The Books that Formed Murray Rothbard

By David Gordon

Few scholars approach Murray Rothbard’s immense learning in economics, history, politics, and philosophy. From all the books he read, Rothbard singled out a few that had most influenced him. His list, together with brief comments, is contained in a letter, dated January 24, 1994, with the heading "Books That Formed Me." The list tells us much about this remarkable mind.

As all readers of Rothbard know, he wrote in a sparkling, punchy style, ever alert to take the battle to the enemy. Here his model was H. L. Mencken, who he calls "my favorite single writer as a writer." He mentions in particular the collection A Mencken Chrestomathy, which he terms "a hilarious blockbuster." Mencken combined "social wit and libertarian social analysis," and this is just what Rothbard aimed at in his own work. Mencken wrote with clarity and force, in contrast with the woolly circumlocutions of most mainstream "social scientists." One of the worst offenders in this regard was Thorstein Veblen; and Rothbard found Mencken’s mordant demolition of Veblen, both as thinker and stylist, to be "one of the funniest and most perceptive essays on social science ever written."

Mencken wrote from an explicitly libertarian point of view, a fact that figured strongly in Rothbard’s admiration for him. He called attention to "Mencken’s marvelous essay on ‘The Nature of Liberty’ in one of the Prejudices, a very funny story dissecting how the courts have weakened the right of free speech and personal liberty. (And this in the 1920s!)"

Another writer rivaled Mencken in wit. Rothbard rated S.J. Perelman "an incomparable humorist. . . . No one was as funny a linguist and as masterly in twisting and inverting clichés. See, in particular, in The Best of S. J., the parodies of Odets (‘Waiting for Santy’), of Dostoevsky, of Maugham, of tough-guy detective stories, and of science fiction."

Given his liking for witty dialogue, it is no surprise that he thought Oscar Wilde’s The Importance of being Earnest "the perfect play." He also liked George Bernard Shaw’s Major Barbara and In Good King Charles’s Olden Days.

Rothbard says that his "major interest in fiction is espionage fiction" He recommended John Buchan’s The 39 Steps and Greenmantle; these "pioneered, and are still among the best of the genre." But his taste in fiction ranged more widely, and he liked Kurt Vonnegut’s Harrison Bergeron, a "scintillating satire attacking egalitarianism"; Philip Roth’s Goodbye, Columbus and Portnoy’s Complaint; and John Dos Passos’s The Grand Design, "a bitter anti-New Deal novel from Dos Passos’s right-wing period." In poetry, he "blushed to say" that there was only one item on his list: "e.e. cummings, ‘i sing of olaf,’ a powerful libertarian indictment of the State’s oppression of an anti-war individualist."

Of course Rothbard was not primarily a literary critic, and he concentrated his recommendations on works of economics, political theory, and American history. In economics, he confines himself to one name: Ludwig von Mises. He describes Human Action as "a monumental work; in economic theory and in political economy, it had the greatest single influence on me." Mises’s Theory of Money and Credit is a "superb work of monetary and banking theory." Rothbard’s great work Man, Economy, and State was the foremost product of Mises’s influence on him; it developed and extended the economics of Human Action.

Continue reading about the rest of Rothbard's favorites here.

Murray Rothbard's Impact On Poland

Poland always had warm open arms for the great free market economist Murray Rothard. He visited the country for a week in 1986, before the Berlin Wall fell and before the collapse of the Soviet Union.

At the time, he wrote:

In March 1986, I spent a fascinating week at a conference at a hotel in Mrogowo, in the lake country of northern Poland (formerly East Prussia). The conference, a broad-ranging symposium on "Economics and Social Change," was hosted by the Institute of Sociology at the University of Warsaw, and sponsored by a group of English conservative and free-market scholars.

Even though economically, as one of the Western participants noted, Poland is a "giant slum," its countryside, small towns, and cities in evident and grim decay, this gallant nation is intellectually the freest in the Eastern bloc. There is no other country in the Soviet orbit at which a conference of this sort could possibly be held.

Rothbard would be proud to know that the Poles took to heart what he must have told them during that week, about the importance and beauty of free markets, and that they must have also taken to heart his writings and those of other great free market economists.

Here's Peter Schiff writing today, more than 20 years later, on the progress the Poles have made:

Last summer, I was invited to speak at the Economic Forum in Krynica, a resort town in Southern Poland. I was amazed at the level of economic activity and civic spirit that was on display throughout the country. I also was fairly surprised that my economic views, which are routinely ridiculed at home, have much wider support among the Polish economic officials who presented at the conference.

