Monopoly Can Be Meaningfully Defined Only As a Grant of Privilege by the State

[Rothbard] expounds a completely new theory of monopoly—that monopoly can be meaningfully defined only as a grant of privilege by the State, and that a monopoly price can be attained only from such a grant. In short, there can be no monopoly or monopoly price on the free market.

--Murray N. Rothbard, preface to revised edition of Man, Economy, and State with Power and Market, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2009), lvii.

One of Rothbard’s Greatest Accomplishments in Production Theory Was Integrating Temporal Production-Structure Analysis with Pure-Time-Preference Theory

In Man, Economy, and State, Rothbard elaborates a unified and systematic treatment of the structure of production, the theory of capital and interest, factor pricing, rent theory, and the role of entrepreneurship in production.... One of Rothbard’s greatest accomplishments in production theory was the development of a capital and interest theory that integrated the temporal production-structure analysis of Knut Wicksell and Hayek with the pure-time-preference theory expounded by Frank A. Fetter and Ludwig von Mises.

Although the roots of both of these strands of thought can be traced back to Böhm-Bawerk’s work, his exposition was confused and raised seemingly insoluble contradictions between the two. They were subsequently developed separately until Rothbard revealed their inherent logical connection.

--Joseph T. Salerno, introduction to the second edition of Man, Economy, and State with Power and Market, by Murray N. Rothbard (Auburn, AL: Ludwig von Mises Institute, 2009), xxvii.

Rothbard on Keynes: The Keynesian Wonderland Where All Economic Truths are Vitiated or Reversed

Of particular interest to us is the sudden emergence of the “unemployment problem” in economic theory. The Keynesians, in the mid-1930’s, inaugurated the fashion of declaiming: Neoclassical economics is all right for its special area, but it assumes “full employment.” Since “orthodox” economics “assumes full employment,” it holds true only so long as “full employment” prevails. If it does not, we enter a Keynesian wonderland where all economic truths are vitiated or reversed.

--Murray N. Rothbard, Man, Economy, and State with Power and Market, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2009), 582.

The Neoclassical Synthesis Jumbled Together the Marshallian and Walrasian Approaches to Price Determination with Keynesian Macroeconomics

After World War II, a new and stifling orthodoxy known as the “neoclassical synthesis” had descended upon economics, especially in the United States. This so-called “synthesis” was actually a hodgepodge of the three disparate approaches that had overwhelmed the Mengerian causal-realist approach in the interwar period. It jumbled together the Marshallian and Walrasian approaches to price determination with Keynesian macroeconomics. The first two approaches focused narrowly on analyzing the determination of unreal, equilibrium prices either in single markets (partial equilibrium) or in all markets simultaneously (general equilibrium). Keynesian macroeconomics denied the efficacy of the price system altogether in coordinating the various sectors of an economy confronted with the “failure of aggregate demand.”

--Joseph T. Salerno, introduction to the second edition of Man, Economy, and State with Power and Market, by Murray N. Rothbard (Auburn, AL: Ludwig von Mises Institute, 2009), xxi-xxii.

The "Psychological School" of Modern Subjectivist Economics

The expression “Psychological School” is frequently employed as a designation of modern subjectivist economics. Occasionally too the difference in method that exists between the School of Lausanne and the Austrian School is indicated by attributing to the latter the “psychological” method. It is not surprising that the idea of economics as almost a branch of psychology or applied psychology should have arisen from such a habit of speech.

--Ludwig von Mises, Epistemological Problems of Economics, trans. George Reisman, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2013), 139.

How the Lausanne School of Economics Differs From the Austrian School of Economics

Menger’s successor at the University was Friedrich von Wieser. He was a highly cultured gentleman, had a fine intellect, and was an honest scholar. Before many others, he was fortunate to become acquainted with the work of Menger, the significance of which he recognized immediately. He enriched the thought in some respects, although he was no creative thinker and in general was more harmful than useful. He never really understood the gist of the idea of Subjectivism in the Austrian School of thought, which limitation caused him to make many unfortunate mistakes. His imputation theory is untenable. His ideas on value calculation justify the conclusion that he could not be called a member of the Austrian School, but rather was a member of the Lausanne School [Leon Walras et al. and the idea of economic equilibrium], which in Austria was represented brilliantly by Rudolf Auspitz and Richard Lieben.

