Chapter 10 of 17 · The Essential Rothbard by David Gordon

9. The Unknown Rothbard: Unpublished Papers

THE UNKNOWN ROTHBARD:
UNPUBLISHED PAPERS

In his work for the Volker Fund, Rothbard wrote a large number of reports on books and issues. These reports are much more than displays of Rothbard’s virtuosity: they frequently offer fuller discussions of vital points in his thought than are available in his books and articles. Unfortunately, they have hitherto remained unpublished. Dr. Roberta Modugno, in a veritable triumph of Rothbardian scholarship, has made available to the public for the first time a selection from the most important of these reports, in Italian translation, in her Diritto, natura e ragione: Scritti inediti versus Hayek, Mises, Strauss e Polanyi¹⁶⁶; most of them, however remain unpublished. It is safe to say that future research on Rothbard will devote much attention to them; here only a few items can be described.

Rothbard firmly believed in an objective ethics; and in this stance he found himself in the unfamiliar position of agreement with Leo Strauss. Commenting on Strauss’s paper “Relativism,” Rothbard writes: “Strauss has one good point, and one alone: that there exists an absolute ethics for man, discoverable by reason, in accordance with [the] natural law of human nature.”¹⁶⁷ Rothbard found Strauss effective in his criticism of assorted relativists and historicists:

Strauss begins [an essay on relativism] with the almost incredibly confused and overrated Isaiah Berlin, and he has no trouble demolishing Berlin and exposing his confusions—Berlin trying to be at the same time an exponent of “positive freedom,” “negative freedom,” absolutism, and relativism.¹⁶⁸

Strauss shows that, “in denying the possibility of rational ends [as relativists do] rational means are not on a very secure basis either.”¹⁶⁹

Why should we believe in an objective ethics? Both Rothbard and Strauss found persuasive an appeal to ordinary language. The signature tune of David Hume and his many successors, the “fact-value dichotomy,”¹⁷⁰ is an artificial construction. Suppose, e.g., that someone pushes you aside while you are waiting in line for a movie. Has he not acted rudely? The judgment that he is rude is not a matter for subjective decision but is governed by objective criteria. But surely “rude” is a value-term: what then has happened to the alleged dichotomy between fact and value? In the view favored by Rothbard and Strauss, value judgments are factual. If so, is it not also true—though this is much more controversial—that if human beings need certain things in order to flourish, this is at once a factual statement and a value judgment? So Rothbard maintained; the influential English philosopher Philippa Foot has also defended this position in her Natural Goodness.¹⁷¹

Though Rothbard and Strauss were here allied, they soon diverged. Strauss contrasted natural and medieval natural law with “modern” natural law, culminating in the thought of John Locke, to the distinct disadvantage of the latter. As Strauss saw matters, Machiavelli and Hobbes abandoned the classical pursuit of virtue. Instead, they founded political philosophy on passion and selfinterest. Locke, despite his professed adherence to natural law, was a secret Hobbesian; he perverted true natural law. Strauss’s antipathy to individualism, by the way, should not surprise us. As was often the case, Strauss followed the thought of his much-admired friend, the English socialist historian R.H. Tawney.¹⁷²

Rothbard left no doubt about his view of this interpretation:

Strauss, while favoring what he considers to be the classical and Christian concepts of natural law, is bitterly opposed to the 17th and 18th century conceptions of Locke and the rationalists, particularly to their “abstract,” “deductive,” championing of the natural rights of the individual: liberty, property, etc. In this reading, Hobbes and Locke are the great villains in the alleged perversion of natural law. To my mind, this “perversion” was a healthy sharpening and developing of the concept.¹⁷³

Rothbard has the better of the argument, if one takes account of the major study of Brian Tierney, The Idea of Natural Rights.¹⁷⁴ As Modugno notes,

Tierney has decisively brought into question the idea of Strauss and [Michel] Villey of an antithesis between an ancient Aristotelian doctrine of natural law and a modern theory of subjective natural rights.¹⁷⁵

Tierney, one of the world’s foremost authorities on medieval canon law, finds numerous uses of the language of individual rights in the writings of twelfth-century Decretists such as Rufinus and the “greatest of them all, Huguccio.”¹⁷⁶

Many canonists included in their lists of meanings a subjective one that explained ius naturale as a faculty or power inherent in human nature ... from the beginning, the subjective idea of natural right was not derived from Christian revelation or from some all-embracing natural-law theory of cosmic harmony but from an understanding of human nature itself as rational, self-aware, and morally responsible.¹⁷⁷

