is :nv :~vxv: ~ :vs: ov

:vu:n ~xb nv~u:v-

Is the Market a Test
of
TRUTH ~xb 8AUTY:
Essays in Political Economy
by
Lvi~xb 8. Yv~cvv
Ludwig von Miscs !nstitutc
ac.. by thc Ludwig von Miscs !nstitutc and publishcd
undcr thc Crcativc Commons Attribution Liccnsc .c.
http://creativecommons.org/licenses/by/3.0/
Ludwig von Miscs !nstitutc
. Vcst Magnolia Avcnuc
Auburn, Alabama 6a
mises.org
isnx: ,.6.c.6.6
Contcnts
!ntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
v~v: i: vcoxo:ics
. Should Austrians Scorn Gcncral quilibrium Tcory: . . . .
a Vhy Subjcctivism: . . . . . . . . . . . . . . . . . . . . . .
Hcnry Gcorgc and Austrian conomics . . . . . . . . . . . .
Tc cbatc about thc cicncy ol a Socialist conomy . . . ,a
Tc cbatc ovcr Calculation and Knowlcdgc . . . . . . . . .
6 Austrian conomics, Ncoclassicism, and thc Markct Tcst . . . .cc
, !s thc Markct a Tcst ol Truth and 8cauty: . . . . . . . . . . ..6
Macrocconomics and Coordination . . . . . . . . . . . . . .a
Tc Kcyncsian Hcritagc in conomics . . . . . . . . . . . . .,
.c Hutt and Kcyncs . . . . . . . . . . . . . . . . . . . . . . . .,
.. Tc !magc ol thc Gold Standard . . . . . . . . . . . . . . . ..
.a Land, Moncy, and Capital Formation . . . . . . . . . . . . ac
. Tacit Prcachmcnts arc thc Vorst Kind . . . . . . . . . . . . aa
. Tautologics in conomics and thc Natural Scicnccs . . . . . . a6
v~v: ii: voii:ics ~xb vniiosovnv
. Frcc Vill and thics . . . . . . . . . . . . . . . . . . . . . a
.6 lcmcntos dcl conomia Politic . . . . . . . . . . . . . . . c,
., !s Tcrc a 8ias Toward vcrrcgulation: . . . . . . . . . . . a.
. conomics and Principlcs . . . . . . . . . . . . . . . . . .
. Amcrican cmocracy iagnoscd . . . . . . . . . . . . . . 6.
ac Civic Rcligion Rcasscrtcd . . . . . . . . . . . . . . . . . . 6,
a. A Libcrtarian Casc lor Monarchy . . . . . . . . . . . . . . ,
v
vi Contents
aa Uchronia, or Altcrnativc History . . . . . . . . . . . . . . .
a Hayck on thc Psychology ol Socialism and Frccdom . . . . . ,
a Kirzncr on thc Morality ol Capitalist Prot . . . . . . . . . c,
a Miscs and His Critics on thics, Rights, and Law . . . . . . aa
a6 Tc Moral lcmcnt in Miscss Human ction . . . . . . . . .
a, Can a Libcral 8c an galitarian: . . . . . . . . . . . . . . . 6a
a Rights, Contract, and Utility in Policy spousal . . . . . . . ,,
!ndcx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
!ntroduction
Tis books titlc is thc samc as thc ncwly choscn titlc ol chaptcr ,, !s
thc Markct a Tcst ol Truth and 8cauty: Tat chaptcr, along with thc
onc bclorc it, qucstions a dangcrously lalsc argumcnt lor thc lrccmarkct
cconomy somctimcs madc by its supposcd lricnds. Tcir argumcnt thrcat
cns to discrcdit, by association, thc powcrlul and valid casc lor thc mar
kct. Askcd whcthcr thc markct is a tcst ol truth and bcautyol cxccl
lcnccAyn Rand would prcsumably givc thc samc answcr as minc: No,
ol coursc not! Considcr hcr hcro ol Te Fountainhead, Howard Roark.
Political cconomy is thc arca ol ovcrlap among cconomics, political
scicncc, and philosophy. 8cyond its positivc contcnt, political cconomy
docs bcar on policy but not only on policy, it is lar lrom a hodgcpodgc ol
dicrcnt pcoplcs policy prcjudiccs. conomics, whcn not disrcgardcd, is
obviously rclcvant to policy. So arc philosophy and psychology, as whcn
thcy undcrlic doctrincs such as rcdistributionism and cgalitarianism. Pol
icy can acct cconomics. Morc cxactly, a policy proposal may hclp clar
ily a strand ol cconomic analysis cvcn whcn, considcring sidccccts, thc
author docs not actually rccommcnd thc policy, Land, Moncy, and Cap
ital Formation, chaptcr .a, providcs an cxamplc. Rcgrcttably, though,
policydrivcn cconomists do cxist who start with thcir or thcir cmploy
crs prclcrrcd policics and thcn twist thcir analysis into supporting thcm.
Vritings in political cconomy, bcing intcrdisciplinary, typically omit
thc dccp tcchnicalitics ol any spccic cld. Most ol this books chaptcrs
arc scmipopular picccs that thc attcntivc gcncral rcadcr should undcr
stand. Tcy dcal with intcrsccting clds rathcr than with advanccd dctails
ol any onc cld. Lclt out ol this book, thcn, arc any ol my rclativcly tcch
nical writings, as on monctary thcory and intcrnational cconomics. A lcw
scmitcchnical chaptcrs, including numbcrs . and .a, comc closc to mak
ing an cxccption. Chaptcr .a contributcs to a cld ol particular intcrcst
to Austrian cconomists, capital thcory. Yct it too strivcs lor nontcchnical
languagc.
vii
viii Introduction
Somc linkagcs among thc choscn articlcs may not bc immcdiatcly
obvious. 8ut, lor cxamplc, Frcc Vill and thics and Uchronia, or
Altcrnativc History both illuminatc thc chancc aspccts ol lilc. So doing,
both bcar on political philosophy (as on thc rolc ol luck in pcrsonal sta
tus). 8oth also undcrlinc thc diculty ol pinpointing thc supposcd dccp
paramctcrs ol thc cconomy and so to making quantitativc prcdictions, as
opposcd to what F.A. Hayck (.6,) callcd pattcrn prcdictions. (Far bc it
lrom mc, howcvcr, to say that thc ncccssary achicvcmcnts ol thc ccono
mctricians arc lorcvcr downright impossiblc.)
About hall ol thc articlcs dcal with cconomics in particular. Tc
cbatc about thc cicncy ol a Socialist conomy and Tc cbatc
vcr Calculation and Knowlcdgc arc among thcm. Tc lattcr chaptcr
summarizcs points madc morc lully in my Miscs and Hayck on Calcula
tion and Knowlcdgc, Fe.ie. of ustrian Economics ,, no. a, ., and in
thc cnsuing dcbatc with Joscph Salcrno, Guido Hulsmann, Jcrcy Hcr
bcncr, and HansHcrmann Hoppc in .6 and ., issucs ol that Fe.ie..
Tat dcbatc runs to too many pagcs lor inclusion hcrc (scc thc Fe.ie.s
issucs ol ., .6, and .,, onlinc at thc Miscs !nstitutcs wcbsitc).
My Austrian conomics, Ncoclassicism, and thc Markct Tcst, chap
tcr 6, also provokcd controvcrsy, spccically lrom avid Laband and Rob
crt Tollison in thc Quarterly Journal of ustrian Economics , no. ., Spring
accc. Tc rcadcr should rcad thcir articlc (at thc Miscs !nstitutcs wcbsitc)
along with or bclorc rcading my rcply in chaptcr ,.
Chaptcrs on Macrocconomics and Coordination, Tc Kcyncsian
Hcritagc in conomics, Hutt and Kcyncs, and Tc !magc ol thc
Gold Standard dcal with moncymacro topics. Tc last two ol thc
conomics chaptcrs conccrn mcthodology or, rathcr, countcrmcthodol
ogy: thcy advisc against bcing intimidatcd by narrow mcthodological
prcaching.
Scvcral chaptcrs in thc Politics and Philosophy scction cxaminc thc
mcrits and dcmcrits ol dcmocratic govcrnmcnt. Two ol thcm arc book
rcvicws. nc ol thc books trcats thc Amcrican political systcmrcalistically.
Tc othcr takcs thc Gcorgc Stiglcr/arl Tompson linc thatil ! may
cxaggcratc just a bitwhatcvcr institution cxists must bc optimal or at
lcast satislactory, othcrwisc it would alrcady havc bccn rcplaccd. thcr
chaptcrs in thc scction dcal with political philosophy.
Most chaptcrs arc rcprintcd with only slight cditing, particularly to
standardizc thc systcm ol rclcrcnccs. Chaptcr has bccn cxpandcd (and
rcnamcd) to takc account ol dcvclopmcnts in thc ltccn ycars sincc it rst
ckno.ledgments ix
appcarcd, and chaptcr (also rcnamcd) has bccn modicd at its bcginning
to rcad lcss likc an invitcd introduction to othcrs articlcs. Scvcral pagcs ol
chaptcr a havc bccn cut out bccausc thcy rcbut a straincd intcrprctation ol
Miscss work that is hardly worth attcntion. Chaptcr , Tc cbatc about
thc cicncy ol a Socialist conomy, although and pcrhaps cspccially
bccausc it datcs lrom ., is printcd unchangcd.
Tc sclcction proccss has just happcncd to givc thc book an Austrian
avor not originally intcndcd. Tc bulk ol my work is not particularly
Austrian. n whcthcr ! count as an Austrian cconomist, scc thc opcning
lincs ol chaptcr 6.
~cxxowivbc:vx:s
For cnjoyablc and instructivc discussions ovcr many ycars, ! am indcbtcd
to dozcns, cvcn hundrcds, ol studcnts in my graduatc Scminar in Polit
ical conomy at thc Univcrsity ol \irginia and at Auburn Univcrsity.
(Tat scminar covcrcd its topics in morc scopc, dctail, and tcchnicalitics
than thc articlcs includcd hcrc.) Many pcrsons, including oncs both mcn
tioncd and unmcntioncd in thc individual papcrs, havc givcn mc valu
ablc instruction, cncouragcmcnt, provocation, and warnings. ! hcsitatc to
list namcs bccausc any such list would bc incomplctc and would sucr
lrom my lapscs ol mcmory, but it would includc Rogcr Garrison, Luis
opico, anicl dwards, Robcrt Grccncld, Rogcr Koppl, Jucrgcn 8ack
haus, Stcvcn Caudill, Varrcn Nuttcr, dgar 8rowning, Villiam 8rcit,
Northrup 8ucchncr, Murray Rothbard, Jamcs 8uchanan, Gordon Tul
lock, and, to go back many ycars, Aurclius Morgncr, Jamcs Vallcr, and
Clarcncc Philbrook.
Tc Ludwig von Miscs !nstitutc madc no suggcstion that ! mod
cratc any vicws contrary to its own. For this and othcr rcasons ! am
indcbtcd to Llcwcllyn Rockwcll, thc !nstitutcs chairman, and ouglas
Frcnch, its prcsidcnt. Jcrcy Tuckcr, cditorial vicc prcsidcnt, cncouragcd
and paticntly supportcd this book projcct lrom thc bcginning. Pcrhaps
thc !nstitutcs grcatcst support has bccn thc scrviccs ol Miss Laurcn 8ar
low. Shc hclpcd sclcct thc papcrs to rcprint, standardizcd thc systcm ol
citations (including placcmcnt ol notcs whcrc thcy bclong, at thc bottom
ol cach pagc), qucstioncd crrors, unduc rcpctition, and inlclicitous lor
mulations, copcd with many dralts, and gavc invaluablc support on thc
many arduous chorcs scarccly imaginablc by somconc who has not tricd
to asscmblc divcrsc articlcs into a cohcrcnt (! hopc) book.
x Introduction
For thcsc rcasons ! cxtcnd my spccial admiration and thanks to Laurcn
8arlow.
vvvvvvxcv
Hayck, F.A. cgrccs ol xplanation and Tc Tcory ol Complcx Phcnom
cna. !n Studies in Philosophy, Politics and Economics, a., and aaa. Chicago:
Univcrsity ol Chicago Prcss, .6,.
v~v: i
conomics
cn~v:vv +
Should Austrians Scorn
Gcncral quilibrium Tcory:

Austrian cconomists try to cxplain how a wholc cconomic systcm lunc

tions. Tcy do not locus narrowly on thc circumstanccs ol thc individual
houschold or thc gcomctry ol thc individual rm. Tcy invcstigatc thc
coordination ol thc mutually inucncing yct scparatcly dccidcd activitics
ol many millions ol individual units,
.
thcy invcstigatc gcncral intcrdcpcn
dcncc.
Gcncral cquilibrium is a somcwhat narrowcr conccpt. (G is a
convcnicnt abbrcviation lor both gcncral cquilibrium and, as contcxt
rcquircs, gcncralcquilibrium theory or approach.) 8y G ! mcan work by
and in thc tradition ol Lon Valras, \illrcdo Parcto, Gustav Casscl, Gcr
ard cbrcu (.), Robcrt Kucnnc (.6, .6), Kcnncth Arrowand Frank
Hahn (.,.), and othcrs. istastc lor G among Austrian cconomists
is lamiliar, as it was among Chicago cconomists such as Milton Fricd
man and Gcorgc Stiglcr (who thought that it somchow stood in rivalry
with Marshallian partialcquilibrium analysis). Austrians somctimcs statc
cxplicit rcasons lor thcir scorn, but oltcn thcy takc thc rcasons as too wcll
known to nccd rcpcating.
a
! myscll havc bccn accuscd ol a G mindsct
in a contcxt that takcs such a mindsct lor grantcd as a bad thing (Salcrno
., pp. ...ac).

From Fe.ie. of ustrian Economics .., nos. .a (.): .c.

.
Austrians pursuc a linc ol rcscarch markcd out by Adam Smith, trying to cxplain
how a systcm ol Natural Libcrty, a markct cconomy bascd upon privatc owncrship and
thc scllintcrcstcd pursuit ol utility and prots, could bccomc coordinatcd in such a way
that it gcncratcs cvcrcxpanding circlcs ol productivity, ccicncy and growth (8octtkc
and Prychitko ., p. x).
a
Rcasons arc rcvicwcd by 8octtkc and Prychitko . and in scvcral ol thc articlcs
rcprintcd in thc volumcs that thcy cditcd. Tcir !ntroduction, thosc articlcs, and thc
prcscnt articlc rcinlorcc and supplcmcnt cach othcr.

Part : Economics
vx~:vivs ov scovx
Jcss Hucrta dc Soto providcs an cxamplc ol scorn in his .a Spanish
book on socialism, cconomic calculation, and cntrcprcncurship. !t is an
cxccllcnt and insightlul book, apart lrom somc mcthodological prcaching.
Hucrta dc Soto rcgrcts
thc ncgativc cccts that mathcmatical lormalism and thc pcrnicious
obscssion with analyscs bascd on lull inlormation and on cquilibrium
havc had on thc dcvclopmcnt ol our scicncc. !t is likcwisc ncccssary to
abandon thc lunctional thcory ol pricc dctcrmination and rcplacc it with
a theory of prices that cxplains how thcsc arc cstablishcd dynamically as
thc rcsult ol a scqucntial and cvolving proccss drivcn by thc lorcc ol
thc cntrcprcncurial lunction, that is, by thc human actions ol thc actors
involvcd, and not by thc intcrscction ol mystcrious curvcs or lunctions
lacking any rcal cxistcncc, sincc thc inlormation ncccssary to lormulatc
thcm docs not cxist cvcn in thc minds ol thc actors involvcd. (Hucrta dc
Soto .a, pp. )
Jack High (.) providcs anothcr cxamplc. spccially sincc Vorld
Var !!, hc says, mainstrcamcconomists shiltcd thcir attcntion lromactual
markct priccs mainly to thcir hypothctical countcrparts in cquilibrium.
Tosc cconomists could say much about how produccrs and consumcrs
would rcact to givcn priccs but littlc about how priccs wcrc lormcd and
adjustcd. G cxistcncc prools supposcd that produccrs and consumcrs
wcrc maximizing with rcspcct to givcn priccs. To dodgc thc qucstion ol
how priccs rcach thcir cquilibrium valucs, thc thcory brought in a deus ex
machina, a ctional cconomywidc auctionccr who somchow achicvcs this
rcsult.

Tc lundamcntal motivating lorcc ol cconomic thcory was abscnt

lrom thc thcory ol pricc lormation (High ., pp. ...a, quotation
lrom p. .a).
High invokcs thc authority ol Robcrt Clowcr (.,/.6) lor a lurthcr
vcrdict on G. Although Clowcr docs not classily himscll as an Austrian,
ovcrlaps bctwccn his and Austrian vicws justily quoting him also.