What distinguishes the Austrian School and will lend it immortal fame is precisely the fact that it created a theory of economic action and not of economic equilibrium or non-action. The Austrian School, too, uses the idea of rest and equilibrium, which economic thought cannot do without. But it is always aware of the purely instrumental nature of such an idea, and similar aids. The Austrian School endeavors to explain prices that are really paid in the market, and not just prices that would be paid under certain, never realizable conditions. It rejects the mathematical method, not because of ignorance of mathematics or aversion to mathematical exactness, but because it does not emphasize a detailed description of a state of hypothetical static equilibrium. It has never suffered from the illusion that values can be measured. It has never misunderstood that statistical data belong to economic history only, and that statistics have nothing to do with economic theory.

--Ludwig von Mises, Notes and Recollections with the Historical Setting of the Austrian School of Economics, ed. Bettina Bien Greaves, trans. Hans Sennholz (Indianapolis: Liberty Fund, 2013), 24.

Ludwig von Mises Became an Austrian Economist around Christmas 1903 When He Read Carl Menger's Book "Principles of Economics"

When I first arrived at the University, Carl Menger was close to the termination of his teaching career. The idea that there was an Austrian School of economics was itself hardly recognized at the University, and I myself was not at all interested in it at that time.

Around Christmas, 1903, I read Menger’s Grundsätze der Volkswirtschaftslehre [Principles of Economics] for the first time. It was the reading of this book that made an “economist” of me.

Personally I met Carl Menger only many years later. He was then already more than seventy years old, hard of hearing, and plagued by an eye disorder. But his mind was young and vigorous. Again and again I have asked myself why this man did not make better use of the last decades of his life.

--Ludwig von Mises, Notes and Recollections with the Historical Setting of the Austrian School of Economics, ed. Bettina Bien Greaves, trans. Hans Sennholz (Indianapolis: Liberty Fund, 2013), 22.

It Seemed Incomprehensible to Me That This Garbled Hegelianism Could Exert Such an Enormous Influence

When I entered the university, I, too, was a thorough statist [interventionist]. But in contrast to my fellow students I was consciously anti-Marxian. I knew little of the works of Marx at that time. But I knew the most important writings of [Karl] Kautsky [prominent post-Marxian socialist theoretician]; I was a diligent reader of the Neue Zeit; and I had followed the debate among socialists about revisionism of socialism [attempted removal of internal Marxian paradoxes and glaring unrealities] with considerable interest. I was repelled by the staleness of Marxian literature. Kautsky seemed really absurd. When I finally engaged in an intensive study of the important works of Marx, Engels, and Lassalle, I was provoked to contradict them on every page. It seemed incomprehensible to me that this garbled Hegelianism could exert such an enormous influence.

--Ludwig von Mises, Notes and Recollections with the Historical Setting of the Austrian School of Economics, ed. Bettina Bien Greaves, trans. Hans Sennholz (Indianapolis: Liberty Fund, 2013), 11.

Around 1900 the Historical Method Was Believed to be the Only Scientific Method for the Sciences of Human Action

At that time, around 1900, historicism was at the zenith of its career. The historical method was believed to be the only scientific method for the sciences of human action. From the height of his historical clarity, the “historical political economist” was looking with unspeakable disgust on the “orthodox dogmatist.” Economic history was the science in fashion. In the German-speaking world [Gustav] Schmoller was adored as the great master of “political economy.” And from all over the world ambitious young men flocked to his seminar.

