagrees with Rothbard’s Austrian perspective; nevertheless, he concludes that “it is nonetheless, an exciting, even brilliant, book.”³¹⁹

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²⁹⁹An Austrian Perspective on the History of Economic Thought, vol. 1: Economic Thought Before Adam Smith, and vol. 2: Classical Economics (Cheltenham, U.K.: Edward Elgar, 1995).

³⁰⁰Economic Thought Before Adam Smith, p. 190.

³⁰¹Ibid., p. 192.

³⁰²Ibid., pp. 313–14.

³⁰³Ibid., p. 314.

³⁰⁴Ibid., p. 61.

³⁰⁵Ibid., p. 16.

³⁰⁶Ibid., p. 449.

³⁰⁷Ibid., p. 450.

³⁰⁸Classical Economics, p. 12.

³⁰⁹Ibid., p. 26.

³¹⁰Ibid., p. 82.

³¹¹Ibid., p. 409.

³¹²Karl Marx, Das Kapital (New York: E.P. Dutton, 1962).

³¹³Classical Economics, p. 393; emphasis in the original.

³¹⁴Ibid., p. 351.

³¹⁵Also illuminating in this regard is Cyril O’Regan’s The Heterodox Hegel (New York: SUNY Press, 1994).

³¹⁶Classical Economics, p. 57.

³¹⁷Ibid., p. 277.

³¹⁸History of Economic Thought Newsletter 56 (Summer, 1996): 20.

³¹⁹Classical Economics, p. 21.