As all readers of Rothbard know, the key principle of his ethics is the axiom of self-ownership; and this too has medieval antecedents. Tierney finds that “one of the most illustrious masters of the University of Paris in the latter part of the thirteenth century,” Henry of Ghent, had a firm grasp of this principle.¹⁷⁸ Henry asked whether a criminal condemned to death had the right to flee and argued that he did: “Only the criminal himself has a property right in his own body or, as Henry put it, ‘only the soul under God has property in the substance of the body’.”¹⁷⁹

Contrary to Strauss, Locke did not pervert natural law: he developed further a common medieval understanding, exactly as Rothbard maintained. True enough, Thomas Aquinas, the foremost thinker of the Middle Ages, made no use of subjective rights. But the great sixteenth-century Salamancan scholastic Francisco de Vitoria found it an easy task to devise a natural rights theory on a Thomistic basis. Once more, Strauss is confuted.

Strauss’s rejection of individual rights led him to espouse political views that Rothbard found repellent.

We find Strauss praising ... “farsighted,” “sober” British imperialism; we find him discoursing on the “good” Caesarism, on Caesarism as often necessary and not really tyranny, etc.... he praises political philosophers for, yes, lying to their readers for the sake of the “social good.” ... I must say that this is an odd position for a supposed moralist to take.¹⁸⁰

Not only did Rothbard oppose Strauss’s anti-individualist account of natural law; he also found risible the method of textual analysis by which Strauss arrived at his conclusions. Strauss believed that the great political philosophers faced a dilemma. They often held views at odds with prevailing orthodoxy; should they propagate their dissent openly, they faced persecution. In any case, their doctrines were meant for an elite group of disciples, not for an unlearned public unfit to judge them.

What then was to be done? According to Strauss, the philosophers concealed their true opinions through esoteric writing. Seeming contradictions in the text of a great philosopher were not mistakes; they instead signaled the presence of a hidden message.

Rothbard, to say the least, found Strauss’s thesis unpersuasive. Strauss’s most extended presentation of esoteric interpretation is contained in his Thoughts on Machiavelli.¹⁸¹ About this work Rothbard comments:

But it is one thing to look for circumspection, and quite another to construct a veritable architectonic of myth and conjecture based on the assumption of Machiavelli as an omniscient Devil, writing on a dozen different levels of “hidden meaning.” The Straussian ratiocination is generally so absurd as to be a kind of scholarly version of the Great Pyramid crackpots.¹⁸²

Rothbard offered this as an example of Strauss’s striving for esoteric novelty:

Note the odd “reasoning”: “Since the Prince consists of twenty-six chapters, and the Prince does not give us any information as to the possible meaning of this number, we turn to the twenty-sixth chapter of the Discourses.” Note the “since,” as if this had the sweet logic of a syllogism.¹⁸³

In defending his view of libertarian natural law, Rothbard confronted a challenge posed by Friedrich Hayek. Is not the attempt to deduce from self-evident principles the precepts of law an example of the “constructivist rationalism” that has been a principal enemy of liberty? Rothbard vigorously disagreed: Hayek in his view was an irrationalist. In a review, written in 1958, of the manuscript of Hayek’s The Constitution of Liberty,¹⁸⁴ Rothbard expressed alarm. It is “surprisingly and distressingly, an extremely bad, and I would even say evil, book.”¹⁸⁵ For Rothbard, intellectual opponents often inhabited a dark landscape. He could apply to himself the words of Dante: Per me si va ne la citta dolente [Through me is the way to the sorrowful city].¹⁸⁶

Hayek’s account of natural law and reason lay at the heart of Rothbard’s critique:

Tied up with his dismissal of natural law is Hayek’s continuous, and all-pervasive, attack on reason. Reason is his bête noire, and time and time again, from numerous and even contradictory standpoints, he opposes it. The true rationalist theory was, and is, that reason can discover the natural law of man, and from this can discover the natural rights of liberty. Since Hayek dismisses this even from historical consideration, he is left with only two choices for the formation of a political ethic: either blind adherence to custom and the traditions of the “social organism,” or the coercive force of government edict.¹⁸⁷

To Rothbard, Hayek’s rejection of reason led to muddleheaded and unlibertarian views. Besides the very long list of such measures that Rothbard cites in a later review,¹⁸⁸ he also notes that Hayek was prepared to support conscription, if needed to defend against an external enemy.¹⁸⁹ In The Constitution of Liberty, Hayek surprisingly criticized the Supreme Court for finding too many of Roosevelt’s New Deal measures unconstitutional.¹⁹⁰ This anomaly in a supposedly libertarian work did not escape Rothbard’s attention.

In another letter about Hayek, Rothbard challenges the dominant orthodoxy in contemporary political philosophy. Hayek agrees with critics of the free market that people do not deserve the incomes they receive. But this is not, in his view, a failure of the market. We have no objective means to assess the moral merits of people, so moral desert cannot properly be a principle of distribution.