--Ludwig von Mises, Notes and Recollections with the Historical Setting of the Austrian School of Economics, ed. Bettina Bien Greaves, trans. Hans Sennholz (Indianapolis: Liberty Fund, 2013), 2.

Socialist Economic Calculation and the Scurrilous Hegelian Metaphysics of the Marxian Doctrine

The socialist tracts deal with everything except the essential and unique problem of socialism, viz., economic calculation. It is only in the last years that socialist writers have no longer been able to avoid paying attention to this primordial matter. They have begun to suspect that the Marxian technique of smearing “bourgeois” economics is not a sufficient method for the realization of the socialist utopia. They have tried to substitute a theory of socialism for the scurrilous Hegelian metaphysics of the Marxian doctrine. They have embarked upon designing schemes for socialist economic calculation. Of course, they have lamentably failed in this task.

--Ludwig von Mises, Human Action: A Treatise on Economics, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007), 3:703.

The Praxeological Character of Socialism: One Will Alone Acts

The essential mark of socialism is that one will alone acts. It is immaterial whose will it is. The director may be an anointed king or a dictator, ruling by virtue of his charisma, he may be a Führer or a board of Führers appointed by the vote of the people. The main thing is that the employment of all factors of production is directed by one agency only. One will alone chooses, decides, directs, acts, gives orders. All the rest simply obey orders and instructions. Organization and a planned order are substituted for the “anarchy” of production and for various people’s initiative. Social cooperation under the division of labor is safeguarded by a system of hegemonic bonds in which a director peremptorily calls upon the obedience of all his wards.

In terming the director society (as the Marxians do), state (with a capital S), government, or authority, people tend to forget that the director is always a human being, not an abstract notion or a mythical collective entity. We may admit that the director or the board of directors are people of superior ability, wise and full of good intentions. But it would be nothing short of idiocy to assume that they are omniscient and infallible.

--Ludwig von Mises, Human Action: A Treatise on Economics, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007), 3:695-696.

Observations on the Evolution of the Time-Preference Theory

It seems plausible to assume that the mere fact that interest is graduated in reference to periods of time should have directed the attention of the economists, intent upon developing a theory of interest, upon the role played by time. However, the classical economists were prevented by their faulty theory of value and their misconstruction of the cost concept from recognizing the significance of the time element.

Economics owes the time-preference theory to William Stanley Jevons and its elaboration, most of all, to Eugen von Böhm-Bawerk. Böhm-Bawerk was the first to formulate correctly the problem to be solved, the first to unmask the fallacies implied in the productivity theories of interest, and the first to stress the role played by the period of production. But he did not entirely succeed in avoiding the pitfalls in the elucidation of the interest problem. His demonstration of the universal validity of time preference is inadequate because it is based on psychological considerations.

--Ludwig von Mises, Human Action: A Treatise on Economics, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007), 2:488.

The Alleged Absence of Depressions Under Totalitarian Management

Many socialist authors emphasize that the recurrence of economic crises and business depressions is a phenomenon inherent in the capitalist mode of production. On the other hand, they say, a socialist system is safe against this evil.

As has already become obvious and will be shown later again, the cyclical fluctuations of business are not an occurrence originating in the sphere of the unhampered market, but a product of government interference with business conditions designed to lower the rate of interest below the height at which the free market would have fixed it. At this point we have only to deal with the alleged stability as secured by socialist planning.

--Ludwig von Mises, Human Action: A Treatise on Economics, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007), 2:565.

Ignoring the Currency Theory’s Criticism of the Banking Theory, Statist Theory has Prescribed the Banking Theory

Statist Theory has tried to explain every social phenomenon by the operation of mysterious power factors. It has disputed the possibility that economic laws for the formation of prices could be demonstrated. Failing to recognize the significance of commodity prices for the development of exchange relationships among various moneys, it has tried to distinguish between the domestic and foreign values of money. It has tried to attribute changes in exchange rates to various causes—the balance of payments, speculative activity, and political factors. Ignoring completely the Currency Theory’s important criticism of the Banking Theory, Statist Theory has actually prescribed the Banking Theory. It has moreover even revived the doctrine of the canonists and of the legal authorities of the Middle Ages to the effect that money is a creature of the government and the legal order. Thus, Statist Theory prepared the philosophical groundwork from which the inflationism of recent years developed.