This common sense understanding was showcased in an opinion piece published this week in the Financial Times by Polish Finance Minister Jacek Rostowski. Contrary to the public flogging of the free market currently underway in Washington, under the auspices of the Financial Crisis Inquiry Commission, Rostowski explains how governments caused the Crash of 2008 by removing the necessary element of fear from the markets. He states that this was symptomatic of the "deep Keynesian project," in which governments over the last half century have looked to smooth the economic cycle through periodic floods of monetary expansion and government spending. I couldn't have said it better myself.

A product of the Solidarity movement that opposed the Polish Communist Party in the 1980's, Mr. Rostowski, like many of his colleagues in the current Polish Administration, is intimately familiar with the hazards of central economic planning. He has seen this movie before, and he knows how it ends.

Instead, Poland has enacted economic policies that are informed by a belief in Austrian School (read: free market) economics. After the downfall of the Communists in 1989, Rostowski was part of a group that called for "shock therapy": the rapid privatization of state-owned enterprises and the dismantling of price and currency controls.

In 2007, the center-libertarian Civic Platform party was put in power, with Rostowski as Finance Minister. Along with Prime Minister Donald Tusk, he has continued the process of transforming Poland into a laissez-faire paradise. Not accidentally, Poland is the only EU member state that showed positive GDP growth in 2009, at 1.9%. Also its public debt, at roughly 55% of GDP, compares favorably with its neighbors - and with the United States.

A top priority of their administration was reduction of the income tax. The previous system, with three-tiers of 19%, 30%, and 40%, has been reduced to two tiers: 18% and 32%. In addition, the system's minimal use of deductions and credits makes it radically simpler than the U.S. income tax.

NYT Discovers Austrians as a Sane Antidote to Kondratieff

NYT's Kyle Crichton reports on the fact that because of the current economic crisis the Long Wave theory of Nikolai Kondratieff is gaining in followers again.

Crichton chronicles the life of Kondratieff and reports that Kondratieff, a Russian, was beheaded for bad economics, during a Stalinist purge. He then writes:

Over the years, Kondratieff’s appeal has waxed and waned in counterpoint to the economy, falling out of favor in good times but charging back when things look bleak. But his theory has never been accepted by mainstream economists, who consider it an occult hall of mirrors in which any sort of pattern can be discerned by shifting starting dates and definitions.

Crichton then finds, David Colander, a Middlebury College economic historian and an expert on economic crank theorists, to pronounce Kondratieff, well, a crank.

But Colander then goes on to offer an antidote to Kondratieff, the Austrians.

Writes Crichton:

The Austrian line of thought made something of a comeback in the Reagan years, but never quite gained acceptance in the economic fraternity, Mr. Colander says.

“It probably should,” he says.

“A good profession should take its outsiders more seriously,” Mr. Colander says. “They make you look at things in different ways. The worst thing for policy makers is to think they are right.”

Crichton adds:

Austrian economists tend to emphasize a laissez-faire approach and entrepreneurship (not the most popular policies at this moment) and strict limits on money supply growth, usually by hitching the currency to the gold standard.

While considered outside the mainstream, the Austrian School is far more respectable, counting in its ranks two Nobel Prize winners, Friedrich Hayek and James Buchanan. Peter Schiff of Euro Pacific Capital — an adviser to the Libertarian presidential candidate Ron Paul and one of the most prominent doomsayers in the current collapse — also subscribes to its theories.

Hayek is said to have successfully predicted the Great Depression and some Austrian School devotees are taking credit for calling this one. “The financial meltdown the economists of the Austrian School predicted has arrived,” Mr. Paul wrote in September, 11 days after Lehman Brothers filed for bankruptcy.

(Note: For a thorough devastating critique of Kondratieff see The Kondratieff Cycle: Real or Fabricated? by Austrian economist Murray Rothbard)

Tyler Cowen's "Sector Analysis"

Tyler Cowen has made no secret that he does not believe in Austrian business cycle theory, but, today, he has a long rambling post on fiscal stimulus, supposedly about when it will work and when it won't.

I will leave the majority of the post for others to dissect, but there is one section of the post which I found fascinating. Cowen writes (my emphasis):

Note that under standard theory neither monetary nor fiscal policy will set right the basic problems from negative real shocks and indeed the U.S. economy is undergoing a series of massive sectoral shifts. That includes a move out of construction, a move out of finance, a move out of debt-financed consumption, a move out of luxury goods, the collapse of GM, and a move out of industries which cannot compete with the internet (newspapers, Borders, etc.)

What is fascinating about this is that I think Cowen is really describing Austrian business cycle theory but doesn't realize it.