Rothbard dissents:

Hayek errs by denying that a free market apportions income in accordance with merit. His argument is that since we know nothing, we can’t know what a person’s merit is.... But all he needed to do was to realize that “merit” in this sense simply means merit in the production of goods and services exchangeable on the market. Income is then apportioned in proportion to this productivity.¹⁹¹

To this, Hayek would reply that people do not “really” deserve the value of what they produce, since arbitrary factors lie behind the abilities people possess to contribute to production. Rothbard “submit[s] that this is sheer nonsense.” Hayek has conjured up a notion of “merit” that he has not defined and used this to challenge the justice of distribution by results. He then says that distribution cannot be in accord with “merit” in his sense: but this is true only because he has characterized the concept in such a vague way that one can never tell whether it has been satisfied. Rothbard, with his characteristic insistence on clarity, finds no use for Hayek’s concept.

Rothbard has here gone beyond Robert Nozick. In responding to Rawls’s claim that people do not deserve their earnings on the market, Nozick responded that they might still be entitled to these earnings. Rothbard asks: why stop with this? Why not say that people do deserve the market value of what they produce?

He raises another decisive challenge to Hayek:

He does not really come to grips with the problem of equality, and of such a concept violating the nature of man. Instead, he keeps talking about the advantages to “society” of permitting the inequalities. Always the emphasis is on “society” rather than the individual.... Here Hayek is committing the sin of holism which he has in the past so well condemned.¹⁹²

In criticizing Hayek, Rothbard warned against resting the case for freedom exclusively on man’s ignorance. Doing so is “flimsy enough for someone like Willmoore Kendall to drive a ten-ton truck through.”¹⁹³ Rothbard respected this idiosyncratic conservative theorist; and his criticism of Kendall is one of the treasures of his unpublished papers.

Kendall assailed the Liberal Left for its elitism. Liberal intellectuals presumed themselves to be morally superior to the masses and entitled to rule them, while wishing to preserve the formal trappings of democracy. But, Kendall maintained, there were no “moral experts.” Experts were of value only as technicians to tell us how to achieve a given set of goals. The settled conservative convictions of the American people should determine policy: the “deliberate sense of the community,” not the arbitrary preferences of the Liberal Left, should guide us. Communists and other radicals have no rights to freedom of speech. All communities rest on an orthodoxy that may, if necessary, be enforced on dissenters.

Rothbard, after attending lectures by Kendall at Buck Hill Falls, reported that he was “a very keen and stimulating thinker, incisive, and with a sharply radical spirit, i.e., a propensity to dig to the roots of issues without fear or favor.”¹⁹⁴ Although he asked the right questions, his answers were dangerous mistakes.

Kendall is right to protest the tyranny of the expert, but he himself has uncritically accepted the supposed dichotomy between fact and value. Kendall assumes that one person’s preferences is as valid as another’s. There cannot, then, be experts about the ends of morality. But how does Kendall know this?

His [Kendall’s] ... major solution seems to be to hammer home the distinction between fact and value, to convince everyone that experts are only experts on facts and scientific laws, while every citizen should choose policy on the basis of which means will lead to his ends.¹⁹⁵

Rothbard rejects Kendall’s contention.

He assumes that morally, everyone is equal and therefore the democratic census can decide. Why? Why is there not a “moral roster,” even though a separate one from an “intellectual roster” [of experts]?¹⁹⁶

Kendall has uncritically embraced moral relativism and subjectivism.

Kendall claims that a society has the right to preserve the orthodoxy that governs it, but Rothbard finds his argument wanting. He considers Kendall’s striking claim that the Athenian Assembly rightly condemned Socrates to death:

If the Athenians were so damn committed to their way of life, they had little to worry about; and if Socrates were really becoming a threat, then they were no longer particularly committed to their way of life.¹⁹⁷

Suppose Kendall were to acknowledge this point, but still wanted to suppress dissent. Then, contrary to his claim, he is not really a partisan of majority rule. Returning to Socrates and the Athenians, Rothbard comments:

If they [the Athenian Assembly] are so worried—and Kendall intimates that they are so worried—because they are afraid that enough of their number will be converted until, say, 55 percent of the Athenians will become Socratics ... then at least 45 percent of the Athenians must not be passionately committed, must be in danger of seceding to the enemy. But if that is the case, Kendall is not defending the right and duty of the majority to suppress a minority; he is defending the right and duty of a minority to suppress a possible majority.¹⁹⁸

Kendall’s position is more than an intellectual mistake. To put into practice the rule by popular opinion that he favors would destroy freedom and with it, civilization itself. If any group that believes itself to know the truth can suppress dissent, change becomes impossible:

Since every new social change of importance is subversive of the old order, and disturbs people’s minds for a while, Kendall must keep going back and back, since every society originated in a revolution against some preceding society. In short, Kendall’s ethical philosophy must lead back to where—to the era of the cave man.... If Kendall has set forth the philosophy of tyranny cogently, we see that philosophy leads to: the end of civilization and most of the human race—in short, the death-principle.¹⁹⁹

Rothbard’s power as a critic is here on full display.