--Ludwig von Mises, On the Manipulation of Money and Credit: Three Treatises on Trade-Cycle Theory, trans. Bettina Bien Greaves, ed. Percy L. Greaves Jr. (Indianapolis: Liberty Fund, 2011), 43-44.

Rothbard: Communism Is a Dreamworld Because It Believes That Individuals Can Cast Off All Natural Limitations

There he writes that communism 'corresponds to the development of individuals into complete individuals and the casting off of all natural limitations'. How are 'all natural limitations' cast off? - a tall order indeed. Let Marx explain. As soon as the division

of labour comes into being, each man has a particular, exclusive sphere of activity, which is forced upon him...He is a hunter, a fisherman, a shepherd, or a critical critic, and must remain so if he does not want to lose his means of livelihood; while in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticize after dinner, just as I have a mind, without ever becoming hunter, fisherman, shepherd or critic.

More broadly, Gray remarks 'that each individual should have the opportunity of developing all his faculties, physical and mental in all directions, is a dream which will cheer the vision only of the simple-minded, oblivious of the restrictions imposed by the narrow limits of human life'. 'For life', Gray points out, 'is a series of acts of choice, and each choice is at the same time a renunciation...'. The necessity of choice, Gray perceptively reminds us, will exist even under communism.

--Murray N. Rothbard, Classical Economics, vol. 2 of An Austrian Perspective on the History of Economic Thought (Auburn, AL: Ludwig von Mises Institute, 2006), 325.

Rothbard: Communism Will Create a World of Autistic Dilettantes

Particularly important for Marx is that communism does away with the division of labour. By being free of specialization, the division of labour, and working for others (including the consumers) man as labourer is freed from all limits.... as Engels put it in his Anti-Dühring, the disappearance of the division of labour will mean that productive labour will give 'each individual the opportunity to develop all his faculties, physical and mental, in all directions and exercise them to the full'.

The idea of everyone developing all of their faculties 'in all directions' is mind-boggling, and conjures up the absurd picture of a world of autistic dilettantes, each heedless of social demand for their services or products, and each dabbling whimsically and sporadically in every activity. This image is confirmed by Marx's most famous passage describing the communist system in Part I of his 'The German Ideology', an unpublished essay written in 1845-46. There he writes that communism 'corresponds to the development of individuals into complete individuals and the casting off of all natural limitations'. How are 'all natural limitations' cast off? - a tall order indeed.

--Murray N. Rothbard, Classical Economics, vol. 2 of An Austrian Perspective on the History of Economic Thought (Auburn, AL: Ludwig von Mises Institute, 2006), 325.

The Essential Problem of Universalistic, Collectivistic, and Holistic Social Philosophy Is: By What Mark Do I Recognize the True Law?

The essential problem of all varieties of universalistic, collectivistic, and holistic social philosophy is: By what mark do I recognize the true law, the authentic apostle of God’s word, and the legitimate authority. For many claim that Providence has sent them, and each of these prophets preaches another gospel. For the faithful believer there cannot be any doubt; he is fully confident that he has espoused the only true doctrine. But it is precisely the firmness of such beliefs that renders the antagonisms irreconcilable. Each party is prepared to make its own tenets prevail. But as logical argumentation cannot decide between various dissenting creeds, there is no means left for the settlement of such disputes other than armed conflict. The nonrationalist, nonutilitarian, and nonliberal social doctrines must beget wars and civil wars until one of the adversaries is annihilated or subdued. The history of the world’s great religions is a record of battles and wars, as is the history of the present-day counterfeit religions, socialism, statolatry, and nationalism.

--Ludwig von Mises, Human Action: A Treatise on Economics, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007), 1:147-148.