Now if there are basic things that are understood by all about ABCT, it is that the theory is based on the belief that the business cycle occurs because central banks distort the structure of production by printing money that ends up first in the capital goods sectors (with a very broad definition of capital goods). Further, as Murray Rothbard notes:

An adequate theory of depressions, then, must account for the tendency of the economy to move through successive booms and busts, showing no sign of settling into any sort of smoothly moving, or quietly progressive, approximation of an equilibrium situation. In particular, a theory of depression must account for the mammoth cluster of errors which appears swiftly and suddenly at a moment of economic crisis, and lingers through the depression period until recovery.

Note Rothbard discussing ABCT, he writes of a "mammoth cluster of errors."

Note Cowen, he writes of "series of massive sectoral shifts".

Mammoth cluster? versus Massive series? Cluster of errors? versus Series of sectoral shocks? Cowen may not realize it, but what he sees in the economy is exactly what ABCT theorists would expect to see.

Further look at the sectors he lists as having "real" shocks. He sees:

a move out of construction, a move out of finance, a move out of debt-financed consumption, a move out of luxury goods, the collapse of GM, and a move out of industries which cannot compete with the internet (newspapers, Borders, etc.)

To an ABCT theorist, they pretty much look like a list of problems in the capital goods sector. Out of construction? Check, a capital goods biz. Out of finance? Check-the very heart of capital goods financing. Debt-financed consumption? Notice how careful Cowen is here, and correctly so, it is debt financed consumption where problems exist. Check,this would fall under a sector financed by money printing credit creation. Luxury goods? The people buying luxury goods during the boom times are the ones who are getting the money first, this sector would suffer now, check. GM? Capital goods again, check.

The only area that does not easily fall into the ABCT theory is the newspaper, book sectors which are being hurt by the growth of the internet, but this stuff, new industries growing/old industries dying, happens all the time and falls under another Austrian theory, that of Joseph Schumpeter's creative destruction.

Cowen may try and argue that there are "real" factors behind problems with finance, GM etc. (and there may be some), but that still does not explain why all these failures have become,as he puts it, a "series of massive sectoral shifts" all at the same time.

It's the cluster of errors queston that only ABCT answers. In short, Cowen may not believe ABCT theory, but his observations are ABCT all the way.

Since The Multiplier Is Being Discussed In Many Lofty Circles, in and around...

...Harvard, The Marginal Revolution blog and, perhaps soon, at the incoming Obama's Council of Economic Advisors, Bob Murphy was alert enough, in a comment to a Tyler Cowen post, to dig up and provide the link to Murray Rothbard's great reductio ad absurdum destruction of the multiplier theory.

Obama Links McCain to 'Reckless' GOP Economics

Barack Obama is correct in calling current GOP economics reckless and calling for change.

"We can either choose a new direction for our economy or we can keep doing what we've been doing. My opponent, John McCain, thinks we're on the right track," Obama said on a campaign swing through Missouri.

Change is needed but it is change that needs to follow the line of thinking of Adam Smith, Milton Friedman, Murray Rothbard and Ludiwg von Mises, not Obama economics, which could very well be socialism.

Paulson Speech: From Bad To Worse

Add another name to the list. Along with luminaries such as Alan Greenspan, Treasury Secretary Henry Paulson in remarks on Reinforcing Market Stability and Confidence, delivered at the New York Public Library, made clear at the start that he doesn't understand business cycle theory:

As we all know, the U.S. economy and our financial markets are undergoing a period of stress. We will work through this period, as we always do. Our workers, industries and companies are the most productive, resilient and innovative in the world. Periods of economic difficulty are not new. They are,unfortunately, inevitable.

Inevitable? No. They are the inevitable result of the Federal Reserve micro-managing the money supply. But, end the micro-managing and freeze the money supply at current levels and the distortions that cause the business cycle will disappear.(For a thorough explanation of business cycle theory see, Rothbard: Economic Depressions: Their Cause and Cure):

From there Paulson went from bad to worse.

He called for a "Modernized Financial Regulatory Structure ", which Carlyle Groups' Randal Quarles seems to think means, "let private equity buy up banks stocks, while they are flat on their butts." By coincident, we're sure, Paulson also called for (our emphasis):

Working through the current turmoil will take additional time, as markets and financial institutions continue to reassess risk and re-price securities across a number of asset classes and sectors. I have and will continue to encourage financial institutions to strengthen their balance sheets by raising capital, de-leveraging and reviewing dividend policies so that they continue to play their vital role in supporting economic growth.

Of course, Quarles, who used to work at the Treasury under Paulson, has made clear that only private equity has the ability to supply such capital. And, we are sure that Quarles is happy to hear that that this capital funding should be done at "re-priced" levels.