If Rothbard rejected this appeal to consensus and orthodoxy, he viewed the tyranny of the Liberal Left with no more favor than did Kendall. In a review of Charles L. Black, Jr., The People and the Court: Judicial Review in a Democracy,²⁰⁰ he praised Black for exposing a key tactic of the elitists. Black, a major figure at the Yale Law School, wrote as a committed advocate of elitism. In Black’s view, the Supreme Court played a crucial role in validating the growth of government and the restriction of economic liberty. By convincing the public that government policy was “legitimate,” the Court disarmed potential resistance to elite rule:

Now, judicial review, beloved by conservatives, can of course fulfill the excellent function of declaring government interventions and tyrannies unconstitutional. But it can also validate and legitimize the government in the eyes of the people by declaring these actions valid and constitutional. Thus, the courts and the Supreme Court become an instrument of spearheading and confirming Federal tyranny instead of the reverse.... Professor Black’s contribution here is to see and understand this process.²⁰¹

According to Black, it is especially important for Americans to be convinced that the government is legitimate:

The United States was set up as a limited government, and given the originally sovereign states, it could only have begun as a strictly limited government.... It is therefore particularly important, writes Black shrewdly, for a limited government to convince and cajole people that it is acting with legitimacy—so that even the most hostile critics of its actions will, down deep, accept the government itself. Herein lies the particular function of the Supreme Court.²⁰²

An obvious objection can be raised to Black’s analysis. True enough, the Court can act to validate government power; its occasional declarations that the government has acted unconstitutionally can be seen, just as Black alleges, as “window dressing” to secure popular compliance. But does this not depend on the personnel of the Court? Can one not imagine a conservative Court that would act to protect liberty?

The suggestion is chimerical; structural reasons militate against it. As Black rightly notes,

it is illogical to have the State itself—through its Supreme Court—be recognized as the final and sole judge of its own (State) actions.... [John C.] Calhoun saw the problem with beautiful clarity.²⁰³

Black refuses to abandon judicial review, even though he acknowledges that “he puts his faith in ‘something of a miracle’ of government being judge of its own cause,” because he cannot accept the obvious alternative.

But, says, Black, what is the alternative? The Calhoun alternative . .. was nullification, interposition, movements toward unanimity principles, etc., but Black instantly ... rejects this sort of route as leading to an anarchic negation of the national government itself.²⁰⁴

To Rothbard, the horrible outcome that Black fears is precisely what we need. He concludes with an important statement of his view of the Constitution:

the Constitution, regarded as an attempt to limit government, was one of the most noble attempts... at curbing the State in human history—but ... it has failed, and failed almost ignominiously. One reason for such failure, as Calhoun predicted, is the monopoly Supreme Court.²⁰⁵

In his unpublished reports, Rothbard of course did not neglect his principal academic specialty. He acutely criticized mainstream work in economics and economic history. Although James Buchanan approached advocacy of the free market more closely than most economists, Rothbard could not accept his methodology. It was based on unrealistic assumptions; and Rothbard deftly exposes a central weakness.

In a review of a book by Buchanan and two coauthors, Prices, Incomes, and Public Policy,²⁰⁶ Rothbard states that “this book brings home to me as few have done how much can go wrong if one’s philosophical approach—one’s epistemology—is all wrong.”²⁰⁷

What is this central error?

At the root of almost all the troubles of the book lies the weak, confused, and inconsistent positivism: the willingness to use false assumptions if their “predictive value” seems to be of some use. It is this crippling positivist willingness to let anything slip by, to not be rigorous about one’s theory because “the assumptions don’t have to be true or realistic anyway” that permeates and ruins this book.²⁰⁸

Here Rothbard, as usual, settles upon a vital point. One might be inclined to object to Rothbard by saying, what, after all, is wrong with using false assumptions? Are they not useful as first approximations? If we can arrive at a theory that predicts well, its assumptions can be refined to make them more realistic.

