Wednesday, July 20, 2011

Murray Rothbard on Austrian Economics

At LRC today, Lew Rockwell posts an important 1990 Murray Rothbard interview, for those of you who have the time you should read the entire interview. For my friends on Wall Street and the Hill, who demand a summarized version of everything, because of their oh so busy lives, here are my takeaways:

AEN: What is your view of Hayek's statement that all progress in economics has been in the direction of subjectivism?

MNR: It's true, but it hasn't been an upward climb. Early economic theory was rooted in the Italian, French, and Spanish traditions, which were subjectivist oriented. Then it shifted onto the terrible path by Smith and Ricardo and the British classical tradition, which is "objectivist" – values are inherent in production. There was a partial shift back to subjectivism, but it was blocked by Marshall. Mises brought back the subjective-value tradition, with time-preference, ordinal marginal utility, and all the rest. That's fine, but don't wipe out objective analysis. There is still a real world out there, with laws of cause and effect, and physical products being evaluated by people. Through all this, we've discovered that being anti-positivist is not enough. Subjectivism is not an absolute principle; it is a necessary but not sufficient condition for sound methodology.

AEN: Positivism was linked to socialism and interventionism. Do you now predict its decline?

MNR: It is difficult to say. It was central to socialism and planning in the same way praxeology is central to the free market. Positivism eliminates any kind of natural law principle – for example, that there are economic laws which can be transgressed only at your peril. With positivism, there is a tendency to leap into ad hoc economic theory.

By the time Friedman had written his famous article defending positivism, this view had already been rejected in philosophy. But it fastened on economics with an iron grip for about twenty years. This is fairly typical. By the time methods are transferred from one discipline to another, they have often been rejected by the original discipline. It is time for economics to throw out all analogies to the physical sciences.

AEN: How many years were involved from the time you started working on Man, Economy, and State to the time it was published?

MNR: This is complicated. I received the grant in 1952, but shortly afterwards I had to finish my doctoral thesis under Arthur Burns. From 1953 to 1956 I was working partly on both. I finally finished Man, Economy, and State in 1960 and it was published in 1962.

AEN: Did you ever get discouraged and say, "Why am I doing this?"

MNR: No. Any chance to write a book or meet new people was terrific, but I was lonely. Mises was in his sixties, Hayek and Machlup were in their fifties, and I was in my twenties. There was nobody in between. With the possible exception of Baldy Harper, who was a libertarian, but whose Austrian knowledge was limited, there was a missing generation. It had been wiped out by the New Deal.


AEN: Was [Mises] bothered by some of your corrections of his theories?

MNR: I don't know because he never said. Mises and I had only two friendly arguments. One was on monopoly theory where he wound up calling me a Schmollerite. Although nobody else in the seminar realized it, that was the ultimate insult for an Austrian. The other argument was on his utilitarian refutation of government intervention. I argued that government officials can maximize their own well-being through economic interventionism, if not that of the public. He in turn argued that those kind of politicians wouldn't survive a popular vote, thus changing the terms of the debate.


AEN: Did Hayek ever attend Mises's seminar in the United States?

MNR: No. They had a very strange relationship. Hayek began making very arcane anti-Misesian comments in his books, but nobody knew it, not even Mises. For example, it turns out that the anti-Walras footnote in Individualism and Economic Order was really an anti-Mises footnote, as Hayek admitted a few years later. When Mises read the article, he called Hayek up and said he liked it as an attack on formalism and equilibrium. He hadn't realized that some of it was directed against him. Gradually, Hayek became more and more anti-Misesian without actually refuting what he had to say. Yet Mises and Hayek are still linked in academic minds.

AEN: What about conferences during the early seventies?

MNR: The first was conducted at Cornell, the summer of 1973. Forrest McDonald and myself were giving papers. At the 1974 conference, we added Garrison, Rizzo, O'Driscoll, Salerno, Ebeling, Hutt, Grinder, and others. It was held in a tiny town in Vermont, which we called a Walrasian-General-Equilibrium town because there was no action, no competition, no interest rates. In 1976, we had a wonderful conference at Windsor Castle, but after that there was nothing.

AEN: Just so that we're clear, between the 1940s and the early 1970s, you were the only one that did serious scholarly work in Austrian economics?

MNR: Well, Henry Hazlitt did some excellent work. But then he was uncredentialed. Hutt did some, but it wasn't really Austrian. Kirzner had written some serious articles. But basically the tradition had stagnated. By the late seventies, Austrian economics was considered Hayekian, not Misesian. Without the founding of the Mises Institute, I am convinced the whole Misesian program would have collapsed.
AEN: How many volumes [of your history of economic thought] have been done so far?

MNR: I can never estimate things like this, but probably two or more. And I keep underestimating how much work I have to do. I thought I could finish off Marx in one chapter, but it took five. So I cannot give a projected date for finishing.


AEN: You have apparently taken an interest in religion as it affects the history of thought.

MNR: Religion was dominant in the history of thought at least through Marshall. The Scholastics emerged out of Catholic doctrine. And John Locke was a Protestant Scholastic. I am convinced that [Adam] Smith, who came from a Calvinist tradition, skewed the whole theory of value by emphasizing labor pain, typical of a Puritan. The whole objective cost tradition grew out of that.

AEN: The anti-socialist revolution seems to be the fulfillment of everything Austrians have worked for.

MNR: That's right. We are living through revolutionary times. It's like living through the French or American revolution and being able to watch it on television every night. Now the difference between the United States and the Eastern Bloc is that the United States still has a communist party.

AEN: It also seems to be a vindication for your article, "Left, Right, and the Prospects for Liberty."

MNR: Damn right. Western conservatives cannot take credit for this. They had always argued that socialist totalitarianism could not reform from within. Only the libertarians considered and gloried in the possibility.

AEN: Now that Marxism is dead where it has been tried, is there anything that is useful and important that should be remembered or kept?

MNR: There is one good thing about Marx: he was not a Keynesian. I recently asked Yuri Maltsev, former Soviet economist, why is it that things seem to have fallen apart so rapidly in the Soviet Union in the last twenty years. He said in the last twenty years, the leaders of the Soviet Union have relaxed the money supply and have used inflation to solve short-term problems. That spelled doom for the system.


AEN: What about the prospects for liberty and a freer economy in this country?

MNR: Everything is getting worse, and very rapidly. Few favor central planning, but the battleground has shifted to interventionism. There are three areas of interventionism which are the big issues, now and in the future. First, prohibitionism and the attempt to eliminate all risk. If, for example, automobiles cause accidents, they should be eliminated. Second, egalitarianism and the idea that victim groups should get special treatment for the next 2,000 years for previous oppression. Third, environmentalism or antihumanism. The implicit idea is that man is the lowest creature and every creature or inanimate thing has rights.---
AEN: What should young Austrians be concentrating on?

MNR: Adding to the theoretical edifice. Rent theory is underdeveloped. And the theory of the transition from socialism to capitalism is crying out for more work. Most importantly, we should never stop refuting mainstream economics


  1. Much of that was beyond me. I understand that Austrians advocate very limited and sometimes no government. I do not know the finer differences between Austrians like Mises, Hayek, Hazlitt, and Rothbard. Current circumstances are a long way from what any of them advocate though.

  2. It should be noted that Friedman's positivism is not remotely the same as the Historical School's positivism. It is still a flawed methodology, but the two are not the same.