To arguc that ncoValrasian thcory has any bcaring on thc obscrvablc
bchavior ol an cconomy actually in motion, wc should havc to rcgard it

! cannot nd mcntion ol thc auctionccr in Valrass own writings, and onald Valkcr,
thc lcading living U.S. cxpcrt on Valras, assurcd mc (in convcrsation) that thc auctionccr
indccd docs not appcar in thcm. Tat prodigious gurc is thc invcntion ol latcr thcorists
trying to makc thc thcory tightcr.
Chapter z: Should ustrians Scorn General Equilibrium Teory?
as providing a complete dcscription ol actual bchavior rathcr than a partial
dcscription ol .irtual bchaviorand that wc surcly cannot do. Strictly
intcrprctcd, ncoValrasian thcory is dcscriptivc only ol a lairytalc world
ol notional cconomic activitics that bcars not thc slightcst rcscmblancc to
any cconomy ol rccord, past, prcscnt, or luturc. !t is scicncc ction, purc
and simplcclcvcr and clcgant scicncc ction, no doubt, but scicncc
ction all thc samc. (Clowcr .,/.6, p. .)
Morc rcccntly Clowcr notcd
thc mcrctriciousncss ol thc cconomists notion ol cquilibrium. !n cvcry
branch ol physical scicncc, cquilibrium rclcrs to a balancc ol lorccs
|citations omittcd| such as might bc associatcd with an olivc rcsting
at thc bottom ol a concshapcd martini glass, and thc word mislcad
ingly conjurcs up analogous imagcs whcn it is uscd by cconomic thco
rists. Strictly spcaking, howcvcr, thc cquilibria that ncowalrasian thc
ory shows to cxist arc morc corrcctly callcd solutions |to a systcm ol
implicitlydcncd algcbraic cquations|. So undcrstood, thc important
achicvcmcnts ol ncowalrasian cquilibrium thcory losc much ol thcir
apparcnt lustrc, which should in any casc adhcrc to thc mathcmatical
gcniuscs Gauss and 8rouwcr whosc work undcrlics all modcrn cxistcncc
prools. (Clowcr ., p. .,, thc cight words in thc sccond pair ol brack
cts arc Clowcrs.)
Clowcr justly objccts to how somc cconomists havc strctchcd thc
conccpt ol cquilibrium. Robcrt Lucas and Tomas Sargcnt (.,, p. )
appcarcd to congratulatc thcmsclvcs on thc dramatic dcvclopmcnt that
thc vcry mcaning ol thc tcrmcquilibrium had undcrgonc. Sargcnt (intcr
vicwcd in Klamcr ., pp. 6,6) cxprcsscd satislaction with lancicr
notions ol cquilibrium, much morc complicatcd notions ol markct
clcaring, and lancy ncw kinds ol cquilibrium modcls. Vcll, to rccom
mcnd dcstabilizing thc mcaning ol words, subvcrting communication,
is thc kind ol mcthodologizing that nccds to bc draggcd into thc opcn
and inspcctcd. !l what cconomists with propcr scnsitivity training call
thc computablc dynamic gcncral cquilibrium modcl rcally is thc rcal
busincss cyclc modcl, as 8crnard Saran (., p. a.) suggcsts, thcn !
sharc contcmpt lor it.
xvvvixc scovx vocusvb
Somc strands ol G do pcrhaps dcscrvc scorn or ncglcct. 8ut lct us
kccp our scorn wcll locuscd. Tc problcm lics not with thc thcorys
6 Part : Economics
ccntral idcas but with somc abuscs committcd in its namc. Tcsc includc
paradcs ol sham rigor and mathcmatical gamcs that makc no contact
with rcality (cl. 8uchanan ./., Allais .). Morc spccically, thcy
arguably includc obscssion with thc mathcmatical rcquircmcnts lor cxis
tcncc, uniqucncss, and stability ol Gto thc cxtcnt ol crowding out attcn
tion to cconomic substancc. (n thc othcr hand, lct thc wouldbc mathc
maticians amusc thcmsclvcs as thcy likc, providcd thcy not dcccivc othcr
pcoplc about thc signicancc ol thcir corts.) A rclatcd abusc is pushing
thc strongcstlink principlc, thc tacit idca that a thcory is as strong not as
its wcakcst but as its logically most rigorous link (cl. Maycr ., pp. x,
,6, c, .a,.c, and passim). Still othcrs arc lronticrsmanship and othcr
varictics ol tacit mcthodological prcaching (cl. chaptcr . bclow).
Tc corrcct rcsponsc to abuscs is to pinpoint thcm. !l wc appraisc a
doctrinc or approach or tcchniquc by whcthcr or not it might bc abuscd,
misintcrprctcd, distortcd, sct asidc, or taught with unduly narrow and
cxclusivc cmphasis, wc arc putting it to a tcst that no doctrinc can pass.
G is oltcn chargcd with bcing static and bcing prcoccupicd with
an allaround cquilibrium in which all plans mcsh and all priccs, bcing
at thcir markctclcaring lcvcls, convcy cxact inlormation. Tc scrviccs ol
thc mystcrious auctionccr lcavc no scopc lor cntrcprcncurial activity and
othcr actual markct proccsscs. Tc thcory ignorcs complcxity, unccrtainty,
judgmcnt, crcativity, and cntcrprisc.
co:viv:vx:~vv s:v~xbs ov :nvovv
!n a scnsc thcsc complaints arc corrcct. l coursc lormalizcd cquilibrium
thcory docs not tcach us cvcrything about cconomics, and pcrhaps not
cvcn thc main idcas. No onc known to mc claims that it is thc wholc story.
l coursc G lcavcs room lor invcstigating thc proccsscs at work in thc
rcal world ol discquilibrium. Vc cannot lcarn cvcrything at oncc, but wc
can lcarn somcthing lrom a static vicw and thcn go on to dynamics and
proccss. Tc two strands complcmcnt cach othcr, Gaords insights into
gcncral intcrdcpcndcncc. Vc can bcttcr undcrstand markct prcssurcs and
proccsscs il wc havc an idca ol thc statc toward which thcy arc working
(il indccd thcy arc cquilibrating rathcr than discquilibrating) and il this
statc hclps us, by contrast, to contcmplatc discquilibrium, thc nonmcsh
ing ol plans. Ludwig von Miscs rccognizcd thc usclulncss ol thc cvcnly
rotating cconomy as an analytical bcnchmark (./.66, pp. aac
and passim). Vc nccd not supposc that thc world cvcr actually rcachcs
Chapter z: Should ustrians Scorn General Equilibrium Teory? ,
cquilibrium, wc can rcmain duly scornlul ol thcorics (likc a rcccntly lash
ionablc brand ol macrocconomics) that trcat cquilibriumalways as a sub
stantivc proposition.
! taught a coursc in G at thc Univcrsity ol \irginia lor scvcral ycars
anking .6c. Tc prolcssors who had namcd thc coursc, ycars carlicr,
apparcntly thought that G was a lancy namc lor macrocconomics, but !
took thc coursc titlc at lacc valuc. Largc doscs ol Austrian cconomics,
including Miscss and Haycks insights into socialist calculation, wcrc
hclplul, ! think, in rcscuing G lrom thc stcrility ol its worst vcrsions.
! ncvcr saw any ncccssary tcnsion bctwccn G and Austrian cconomics.
vuv:nvv ci~i:s vov cv
+. G givcs us a vicw ol thc cconomic systcm as a wholc. Analysis
ol thc bchavior ol individual rms and houscholds has littlc point unlcss
it ts into undcrstanding thc systcm (cl. uckcn ., pp. aacaa.). For
cxamplc, thc chargc that a monopoly rms output is too small has littlc
mcaning unlcss it is rclatcd to thc cconomywidc allocation ol rcsourccs.
:. spccially whcn bolstcrcd by contcmplation ol a ccntrally admin
istcrcd cconomy, G illuminatcs thc complcxity ol thc task pcrlormcd
by cntrcprcncurs and othcr agcnts, guidcd by thc pricc systcm. !t illumi
natcs thc logic ol dcccntralizcd dccisions lor thc sakc ol a lullcr usc ol
knowlcdgc, with priccs communicating signals and inccntivcs.
. Contcmplating thc immcnsc task idcally pcrlormcd by cconomy
widc coordinating proccsscs undcrlincs thc attcndant scopc lor things
to go wrong. (Comparc mcdical studcnts attcntion to thc physiology ol
a hcalthy body.) Tc surprising thing is not so much that coordination
somctimcs lails as that thc proccsscs work at all. Failurc is most cvidcnt in
dcprcssion, whcn pcoplc kccnly dcsirc to tradc with onc anothcr (although
morc through multilatcral than bilatcral cxchangcs), yct run into lrustra
tion. Alcrtcd to thc coordination problcm, wc can bcttcr look lor disrup
tivc conditions or cvcnts.
. G illuminatcs thc rcal signicancc ol thc moncy priccs, costs,
and incomcs conlronting houscholds, rms, and govcrnmcnts. !t cxplains
opportunity cost in a way not possiblc with partial analysis alonc. All too
commonly, opportunity cost is dcncd in thc contcxt ol choiccs madc
by a particular dccisionmakcr: thc cost ol his choscn coursc ol action is
thc ncxtbcst coursc that hc thcrcby lorgocs. Tat dcnition, bringing to
mind thc considcrations and cvcn agonics involvcd in making dccisions,
Part : Economics
sccms lamiliar to thc layman. Tis dcccptivc lamiliarity trivializcs thc con
ccpt. Vhat rcquircs thc cconomists cxpcrtisc and thc studcnts alcrtncss to
lcarning somcthing ncw is opportunity cost in a dccpcr scnscthc widcr
social signicancc ol moncy cost. Misundcrstanding still abounds. How
oltcn do wc hcar complaints about dcsircd production and scrviccs bcing
curtailcd or worthwhilc projccts shclvcd out ol grubby conccrn with mcrc
moncy cost: (vcn thc cpithct grccd gcts tosscd around.) Vhat nccds
rcpcatcd cxplanation is how moncy costs rccct thc subjcctivcly appraiscd
valucs ol thc othcr outputs and activitics ncccssarily lorgonc il rcsourccs
arc withhcld lrom thcm lor thc sakc ol thc particular output or activity in
qucstion. Vhat lurthcr nccds cxplanation is how moncy costs and priccs
transmit inlormation and inccntivcs to dccisionmakcrs. (Tis is not to
say that thc inlormation convcycd about opportunity cost is complctcly
accuratc, lor onc thing, rcalworld priccs arc not G priccs. Howcvcr,
thc markct proccss, including cntrcprcncurial activity, works to wccd out
gross inaccuracics.)
xplaining opportunity cost in thc nontrivial scnsc is not casy. vcn
!rving Fishcr (.c/.,c, pp. ,, .) astonishingly dcnicd that
onc particular pricc, thc intcrcst ratc, mcasurcs any gcnuinc opportunity
cost. Prcciscly bccausc thc cxpository task is such a dcmanding onc, it
is important to bcwarc ol dcccptivcly simplc and lamiliar lormulations
and cxamplcs. Tis is what a G lramcwork hclps to do. !t hclps portray
thc varicty and diusion ol sacriccs ol altcrnativc goods, intangiblc or
subjcctivc as wcll as tangiblc, that thc moncy cost ol a particular good
mcasurcs.
. Tc G lramcwork is a ncccssary background lor spccial strands
ol thcory. Monctary thcory is closcly bound up with conccpts ol gcncral
intcrdcpcndcncc, sincc moncy is thc onc good tradcd on all markcts. G
hclps show how pricclcvcl dctcrminacy prcsupposcs a nominal anchor,
providcd cithcr by a commodity standard (or lorcigncxchangc standard)
or by quantitativc rcgulation ol a at currcncy. !n thc thcory ol saving,
capital, and intcrcst, Ghclps us undcrstand conccptual distinctions cvcn
bctwccn magnitudcs that arc thc samc in cquilibrium (apart lrom dicr
cnccs in risk, liquidity, and thc likc), such as thc intcrcst ratc on loans,
ratcs ol rcturn on capital goods and land, thc agio ol prcscnt ovcr luturc
goods, subjcctivc marginal ratcs ol timc prclcrcncc, and thc tcchnolog
ical marginal productivity ol invcstmcnt in capital goods. !t shows thc
crror ol quarrcling ovcr supposcdly rival partialcquilibrium thcorics ol
intcrcst.
Chapter z: Should ustrians Scorn General Equilibrium Teory?
6. G triggcrs alcrtncss to conscqucnccs ol particular actions, includ
ing oncs rcmotc in spacc and timc, it alcrts onc to thc Law ol Unintcndcd
Conscqucnccs (cl. Mcadcs primary, sccondary, and tcrtiary cccts in his
., csp. chaps. xiii, xxxi, xxxii).
Hcrc arc somc cxamplcs ol rcpcrcussions that G hclps illuminatc:
Vhy monctary cxpansion lowcrs intcrcst ratcs only transitionally, how
monctary cxpansion accts thc pricc lcvcl, why survcy rcsults on thc
supposcd intcrcstinscnsitivity ol invcstmcnt dccisions do not provc that
monctary policy is inccctivc (cl. Vicksclls cumulativc proccss). G
hclps us undcrstand how thc strcngth ol somc rclation about which wc
havc inadcquatc dircct cmpirical cvidcncc may bc judgcd indircctly by
cmpirical cvidcncc on somcthing clsc that is rclatcd to thc rst, cvcn il
not in an obvious way. nc cxamplc involvcs import and cxport supply
and dcmand clasticitics and purchasingpowcr parity.
~voibixc v~ii~civs
My ncxt thrcc claims, numbcrs ,, and , arc intcrrclatcd and, unlortu
natcly, lcngthy. Tcy conccrn avoiding lallacics.
y. G analysis hclps clarily thc distinction bctwccn data and vari
ablcs ol thc cconomic systcm. (Morc cxactly, thc distinction pcrtains not
so much to objcctivcly cxisting rcality itscll as to analysis ol a particular
aspcct ol it, or to a particular strand ol analysis. For cxamplc, population
may count among thc givcns in a particular strand ol analysis yct count
among thc variablcs to bc cxplaincd in anothcr strand.) G cmphasizcs,
in particular, thc distinction bctwccn variablcs that gct dctcrmincd, on
thc onc hand, and wants, rcsourccs, and tcchnology, on thc othcr hand.
(VR&T also includcs social and lcgal organizations and thcir rulcs,
cl. uckcn .c, pp. ., acaac, and \ining ..) G shows thc crror ol
asking about thc cccts ol a changc in a particular magnitudc whcn that
magnitudc is a dctcrmincd variablc and not a givcn. !t is a mistakc, lor
cxamplc, to ask how a changc in thc intcrcst ratc will acct invcstmcnt
or total spcnding. Tc qucstion should bc rcphrascd to ask about lurthcr
conscqucnccs ol whatcvcr changc in thc data undcrlics thc intcrcstratc
changc (c.g., a changc in thc productivity ol invcstmcnt, in thrilt, or in
monctary policy). Tc crror is similar to that ol asking about thc consc
qucnccs ol a changc in thc pricc ol whcat whosc causc gocs unspccicd.
Nowadays, similarly, wc havc bccn hcaring much ignorant chattcr about
thc conscqucnccs ol a dccit in lorcign tradc or on currcnt account.
.c Part : Economics
l coursc, individualcxpcrimcnts can bc lcgitimatc il pcrlormcd in
thc propcr contcxt. Vhat is a dcpcndcnt variablc lor thc cconomy as
a wholc may bc an indcpcndcnt variablc or datum lor individual units
and aggrcgatcs ol thcm. Somcthing that is not a datum lor thc ccon
omy as a wholc may lcgitimatcly bc takcn as a datum in an individual
cxpcrimcnt (Patinkin .6 dcvclops thc distinction bctwccn individual
and markctcxpcrimcnts). 8ut it is important to kccp thc distinction clcar.
(Somc cxamplcs ol making thc distinction would involvc dcmand schcd
ulc and quantity dcmandcd, Fricdmans Marshallian dcmand curvc, sup
poscdly puricd ol thc incomc ccct, thc dcmand lor moncy, and rclations
bctwccn invcstmcnt and incomc.)
!t can bc lcgitimatc to ask about thc conscqucnccs lor thc cconomy as
a wholc ol a variablcs accidcntally dcparting lrom or arbitrarily bcing sct
away lrom its G valuc (cvcn though somc thcorists, c.g., Archibald and
Lipscy . and, morc rcccntly, thc Ncw Classical macrocconomists, havc
bccn mistakcnly unwilling to considcr discquilibrium). Vc might supposc
such a dcparturc to tcst lor stability ol cquilibrium, to show inconsistcncy
ol plans in a discquilibrium situation, or to show lorccs at work and rca
sons why such a discquilibrium could not last. 8ut thc thcorist must know
what hc is doing. Although it can bc lcgitimatc to postulatc a spccicd
kind ol dcparturc lrom cquilibrium lor a particular analytical purposc, thc
thcorist must not imaginc a lrccdom to postulatc just any old changc in
a variablc so as to tracc out thc conscqucnccs lor a supposcd dicrcnt
cquilibrium. As lor postulating a pricc oor or cciling or a changc in thc
moncysupply bchavior ol thc authoritics, that can bc rcgardcd as a changc
in onc ol what arc rcgardcd as ultimatc data ol thc systcm. (!mplicitly !
am rclcrring to 8uchanan . and uckcn .c, pp. a.a..)