Ernest Nagel took exactly this position:

If you’re going to develop an adequate theory ... you must simplify, idealize, and even make assumptions that are clearly contrary to known existing fact!! This is necessary to develop a body of theory. .. simply for the sake of analytic convenience. The empirical justification of this is the ability to introduce supplementary assumptions later that will bring it close to the facts.²⁰⁹

Rothbard disagreed with his teacher, and his counterargument strikes to the heart of the matter. He maintains that the use of false assumptions in economics has in practice weakened theoretical rigor. Whatever the rationale of Nagel and other positivists, the use of false assumptions has had malign effects: “For if a theory or analysis doesn’t have to be strictly true or coherently united to other theory, then almost anything goes—all to be justified with ‘predictive value’ or some other such excuse.”²¹⁰

He documents his point to the hilt in his consideration of Buchanan’s book, and the criticisms he offers apply far beyond their immediate target. Buchanan and his coauthors talk about monopoly, even though they

sense there is something wrong with the whole current theory of monopoly, that it is even impossible to define monopoly cogently, or define monopoly of a commodity. But while they see these things, they never do anything about it, or start from there to construct an economics that will stand up—because they are thoroughly misled by their positivist attitude of “well, this might be a useful tool for some purposes.”²¹¹

In like fashion, these authors use the “fashionable jargon” of short-run cost curves of the firm. They recognize that

it is all rather arbitrary; this they brush aside with the retort that it can have some “predictive value.” The term that I think best describes the shoddiness and eclecticism induced by this philosophic approach is “irresponsibility.”²¹²

Bad theory leads to bad policy. Just as Rothbard deplored sloppy theoretical assumptions, so did he protest against vague and unsupported ethical premises. “The same grave philosophical confusion permits them to suddenly slip their own ethical assumptions into the book, undefended, and practically unannounced.” On what basis do they assume that perfect competition and equality are “good things”?

Rothbard notes an anomalous feature of the egalitarian policy favored by these authors and common elsewhere:

And they have even the further colossal gall to denounce “price discrimination” (e.g., doctors charging more to the rich than to the poor ) because it is, for some reason, terribly unethical for private people to engage in their own strictly voluntary redistribution of wealth ... it is only legitimate for the government to effect this redistribution by coercion. This ethical nonsense they don’t feel they have to defend.... It is this kind of slipshod, unphilosophic sophomoric “ethics” that is again typical of the Chicago School in action.²¹³

Rothbard obviously found maddening this casual attitude to conceptual rigor; and on one occasion he directly confronted Buchanan over it. He was “appalled” by the use of a “fixed-demand” curve. He devised a counterexample to show the absurdity of the concept.

The authors said that a fixed, vertical demand curve is illustrated by the government’s demand for soldiers, and that if not enough people volunteer, the government will draft the rest ... the analysis is nonsense, since if say the government wants 100,000 men in the army but if so many people are 4-F or exempt that only 60,000 can possibly be hired or drafted, we then have a vertical supply and vertical demand curve which can never intersect. On the authors’ own premises, then, no one would be in the army, which is clearly absurd.²¹⁴

Much to Rothbard’s dismay, Buchanan conceded his point. In a letter that Rothbard quotes, he replied: “You [Rothbard] are quite right in saying that the solution ... under your assumptions is absurd. But this is really the same in all of those cases in which we make rather extreme assumptions.”²¹⁵ Rothbard threw up his hands in horror:

now, it seems to me that this kind of philosophy, this positivistic approach to economic theory, corrupts it, if I may use so strong a term, at the very core, and that no theory of lasting merit can emerge from this sort of cauldron.²¹⁶

Unfortunately, Rothbard’s insistence on absolute conceptual rigor has thus far remained a minority view.

Buchanan was of course a pioneer in “public choice” economics; and both he and Gordon Tullock greatly admired Anthony Downs’s classic in this area, An Economic Theory of Democracy.²¹⁷ Rothbard did not. He found in Downs’s work the same mistaken use of false assumptions that he condemned in Buchanan.

Its key fallacy is in adopting the fashionable positivism of our day, which asserts that a theory resting on false assumptions can be good and worthwhile, if it can make good “predictions” based on “testable” propositions. This ignores the fact that in human action, propositions are not “testable” in this way.²¹⁸

As usual, Rothbard is not satisfied with a general condemnation. He shows in detail how Downs’s error in theory derails his book. Downs makes arbitrary assumptions about rational action; he “proceeds throughout the book judging some actions as ‘rational’, others as ‘irrational’ etc., all mind you, under the guise of not making ethical value judgments.”²¹⁹

Rothbard has little use for Downs’s various predictive hypotheses, finding them vague or erroneous. One example must here suffice:

the flat statement is made, without qualification: “A vote against any party is not a vote against government per se but net disapproval of the marginal actions that party has taken.” . .. When I [Rothbard] vote, I vote against government per se sometimes; this action is enough to refute Downs.²²⁰

Downs has condemned anarchists to analytical oblivion through an arbitrary assumption.