According to Universalism, Conceptual Realism, Holism, and Collectivism, Society Is an Entity Living Its Own Life

According to the doctrines of universalism, conceptual realism, holism, collectivism, and some representatives of Gestaltpsychologie, society is an entity living its own life, independent of and separate from the lives of the various individuals, acting on its own behalf and aiming at its own ends which are different from the ends sought by the individuals. Then, of course, an antagonism between the aims of society and those of its members can emerge. In order to safeguard the flowering and further development of society it becomes necessary to master the selfishness of the individuals and to compel them to sacrifice their egoistic designs to the benefit of society. At this point all these holistic doctrines are bound to abandon the secular methods of human science and logical reasoning and to shift to theological or metaphysical professions of faith. They must assume that Providence, through its prophets, apostles, and charismatic leaders, forces men who are constitutionally wicked, i.e., prone to pursue their own ends, to walk in the ways of righteousness which the Lord or Weltgeist or history wants them to walk.

--Ludwig von Mises, Human Action: A Treatise on Economics, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007), 1:145.

The Collectivist Dogma

It ascribes to the universals objective real existence, even an existence superior to that of individuals, sometimes, even, flatly denying the autonomous existence of individuals, the only real existence.

Collectivism transforms the epistemological doctrine into an ethical claim. It tells people what they ought to do. It distinguishes between the true collective entity to which people owe loyalty and spurious pseudo entities about which they ought not to bother at all. There is no uniform collectivist ideology, but many collectivist doctrines. Each of them extols a different collectivist entity and requests all decent people to submit to it. Each sect worships its own idol and is intolerant of all rival idols. Each ordains total subjection of the individual; each is totalitarian.

--Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 166-167.

 

The Great God Society Versus the Impudent Individual

In contrasting society and the individual and in denying to the latter any “true” reality, the collectivist doctrines look upon the individual merely as a refractory rebel. This sinful wretch has the impudence to give preference to his petty selfish interests as against the sublime interests of the great god society. Of course, the collectivist ascribes this eminence only to the rightful social idol, not to one of the pretenders. When the collectivist extols the state, what he means is not every state but only that regime of which he approves, no matter whether this legitimate state exists already or has to be created.

--Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 169.

The Fundamentals of an Austrian Macroeconomics: The Market for Time and the Market for Money

Roger Garrison has argued that time and money are the ‘universals of macroeconomic theorizing’. In that paper, he defines the Austrian approach to macroeconomics by its willingness to take both time and money seriously. His critique of mainstream macroeconomics is that the various schools of thought (Keynesianism, monetarism, New Classicism, and, by extension, New Keynesianism) treat time and money far too superficially in comparison to the central roles that they play in real-world economies. Garrison summarizes this point: ‘Time is the medium of action; money is the medium of exchange…And it is precisely the “intersection” of the “market for time” and the “market for money” that constitutes macroeconomics’ unique subject matter.’ The problem with mainstream macroeconomics is that its notions of time and money are so abstract and unrealistic as to prevent serious consideration of how the markets for each actually behave.

--Steven Horwitz, introduction to Microfoundations and Macroeconomics: An Austrian Perspective, Foundations of the Market Economy (London: Routledge, 2003), 3.

Is There an Austrian Macroeconomics?

In the eyes of many economists, Austrians are seen as rejecting the whole concept of macroeconomics in favor of a focus on microeconomic phenomena such as price coordination and entrepreneurship. There is some truth to this perception. In a great deal of the post-revival (i.e., since 1974) literature in Austrian economics, Austrians have tried to define themselves in terms of their methodology (subjectivism) and their understanding of the market as a competitive discovery process rather than as tending toward, or mimicking, general equilibrium. Austrians’ self-described ‘uniqueness’ has almost exclusively been focused on microeconomics. Even Hayek, in his last book, referred to macroeconomics in sneer quotes, suggesting that a rejection of the subdiscipline was still alive and well in some Austrian quarters. It comes then as little surprise that much of the microeconomic and methodological work in the post-revival literature in Austrian economics finds its roots in Hayek.