8. G shows thc crror ol imagining oncway causation ol cconomic
variablcs whcn mutual dctcrmination is at work. !t is a mistakc to ask
whcthcr pricc dcpcnds on cost or on marginal utility, whcthcr thc intcrcst
ratc dcpcnds on thc marginal productivity ol capital goods or ol invcst
mcnt or on a subjcctivc discount ol luturc rclativc to prcscnt goods, and
whcthcr thc wagc ratc dcpcnds on thc marginal valuc product ol labor
or on labors marginal disutility or on thc marginal utility ol altcrnativc
activitics lorgonc to cngagc in labor.
Avoiding lalsc prcsuppositions about causality hclps givc insight
into thc identication problem ol cconomctrics. For cxamplc, docs a pat
tcrn ol rclations bctwccn various priccs and quantitics ol somc product
rccct a dcmand lunction, a supply lunction, a conluscd mixturc ol thcir
Chapter z: Should ustrians Scorn General Equilibrium Teory? ..
propcrtics, or what: Vc must ask what dicrcnccs in wants, rcsourccs,
and tcchnology undcrlic thc dicrcnt priccandquantity points. Furthcr
such cxamplcs conccrn rclations bctwccn a countrys balancc ol paymcnts
and cxchangc ratc, monctary policy and lrcc rcscrvcs, and thc intcrcst ratc
and monctary policy or invcstmcnt or thrilt. id a changc in thc intcrcst
ratc comc lrom thc dcmandlorcrcdit sidc or thc supplyolcrcdit sidc,
pcrhaps as inucnccd by monctary policy:
Rccognizing mutual dctcrmination docs not prccludc a causalgcnctic
tracing out ol rcsponsc to a particular changc in thc situation. Comparc
tracing out thc conscqucnccs ol adding a ncw ball to Marshalls bowl or a
ncw piccc to a Caldcr mobilc.
. G hclps avoid many spccic lallacics somctimcs abcttcd by thc
partialcquilibrium approach. Somc cxamplcs lollow.
(a) Tc abovcmcntioncd lallacy about intcrcstscnsitivity and monc
tary policy.
(b) Tc purchasingpowcr argumcnt lor articially boosting particu
lar wagc ratcs (or product priccs). Tis ancicnt argumcnt illcgitimatcly
gcncralizcs lrom a particular rm or industry. !lilthc conditions lor
an inclastic dcrivcd dcmand lor its labor arc satiscd, thcn a wagcratc
incrcasc will indccd incrcasc thc purchasing powcr ol thc rms or indus
trys cmployccs. 8ut what happcns to othcr lactor sharcs: Furthcrmorc,
widcsprcad wagc incrcascs lcad into qucstions ol monctary thcory, which
cannot bc handlcd by partial analysis alonc.
(c) Tc proccicncy shock ccct supposcdly achicvcd by boosting
wagc ratcs through union or govcrnmcnt action. !nsolar as thc grcatcr
ccicncy is achicvcd by grcatcr capital invcstmcnt, cithcr lcss capital lor
mation is possiblc clscwhcrc or clsc thc shock somchowpromotcs saving,
in which casc thc argumcnt ought to cxplain how.
(d) Tc cconomicsolscalc casc lor advcrtising or consumcr trading
stamps. xpandcd scalc in somc opcrations mcans shrunkcn scalc in oth
crs, unlcss undcrcmploymcnt ol rcsourccs prcvailcd and is somchowrcmc
dicd by thc advcrtising. Vhat rcason is thcrc to supposc that advcrtising
promotcs thc goods that particularly havc cconomics ol scalc: Anyway,
thc argumcnt ought to lacc up to this gcncralcquilibrium qucstion. !l
thc argumcnt dcpcnds on standardization, that ought to bc madc cxplicit.
(e) Tc dccrcasingcost/marginalcostpricing/consumcrsurplus ar
gumcnt lor subsidizing a particular industry or running it at a loss. Also
.a Part : Economics
to bc considcrcd arc thc conditions in industrics lrom which rcsourccs arc
divcrtcd, as wcll as thc conscqucnccs ol raising rcvcnuc lor thc subsidics.
(f) Similarly, cxtcrnalcconomy (including inlantindustry) argumcnts
lor protcction or subsidics lor particular industrics, or argumcnts lor gov
crnmcnt nancc ol particular industrics on thc grounds that thc gov
crnmcnt can borrow morc chcaply than privatc cntcrprisc, or argumcnts
lor crcdit allocation toward such industrics. As G tcachcs us, it is not
cnough to considcr onc industry or onc aspcct at a timc.
(g) Tc idca that govcrnmcnt loan guarantccs can promotc (or rcscuc)
dcsirablc projccts or activitics at littlc or no cost to thc taxpaycrs. Tc
argumcnt lorgcts that capitalor whatcvcr wc may call thc rcsourcc
whosc pricc is thc intcrcst ratc and that is lurthcr rationcd by thc dccisions
ol loan occrs and bond buycrsis a scarcc rcsourcc whosc divcrsion to
somc uscs ncccssarily withholds it lrom othcr and possibly morc highly
dcsircd uscs.
(h) Capitalimportandcxport argumcnts lor tradc intcrvcntions. !n
a dcvcloping country, protccting a particular industry will pcrhaps havc
a tarilactory ccct, but will protcction in gcncral promotc capital
import in gcncral: Agrccd, admitting a particular product dutylrcc may
cncouragc homc rms to cxport capital to producc that good abroad, but it
docs not lollow that rcmoval ol protcction in gcncral will promotc ovcrall
capital cxport.
(i) Tc lallacious argumcnt lor taris to thc ccct that our govcrnmcnt
collccts taxcs on incomcs gcncratcd by domcstic production ol import
compcting goods but not on incomcs gcncratcd by producing importcd
goods abroad.
(j ) Tc rcalbills doctrinc about thc abscncc ol inationary ccct ol
moncy and crcdit crcatcd to nancc productivc activitics, a lallacy that
kccps gctting indcpcndcntly rcinvcntcd in slightly dicrcnt vcrsions by
incompctcnt amatcur monctary thcorists.
(k) Mcrcly supcrcial attcntion to sccondary or collatcral cccts ol
a particular activity, such as supposcd bcncts to local busincss ol a ncw
highway or sports stadium, ignoring thc divcrsion ol rcsourccs lrom othcr
placcs or activitics.
(l ) A catchall catcgory: othcr instanccs ol thc lallacy ol composition
and ol policy argumcnts that unduly rcstrict attcntion to closc and short
run cccts to thc rclativc ncglcct ol morc rcmotc and longrun cccts.
G promotcs awarcncss that thc wisdom ol a particular mcasurc cannot
Chapter z: Should ustrians Scorn General Equilibrium Teory? .
bc judgcd solcly by thc intcntions ol thosc who rccommcnd it. (Tis is
onc ol thc main thcmcs ol uckcn .a, cl. Frdric 8astiat on what is
sccn and what is not sccn.)
vgu~:iox svs:v:s
Fully supporting my many claims lor G would rcquirc a wholc collcgc
coursc. Rcadcrs might wcll contcmplatc, howcvcr, onc or morc ol thc sys
tcms availablc in thc litcraturc that portray thc cconomy as a wholc in
many cquations and variablcs. Pondcring such a systcm, purporting to
dcscribc what an cconomy would look likc in a statc ol lull coordination,
hclps onc grasp thc ccntral lact ol gcncral intcrdcpcndcncc. !t hclps onc
scc how grcatcr production ol somc goods and scrviccs rcquircs lcsscr pro
duction ol othcrs and how, ultimatcly and subjcctivcly, grcatcr satislaction
ol somc dcsircs costs lcsscr satislaction ol othcrs. !t hclps onc grasp thc
immcnsity ol thc coordination task that thc pricc systcm works toward
pcrlorming, although ncvcr complctcly and pcrlcctly.
! doubt that anyonc can lully apprcciatc G without working his
way through onc or morc such cquation systcms. Vhilc Gustav Cas
scl dcscrvcs criticism lor prcscnting his simplication ol Valrass systcm
(.a/.6,, chap. iv) without giving crcdit to Lon Valras, his systcm
ncvcrthclcss has pcdagogic mcrit. !t cnvisagcs n goods and scrviccs. Tc
quantity pcr timc pcriod dcmandcd ol cach is a lunction ol all n priccs
and is cqual to thc quantity supplicd. Supply lunctions arc rcprcscntcd by
thc conditions that thc pricc ol cach good is cqual to its cost ol produc
tion, which in turn is cqual to thc sum ol thc priccs timcs quantitics ol
thc lactors ol production rcquircd to producc onc unit ol thc good. Tcsc
tcchnical rcquircmcnts and thc cquilibrium quantitics ol goods pcrmit
calculating thc total quantity dcmandcd ol cach ol thc r lactors, which in
cquilibrium is cqual to thc quantity availablc. Casscl shows just cnough
cquations to dctcrminc thc quantitics ol thc various goods produccd, thcir
priccs, and thc priccs ol thc lactors ol production.
!n this rst pass at a simplicd cquation systcm, Casscl assumcs that
thc tcchnical coccicnts (thc quantitics ol cach lactor rcquircd lor thc
production ol onc unit ol cach good) arc xcd paramctcrs, as is thc total
quantity availablc ol cach lactor. Tc total moncy cxpcnditurc ol con
sumcrs on thc purchasc ol nal goods is also xcd. Tcsc simplilying
assumptions can bc rclaxcd, howcvcr, in ways rcprcscntcd by incrcasing
thc numbcr ol unknown priccs and quantitics to bc dctcrmincd, and
. Part : Economics
incrcasing thc numbcr ol cquilibrium cquations also, so that thc systcm
rcmains dctcrminatc.
Casscl justiably claims that his
cquations rcvcal thc truc naturc ol pricing, and thc pricing proccss can
not bc accuratcly prcscntcd in any simplcr lorm. Tc dcmand lor a prod
uct rcprcscnts an attcmpt to attract ccrtain lactors ol production to a
particular usc. Conicting with this attcmpt arc similar attcmpts in thc
lorm ol dcmands lor othcr products. Tcrc ariscs in this way a strug
glc lor thc rclativcly scarcc lactors ol production, which is dccidcd in
thc cxchangc cconomy by placing unilorm priccs on thc lactors, which
priccs in turn dctcrminc thc priccs ol thc products and thus lorm a
mcans ol cccting thc ncccssary rcstriction ol dcmand. Tc dcmand lor
a particular lactor ol production arising lrom thc continuous dcmand lor
cach particular product is totallcd lor cach unit pcriod, to lorm a total
dcmand lor that lactor ol production, . . . which must, in a statc ol cqui
librium, cqual thc givcn quantity ol thc lactor ol production. (.a/.6,,
p. .)
!n this passagc and in thc cquation systcm it dcscribcs, Casscl thus
providcs a dccp insight into thc naturc ol cost, opportunity cost. Hc gocs
on to point out how his systcm portrays thc intcrplay ol both subjcctivc
and objcctivc lactors in pricc dctcrmination. As hc says,
All thcsc lactors arc csscntial in dctcrmining priccs. An objcctivc or
subjcctivc thcory ol valuc, in thc scnsc ol a thcory that would attributc
thc scttlcmcnt ol priccs to objcctivc or subjcctivc lactors alonc, is thcrc
lorc absurd, and thc wholc ol thc controvcrsy bctwccn thcsc thcorics ol
valuc, which has occupicd such a disproportionatcly largc placc in cco
nomic litcraturc, is a purc wastc ol cncrgy. (p. .6)
.H. Phclps 8rown prcscnts a gcncralcquilibrium cquation systcm
simplc cnough to bc solvcd numcrically, as it was cvcn whcn 8rown
rst publishcd it in .6, in thc days bclorc computcrs and cvcn bclorc
clcctronic pockct calculators (though not bclorc mcchanical dcsk calcula
tors). Nowadays, whcn computcrs and calculators rcmovc so much grunt
work, thc valuc ol cxcrciscs likc 8rowns has incrcascd. Much may bc
said lor working oncs way not only through simplicd systcms but also
through Valrass Elements itscll, that landmark in thc history ol cconomic
thought.
!t is casy to say that thc points illuminatcd by G arc obvious and
that its prctcntious cquations arc unncccssary. Conccivably so. 8ut arc
Chapter z: Should ustrians Scorn General Equilibrium Teory? .
its critics quitc surc that thcir acquaintancc with G docs not hclp makc
thosc points sccmobvious: Vould thcy havc graspcd thcir lull signicancc
cvcn without contcmplating thc cquation systcms:
nly rathcr simplc mathcmatics is rcquircd lor rcaping thc bcncts
claimcd lor G. (Undcrstanding work likc Gcrard cbrcus is anothcr
mattcr.) Tis brings up a rclatcd point. Quitc a lcw Austrians maintain
that mathcmatics is out ol placc in cconomics. 8ut how can thcy bc con
dcnt: Tcir not sccing how to do anything usclul with it is no rcason
to supposc that no onc clsc can usc it any bcttcr. Pcoplc with dicrcnt
pcrsonal abilitics, backgrounds, and tastcs lcgitimatcly pursuc dicrcnt
rcscarch topics and cmploy dicrcnt mcthods and stylcs ol cxposition. An
approach lacking appcal to oncscll may convcy valuablc insights to othcr
pcrsons. !t is paradoxical lor Austrians, cspccially thosc who likc to cxpa
tiatc on subjcctivity and incability and thc unprcdictability ol thc luturc,
to prcdict thc usclulncss ol particular mcthods and to try practically to
lcgislatc on such mattcrs.
Alain nthovcn, thcn applying cconomics in thc clcnsc cpart
mcnt, tcsticd to how ovcrlcarning or ovcrstudy, as onc might call it, can
hclp clinch oncs grasp ol cconomic rcality. Tc analytical tools that hc
and his collcagucs uscd
arc thc simplcst, most lundamcntal conccpts ol cconomic thcory, com
bincd with thc simplcst quantitativc mcthods. Tc rcquircmcnts lor suc
ccss in this linc ol work arc a thorough undcrstanding ol and, il you
likc, bclicl in thc rclcvancc ol such conccpts as marginal products and
marginal costs, and an ability to discovcr thc marginal products and
costs in complcx situations, combincd with a good quantitativc scnsc.
Tc advanccd mathcmatical tcchniqucs ol cconomctrics and opcrations
rcscarch havc not provcd to bc particularly usclul in dcaling with thc
problcms ! havc dcscribcd. Although a good grasp ol this kind ol mathc
matics is vcry valuablc as intcllcctual lormation, wc arc not applying lin
car programming, lormal gamc thcory, qucuing thcory, multiplc rcgrcs
sion thcory, nonlincar programming undcr unccrtainty, or anything likc
it. Tc cconomic thcory wc arc using is thc thcory most ol us lcarncd as
sophomorcs. Tc rcason Ph..s arc rcquircd is that many cconomists do
not bclicvc what thcy havc lcarncd until thcy havc gonc through gradu
atc school and acquircd a vcstcd intcrcst in marginal analysis. (nthovcn
.6, p. aa)
Partialcquilibrium, proccssoricntcd, and Gapproachcs arc not ncc
cssarily rivals. Admittcdly, only partialcquilibriumthcory is opcrational
.6 Part : Economics
in thc Chicago scnsc ol yiclding lairly spccic prcdictions, as ol thc consc
qucnccs ol a changc in an cxcisc tax. And cvcn this admission gocs too lar,
G is not totally without opcrational application. Still, its main scrvicc
is as a conccptual lramcwork accommodating thc morc rcadily applicablc
strands ol partial analysis.
Truc, thc Valrasian systcm is lormal. !t is absurd to cnvisagc solving a
Valrasian systcm lor numcrical paramctcrs ol rcality (pace Vassily Lcon
ticl s aspirations lor his inputoutput systcm). Valras systcm was oncc
corrcctly dcscribcd as rcscmbling a palacc ol no rclcvancc to thc housing
problcm (uckcn .c, p. a,).
coxciubixc vxnov:~:iox
G is a major strand ol, approach to, and intcgrating lactor ol thc wholc
body ol cconomic thcory. A singlc corrcct body ol thcory is what all crc
ativc cconomists prcsumably strivc lor, cvcn though probably no onc cvcr
will achicvc it complctc and crrorlrcc. Rcality is consistcnt with itscll,
and so must thc corrcct thcory ol it bc. To say so is not to dcny thc valuc
ol dicrcnt schools with thcir own lavoritc topics, approachcs, rcscarch
mcthods, and stylcs ol cxposition. A rcscarchcr can gain cncouragcmcnt
and stimulus lrom knowing that hc has collcagucs out thcrc who arc rcady
to rcad him sympathctically. Tcy accord him a prcsumptiondclcasiblc
ol courscthat hc is right. Tus, thcrc is lcgitimatc scopc lor thc Austrian
School, as lor othcrs.