Rothbard quickly dispatched another future winner of the Nobel Prize in a review of Robert Fogel’s The Union Pacific Railroad.²²¹ Fogel argued that the Crédit Mobilier promoters were not swindlers.

From the point of view of “social return,” the railroad was eminently profitable and worthwhile. Fogel celebrates the railroads and its effects; and the famous swindling of the Crédit Mobilier promoters is dismissed as a myth, as profits no more than justified by the “risk” to the promoters.²²²

To Rothbard, Fogel’s entire line of argument rested on a fundamental fallacy.

I am not impressed, however, with a point of view that worries about the “entrepreneurial risk” assumed by people who receive the largesse of government bonds, and who wonder at what price they can resell the bonds on the market.²²³

Fogel failed to distinguish between genuine investment on the market and “investment” subsidized by the government. To equate the two showed a lack a conceptual clarity.

Fogel’s mistake reflected a preference for government control of the economy:

Fogel concludes that the Union Pacific construction was a fine, noble work for the general welfare; he would have preferred, however that the railroad were built totally as a government enterprise, so the costs would have been at a minimum, and government could have reaped the profit for “entrepreneurial risk,” at which point government could have sold the railroad, at a capitalized value, to private enterprise.²²⁴

Rothbard, with characteristic depth, here reverts to a familiar theme. Just as in welfare economics, lack of conceptual clarity—in the case the equation of private with government risk—leads to antimarket views.

Rothbard saw Fogel’s pattern of reasoning as part of a larger trend among American historians.

This book, in its whitewashing of the Crédit Mobilier scandals, is indicative of a perhaps broader movement in American historiography: with the shift of left-wing American historians from Marxism or straight socialism to belief in a “mixed economy,” the value placed by these historians in “muckraking” has dwindled very sharply.²²⁵

Corruption almost always involves cooperation between government and business interests; thus, those who support a mixed economy, which favors such cooperation, will tend to ignore corruption. “Muckraking, on the other hand, is suitable either for 100% socialist historians or for libertarians.” Rothbard not only explains Fogel’s lapse but identifies a key area of his own historical practice: few things interested him more than the malign partnership of government and business.

Another future Nobel laureate received much more detailed scrutiny. In his analysis of Douglass North’s The Economic Growth of the United States, 1790–1860,²²⁶ we see Rothbard at the height of his critical powers. Rothbard’s demolition may at first seem surprising, as North is taken in most quarters to be a strong supporter of the free market. But to Rothbard, conceptual clarity and rigor are, as ever, foremost; the mistakes of supposed friends of the market could be more deadly than the efforts of professed enemies. Rothbard, like the protagonist of Ibsen’s Brand, could say, “The Devil is compromise!”

Rothbard once more finds that errors in method lead to errors in policy. North lacks an adequate view of causation: he does not grasp that individuals act. Instead, he thinks mechanically, asking for the mathematical relationships between certain variables.

North, like all scientistic-minded historians, has, at bottom, a highly mechanical and deterministic view of economic growth. There are resources, there are export industries ... and there are various “multiplier-accelerator” models of impact of these various export industries. The role of individuals acting, of entrepreneurs and innovators, North deliberately and frankly deprecates; the role of capital investment—so crucial [to] development—receives similar slighting treatment.²²⁷

Thus, North notes, accurately enough, that in developing countries, exports industries play a crucial role. But, owing to his mechanistic views, he reverses the direction of causation:

North has seen the obvious fact that, generally, the most advanced industry, especially in an “underdeveloped” country, is a leading export industry. But he concludes from this that there is something powerful and uniquely spurring to development of an export industry per se. In short, instead of realizing that an industry which is particularly efficient and advanced will then become a leading export industry, he tends to reverse the proper causation and attribute almost mystic powers of initiating development, etc., to export industries per se.²²⁸

Rothbard relentlessly shows how this initial error leads to further mistakes. North thinks that export industries are a “good thing,” without asking how they arise: he goes on to suggest that an export industry that spends its profits on imports is less beneficial to development than one that spends its receipts at home. His reasoning has a certain logic to it: if exports, as such, are good, should they not remain undiluted by imports?

But the premise, once more, is false: exports are not an absolute good. North has revived a mercantilist fallacy:

He claims ... that an export industry the receipts of which are then used largely for imports leak away, and hinder development of the country; whereas, export industries where the spending “stays at home,” builds up the country, because it retains within the country the “multiplier-accelerator” effects of such spending. This Keynesian nonsense applied even beyond where Keynes would apply it—i.e., to all situations and not just depressions.²²⁹

Rothbard now applies one of his favorite critical techniques, which we have several times seen in operation. He pushes an author’s reasoning to an extreme, in order to show its absurdity. Thus, North claims that if a region has only one export industry, development will be impeded. But he offers no definition of “region”—as ever, Rothbard demands precision. What is the upshot?