--Steven Horwitz, introduction to Microfoundations and Macroeconomics: An Austrian Perspective, Foundations of the Market Economy (London: Routledge, 2003), 1.

Röpke Rejects the Over-Saving Argument

This is an over-saving argument and Röpke will have none of it. In the following passage, he rejects the over-saving argument in precisely the form it was later raised by Keynes in the General Theory:

Some ... even go to the length of asserting that there is a permanent tendency for investment to be outrun by savings and therefore a tendency towards a chronic depression which is only interrupted by short-lived fits of concentrated investment. According to these gloomy pessimists -- mostly sanguine inflationists in disguise, if not actually prophets of the end of capitalism -- our economic system is headed for a sort of economic 'entropy' where all economic energy will be paralysed by a suffocating excess of savings ....

Enough has been said on these points to make a refutation of such wild surmises hardly necessary. It all boils down to the question as to whether it is conceivable that savings can ever become so abundant that we do not know what to do with them even at a rate of interest approaching zero. To this question, of course, only one answer is possible. Over-saving as such is an inconceivable thing, belonging to the same species as other economic scares like over-production.

--Steven Kates, Say's Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way (Cheltenham, UK: Edward Elgar, 2009), 118.

The Inflexible Price and Wage Theory of the Business Cycle

The inflexible price and wage theory of the business cycle says that capitalists and businessmen are reluctant to change prices and therefore, in the face of continuously rising spending, business owners step up production since there will be more demand for goods with a greater volume of spending if prices have not risen to offset the spending. This constitutes the essence of the expansion phase of the business cycle. Eventually, businessmen give in and raise prices because, as advocates of this theory state, firms run out of excess capacity with which to increase production. Hence, prices rise to catch up with the increased spending, production is reduced, and the contraction phase of the business cycle sets in.

The above description is one way Keynesians use “sticky price and wage theory” to explain the business cycle. Another version of the theory says that spending increases during the expansion but decreases during the contraction. The expansion phase in this version looks like the expansion phase discussed in the first version of the theory. As spending increases during the expansion, prices and wages do not rise quickly enough and thus employment and output expand in response. If prices and wages increased sufficiently in the face of the increased spending, according to Keynesians, no increased output or employment would result.

The contraction phase is a little different than in the first version of the theory. Here, as spending contracts during the recession or depression, prices and wages do not fall quickly enough to offset the decreased spending. If they did fall quickly enough, the same goods and labor could be purchased with the decreased money and spending. Therefore, output and employment would not decline and the contraction could be averted. In this scenario, inflexible price and wage theory is supposed to explain why output fluctuates more during the cycle than prices. It is also supposed to explain why recessions and depressions can be so deep and last so long.

--Brian P. Simpson, Remedies and Alternative Theories, vol. 2 of Money, Banking, and the Business Cycle (New York: Palgrave Macmillan, 2014), 46.

Closely Related to the Overproduction Theory of the Business Cycle Is the Underconsumption Theory

Closely related to the overproduction theory of the business cycle is the underconsumption theory of the cycle. This theory has been put forward by Sismondi, Keynes, and others. Although the details may vary among supporters of this theory, the main claim is that when there is not enough consumptive spending in the economy, goods go unsold, workers are laid off, and businesses shut their doors. In other words, a depression occurs. One reason given why there is not enough consumptive spending is that capitalists might shift their spending from hiring workers to purchasing capital goods (i.e., substitute capital for labor). This means workers will be paid less and thus will allegedly not have enough money with which to consume all the goods produced. Whatever the reason given for the lack of consumption, the result is the same according to supporters of underconsumption theory: economic crisis and depression.

--Brian P. Simpson, Remedies and Alternative Theories, vol. 2 of Money, Banking, and the Business Cycle (New York: Palgrave Macmillan, 2014), 13.