8ut thc Austrians should think ol thcmsclvcs as making thcir own
distinctivc contributions, critical as wcll as positivc, to an cmcrging singlc
corrcct body ol thcory. Tcir objcctivc should not bc to dicrcntiatc thcm
sclvcs lrom thc mainstrcam in a hostilc manncr but rathcr to contributc to
thc mainstrcam and hclp stccr it in thc right dircction. Corrcct cconomic
thcory docs not comc in distinct and incompatiblc brands, onc lor Aus
trians, onc lor Marxians, onc lor conscrvativcs in thc stylc ol Villiam F.
8ucklcy and Russcll Kirk, onc lor libcrtarians, onc lor lcltlibcrals, and
so lorth. To supposc that it docs is what Ludwig von Miscs (./.66,
chap. iii) cloqucntly condcmncd as polylogism.
vvvvvvxcvs
Allais, Mauricc. Rcmarks at McGill Univcrsity, Montrcal. Rcportcd in IMFSur-
.ey ( Junc .): ..
Chapter z: Should ustrians Scorn General Equilibrium Teory? .,
Archibald, G.C., and R.G. Lipscy. Monctary and \aluc Tcory: A Critiquc ol
Langc and Patinkin. Fe.ie. of Economic Studies a6 (.): .,.
Arrow, Kcnncth J., and Frank H. Hahn. General Competiti.e nalysis. San Fran
cisco: Holdcnay, .,..
8octtkc, Pctcr J., and avid L. Prychitko. !ntroduction: \arictics ol Markct
Proccss Tcory. !n Market Process Teories, cditcd by 8octtkc and Prychitko,
vol. .: ixxxvii. Chcltcnham, U.K., and Northampton, Mass.: lgar, ..
8rown, .H. Phclps. Te Frame.ork of the Pricing System. .6. Lawrcncc: Uni
vcrsity ol Kansas, Studcnt Union 8ook Storc, ..
8uchanan, Jamcs M. Ceteris Paribus: Somc Notcs on Mcthodology. Southern
Economic Journal a (.): aa,c.
. Political conomy: .,.a. Lccturc ol ac April .. !n Ideas, Teir
Origins, and Teir Consequences, cditcd by Tomas Jccrson Ccntcr Founda
tion, ...c. Vashington, .C.: Amcrican ntcrprisc !nstitutc, ..
Casscl, Gustav. Te Teory of Social Economy. .a. Translatcd by S.L. 8arron.
Ncw York: Kcllcy, .6,.
Clowcr, Robcrt. Rccctions on thc Kcyncsian Pcrplcx. .,. !n Money and Mar-
kets, cditcd by onald A.Valkcr, chap. .. Ncw York: Cambridgc Univcrsity
Prcss, .6.
. Axiomatics in conomics. Southern Economic Journal 6a (.):
c,..
cbrcu, Gcrard. Teory of !alue. Ncw York: Vilcy, ..
nthovcn, Alain C. conomic Analysis in thc cpartmcnt ol clcnsc. mer-
ican Economic Fe.ie. (May .6): .a.
uckcn, Valtcr. Te Foundations of Economics. Translatcd by T.V. Hutchison.
London: Hodgc, .c.
. Grundsat.e der !irtschaftspolitik. Tubingcn: Mohr, .a.
. Kapitaltheoretische Untersuchungen. a cd. Tubingcn: Mohr, ..
Fishcr, !rving. Te Teory of Interest. .c. Ncw York: Kcllcy, .,c.
High, Jack. Tc Austrian Tcory ol Pricc. !n Te Elgar Companion to us-
trian Economics, cditcd by Pctcr J. 8octtkc, .... Aldcrshot, U.K., and
8rookcld, \t.: lgar, ..
. Part : Economics
Hucrta dc Soto, Jcss. Socialismo, Clculo Econmico y Funcin Empresarial.
Madrid: Unin ditorial, .a.
Klamcr, Arjo. Con.ersations .ith Economists. Totowa, N.J.: Rowman & Allan
hcld, ..
Kucnnc, Robcrt . Te Teory of General Economic Equilibrium. Princcton, N.J.:
Princcton Univcrsity Prcss, .6.
. Microeconomic Teory of the Market Mechanism: General Equilibrium
pproach. Ncw York: Macmillan, .6.
Lucas, Robcrt ., Jr., and Tomas J. Sargcnt. Altcr Kcyncsian Macrocco
nomics. !n fter the Phillips Cur.e: Persistence of High Ination and High
Unemployment, ,a. 8oston: Fcdcral Rcscrvc 8ank ol 8oston, .,.
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cld, \t.: lgar, ..
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Miscs, Ludwig von. Humanction. .. rcv. cd. San Francisco: Fox &Vilkcs,
.66.
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.6.
Saran, 8crnard. Rccommcndations lor Furthcr Rcading. Journal of Economic
Perspecti.es (Fall .): aa,a.
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no. a (.): ....a.
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Methodology a (.): .. Rcprintcd hcrc as chaptcr ..
cn~v:vv :
Vhy Subjcctivism:

ixsicn:s ~xb vx~ccvv~:ioxs

conomists ol thc Austrian School cmphasizc subjcctivism. Tis articlc
rcvicws why subjcctivist insights arc important, but it also warns against
cxaggcrations. Tc lattcr part, whilc briclcr, particularly warrants attcn
tion in Austrian circlcs.
\arious writcrs dcnc subjcctivism in ways that, though not ncccssar
ily inconsistcnt, do sccm quitc dicrcnt. mpirical conccpts (as opposcd
to mathcmatical conccpts, likc trianglc) ncccssarily havc an opcn tcx
turc (Vaismann .6). An opcntcxturcd conccpt just cannot bc dcncd
so prcciscly and comprchcnsivcly as to rulc out thc possibility ol an unlorc
sccn situation or casc or cxamplc that would rcquirc modilying thc carlicr
dcnition. ! lccl no duty, thcn, to start with a dcnition. !nstcad, thc
mcaning ol subjcctivism will cmcrgc lrom thc topics covcrcd and lrom
contrasts with nonsubjcctivist attitudcs.
:~:vvi~iis: vvvsus sun,vc:ivis: ix voiicv
Subjcctivist insights contributc to positivc cconomicsto undcrstanding
how thc world works (or would work with circumstanccs changcd in spcc
icd ways). Tcy do not bcar primarily on policy. As an cxpository dcvicc,
howcvcr, it is convcnicnt to bcgin by considcring subjcctivismapplicdor
ignorcdin policymaking.
Pcrhaps thc broadcst subjcctivist insight is that cconomics dcals with
human choiccs and actions, not with mcchanistically dcpcndablc rclations.
Tc cconomy is no machinc whosc structurc can bc asccrtaincd and
manipulatcd with warrantcd condcncc. conomics knows nothing com
parablc to Avogadros numbcr, atomic wcights and numbcrs, thc spccd
ol light in a vacuum, and similar constants ol naturc (Miscs ./.6,

From Fe.ie. of ustrian Economics ., no. . (.,): ..

.
ac Part : Economics
p. ). r il such constants do cxist, an cconomist could carn a grcat rcp
utation by dcmonstrating a lcw ol thcm. No amount ol clcvcrncss with
cconomctrics can makc thc noncxistcnt cxist altcr all.
nc rcason why no cnduring structural paramctcrs charactcrizc thc
cconomic systcm is that how pcoplc bchavc in markcts, as in othcr aspccts
ol lilc, dcpcnds on thcir cxpcricnccs and cxpcctations and on what doc
trincs thcy havc comc to bclicvc. (Hcrc is onc arca ol ovcrlap bctwccn
Austrian cconomics and thc rationalcxpcctations school.) Tcsc circum
stanccs arc inhcrcntly changcablc. nc implication warns against policics
whosc succcss prcsupposcs unrcalistic kinds or dcgrccs ol knowlcdgc. !t
warns against ovcrambition in attcmpting dctailcd ccntral control.
Subjcctivist cconomics points out, lor cxamplc, what is lost whcn pol
icy makcs simplistic distinctions bctwccn ncccssitics and luxurics or whcn,
unlikc voluntary transactions, policy lails to takc account ol subtlc dicr
cnccs bctwccn thc circumstanccs and tastcs ol dicrcnt pcoplc. (! lcavc
pcrsonal rights asidc not bccausc thcy arc unimportant but bccausc thc
prcscnt topic is rathcr dicrcnt.)
xamplcs abound, in Tird Vorld countrics and clscwhcrc, ol at
tcmpts to conscrvc scarcc lorcigncxchangc carnings lor csscntials by
cxchangc controls, multiplc cxchangc ratcs, import quotas, and sclcctivc
import dutics dcsigncd to limit or pcnalizc thc wastc ol lorcign cxchangc
on luxury or noncsscntial imports.
Tc argumcnts ocrcd lor such controls, likc argumcnts lor consumcr
rationing in wartimc, arc not always shccr nonscnsc. 8ut subjcctivist con
sidcrations scvcrcly qualily thcm. !t is impossiblc to makc and implcmcnt
a clcar distinction bctwccn luxurics and csscntials. Supposc that a gov
crnmcnt tightly rations lorcign cxchangc lor plcasurc cruiscs and travcl
abroad but classics oil as an csscntial import. Somc ol thc oil may go
lor hcating at domcstic rcsorts opcrating on a largcr scalc than il thc
cruiscs had not bccn rcstrictcd. Tc rcstrictions may in ccct divcrt lactors
ol production lrom othcr activitics into providing rccrcation othcrwisc
obtainablc at lowcr cost through lorcign travcl. 8ccausc ol poor climatc
at homc, it may wcll bc that thc marginal units ol lorcign cxchangc spcnt
on importcd oil go to satisly wants ol thc samc gcncral sortwhilc satis
lying thcm lcss ccctivclyas wants othcrwisc satiscd by lorcign travcl.
Rcstricting travcl and supposcdly noncsscntial imports is likcly to pro
motc imports ol thcir substitutcs and also divcrt domcstic and importcd
rcsourccs or matcrials into homc production ol substitutcs. Tc divcrsions
may also impcdc cxports that carn lorcign cxchangc.
Chapter :: !hy Subjecti.ism? a.
!t is particularly dubious to try to distinguish bctwccn csscntial and
lrivolous imports according to whcthcr thcy scrvc production (or cco
nomic growth) or mcrc consumption. All production supposcdly aims
at satislying human wants, immcdiatcly or ultimatcly. Producing machin
cry or building lactorics is no morc inhcrcntly worthy than producing
rcstaurant mcals or nightclub cntcrtainmcnt, lor thc machincry or lacto
rics arc pointlcss unlcss thcy can sooncr or latcr yicld goods or scrviccs
that do satisly human wants. To lavor productionoricntcd (or cxport
oricntcd) imports ovcr consumptionoricntcd imports is to prclcr a round
about achicvcmcnt ol ultimatc consumcr satislactions to thcir morc dircct
achicvcmcnt mcrcly bccausc ol thc grcatcr roundaboutncss. !t is to con
lusc cnds and mcans.
Pcoplc obtain thcir satislactions in highly divcrsc ways (cvcn altruis
tic ways). Somc policymakcrs cvidcntly do not undcrstand how thc pricc
systcm brings into play thc dispcrscd knowlcdgc that pcoplc havc about
thcir own tastcs and circumstanccs. Ajournalist illustratcd such misundcr
standing whcn badgcring Alan Grccnspan, thcn Chairman ol thc Coun
cil ol conomic Adviscrs, with qucstions about whcthcr busincss rms
would continuc producing csscntial goods whcn lrivolous goods happcncd
to bc morc protablc. As Grccnspan propcrly rcplicd (in Mitchcll .,,
pp. ,,6), pcoplc dicr widcly in thcir tastcs. Somc choosc to buy cxtraor
dinary things and dclibcratcly dcprivc thcmsclvcs ol othcr things gcncrally
countcd as ncccssitics.
nc might conccivablythough not conclusivclyurgc controls as
corrcctivcs lor spccic markct distortions. 8arring such idcnticd dis
tortions, subjcctivist cconomists would lct ultimatc consumcrs appraisc
csscntiality. Swccping philosophical comparisons arc unncccssary. Pco
plc can act on thcir own comparisons ol thc satislactions thcy cxpcct lrom
an additional dollars worth ol this and that. Consumcrs and busincssmcn
can judgc and act on thc intcnsitics ol thc wants that various goods can sat
isly, cithcr dircctly or by contributing to lurthcr proccsscs ol production.
Standard thcorctical rcscrvations about this suggcstionargumcnts
lor govcrnmcnt discriminations in lavor ol somc and against othcr par
ticular goods and scrviccsinvokc thc conccpts ol cxtcrnalitics, ol mcrit
wants and mcrit goods, and ol incomc rcdistribution. Yct how can policy
makcrs bc condcnt that supposcd cxtcrnalitics arc gcnuinc and impor
tant, that supposcd mcrit wants rcally dcscrvc cultivation, or that dis
criminating among goods will accomplish thc dcsircd rcdistribution ol
rcal incomc: Any onc ol many goods, considcrcd by itscll, might sccm
aa Part : Economics
dcscrving ol spccial lavor, yct how relati.ely dcscrving dicrcnt goods
arc may rcmain highly unccrtain, particularly whcn no onc knows just
how scvcrcly thc divcrsion ol rcsourccs into particular lincs ol production
will impair production in othcr lincs that might cvcn bc morc mcrito
rious by thc policymakcrs critcria. (Tunncl vision is a lailing ol policy
makcrs not thoroughly lamiliar with thc idca ol gcncral cconomic intcr
dcpcndcncc.)
Morc lundamcntally, particular goods do not posscss qualitics dcscrv
ing spccial considcration globally, or by thcir vcry naturc. n thc con
trary, usclulncss or dcsirability is a rclation bctwccn things and human
wants. Tc usclulncss ol somcthingspccically, its marginal utilityis
thc smallcr thc morc abundant thc thing is. !dcally, dccisions about adjust
ing quantitics ol various things should considcr thcir usclulncss at the
margin. !t is casy to imaginc circumstanccs in which an additional dol
lars worth or an additional ouncc ol pcnicillin or polio vaccinc would
contributc lcss to human satislaction than an additional unit ol orchids.
Tc conccpt ol prioritics docs not propcrly apply in thc contcxts con
sidcrcd hcrc. For thc rcasons mcntioncd, and also in vicwol howthc politi
cal proccss works and ol amplc cxpcricncc with controls, it is unrcalistic to
cxpcct thc govcrnmcnt to choosc social prioritics rcasonably. Considcr,
lor cxamplc, thc botch ol cncrgy policy, including thc long rccord ol subsi
dizing cncrgy consumption in travcl and transport (through thc undcrpric
ing ol road and airport lacilitics) and also including tax cxcmptions and
subsidizcd loans grantcd to rural clcctric coopcrativcs, cvcn whilc govcrn
mcnt ocials plcad lor cncrgy conscrvation.
Policics adoptcd or advocatcd during thc cncrgy criscs ol ., and .,
bctray ignorancc ol subjcctivist insights. xamplcs arc rationing ol gaso
linc not so much by pricc as by thc inconvcnicncc and apprchcnsion ol
having to hunt around lor it and wait in long lincs to buy it, or bcing
allowcd to buy gasolinc only on odd or cvcnnumbcrcd days according
to oncs liccnscplatc numbcr. A lormcr chairman ol !nland Stccl Com
pany ( Joscph L. 8lock in Committcc lor conomic cvclopmcnt .,,
pp. ,c) suggcstcd rcquiring cach car owncr to choosc onc day ol thc
wcck whcn hc would bc lorbiddcn to drivc. Tat prohibition, cnlorccd
with appropriatc stickcrs, would supposcdly havc climinatcd somc nccd
lcss driving and cncouragcd usc ol public transportation. Anothcr cxamplc
was a dccision by thc Calilornia Public Utilitics Commission banning nat
uralgas hcating ol ncw swimming pools (Charlottcsvillc Daily Progress,
a Fcbruary .,6, p. v..).
Chapter :: !hy Subjecti.ism? a
Such mcasurcs and proposals undcrratc thc valuc ol lrccdom and cx
ibility. Arbitrary mcasurcs burdcn somc pcoplc lightly and othcrs hcav
ily bccausc dicrcnt pcoplcs livcs aord dicrcnt scopcs ol substituting
away lrom thc rcstrictcd consumption and makc advancc schcduling ol
activitics dicult and unrcstrictcd cxibility important in widcly dicr
ing dcgrccs. !n unrcstrictcd voluntary transactions, by contrast, pcoplc
can allow lor such dicrcnccs.
Anarrowly tcchnological outlook is oltcn linkcd with puritanical mor
alizing. (! rcmcmbcr my matcrnal grandmothcr, who uscd to bcwail thc
wastc ol using a tcabag only oncc il it could bc madc to scrvc twicc and
ol using and washing a largc platc il thc lood could bc crammcd onto a
small platc.) Rccovcry tcchniqucs lclt too much oil and gas in thc ground,
natural gas on thc contincntal shcll was arcd, and thc prcvailing practicc
in coal mining lclt hall ol a scam in thc ground mcrcly bccausc it was
nccdcd thcrc as a supporting column or bccausc gctting it all out was too
cxpcnsivcso wcnt onc complaint (Frccman .,, pp. acaa). ncrgy
has bccn wastcd by too littlc insulation ol buildings.