Paulson also dropped this interesting comment toward the end of his speech (our emphasis):

We also need additional powers to manage the resolution, or wind-down, of large non-depository financial institutions, such as larger hedge funds, so as to limit the impact of a failure on the broader financial system.

Hedge funds? Who said there was any problem with any hedge funds? Is Paulson just being forward looking, or does he know something the rest of us don't? Time will tell.

Paulson really needs to understand, though, that the United States financial system needs to stop being fed from the breast of Big Mother. The U.S. financial system is beyond infancy, hell, it is beyond puberty, it is nearly at old age. An old man sucking at his mother's teat is not an attractive picture.

If someone is trading with a hedge fund, then they should be aware of the risks involved and suffer the consequences should the fund go belly up. To set up to "manage the resolution of hedge funds" is simply setting up for larger collapses. Talk about moral hazard!

Scary character, this Paulson.

The Truth About Ronald Reagan And Its Importance In Today's World

Ronald Reagan is dead. In coming days, he will be eulogized by the media,by assorted other pundints and by politicians alike as a great president. In reality, I believe the invasion of Grenada, during Ronald Reagan's watch, put the United States back on its feet as a military adventurer. In addition, Ronald Reagan as a champion of free markets and free enterprise is largely a myth. Few see things this way today and few saw them as such during Reagan's presidency. Only Murray Rothbard (1926-1995) in a journal article, The Reagan Phenomenon, was able to see through the actor's polished
style to the true consequences of Reagan the presidency.

As best as I can determine, the Rothbard journal article was written sometime in the mid-1980's.The article is quite remarkable, in that Rothbard was able to see, back then, many of the trends in government that currently dominate today.

Rothbard starts by warning that:

The presidency of Ronald Wilson Reagan has been a disaster for libertarianism in the United States,and might yet prove to be catastrophic for the human race.

He then identifies the contradictions in the Conservative Movement of modern times:

The Conservative Movement of modern times has had three basic, and
mutually contradictory, tenets: (1) 'Getting Big Government Off Our Backs'by rolling back statism and establishing a free market economy; (2) crushing civil liberties whenever crime, 'national security', or 'morality' are threatened, i.e. whenever civil liberties become important; and (3) seeking an all-out political and military confrontation with 'atheistic world Communism'

Certainly in this day and age of the Patriot Act and "material witnesses" being held without basic rights, Rothbard's point regarding the contradictory nature of "Getting Big Government Off Our Backs" and the crushing of civil liberties in the name of "National Security," should be more obvious than ever. Yet Rothbard was able to see this trend developing in the Reagan Administrations more than a decade ago.

The all-out political and military confrontation Rothbard wrote about in his article was, back then, chiefly about the Soviet Union. But seeking "all-out political and military confrontation" has not been eliminated as a characteristic of the modern day conservative movement, it has merely been replaced with confrontation in the Middle East.

Rothbard also wouldn't be surprised by George Bush's ties to the religious right and Bush's declaration that it is beacause of "God's will" that we are occupiers in the Middle East. He saw it in Reagan and wrote:

For conservatives, the State as Theocrat and Moral Enforcer and the State
as Mass Murderer have always taken precedence over the feeble goals of freedom and free markets.

Following the disaster in Vietnam, United States citizens were, in general,not in favor of United States military adventures in foreign lands. The public had had it with war. Ronald Reagan changed this with the invasion of Grenada. It is my contention that Reagan's invasion of Grenada was the first step in United States post-Vietnam military adventures. It was an important step and Reagan started it all. It was the taste of victory against the tiny island of Grenada that set the stage for the invasion of Panama, Iraq War I and the current occupation of Iraq. Reagan's adventure into Grenada and its quick victory wiped out the hesitation to go to war that the Vietnam experience engendered in the masses.

Rothbard explained this desire for quick victory:

Conservatives know that the average Americano, while scarcely an enthusiast for civil liberties, doesn't like the FBI (or still more, the Internal
Revenue Service) snooping in his private papers, and doesn't like the idea of government busily stamping out sin in his backyard. And while the average American cheered the U.S. invasion of Grenada to the rafters, righteously enjoying the sight of the U.S.clobbering a tiny island devoid of even a regular army, he has quite a different view of getting bogged down in some hellhole in a perpetual and losing war, or in being incinerated in a nuclear holocaust.The average American, in short, possesses that "complex of vaunting and fear" that Garet Garrett noted as the hallmark of citizens of Empire. On the one hand, emotional identification with 'your' nation-State,and a desire for it to bully and dominate the entire world. On the other, hysterical panic at the machinations of some satanic Enemy or other, an Enemy who is monolithic, omnicompetent and malevolent, and who can only
be faced down with continuing shows of force, the only thing which he can 'understand'. To the extent that he is non-interventionist, the American is
interested not in justice, but in fear of stalemate, fear of loss of face, fear of
not being able to show that his nation is the best and biggest by winning a relatively quick victory.