North (who realizes that regions are as important an economic unit as the politically artificial “nation”) talks of “regions” tied to one export. And yet how big or small is a “region”? “Region” is an economically meaningless term, as we can make the “region” small enough so that it could never have more than one export commodity. And yet this does not make such a region poor or underdeveloped.²³⁰

Errors in theory have grave consequences:

The logic of North’s position, which apparently he does not carry through, is basically protectionist; industry is weighted more highly than other goods, exports more highly than other industries, etc.... So protection minded is North that he actually says that an export commodity which requires more investment in capital facilities, etc. is better and more conducive to growth than one requiring less, because there will be more spending on home port facilities, etc. This again is protectionistic nonsense.²³¹

Rothbard is careful to add that North himself does not draw the policy implications of his own analysis; he does not state a position about protective tariffs. What interests Rothbard, though, is the logic of the argument: here, he says, is where one will be pushed to go, if one falls into this fallacy.

But why is it a fallacy? Rothbard identifies the basic Keynesian error:

it [North’s argument’s on capital investment] claims that a less efficient, and less productive industry is better than a more efficient and more productive because more money is spent by the former on costs, resources, etc. Isn’t the money that is saved ever used?²³²

Beneath this Keynesian fallacy lies a deeper failing. Keynesian reasoning is just one example of an attempt to “force” the market. Industrial development becomes an unexamined end-in-itself; but why is growth in this sector always desirable?

Once again, the important desideratum is freedom of the market; a country or region will often best develop, depending on conditions of resources or the market, by concentrating on one or two items, and then exchanging them for other items produced elsewhere. If this comes in a free market, it is far more productive than forcing a hothouse steel or textile mill in the name of “economic growth.”²³³

North in this instance does not himself take the fatal step into false policy—most economists do manage to avoid recommending tariffs, regardless of what their argument requires. In another area, though, North allows an unexamined ethical assumption to skew his analysis. He notes, accurately enough, that some plantation economies are underdeveloped, and that such economies are also highly inegalitarian. Probably because of his own commitment to equality, he wrongly concludes inequality is bad for development:

Unequal distribution of income he associates with a “plantation” economy, where the planners have the ill grace to spend their money on imported luxuries; this is contrasted to the noble, more egalitarian economy where more people develop home industry and home activities. Once again, North’s position is compounded of both historical and economic errors; the fact that, historically, some plantation systems had unequal incomes does not mean that either the plantation system or the inequality [always] inhibited economic development. Certainly neither did.²³⁴

Rothbard’s reports on economic works were by no means always negative. He declared that Lawrence Abbott’s Quality and Competition²³⁵ was a masterpiece. Most mainstream economists, in pursuit of the chimera of perfect competition, deprecate product differentiation and advertising. Why, e.g., should there be different kinds of toothpaste or different brands of aspirin? Are not brands simply an attempt to restrict competition in selling the “same” commodity?

To this, defenders of the market, not least Rothbard himself, were before Abbott’s book inclined to answer just by insisting on the fact that people had freely chosen to accept the products offered to them. But no one had been able to give a theoretically satisfying account of “quality” competition.

Before this [book] economists, including myself have thought that theory need not account specially for quality because a different quality good for the same price is equivalent to a different price for the same good. A different quality, would, further, be simply treated as a different good for most purposes, the same for others. Up till now, no one has been able to distinguish, theoretically, between a different quality and a different good.²³⁶

Abbott solved this theoretical conundrum by asking, which want does a good satisfy? Products that satisfy the same want count as goods of the same kind. Differences in such products are differences in quality of the same good, not different goods altogether.

Abbott furnishes an excellent distinction based upon the thesis that the same good satisfies the same want, so that there can be quality variations within the same want... using this stress on class of wants, he can show (in the Austrian tradition) that a greater variety of goods or an increasing standard of living, fulfills more wants, or fulfills them with greater precision and accuracy than before.²³⁷

Given this innovation, it hardly comes as a surprise that Abbott defends quality competition.

Abbott shows that quality competition is not only not a poor substitute for price competition, as modern theorists proclaim, but essential to what he calls “complete competition, which combines price and quality competition” ... he stresses the value for competition of brand names, advertising (to satisfy consumer wants more fully and give them more information), [and] diversity of product.²³⁸

Despite Rothbard’s advocacy, the book never attracted much attention. But Rothbard continued to admire it, and he several times cites it in Man, Economy, and State.²³⁹

¹⁶⁶Diritto, natura e ragione: Scritti inediti versus Hayek, Mises, Strauss e Polanyi, Roberta Modugno, ed. (Soveria Mannelli, Italy: Rubbettino, 2005). Translated as Right, Nature, and Reason: Unpublished Writings Versus Hayek, Mises, Strauss and Polanyi. An English edition is being prepared by the Ludwig von Mises Institute.