Yct socallcd wastc was probably scnsiblc at thc lowcr cncrgy priccs ol
thc past. Tcrc can bc such a thing as too much conscrvation, lor cxam
plc, producing aluminumlor stormwindows installcd undcr tax inccntivcs
cvcn consumcs cncrgy in othcr dircctions. Amplc hcat and air condition
ing brought comlort, and last driving savcd valuablc timc. Not having to
conccntratc on lcrrcting out ways to conscrvc cncrgy savcd mcntal capac
ity lor othcr purposcs. Now, at todays highcr priccs, a dollar spcnt on
cncrgy no longcr buys as much comlort or savcs as much timc or thought
as bclorc, and pcoplc rcspond accordingly. Conccivably, ol coursc, thc
cncrgy priccs ol thc past, distortcd downward by intcrvcntions, may havc
lcd pcoplc to consumc morc cncrgy than thcy would havc donc at lrcc
markct priccs, but il so, thc spccic distortions should havc bccn idcnticd
and addrcsscd. Moralizing about ways ol consuming lcss was o thc track.
Such moralizing almost rcgards wastc as somcthing pcrpctratcd only
with matcrial rcsourccs, not with pcoplcs timc or comlort or pcacc ol
mind. !ronically, this strand ol matcrialism somctimcs occurs among pco
plc who announcc Galbraithian scorn lor thc allcgcd matcrialism ol thc
aucnt socicty. Anothcr apparcnt strand somctimcs lound in thc attitudc
ol such pcoplc is scllcongratulation on hcroic hardhcadcdncss in rccog
nizing ncccssary austcritics. (Spcaking at a conlcrcncc in 8cvcrly Hills on
a6 April .,, Scnator Gaylord Nclson wclcomcd thc challcngc ol hclping
to crcatc thc ncw and simplcr lilcstylcs ol thc luturc.)
a Part : Economics
Matcrialistic cncrgyconscrvation proposals illustratc a kind ol think
ing rclatcd to what F.A. Hayck (.a) has callcd scientism. !t is somcthing
quitc dicrcnt lrom scicncc or thc scicntic outlook. nc aspcct ol sci
cntism is thc lccling that rcsults somchow do not count unlcss thcy havc
bccn dclibcratcly arrangcd lor. A pcrson with thc scicntistic attitudc docs
not undcrstand how millions ol pcrsons and companics, trading lrccly
among thcmsclvcs, can cxprcss and arrangc lor satislying thc wants thcy
thcmsclvcs considcr most intcnsc. Hc docs not apprcciatc sclladjusting
proccsscs, likc somconcs dccision to lorgo a gashcatcd swimming pool,
or any pool at all, in vicw ol thc priccs to bc paid. Hc assumcs that a
grandmothcrly statc must takc chargc, and hc pcrlorms lcats ol routinc
originality in thinking ol ncw ways lor it to do soas by rcquiring that
cars gct c milcs to thc gallon, by imposing standards lor building insula
tion, or by banning pilot lights in gas applianccs. Tax gimmicks and idcas
arc a dimc a dozcninccntivcs lor storm windows and solar hcating and
thc plowback ol prots into oilcld dcvclopmcnt and what not. Tc cur
rcnt, or rcccnt, voguc lor partial national cconomic planning undcr thc
namc ol industrial policy providcs lurthcr cxamplcs.
Subjcctivist insights illuminatc thc issuc ol thc military dralt. (For
carly discussions by Univcrsity ol \irginia Ph.. graduatcs and gradu
atc studcnts, scc Millcr .6.) Many pcrsons havc advocatcd thc dralt
on thc grounds that an allvoluntccr lorcc is too costly. Tcy undcrstand
cost in an cxccssivcly matcrialistic and accountingoricntcd way. !n truth,
costs arc subjcctivcunplcasantncsscs incurrcd and satislactions lorgonc.
!n kccping down monctary outlays, thc dralt conccals part ol thc costs and
shilts it lrom thc taxpaycrs bcing dclcndcd to thc draltccs compcllcd to
scrvc at wagcs inadcquatc to obtain thcir voluntary scrvicc. Furthcrmorc,
thc dralt incrcascs total costs through inccicncy. !t imposcs unncccssar
ily largc costs on draltccs who nd military lilc particularly unplcasant or
whosc lorccloscd civilian pursuits arc particularly rcwarding to thcmsclvcs
and othcrs. At thc samc timc it wastcs opportunitics to obtain rclativcly
lowcost scrvicc lrommcn who happcn to cscapc thc dralt but would havc
bccn willing to scrvc at wagcs bclow thosc ncccssary to obtain voluntary
scrvicc lrom mcn in lact draltcd. Tc oppositc mcthodrccruiting thc
dcsircd numbcr ol scrvicc mcn and womcn by ocring wagcs adcquatc
to attract thcm as voluntccrsbrings to bcar thc knowlcdgc that pco
plc thcmsclvcs havc ol thcir own abilitics, inclinations, and altcrnativc
opportunitics. So doing, thc markctoricntcd mcthod holds down thc
truc, subjcctivcly asscsscd, costs ol stang thc armcd lorccs. (l coursc,
Chapter :: !hy Subjecti.ism? a
considcrations in addition to thcsc also gurc in argumcnts ovcr thc mili
tary dralt.)
Subjcctivist insights hclp onc undcrstand why compcnsation at actual
markct valuc lor propcrty scizcd undcr cmincnt domain probably will not
lcavc thc lormcr owncr as wcll o as hc had bccn. His having continucd to
hold thc propcrty instcad ol having alrcady sold it suggcsts that hc valucd
it morc highly than thc salcs procccds or othcr propcrty purchasablc with
thosc procccds.
Ncglcct ol subjcctivism is ccntral to thc lallacy ol comparablc worth.
According to that doctrinc, lashionablc among lcminists and intcrvcntion
ists, thc worth ol work pcrlormcd in dicrcnt jobs can bc objcctivcly asccr
taincd and comparcd. Pcoplc pcrlorming dicrcnt jobs that arc ncvcrthc
lcss judgcd alikc, on balancc, in thcir arduousncss or plcasantncss, thcir
rcquircmcnts in ability and training, thc dcgrccs ol rcsponsibility involvcd,
and othcr supposcdly asccrtainablc charactcristics should rcccivc thc samc
pay, and govcrnmcnt, prcsumably, should cnlorcc cqual pay. Formulas
should rcplacc wagcsctting by voluntary agrccmcnts rcachcd undcr thc
inucnccs ol supply and dcmand.
Tis idca ducks thc qucstions ol how to ration jobs sought cspccially
cagcrly at thcir lormuladctcrmincd wagcs and how to prod pcoplc into
jobs that would othcrwisc go unllcd at such wagcs. !t ducks thc qucs
tions ol what kind ol cconomic systcm and what kind ol socicty would
takc thc placc ol thc lrccmarkct systcm, with its proccsscs ol coordinat
ing dcccntralizcd voluntary activitics. (Tough writing bclorc compara
blc worth bccamc a promincnt issuc, Hayck .6c, chap. 6, aptly warncd
against displacing markct proccsscs by nonmarkct asscssmcnts ol cntitlc
mcnts to incomcs.) Tc comparablcworth doctrinc ncglccts thc incablc
individual circumstanccs and subjcctivc lcclings that cntcr into workcrs
dccisions to scck or avoid particular jobs, cmploycrs corts to ll thcm,
and consumcrs dcmands lor thc goods and scrviccs produccd in thcm. Yct
wagcs and priccs sct through markct proccsscs do takc account ol indi
vidual circumstanccs and pcrsonal lcclings (a point !ll say morc about
latcr on).
Subjcctivist cconomists rccognizc thc importancc ol intangiblc asscts,
including knowlcdgc, a kind ol human capital. Tcy rccognizc thc scopc
lor ingcnuity in gctting around govcrnmcnt controls ol various kinds,
whcrcas thc laymans tacit casc lor controls involvcs a mcchanistic con
ccption ol thc rcality to bc manipulatcd, without duc apprcciation ol
human cxibility. Controls, and rcsponscs to thcm, dcstroy human capital
a6 Part : Economics
by articially hastcning thc obsolcsccncc ol knowlcdgc, thcy imposc thc
costs ol kccping abrcast ol thc articially changing sccnc and divcrt matc
rial and intcllcctual rcsourccs, including invcntivcncss, lrom productivc
cmploymcnts. Crcditallocation mcasurcs and othcr controls on nan
cial institutions, lor cxamplccvcn rcscrvc rcquircmcnts and intcrcstratc
ccilingshavc brcd innovations to circumvcnt thcm. Managcrs havc to bc
traincd and othcr startup costs bornc lor ncw institutions and practiccs,
and customcrs must spcnd timc and troublc lcarning about thcm. Pricc
and wagc controls and cncrgyconscrvation rulcs providc lurthcr illustra
tions ol such wastcs.
Arbitrarincss and unlairncss gurc among thc costs ol controls in
tcndcd to buck markct lorccs. As controls bccomc morc comprchcnsivc
and complcx, thcir administrators arc lcss ablc to basc thcir dccisions on
rclativcly objcctivc critcria. 8urcaucratic rulcs bccomc morc ncccssary and
dccisions bascd on incomplctc inlormation lcss avoidablc. Multiplication
ol catcgorics cntitlcd to spccial trcatmcnt invitcs thc plcading ol spccial
intcrcsts. vcn morality, anothcr intangiblc assct, is crodcd.
Tc complcxity ol dctailcd monitoring and cnlorccmcnt suggcsts ap
pcaling lor voluntary compliancc, compliancc with thc spirit and not just
thc lcttcr ol thc rcgulations. (Controls ovcr lorcign tradc and paymcnts lor
balanccolpaymcnts purposcs, such as Prcsidcnt Johnson attcmptcd in
thc mid.6cs, providc still lurthcr cxamplcs, scc Ycagcr .6.) Vhcthcr
compliancc is avowcdly voluntary, or whcthcr casc ol cvasion makcs com
pliancc voluntary in ccct, such an approach tcnds to pcnalizc public
spiritcd citizcns who do comply and givcs thc advantagc to othcrs. xhort
ing pcoplc to act against thcir own cconomic intcrcst tcnds to undcrcut
thc signaling and motivating lunctions ol priccs. How arc pcoplc to know,
thcn, whcn it is propcr and whcn impropcr to pursuc cconomic gain:
To cxhort pcoplc to think ol compliancc as in thcir own intcrcst whcn
it plainly is not, or to call lor scllsacricc as il it wcrc thc csscncc ol
morality, is to undcrcut thc rational basis ol morality and cvcn undcrcut
rationality itscll.
A kind ol pcrvcrsc sclcction rcsults. Publicspiritcd car owncrs who
hccd appcals lor rcstraint in driving thcrcby lcavc morc gasolinc availablc,
and at a lowcr pricc than othcrwisc, to lcss publicspiritcd drivcrs. Scll
crs who do comply with pricc ccilings or guidclincs must conscqucntly
turn away somc customcrs unsatiscd, to thc prot ol blackmarkctccrs
and othcr lcss scrupulous scllcrs. vcntually such cccts bccomc cvidcnt,
strcngthcning thc idca that morality is lor suckcrs and dupcs.
Chapter :: !hy Subjecti.ism? a,
Subjcctivists know bcttcr than to crcct ccicncy, somchow conccivcd,
into thc ovcrriding critcrion cithcr ol particular proccsscs or institutions
or ol cntirc cconomic systcms. Tc principlc ol comparativc advantagc
discrcdits thc idca that cach product should ncccssarily bc produccd whcr
cvcr it can bc produccd most ccicntly in thc tcchnological scnsc. No prc
sumption holds, lurthcrmorc, that any particular linc ol production ncccs
sarily should bc carricd on in thc tcchnologically most advanccd way, lor
thc rcsourccs rcquircd in such production arc dcmandcd by othcr indus
trics also, whcrc thcy may wcll contributc morc at thc margin to consumcr
satislactions, as judgcd by what consumcrs arc willing to pay.
cicncy in thc scnsc ol Parcto optimality is oltcn takcn as a cri
tcrion ol policy. Parcto ccicncy is indccd a usclul conccpt in tcaching
and studying microcconomic thcory. !t is usclul in contcmplating out
comcs ol thc markct proccss in thc lorm ol particularbut abstractly
conccivcdallocations ol rcsourccs and goods. conomists scldom il
cvcr lacc an occasion or opportunity to appraisc concrctc, spccic alloca
tions, in thc rcal world. As Rutlcdgc \ining propcrly cmphasizcs, lcgisla
tors and thcir cxpcrt advisors ncccssarily arc choosing among altcrnativc
scts ol lcgal and institutional constraints rathcr than among altcrnativc
spccic rcsults or allocations. (Scc \ining . and Ycagcr .,.) Such
constraints arc rulcs ol thc gamc within which pcoplc strivc to makc thc
most ol thcir opportunitics amidst ccasclcss changc in wants, rcsourccs,
and tcchnology. Tc vcry point ol having rulcs and institutions prcsup
poscs thcir having a ccrtain stability and dcpcndability, which would bc
undcrmincd by continual corts to makc supposcdly optimal changcs
in thcm.
Vhat is usclul in policy discussions, thcn, is not thc supposcd bcnch
mark ol Parcto ccicncy but, rathcr, comparison ol thc cconomic and
social systcms that altcrnativc scts ol rulcs lcad to. !l wc must havc a stan
dard against which to appraisc rcality, wc might wcll adopt thc vicw ol a
compctitivc markct cconomy as a collcction ol institutions and practiccs
lor gathcring and transmitting inlormation and inccntivcs conccrning not
yctcxhaustcd opportunitics lor gains lrom tradc (including tradc with
naturc through production or rcarrangcmcnts ol production).
xxowivbcv ~xb coovbix~:iox
Subjcctivists rccognizc thc many kinds ol inlormation that markct priccs
andproccsscs bringtobcar ondccisions about productionandconsumption.
a Part : Economics
Tcsc kinds includc what F.A. Hayck (.) callcd knowlcdgc ol thc par
ticular circumstanccs ol timc and placc, knowlcdgc that could hardly bc
codicd in tcxtbooks or asscmblcd lor thc usc ol ccntral planncrs, knowl
cdgc that can bc uscd, il at all, only by numcrous individual mcn on thc
spot. !t includcs knowlcdgc about all sorts ol dctails ol running busincss
rms, including knowlcdgc ol ccting local conditions. !t includcs what
pcoplc know about thcir own tastcs and particular circumstanccs as con
sumcrs, workcrs, savcrs, and invcstors. Subjcctivist cconomists rccognizc
how such lactors not only undcrlic thc priccs that consumcrs arc prcparcd
to pay lor goods but also undcrlic costs ol production.
ach consumcr dccidcs how much ol cach particular good to buy
in vicw ol thc pricc ol thc good itscll, thc priccs ol othcr goods, his
incomc and wcalth, and his own nccds and prclcrcnccs. Subjcct to quali
cations about howpossiblc and howworthwhilc prccisc calculation sccms,
hc lcavcs no opportunity uncxploitcd to incrcasc his total satislaction by
divcrting a dollar lrom onc purchasc to anothcr. Undcr compctition, thc
pricc ol cach good tcnds to cxprcss thc total ol thc priccs ol thc addi
tional inputs ncccssary to supply an additional unit ol that good. Tcsc
rcsourcc priccs tcnd, in turn, to mcasurc thc valucs ol othcr marginal out
puts sacriccd by divcrsion ol rcsourccs away lromthcir production. Priccs
thcrclorc tcll thc consumcr how much worth ol othcr production must bc
lorgonc to supply him with cach particular good. Tc moncy valucs ol lor
gonc altcrnativc production tcnd, in turn, to rccct consumcr satislactions
cxpcctcdly obtainablc lrom that lorgonc production. (! say rcccttakc
account olin ordcr not to claim anything about actual mcasurcmcnt ol
what is inhcrcntly unmcasurablc. ! spcak only ol tcndcncics, lurthcrmorc,
lor markcts ncvcr lully rcach compctitivc gcncral cquilibrium.)
Vith priccs bringing to thcir attcntion thc tcrms ol choicc poscd by
thc objcctivc rcalitics ol production possibilitics and thc subjcctivc rcali
tics ol othcr pcrsons prclcrcnccs, consumcrs choosc thc pattcrns ol pro
duction and rcsourcc usc that thcy prclcr. Tcir bidding tcnds to kccp any
unit ol a rcsourcc lrom going to mcct a lcss intcnsc willingncss to pay lor
its productivc contribution (and thus thc dcnial ol a morc intcnsc willing
ncss). !dcallyin compctitivc cquilibrium, and subjcct to qualications
still to bc mcntioncdno opportunity rcmains uncxploitcd to incrcasc
thc total valuc ol things produccd by translcrring a unit ol any rcsourcc
lrom onc usc to anothcr. Changcs in tcchnology and consumcr prclcr
cnccs always kccp crcating such opportunitics alrcsh, but thc prot motivc
kccps prodding busincssmcn to lcrrct thcm out and cxploit thcm.