Rothbard also wouldn't be surprised by the problems the United States is having in Iraq, back then he wrote of the United States experience in Lebanon:

And so the U.S. sends the Marines, like a bull in a china shop, into Lebanon,without knowing or caring about any of the dozens of ethnic and religious
groups that have been there, and have been hating and battling each other (often with good reason) for literally hundreds of years. We land there, and all of a sudden there are these pesky folk with rifles, calling themselves Druze, or Shiites, or Sunnis. Bunch of Arabs, undoubtedly all tools of Moscow. And so when the U.S. Embassy or military headquarters is car-bombed, the U.S. comes to the conclusion that whoever did it are "pro-Iran Shiites". Not being able to find the people responsible, the U.S. engages in a Nazi-like spiral of ascribing collective guilt. If these are "pro-Iran Shiites", it must mean that the Iranian government is behind the bombings...

On the domestic front, Rothbard explains how Reagan sold out even before he was elected:

The Reagan Revolution, in contrast, sold out before it even began. The tip-off came at the Republican convention of 1980 when Reagan surrendered to the Liberal Republican enemy after having defeated them decisively for the nomination. It was not just making the defeated George Bush Vice-President; that much of a concession to party unity is traditional in American politics and usually means little. For Reagan also summarily got rid of almost all of his hard-core ideological advisers, and let back in to run the campaign, and then his Administration, the very pragmatists and Trilateral Commission adherents he had previously fought strongly against.

The Reagan sell-out was the most thorough and complete on 'Plank One'- the free-market part - of the conservative triad. Understandably: since conservatives don't really care about the free-market as they care about compulsory morality and especially war with Communism. The sell-out on the free-market is massive and enormous. A quick rundown will suffice. Reaganomics, as enunciated by Reagan himself before the convention and by conservatives generally, promised the following programme: a sharp cut in the federal budget, a drastic cut in income taxes, a balanced budget by 1984, deregulation of the economy, and return to a gold standard. Reagan has managed to convince both conservatives and liberals, and the American
public, that he did accomplish the first and second points of this list... Conservatives bought this myth because they wanted to see Reagan accomplish what he had said he would; liberals were happy to adopt it so that they could wail about how Reagan was causing untold misery and starvation by his drastic cuts. Actually, the budget was never cut; it has always skyrocketed under Reagan. Reagan is by far the biggest spender in American history. He is also the biggest taxer. Taxes were never cut. The piddling and. much publicised income tax cut was always, from the very
beginning, more than compensated by the programmed Social Security tax increases, add by 'bracket creep', that sinister system by which the federal government prints more money, thereby causing inflation, and also thereby wafting everyone into a higher tax bracket, whereupon the government completes the one-two punch by taxing away a greater proportion of his income.

Reagan was of course the biggest spender in American history until George W. Bush. It should be instructive that Bush claims to model his presidency, not based on that of his father, George H. W. Bush, but on that of Reagan. Bush is doing nothing but traveling further down the path of war, the stomping on civil liberties,theocracy and huge government spending that were the essence of the Reagan presidency. Indeed, it is helpful in understanding the complete picture to think of the current Bush
Administration as nothing more than the Reagan Administration on steroids.

Rothbard concluded his article this way:

Meanwhile what we have to worry about is a question far more serious than the key to the puzzling Reagan personality. Not only as libertarians, but still
more as human beings and members of the human race, we have to ask ourselves the question: Is There Life After Reagan? The jury is still out on that one.

Indeed, the jury still remains out on this question. While the public in general will this week, on news of Reagan's death, hail him as a great leader, the consequences of the trends he set: war, huge government spending etc. are impacting citizens of the world today. Great inflation is ahead. The United States military adventure is a mess. And while George Bush, the man who has unhesitatingly embraced and expanded Reagan's big government spending and military adventuresome ways, could be booted from office in November, he is likely be replaced by John Kerry,who has to-date raised no serious concerns about the encroachment of government in private lives in the name of "National Security," and whose solution to the Iraq occupancy is to bring in the United Nations to help with our interfering in Arab affairs.

Murray Rothbard saw the problem more than a decade ago, will the general public see it now, when it is breathing down their neck? Ronald Reagan is dead but his policies continue on. It would be too much to ask of the general public to recognize Reagan as the spark plug of the current mess. One can only hope that they at least recognize the mess itself.