¹⁶⁷“Comments on Relativism Symposium,” Rothbard Papers; Modugno, ed, Diritto, natura e ragione, p. 137. The quotations are from the original English reports in the Rothbard Papers; page references refer to the Italian translation in Modugno’s book.

¹⁶⁸Ibid., p. 137.

¹⁶⁹Ibid., p. 138.

¹⁷⁰The Ethics of Liberty (New York: New York University Press), p. 14.

¹⁷¹Philippa Foot, Natural Goodness (Oxford University Press, 2001).

¹⁷²See Simon J.D. Green, “The Tawney-Strauss Connection: On Historicism and Values in the History of Political Ideas,” Journal of Modern History 67 (June 1995): 255–77.

¹⁷³Rothbard Papers; Modugno, ed, Diritto, natura e ragione, p. 144.

¹⁷⁴Brian Tierney, The Idea of Natural Rights: Studies on Natural Rights, Natural Law, and Church Law 1150–1625 (Atlanta: Scholars Press, 1997).

¹⁷⁵Rothbard Papers; Modugno, ed, Diritto, natura e ragione, p. 15.

¹⁷⁶Tierney, The Idea of Natural Rights, p. 64. The Decretists were commentators on the major compilation of canon law, the Decretum Gratiani.

¹⁷⁷Ibid., p. 76.

¹⁷⁸Ibid., p. 83.

¹⁷⁹Ibid., p. 86.

¹⁸⁰Letter to Kenneth Templeton, January 23, 1960; Rothbard Papers; in Modugno, ed., Diritto, natura e ragione, p. 115.

¹⁸¹Leo Strauss, Thoughts on Machiavelli (Chicago: University of Chicago Press, 1958).

¹⁸²Letter to Ivan Bierly, February 9, 1960; Rothbard Papers; in Modugno, ed., Diritto, natura e ragione, p. 118.

¹⁸³Ibid., p. 119.

¹⁸⁴Memorandum of January 21, 1958 on the unpublished manuscript of Hayek, The Constitution of Liberty; Rothbard Papers; in Modugno, ed., Diritto, natura e ragione, pp. 77–78.

¹⁸⁵Ibid., p. 77.

¹⁸⁶Dante, Inferno, Canto 3, line 1.

¹⁸⁷Rothbard Papers, review of Hayek, Constitution of Liberty; emphasis in the original; Modugno, ed, Diritto, natura e ragione, p. 80.

¹⁸⁸Rothbard Papers; Modugno, ed, Diritto, natura e ragione, pp. 108–12.

¹⁸⁹Rothbard Papers; Modugno, ed, Diritto, natura e ragione, p. 44.

¹⁹⁰Hayek, The Constitution of Liberty, p. 190.

¹⁹¹Letter to Richard C. Cornuelle, October 23, 1956; Rothbard Papers.

¹⁹²Ibid.

¹⁹³Ibid.

¹⁹⁴Unpublished report, September 1956; Rothbard Papers.

¹⁹⁵Ibid.

¹⁹⁶Ibid.

¹⁹⁷Ibid.

¹⁹⁸Ibid.; emphasis in the original.

¹⁹⁹Ibid.

²⁰⁰Charles L. Black, Jr., The People and the Court: Judicial Review in a Democracy (New York: Macmillan, 1960).

²⁰¹Letter to Kenneth Templeton, March 24, 1961; Rothbard Papers; emphasis in the original.

²⁰²Ibid.

²⁰³Ibid.

²⁰⁴Ibid.

²⁰⁵Ibid.

²⁰⁶James M. Buchanan, Clark Lee Allen, and Marshall R. Colberg, Prices, Incomes, and Public Policy: The ABC’s of Economics (New York: McGraw-Hill, 1954).

²⁰⁷Letter to Ivan Bierly, February 3, 1960; Rothbard Papers.

²⁰⁸Ibid.

²⁰⁹Notes on Nagel lectures, September 1948; Rothbard Papers; emphasis in the original.

²¹⁰Ibid.

²¹¹Letter to Ivan Bierly, February 3, 1960; Rothbard Papers.

²¹²Ibid.

²¹³Ibid.; emphasis in the original.

²¹⁴Ibid.; emphasis in the original.

²¹⁵Ibid.

²¹⁶Ibid.

²¹⁷Anthony Downs, An Economic Theory of Democracy (New York: Harper, 1957).

²¹⁸Letter to Ivan Bierly, August 26, 1959; Rothbard Papers; empahsis in the original.