Chapter :: !hy Subjecti.ism? a
To dctcrminc how rcsourccs go into producing what things in what
quantitics, consumcrs nccd lrccdom to spcnd thcir incomcs as thcy wish,
unrcgimcntcd by actual rationing. 8ut thcy nccd morc: opportunitics to
makc choiccs at unriggcd priccs tcnding to rccct truc production altcr
nativcs.
Vc could spcak thcn ol consumcrs sovcrcignty, but thc tcrm is a bit
narrow. !nsolar as thcir abilitics pcrmit, pcoplc can bring thcir prclcrcnccs
among occupations as wcll as among consumcr goods to bcar on thc pat
tcrn ol production. !n lact, invcstors prclcrcnccs, including notions about
thc morality and thc glamor ol dicrcnt industrics and companics, also
havc somc inucncc, and wc might spcak ol invcstors sovcrcignty as
wcll. (Scc Rothbard .6a, p. a n. .a, and pp. 6c6a on what Rothbard
calls individual sovcrcignty.)
Supposc that many pcoplc cravcd bcing actors strongly cnough to
acccpt wagcs bclow thosc paid in othcr jobs rcquiring similar lcvcls ol
ability and training. Tis willingncss would hclp kccp down thc cost ol
producing plays, and chcap tickcts would draw audicnccs, maintaining
jobs in thc thcatcr. Supposc, in contrast, that almost cvcryonc hatcd min
ing coal. Tc high wagcs nccdcd to attract mincrs would cntcr into thc
production cost and pricc ol coal, signaling powcr companics to build
hydroclcctric or nuclcar or oilburning rathcr than coalburning plants
and signaling consumcrs to livc in warmcr climatcs or smallcr or bcttcr
insulatcd houscs than thcy would do il lucl wcrc chcapcr. Such rcsponscs
would hold down thc numbcr ol distastclul mining jobs to bc llcd. Tc
lcw workcrs still doing that work would bc oncs whosc distastc lor it was
rclativcly mild and capablc ol bcing assuagcd by high wagcs.
No prolound distinction holds bctwccn workcrs sovcrcignty and con
sumcrs sovcrcignty or bctwccn gctting satislactions or avoiding dissatis
lactions in choosing what work to do and what goods to consumc. Con
sumcr goods arc not ultimatc cnds in thcmsclvcs but just particular mcans
ol obtaining satislactions or avoiding dissatislactions. Pcoplc makc thcir
pcrsonal tastcs and circumstanccs count by how thcy act on thc markcts
lor labor and goods alikc.
ur broadcncd conccpt ol consumcrs and workcrs sovcrcignty by no
mcans upscts thc idca ol opportunity cost. Vc nccd only rccognizc that
pcoplc choosc not simply among commoditics but rathcr among pack-
ages ol satislactions and dissatislactions. Tc choicc bctwccn additional
amounts ol and B is rcally a choicc bctwccn satislactions gaincd and
dissatislactions avoidcd by pcoplc as consumcrs and produccrs ol and
c Part : Economics
satislactions gaincd and dissatislactions avoidcd by pcoplc as consumcrs
and produccrs ol B. Choosing packagc costs lorgoing packagc B. !dc
ally, thc priccs ol products and B indicatc thc tcrms ol cxchangc, so to
spcak, bctwccn thc cntirc combinations ol satislactions gaincd and dissat
islactions avoidcd at thc rclcvant margins in conncction with thc two prod
ucts. Priccs rccct intimatcly pcrsonal circumstanccs and lcclings as wcll
as physical or tcchnological conditions ol production and consumption.
Nonc ol this amounts to claiming that dicrcnt pcrsons lcclings about
goods and jobs (and invcstmcnt opportunitics) can bc accuratcly mcasurcd
and comparcd by pricc or in any othcr dcnitc way. Howcvcr, pcoplcs
lcclings do count in thc ways that thcir choiccs arc cxprcsscd and thcir
activitics coordinatcd through thc pricc systcm, and changcs in thcir lccl
ings do acct thc pattcrn ol production in dircctions that makc intuitivcly
good scnsc.
Clcarly, thcn, cconomic thcory nccd not assumc that pcoplc act cxclu
sivcly or cvcn primarily lrom matcrialistic motivcs. Pccuniary considcra
tions comc into play, but along with othcrs. As thc laws ol supply and
dcmand dcscribc, an incrcasc in thc pccuniary rcwards or chargcsor
othcr rcwards or costsattachcd to somc activity will incrcasc or dccrcasc
its choscn lcvcl, othcr inccntivcs and disinccntivcs rcmaining unchangcd.
Moncy priccs and changcs in thcm can thus inucncc bchavior and
promotc coordination ol thc choscn bchaviors ol dicrcnt pcoplc, cvcn
though pccuniary considcrations do not carry dccisivc wcight and pcrhaps
not cvcn prcpondcrant wcight.
~bv~xcvs ix vcoxo:ic :nvovv
Tc rolc ol subjcctivism in solving thc diamondandwatcr paradox, rc
placing thc labor thcory or othcr rcalcost thcorics ol valuc, and accom
plishing thc marginalist rcvolution ol thc .,cs, is too wcll known to
rcquirc morc than a barc rcmindcr hcrc. Subjcctivism must bc distin
guishcd lrom importing psychology into cconomics (Miscs ./.6,
pp. .aa.a,, 6). iminishing marginal utility is a principlc ol scnsi
blc managcmcnt rathcr than ol psychology: a pcrson will apply a limitcd
amount ol somc good (grain, say, as in Mcngcr .,./.c, pp. .a.c) to
what hc considcrs its most important uscs, and a largcr and largcr amount
will pcrmit its application to succcssivcly lcss important uscs also.
Subjcctivists do not commit thc crror ol John Ruskin, who thought
that Vhcncvcr matcrial gain lollows cxchangc, lor cvcry plus thcrc is a
Chapter :: !hy Subjecti.ism? .
prcciscly cqual minus (quotcd in Shand ., p. .ac). Tcy rccognizc that
wcalth is produccd not only by physically shaping things or growing thcm
but also by cxchanging thcm. !n thc words ol Hcnry Gcorgc (./..,
pp. .a), who indcpcndcntly achicvcd scvcral Austrian insights, ach
ol thc two partics to an cxchangc . . . |gcts| somcthing that is morc valuablc
to him than what hc givcs. . . . Tus thcrc is in thc transaction an actual
incrcasc in thc sum ol wcalth, an actual production ol wcalth.
Subjcctivists rccognizc nonmatcrial clcmcnts in costs as wcll as dc
mands. vcry pricc is dctcrmincd by many circumstanccs classiablc
undcr thc hcadings ol subjcctivc lactors and objcctivc lactors (or
wants and rcsourccs and tcchnology). An altcrnativc classication dis
tinguishcs bctwccn dcmand lactors and supply lactors. Tis altcrnativc is
not cquivalcnt to thc rst classication bccausc thcrc is no rcason to sup
posc that subjcctivc lactors opcratc only on thc dcmand sidc ol a markct
whilc objcctivc lactors dominatc thc supply sidc.
n thc contrary, subjcctivc lactors opcratc on both sidcs. Tc supply
schcdulc ol a good docs not rccct mcrcly thc quantitics ol inputs tcch
nologically rcquircd lor various amounts ol output, togcthcr with givcn
priccs ol thc inputs. Tc input priccs arc thcmsclvcs variablcs dctcrmincd
by bidding among various rms and lincs ol production in thc light ol thc
inputs capabilitics to contributc to producing goods valucd by consumcrs.
Consumcrs subjcctivc lcclings about othcr goods thus cntcr into dctcr
mining thc moncy costs ol supplying quantitics ol any particular product.
Subjcctivc lactors opcratc in both bladcs ol Marshalls scissors. (Mis
lcadingly, Marshall .ac/.,, pp. , .., had rclcrrcd to a utility bladc
and a cost bladc, as il utility and cost wcrc quitc distinct.)
8y thc logic ol a pricc systcm, thcn, moncy cost brings to thc attcntion
ol pcrsons dcciding on production proccsscs and output volumcs in any
particular lincand ultimatcly to thc attcntion ol its consumcrswhat
conditions prcvail in all othcr scctors ol thc cconomy, including pcrsons
attitudcs toward goods and cmploymcnts. Moncy priccs and costs convcy
inlormation about subjcctivc conditions outsidc thc dircct kcn ol particu
lar dccisionmakcrs.
At this point thc subjcctivism ol Austrian cconomists rcinlorccs thcir
awarcncss ol gcncral cconomic intcrdcpcndcncc and thcir conccrn with
coordination among thc plans and actions ol dicrcnt pcoplc. Tcy arc
wary (as many tcxtbook writcrs sccm not to bc) ol locusing so narrowly
on thc choiccs ol thc individual houschold and individual rmas to dctract
attcntion lrom thc big picturc.
a Part : Economics
Rccognizing thc subjcctivc aspccts ol cost, wc gain insights into thc
dubiousncss ol cxpccting priccs to corrcspond to costs in any prccisc way.
Costs rcprcscnt valucs ol lorgonc altcrnativcs: costs arc intimatcly linkcd
with acts ol choicc.
Cost curvcs arc no morc objcctivcly givcn to busincss rms than arc
dcmand curvcs lor thcir products. Alargc part ol thc task ol cntrcprcncurs
and managcrs is to lcarn what thc cost (and dcmand) curvcs arc and to
prcss thc cost curvcs down, so to spcak, through inspircd innovations in
tcchnology, organization, purchasing, and markcting. utsidcrs arc in a
poor position to sccondgucss thcir dccisions.
Subjcctivists apprcciatc thc rolc ol cxpcctations. Vcll bclorc thc
voguc ol rational cxpcctations in macrocconomics, Ludwig von Miscs
(./.., pp. 6c) rccognizcd that an inationary policy could not
go on indcnitcly giving rcal stimulus to an cconomy, pcoplc would
catch on to what was happcning, and thc supposcd stimulus would dis
sipatc itscll in pricc incrcascs. Miscs also argucd (./.6, p. 6) that
disordcrs such as thc cornhog cyclc would bc scllcorrcctivc. Unlcss thc
govcrnmcnt protcctcd larmcrs lrom thc conscqucnccs ol unpcrccptivc or
unintclligcnt bchavior, larmcrs would lcarn about thc cyclc, il it did in lact
occur, and by anticipating it would lorcstall it. (Tosc who did not lcarn
would incur losscs and bc climinatcd lrom thc markct.)
Much cxprcsscd nowadays arc notions such as thc markcts cxpccta
tion ol somc luturc magnitudcthc dollarmark cxchangc ratc in thrcc
months, or whatcvcr. Subjcctivists arc skcptical. Tcy undcrstand that
thc markct docs not lorm cxpcctations or changc light bulbs (How
many rightwing cconomists docs it takc to changc a light bulb:) or do
anything clsc. People do, pcoplc acting and intcracting on markcts. Sincc
cxpcctations arc lormcd by pcoplc, thcy arc undcrstandably loosc, divcrsc,
and changcablc.
All this intcrtwincs with thc inhcrcnt unprcdictability ol luturc human
aairs. !t is not cvcn possiblc to makc an cxhaustivc list ol all possiblc out
comcs ol somc dccision, lct alonc attach probability scorcs to outcomcs
(Shacklc .,a, csp. p. aa). Policymakcrs should takc this point to hcart
and rcstrain thcir optimism about bcing ablc to control cvcnts.
Tis is not to dcny that somc prcdictions can bc madc with warrantcd
condcncc, notably thc ilthisthcnthat prcdictions ol cconomic thcory
and ol scicncc in gcncral. Forctclling thc luturc is quitc anothcr mattcr.
conomists, likc othcr pcoplc, havc only limitcd timc and cncrgy. !t is
rcasonablc lor cach onc to stick to work cxploiting his own comparativc
Chapter :: !hy Subjecti.ism?
advantagcs and hunchcs about lruitlulncss and not lct himscll bc badgcrcd
into lorctclling thc unlorctcllablc.
Jamcs 8uchanan achicvcd onc ol thc grcatcst triumphs ol subjcctivism
in dcmonstrating (./.) that thc burdcn ol govcrnmcnt spcnding
can indccd bc largcly shiltcd onto luturc gcncrations by dccit nanc
ing through issuc ol bonds. Tc convcntional wisdom among cconomists
(sharcd cvcn by Ludwig von Miscs, though not by thc gcncral public)
had bccn unduly matcrialistic: thc burdcn cannot bc shiltcd through timc,
sincc rcsourccs arc uscd whcn thcy arc uscd. 8uchanan rccognizcd that a
burdcn is somcthing subjcctivcly pcrccivcd. Pcrsons who voluntarily givc
up currcnt command ovcr rcsourccs in cxchangc lor govcrnmcnt bonds
that thcy nd attractivc sucr no burdcn in doing so. !t is in thc luturc
that pcoplcin gcncral, pcoplc othcr than thc original bondbuycrswill
bcar thc burdcn ol paying taxcs to scrvicc thc dcbt or ol losing through
its inationary or outright rcpudiation. Furthcrmorc, bondnanccd gov
crnmcnt dccits do acct allocation ol rcsourccs in timc by trcnching
on privatc capital lormation, thcrcby worscning luturc cconomic oppor
tunitics.
.
vuv:nvv voiicv i:viic~:ioxs
Tc ultrasubjcctivist vicw ol cost put lorward by Jamcs 8uchanan (.6)
and writcrs in thc London School tradition (somc ol whosc articlcs arc
rcprintcd in 8uchanan and Tirlby .,/..) has bccn largcly adoptcd by
Austrian cconomists (\aughn .c and .., Scldon ..).
!n cxamining this vicw, wc must avoid lalsc prcsuppositions about how
words rclatc to things. !t is not truc that cach word has a singlc dcnitc
and uncquivocal mcaning and that it labcls a spccic thing or action or
rclation objcctivcly cxisting in thc world. n thc contrary, many words
havc widc rangcs ol mcaning. nc way to lcarn what writcrs mcan by
a word is to scc what implications thcy draw lrom propositions contain
ing it.
Tis is truc ol cost as intcrprctcd by 8uchanan and thc London ccon
omists. Tosc writcrs associatc particular policy positions with thc luzzi
ncss that thcy attributc to cost. Tcy hcap scorn on costoricntcd rulcs lor
managing cntcrpriscs.
.
Unaccountably, ! somchow lorgot to mcntion this achicvcmcnt ol 8uchanans until
it was too latc to changc this articlc whilc it was bcing originally publishcd.
Part : Economics
Advocatcs ol such rulcs typically attributc important wcllarc propcr
tics to thcm. Probably thc most promincnt such rulc is thc onc rcquir
ing thc output ol an cntcrprisc to bc sct at such a lcvcl that pricc cquals
marginal costs. (!n thc samc gcncral costoricntcd lamily, howcvcr, would
bc rulcs likc thc onc that total rcvcnuc should just covcr total cost.) nc
strand ol argumcnt lor socialism, in lact, is that socializcd cntcrpriscs
could bc madc to lollow such rulcs, unlikc unrcgulatcd privatc cntcrpriscs.
vcn undcr capitalism, such rulcs supposcdly might bc usclul in lraming
antimonopoly policy and rcgulating public utilitics. Tcy might also gurc
in othcr govcrnmcnt cconomic intcrvcntions and in simulating markct
rcsults in nonmarkct scttings, as in tort scttlcmcnts.
Tc casc lor socialism and mildcr govcrnmcnt cconomic intcrvcntions
can bc wcakcncd, thcn, by discrcditing thc mcasurability and cvcn thc con
ccptual dcnitcncss ol cost. Tis, ! conjccturc, is a cluc to thc ultrasubjcc
tivist vicwol thc conccpt. Cost, says 8uchanan (.6, pp. a), is that
which thc dccisionmakcr sacriccs or givcs up whcn hc makcs a choicc. !t
consists in his own cvaluation ol thc cnjoymcnt or utility that hc antici
patcs having to lorcgo as a rcsult ol sclcction among altcrnativc courscs ol
action. !l cost can thus bc portraycd as a thoroughly subjcctivc conccpt or
magnitudc, il no onc but thc individual dccisionmakcr (cntrcprcncur or
managcr) can know what cost is or was, and il such knowlcdgc is incablc
and practically incommunicablc, thcn no outsidc authority can rcasonably
imposc costoricntcd rulcs on him. Tc casc lor displacing or ovcrriding
thc markct dissolvcs.
Tis linc ol argumcnt has somc mcrit. As alrcady obscrvcd, cost curvcs
do not objcctivcly cxist. !nstcad, busincss dccisionmakcrs havc thc task ol
discovcring or invcnting thcm and modilying thcm by happy innovations.
Unlortunatcly, as a latcr scction ol this articlc shows, 8uchanan and thc
London cconomists carry thcir subjcctivist linc too lar and so tcnd to dis
crcdit it.
Subjcctivist insights about cxpcctations havc othcr notablc policy im
plications. Tc history ol cncrgy policy, and ol politicians dcmagogy, pro
vidcs rcason lor cxpccting luturc rcpctition ol past inlringcmcnts on prop
crty rights. Firms and invcstors must rccognizc that il thcy makc dccisions
that turn out in somc luturc cncrgy crisis to havc bccn wisclor cxam
plc, stockpiling oil, cultivating nonconvcntional cncrgy sourccs, adopting
conscrvation mcasurcs, or building cxibility into thcir lacilitics and opcr
ations to bc ablc to copc rclativcly wcll with cncrgy squcczcsthcn thcy
will not bc allowcd to rcap cxccptional prots lrom thcir riskbcaring,
Chapter :: !hy Subjecti.ism?
thcir corrcct hunchcs, and thcir good luck. Tcy will bc victimizcd
by scizurc ol oil stocks, by advcrsc trcatmcnt undcr rationing schcmcs,
by pricc controls, or in othcr ways. Govcrnmcnt rcassuranccs, cvcn il
madc, would nowadays not bc crcdiblc. Tc bcncts ol divcrsc privatc
rcsponscs to divcrsc cxpcctations about cncrgy supplics arc thus partly
lorcstallcd.
Tis cxamplc rcminds subjcctivists ol a broadcr point about rcmotc
rcpcrcussions ol particular policics, rcpcrcussions rcmotc in timc or in
cconomic scctor. A violation ol propcrty rights may sccm thc cconom
ical and cxpcdicnt policy in thc individual casc. Yct in contributing to
an atmosphcrc ol unccrtainty, it can havc gravc rcpcrcussions in thc
long run.
8ccausc cxpcctations inucncc bchavior, a policys crcdibility condi
tions its ccctivcncss, as thc rationalcxpcctations thcorists, and Villiam
Fcllncr (.,6) bclorc thcm, havc cmphasizcd. Tc qucstion ol thc with
drawal pangs ol cnding an cntrcnchcd pricc ination providcs an cxamplc.
Vhcn moncysupply growth is slowcd or stoppcd, thc rcduccd growth ol
nominal incomc is split bctwccn pricc dccclcration and slowcd rcal pro
duction and cmploymcnt. xpcctations acct how lavorablc or unlavor
ablc this split is. !l thc antiination program is not crcdiblcil wagc
ncgotiators and priccscttcrs think that thc policymakcrs will losc thcir
ncrvc and switch gcars at thc rst sign ol rcccssionary sidc ccctsthcn
thosc privatc partics will cxpcct thc ination to continuc and will makc
thcir wagc and pricc dccisions accordingly, and thc monctary slowdown
will bitc mainly on rcal activity. !l, on thc contrary, pcoplc arc convinccd
that thc authoritics will pcrsist in monctary rcstriction indcnitcly no mat
tcr how bad thc sidccccts, so that ination is bound to abatc, thcn thc
pcrccptivc priccscttcr or wagcncgotiator will rcalizc that il hc ncvcrthc
lcss pcrsists in making incrcascs at thc samc old pacc, hc will nd himscll
out ahcad ol thc installcd inationary proccssion and will losc customcrs
or jobs. Pcoplc will modcratc thcir pricc and wagc dcmands, making thc
split rclativcly lavorablc to continucd rcal activity.
!t is only supcrcially paradoxical, thcn, that in two altcrnativc situa
tions with thc samc dcgrcc ol monctary rcstraint, thc situation in which
thc authoritics arc bclicvcd rcady to tolcratc scvcrc rcccssionary sidc
cccts will actually cxhibit mildcr oncs than thc situation in which thc
authoritics arc suspcctcd ol irrcsolution. Subjcctivists undcrstand how
intangiblc lactors likc thcsc can acct outcomcs undcr objcctivcly simi
lar conditions.
6 Part : Economics
c~vi:~i ~xb ix:vvvs: :nvovv
Capital and intcrcst thcory is a particular casc or application ol gcncral
valuc thcory, but its subjcctivist aspccts can convcnicntly occupy a scction
ol thcir own.
Subjcctivist insights hclp dispcl somc paradoxcs cultivatcd by nco
Ricardians and ncoMarxists at Cambridgc Univcrsity. Tcsc paradoxcs
sccm to impugn standard cconomic thcory (particularly thc marginal
productivity thcory ol lactor rcmuncration), and by implication thcy call
thc cntirc logic ol a markct cconomy into qucstion.
Rcvicwing thc paradoxcs in dctail is unncccssary hcrc (scc Ycagcr .,6
and Garrison .,). nc muchcmploycd arithmctical cxamplc dcscribcs
two altcrnativc tcchniqucs lor producing a dcnitc amount ol somc prod
uct. Tcy involvc dicrcnt timcpattcrns ol labor inputs. !n cach tcch
niquc, compound intcrcst accrucs, so to spcak, on thc valuc ol invcstcd
labor. Tcchniquc is chcapcr at intcrcst ratcs abovc .cc pcrccnt, B is
chcapcr at ratcs bctwccn c and .cc pcrccnt, and is chcapcr again at
ratcs bclow c pcrccnt.
!l a dcclinc ol thc intcrcst ratc through onc ol thcsc two critical lcvcls
brings a switch lrom thc lcss to thc morc capitalintcnsivc ol thc two tcch
niqucs, which sccms normal cnough, thcn thc switch to thc othcr tcch
niquc as thc intcrcst ratc dcclincs through thc othcr switch point is para
doxical. !l wc vicw thc lattcr switch in thc oppositc dircction, an incrcascd
intcrcst ratc prompts a morc intcnsivc usc ol capital. Capital intcnsity can
rcspond pcrvcrscly to thc intcrcst ratc.
xamplcs ol such pcrvcrsity sccmnot to dcpcnd on trickcry in mcasur
ing thc stock ol capital. Tc physical spccications ol a tcchniquc, includ
ing thc timing ol its inputs and its output, stay thc samc rcgardlcss ol thc
intcrcst ratc and rcgardlcss ol whcthcr thc tcchniquc is actually in usc. !l
onc tcchniquc cmploys physically morc capital than thc othcr in rclation
to labor or to output at onc switch point, thcn it still cmploys morc at any
othcr intcrcst ratc. Tis comparison rcmains valid with any convcntion
lor physically mcasuring thc amount ol capital, providcd only that onc
docs not changc mcasurcmcnt convcntions in midcxamplc. !l thc capital
intcnsitics ol thc two tcchniqucs arc such that thc switch bctwccn thcm
at onc critical intcrcst ratc is nonparadoxical, thcn thc switch at thc othcr
must bc paradoxicala changc in capital intcnsity in thc same dircction as
thc intcrcst ratc. Vc cannot dcny pcrvcrsity at both switch pointsunlcss
wc abandon a purcly physical conccption ol capital.
Chapter :: !hy Subjecti.ism? ,
Tc paradoxmongcrs commit scvcral laults. Tcy slidc lrom compar
ing altcrnativc static statcs into spcaking ol changes in thc intcrcst ratc
and ol responses to thosc changcs. Tcy avoid spccilying what supposcdly
dctcrmincs thc intcrcst ratc and what makcs it changc.
Tc kcy to dispclling thc paradoxcs, howcvcr, is thc insight that capi
talor whatcvcr it is that thc intcrcst ratc is thc pricc olcannot bc mca
surcd in purcly physical tcrms. nc must apprcciatc thc valuc aspcctthc
subjcctivc aspcctol thc thing whosc pricc is thc intcrcst ratc. !t is convc
nicnt to conccivc ol that thing as a lactor ol production. Following Casscl
(.c/.,., pp. .. and passim), wc might namc it waiting. !t is thc tying
up ol valuc ovcr timc, which is ncccssary in all production proccsscs. (Tis
conccptualization is convcnicnt not only bccausc it conlorms to rcality
and bccausc it dispcls thc paradoxcs but also bccausc it displays parallcls
bctwccn how thc intcrcst ratc and othcr lactor priccs arc dctcrmincd and
what thcir lunctions arc: it brings capital and intcrcst thcory comlortably
into linc with gcncral microcconomic thcory.)
!n a physically spccicd production proccss, a rcduccd intcrcst ratc not
only is a chcapcning ol thc waiting (thc tying up ol valuc ovcr timc) that
must bc donc but also rcduccs its rcquircd valucamount. !t rcduccs thc
intcrcst clcmcnt in thc notional priccs ol scminishcd and capital goods
lor whosc ripcning into nal consumcr goods and scrviccs still lurthcr
waiting must bc donc. !ncrcascd thrilt is productivc not only bccausc it
supplics morc ol thc waiting rcquircd lor production but also bccausc, by
lowcring thc intcrcst ratc, it rcduccs thc amount ol waiting rcquircd by
any physically spccicd tcchniquc.
Tc amounts ol waiting rcquircd by altcrnativc physically spccicd
tcchniqucs will in gcncral dcclinc in dicrcnt dcgrccs, which prcscnts
thc possibility ol rcswitching bctwccn tcchniqucs, as in thc cxamplc mcn
tioncd. Vhcn a dcclinc in thc intcrcst ratc brings an apparcntly pcrvcrsc
switch to a tcchniquc that is lcss capitalintcnsivc by somc physical critc
rion, thc cxplanation is that thc dcclinc, although rcducing thc waiting
intcnsitics ol both tcchniqucs, rcduccs thcm dicrcntially in such a way
as to bring a largcr rcduction in thc ovcrall cxpcnsc ol producing by thc
adoptcd tcchniquc.
Prcconccivcd insistcncc on mcasuring all lactor quantitics and lactor
intcnsitics in purcly physical tcrms clashcs with thc lact ol rcalityor
arithmcticthat thc amount ol tying up ol valuc ovcr timc rcquircd in
achicving a physically spccicd rcsult docs indccd dcpcnd on that lactors
own pricc. Not only thc waitingintcnsity ol a physically spccicd proccss
Part : Economics
but also thc rclativc waitingintcnsitics ol altcrnativc proccsscs rcally arc
acctcd by thc intcrcst ratc. Vhcn a switch ol tcchniquc occurs, thc tcch
niquc adoptcd rcally is thc morc cconomical on thc wholc, thc inputs,
waiting includcd, bcing valucd at thcir priccs. Vhcn a risc in thc intcrcst
ratc triggcrs a switch ol tcchniqucs, thc displaccd onc has bccomc rela-
ti.ely too waitingintcnsivc to rcmain cconomically viablc. !t is irrclcvant
as a criticism ol cconomic thcory that by some other, inapplicable, criterion
thc displaccd tcchniquc counts as lcss capitalintcnsivc.
Furthcr discussion ol thc supposcd paradoxcs would display parallcls
bctwccn rcswitching and thc conccivablc phcnomcnon ol multiplc intcr
nal ratcs ol rcturn in an invcstmcnt option, which is hardly mystcrious
at all (Hirshlcilcr .,c, pp. ,,.). Alrcady, though, !vc said cnough to
show how a subjcctivist conccptualization ol thc lactor whosc pricc is thc
intcrcst ratc can avoid lallacics owing lrom a matcrialist or objcctivc con
ccptualization.
i ~: :ovv sun,vc:ivis: :n~x :nou
n a lcw points, somc Austrian cconomists may not havc bccn subjcc
tivist cnough. Murray Rothbard (.6a, pp. ..) sccms to think that a
contract undcr which no propcrty has yct changcd handslor cxamplc,
an cxchangc ol promiscs bctwccn a movic actor and a studiois somchow
lcss propcrly cnlorccablc than a contract undcr which somc paymcnt has
alrcady bccn madc. 8lackmail is a lcss actionablc ocnsc than cxtortion
through application or thrcat ol physical lorcc (.6a, p. n. ). !l a
villain compcls mc to scll him my propcrty at a mcrc tokcn pricc undcr
thrcat ol ruining my rcputation and my busincss by sprcading vicious but
plausiblc lics, his action is somchow lcss ol a crimc or tort than il hc had
instcad thrcatcncd to kick mc in thc shins or tramplc onc ol my tomato
plants (Rothbard .a, csp. pp. .a..a,, .., and pcrsonal corrcspon
dcncc). Tc matcrial clcmcnt in a transaction or a thrcat supposcdly makcs
a grcat dicrcncc.
! may bc at lault in not grasping thc distinctions madc in thcsc
cxamplcs, but it would bc hclplul to havc lurthcr cxplanation ol what
supcrcially sccms likc an untypical lapsc lrom subjcctivism into matcri
alism.
Far morc common is thc lapsc into ovcrstating thc subjcctivist posi
tion so badly as to risk discrcditing it. F.A. Hayck is not himscll to blamc,
but a rcmark ol his (.a, p. .) has bccn quotcd ad nauseam (lor cxamplc
Chapter :: !hy Subjecti.ism?
by Ludwig Lachmann in Spadaro .,, p. ., Valtcr Grindcr in his intro
duction to Lachmann .,,, p. a, and Littlcchild .,, p. .). !t has had a
signicancc attributcd to it that it simply cannot bcar. !t is probably no
cxaggcration to say that cvcry important advancc in cconomic thcory dur
ing thc last hundrcd ycars was a lurthcr stcp in thc consistcnt application
ol subjcctivism.
Tis proposition ol doctrinal history could bc strictly corrcct without
implying that cvcry subjcctivist stcp was an important advancc. Morcovcr,
past succcss with cxtcnding subjcctivism in ccrtain dcgrccs and dircctions
docs not imply that any and all lurthcr cxtcnsions constitutc valid contri
butions to cconomics.
Athcorist is not ncccssarily cntitlcd to takc pridc in bcing ablc to boast,
! am morc subjcctivist than thou. Morc important than subjcctivism lor
its own sakc is gctting oncs analysis straight.
Tc most swccping cxtcnsions ol subjcctivism occur in rcmarks about
a purcly subjcctivc thcory ol valuc, including a purc timcprclcrcncc thc
ory ol thc intcrcst ratc. Closcly rclatcd rcmarks scorn thc thcory ol mutual
dctcrmination ol cconomic magnitudcs, thc thcory cxpoundcd by systcms
ol simultancous cquations ol gcncral cquilibrium. Tc ultrasubjcctivists
insist on monocausality instcad. Causation supposcdly runs in onc dircc
tion only, from consumcrs asscssmcnts ol marginal utility and valuc and
thc rclativc utilitics or valucs ol luturc and prcscnt consumption to priccs
and thc intcrcst ratc and scctoral and tcmporal pattcrns ol rcsourcc allo
cation and production (Rothbard .6a, pp. cac).
Takcn with uncharitablc litcralncss, thc ultrasubjcctivist slogans imply
that pcoplcs lcclings and asscssmcnts havc e.erything to do and thc rcal
itics ol naturc, scicncc, and tcchnology havc nothing to do with dctcr
mining priccs and intcrcst ratcs and all intcrrclatcd cconomic magnitudcs.
Actually, thcsc objcctivc rcalitics do intcract with pcoplcs tastcs. Tcy con
dition how abundant various rcsourccs and goods arc, or could bc madc
to bc, and so hclp dctcrminc marginal utilitics.
For two rcasons ! know that thc ultrasubjcctivists do not rcally bclicvc
all thcy say. First, thc propositions in qucstion, takcn litcrally, arc too prc
postcrous lor anyone to bclicvc. Sccond, subjcctivist writings somctimcs
discuss production lunctions, thc principlc ol diminishing marginal phys
ical product, and othcr physical rclations, conccding somc importancc to
such mattcrs.
Vhat ! objcct to, thcn, is not so much substantivc bclicls as mislcad
ing languagc, languagc that somctimcs mislcads cvcn its uscrs, languagc
c Part : Economics
adoptcd on thc prcsupposition that subjcctivism is good and morc ol it is
bcttcr.
Subjcctivists may contcnd that physical rcality counts only through
pcoplcs subjcctivc pcrccptions ol it and thc valuations thcy makc in
accord with it. 8ut that contcntion docs not banish thc inucncc ol objcc
tivc rcality. 8usincssmcn (and consumcrs) who pcrccivc rcality corrcctly
will thrivc bcttcr on thc markct than thosc who mispcrccivc it. A kind
ol natural sclcction sccs to it that objcctivc rcality docs gct takcn into
account.
Fulldrcss argumcnt lor purcly subjcctivc valuc and intcrcst thcory and
lor unidircctional causality appcars rarcly in print. !t kccps bcing asscrtcd
in scminars, convcrsation, and corrcspondcncc, howcvcr, as ! lor onc can
tcstily and as candid Austrians will prcsumably acknowlcdgc. Furthcr
morc, such asscrtions do appcar in authoritativc Austrian publications.
(For cxamplc, scc Rothbard .6a, pp. ..,, .aa, a, c,, a, 66, a n.
.6, n. .a, , n. a,, c, a, ,, n. ., Rothbard, introduction to
Fcttcr .,,, Taylor .c, pp. a6, a, 6, ,, c, and Shand ., pp. a, ,
, , 6.) Garrison (.,, pp. aacaa.) avoids thc word purc in rccom
mcnding a timcprclcrcncc thcory ol intcrcst and a subjcctivist thcory ol
valuc in gcncral, but hc docs contrast thcm lavorably with what hc calls
cclcctic thcorics, such as thc standard Fishcrian thcory ol intcrcst. For
outright avowal ol a purc timcprclcrcncc intcrcst thcory, scc Kirzncrs
manuscript.)
Tc point rcpcatcdly turns up in Austrian discussions that goods that
pcoplc considcr dicrcnt lrom cach othcr arc indccd dicrcnt goods, no
mattcr how closcly thcy rcscmblc cach othcr physically. Tis point is
not downright lallacious, but thc signicancc attributcd to it is cxccssivc,
and its usc in qucstionbcgging ways is likcly to rcpcl mainstrcam ccono
mists. An cxamplc is thc contcntion that whcn a manulacturcr sclls csscn
tially thc samc good undcr dicrcnt labcls at dicrcnt priccs, hc is ncv
crthclcss not practicing pricc discrimination, lor thc goods bcaring thc
dicrcnt labcls arc considcrcd by thc consumcrs to bc dicrcnt goods,
which makes thcm dicrcnt goods in all cconomically rclcvant scnscs.
Tc manulacturcr is supposcdly just charging dicrcnt priccs lor dicrcnt
things.
Quitc probably his practicc is not onc that pcrccptivc cconomists and
social philosophcrs would want to supprcss by lorcc ol law, but wc should
not lct our policy judgmcnts, any morc than our subjcctivist mcthod
ological prcconccptions, dictatc our cconomic analysis or rcmovc ccrtain
Chapter :: !hy Subjecti.ism? .
qucstions lrom its scopc. !t may bc morc lruitlul to rccognizc that pricc
discrimination is indccd going on, with thc dicrcnt labcls bcing uscd to
scparatc customcrs according to thcir dcmand clasticitics.
Crypticism somctimcs accompanics insistcncc on purc subjcctivism.
An cxamplc is a linc ol attack takcn against mainstrcam intcrcst thcory,
which cnlists considcrations ol intcrtcmporal translormability (that is, thc
producti.ity ol invcstmcnt) as wcll as thc subjcctivc timcprclcrcncc clc
mcnt. Tis thcory is cpitomizcd by !rving Fishcrs diagram (.c/.,c,
pp. a., Hirshlcilcr .,c, passim) showing a translormation curvc
bctwccn prcscnt and luturc goods (or consumption), as wcll as a map
ol indicrcncc curvcs bctwccn prcscnt and luturc goods. A lamiliar Aus
trian objcction is to insist that thc diagram, spccically thc translormation
curvc, lails to makc thc rcquircd distinction bctwccn physical productivity
and valuc productivity.
!l not dclibcratc obscurantism, this objcction docs indicatc misun
dcrstanding ol Fishcrs thcory (or impaticncc with or prcjudicc against
it). l coursc, somc tcchnological changc that incrcascs thc physical
productivity ol invcstmcnt in somc spccic linc ol production, say wid
gcts, may not incrcasc thc valuc productivity ol such invcstmcnt. Tc
incrcascd physical amount ol luturc widgcts obtainablc lor a givcn prcscnt
sacricc may indccd havc a rcduccd total valuc rclativc to othcr goods
and scrviccs in gcncral (thc luturc dcmand lor widgcts may bc pricc
inclastic). Somc ol thc ncw opportunitics crcatcd by tcchnological changc
will indccd bc unattractivc to invcstors. !n invoking thc grcatcr pro
ductivity ol morc roundabout mcthods ol production, 8ohm8awcrk
(././.c..a/., vol. ii: pp. a, vol. iii: pp. 6) was rclcr
ring to wcllchoscn or skilllully choscn or wiscly sclcctcd mcthods,
and a similar stipulation applics to thc prcscnt casc. Tcchnological changcs
that incrcasc thc physical productivity ol particular roundabout mcthods
broadcn thc rangc ol opportunitics among which invcstors can cxcrcisc
wisc choicc, and implcmcnting somc ol thosc choiccs docs add to thc
dcmand lor waiting, tcnding to bid up thc intcrcst ratc.
Tc ultrasubjcctivist objcction is opcn to anothcr strand ol rcply. !t is
illcgitimatc to invokc a contrast bctwccn physical productivity and valuc
productivity by rcstricting thc discussion to cxamplcs ol sacricing specic
prcscnt goods to gct morc luturc goods ol thc samc kind. Vhat is con
vcycd by borrowing and lcnding (and othcr transactions in waiting) is not
command ovcr invcstiblc rcsourccs that would othcrwisc havc gonc into
producing spccic prcscnt goods but command ovcr rcsourccs in gcncral.
a Part : Economics
!t is lcgitimatc to do what Fishcrs diagram hclps us to do: to conccivc
ol prcscnt goods in gcncral bcing sacriccd lor largcr amounts ol luturc
goods in gcncral.
Vith thcir admirablc gcncral cmphasis on proccss and on thc dcci
sions and actions ol individual pcrsons, Austrian cconomists should not
rcst contcnt with attacks on mainstrcam capital and intcrcst thcory that
rcly on cryptic allusions to a distinction bctwccn physical productivity and
valuc productivity (or, similarly, to asscrtions that lactor priccs will adjust).
Tcy should dclcnd thcir purc subjcctivism on this topic, il thcy can, with
a dctailcd proccss analysis ol how pcrsons act.
Ncxt ! turn to cxaggcrations in thc subjcctivist cost doctrincs ol 8u
chanan and thc London School. Tcsc thcorists intcrprct thc cost ol a
particular coursc ol action as thc ncxtbcst coursc pcrccivcd and lorgonc
by thc dccisionmakcr. Ronald Coasc (quotcd with approval in 8uchanan
.6, p. a) says that Tc cost ol doing anything consists ol thc rcccipts
which would havc bccn obtaincd il that particular dccision had not bccn
takcn. . . . To covcr costs and to maximizc prots arc csscntially two ways
ol cxprcssing thc samc phcnomcnon.
Vcll, supposc thc bcst coursc ol action opcn to mc is, in my judgmcnt,
to opcn a rcstaurant ol a quitc spccic typc in a spccic location. Tc ncxt
bcst coursc, thcn, is prcsumably to opcn a rcstaurant idcntical in all but
somc trivial dctail, such as thc particular huc ol grccn ol thc lampshadcs.
!l so, thc cost ol thc prccisc rcstaurant choscn is prcsumably an all but
idcntical rcstaurant worth to mc, in my judgmcnt, almost lully as much.
Gcncralizing, thc cost ol a choscn thing or coursc ol action is vcry ncarly
thc lull valuc that thc dccisionmakcr attributcs to it.
My countcrcxamplc to thc Coasc8uchanan cost conccpt may sccm
lrivolous, but it raiscs a scrious qucstion. How lar lrom idcntical to thc
choscn coursc ol action must thc ncxt bcst altcrnativc bc to count as a
distinct altcrnativc: Tc point convcycd by qucstions likc this is that cithcr
radical crror or stcrilc wordjugging is aloot. (Nozick .,,, csp. pp. ,a,,
cxprcsscs somc compatiblc though not idcntical doubts about subjcctivist
conccpts ol cost and prclcrcncc.)
Morc ordinary conccpts ol cost, howcvcr, arc mcaninglul, including
thc intcrprctation ol moncy cost in a particular linc ol production as a
way ol convcying inlormation to dccisionmakcrs in it about conditions
(including pcrsonal tastcs) in othcr scctors ol thc cconomy.
8uchanan (.6, p. ) draws six implications lrom his choiccbound
conccption ol cost, and Littlcchild (in Spadaro .,, pp. a) quotcs
Chapter :: !hy Subjecti.ism?
thcm all with apparcnt approval. !ll quotc and commcnt only on thc rst,
sccond, and lth.
r. Most importantly, cost must bc bornc cxclusivcly by thc dccision
makcr, it is not possiblc lor cost to bc shiltcd to or imposcd on othcrs.
a. Cost is subjcctivc, it cxists in thc mind ol thc dccisionmakcr and
nowhcrc clsc. . . .
. Cost cannot bc mcasurcd by somconc othcr than thc dccisionmakcr
bccausc thcrc is no way that subjcctivc cxpcricncc canbc dircctly obscrvcd.
As lor thc rst word and sccond implications, ol coursc cost can bc
imposcd on othcrs in quitc ordinary scnscs ol thosc words, it is not always
kcpt insidc thc mind ol thc dccisionmakcr. Vhat about advcrsc cxtcrnal
iticssmokc damagc and thc likc: Vhat about losscs imposcd on stock
holdcrs by an incompctcnt busincss managcmcnt: Vhat about thc costs
that a govcrnmcnt imposcs on a population by taxation or ination (or its
command ol rcsourccs, howcvcr nanccd): !snt it notoriously truc that a
govcrnmcnt ocial nccd not pcrsonally bcar all thc costs ol his dccisions:
Vhat about involuntarily draltcd soldicrs: vcn an ordinary busincss dcci
sion has objcctivc aspccts in thc scnsc that thc rcsourccs dcvotcd to thc
choscn activity arc withdrawn or withhcld lrom othcr activitics.
l coursc thc costs incurrcd in thcsc cxamplcs havc subjcctivc aspccts
alsoin thc minds or thc pcrccptions ol thc draltccs and ol pcrsons who
would havc bccn consumcrs ol thc goods lrom whosc production thc
rcsourccs in qucstion arc compctcd away. Vhat is odd is thc contcntion
that no cost occurs cxccpt subjcctivcly and in thc mind ol thc dccision
makcr alonc.
As lor thc lthimplication, it is truc that cost cannot bc mcasurcdnot
mcasurcd prcciscly, that is, whcthcr by thc dccisionmakcr or somconc clsc.
8ut mcasurability itscll is cvidcntly what is at issuc, not thc admittcd
imprccision ol mcasurcmcnt ol cost, as ol othcr cconomic magnitudcs.
Tc moncy costs ol producing a dcnitc amount ol somc product, or thc
marginal moncy cost ol its production, can indccd bc cstimatcd. sti
matcs ol moncy cost takc into account, in particular, thc priccs multiplicd
by thcir quantitics ol thc inputs rcquircd to producc spccicd marginal
amounts ol thc good in qucstion. Truc, cost accounting has no objcctivc
and inlalliblc rulcs and must cmploy convcntions. For this and othcr rca
sons, cstimatcs ol moncy cost arc just thatcstimatcs. 8ut thcy arc not
totally arbitrary, thcy arc not mcaninglcss.
Part : Economics
Moncy costs ol production, as wcll as thc input priccs that cntcr into
cstimating thcm, play a vital rolc in convcying inlormation to particular
busincss dccisionmakcrs about conditions in othcr scctors ol thc cconomy.
Moncy costs and priccs rccctdo not mcasurc prcciscly, but rccctthc
valucs and cvcn thc utilitics attributcd by consumcrs to thc goods and
scrviccs whosc production is lorgonc to makc thc rcquircd inputs availablc
to thc particular linc ol production whosc costs arc in qucstion. (Moncy
costs and lactor priccs also rccct, as notcd abovc, thc prclcrcnccs and
attitudcs ol workcrs and invcstors.)
!t is thcrclorc subvcrsivc to thc undcrstanding ol thc logic ol a pricc
systcm to maintain that cost is cntircly subjcctivc, lalls cntircly on thc
dccisionmakcr, and cannot bc lclt by anyonc clsc.
Pcrhaps this risk ol subvcrsion is bcing run in a good causc. A hcalthy
skcpticismis in ordcr about socialism, nationalization, and thc imposition
ol cost rulcs on nationalizcd and privatc cntcrpriscs. Howcvcr, wc should
bcwarc ol trying to obtain substantivc conclusions lrom prcconccptions
about mcthod or about policy. Sound conclusions and policy judgmcnts
incur discrcdit lrom association with qucstionablc vcrbal mancuvcrs.
\alid subjcctivist insights join with thc lact that gcncral cquilibrium
ncvcr actually prcvails in rccommcnding skcpticism about policics that
would unncccssarily imposc imitation markcts or thc mcrc lcigning ol
markct proccsscs. Tc lact ol discquilibrium priccs docs not, ol coursc,
rccommcnd junking thc markct systcmin lavor ol somcthing clsc. Markct
priccs, although not prccisc indicators ol thc tradcos poscd by rcality,
arc at lcast undcr thc prcssurcs ol supply and dcmand and cntrcprcncurial
alcrtncss to bccomc morc ncarly accuratc mcasurcs.
Tc rccommcndcd skcpticism docs havc somc application, howcvcr,
with rcgard to compcnsation lor scizurcs undcr cmincnt domain, dam
agc awards in tort cascs, and thc dcvclopmcnt ol casc law. !t also has
somc application in costbcnct studics. Pcrsonal rights, not such cxcr
ciscs, should ol coursc dominatc many policy dccisions.
Again, though, ! want to warn against ovcrstatcmcnt. Admittcdly,
costs and bcncts arc largcly subjcctivc, markct priccs arc at discquilib
rium lcvcls, and othcr bascs ol making cstimatcs arc inaccuratc also. 8ut
what is to bc donc whcn somc dccision or othcr has to bc madcabout
a ncw airport, a subway systcm, a dam, or a proposcd cnvironmcntal
rcgulation: ocs onc simply ramblc on about how impondcrablc cvcry
thing is, or docs onc try in good laith to quantily bcncts and costs:
l coursc thc cstimatcs will bc crudc, cvcn vcry crudc, but pcrhaps thc
Chapter :: !hy Subjecti.ism?
prcpondcrancc ol bcncts or costs will turn out grcat cnough to bc unmis
takablc anyway. !n any casc, cxpccting thc advocatcs ol cach ol thc pos
siblc dccisions to quantily thcir asscrtions and lay thcm out lor scrutiny
will imposc a hcalthy disciplinc on thc argumcnts madc. !t will wcakcn
thc rclativc inucncc ol shccr poctry, oratory, dcmagogy, and political
mancuvcring.
My last cxamplc ol subjcctivism cxaggcratcd and abuscd is what cvcn
somc mcmbcrs ol thc Austrian School havc idcnticd as a nihilism
about cconomic thcory. Nihilistic writings strcss thc unknowability ol thc
luturc, thc dcpcndcncc ol markct bchavior on divcrgcnt and vaguc and
cvcrchanging subjcctivc cxpcctations, thc kalcidic naturc ol thc cco
nomic world, and thc poor basis lor any bclicl that markct lorccs arc tcnd
ing to work toward rathcr than away lrom cquilibrium (il, indccd, cqui
librium has any mcaning). Somc ol thcsc asscrtions arc rclcvant cnough
in particular contcxts, but ultrasubjcctivists bandy thcm swccpingly about
as il willing to cast discrcdit not mcrcly on attcmpts to lorctcll thc luturc
but cvcn on scicntic prcdictions ol thc ilthisthcnthat typc. !t is hard
to imaginc why an cconomist who thus wallows in unknowability contin
ucs to rcprcscnt himscll as an cconomist at all. (nc hunch: hc may think
hc has an allpurposc mcthodological wcapon lor striking down what
cvcr strand ol analysis or policy argumcnt hc happcns not to likc. 8ut
thcn his own analysis and argumcntsil hc has anywould bc cqually
vulncrablc.)
Tcrc is no point trying to conccal lrom knowlcdgablc Austrian rcad
crs what cconomist ! particularly havc in mind, so !ll rclcr to thc writ
ings ol Ludwig Lachmann listcd in thc rclcrcnccs (including his arti
clcs in olan .,6 and Spadaro .,), as wcll as Lachmanns admira
tion ol Shacklcs writings on thc impondcrability ol thc luturc. Also scc
riscolls rclrcshing criticism (in Spadaro .,, csp. pp. .a.) ol
Lachmann lor practically rcpudiating thc conccpts ol thc markcts coordi
nating proccsscs and ol spontancous ordcr.
Most rcccntly, Lachmann has shown cvidcnt dclight in thc phrasc
dynamic subjcctivism. |A|t lcast in thc history ol Austrian doctrinc, sub
jcctivism has bccomc progrcssivcly morc dynamic (., p. a). To Aus
trians, ol all pcoplc, committcd to radical subjcctivism, thc ncws ol thc
movc lrom static to dynamic subjcctivism should bc wclcomc ncws (.,
pp. .a). Tc word committcd is rcvcaling. !nstcad ol thc scicntic atti
tudc, Lachmann cvidcntly valucs commitmcntcommitmcnt to a doc
trinc or to a mcthodology. Rccalling Fritz Machlups cssay on Statics
6 Part : Economics
and ynamics: Kalcidoscopic Vords (./.,), ! wish Machlup wcrc
alivc today to hcap onto dynamic subjcctivism thc ridiculc it dcscrvcs.
coxciubixc vxnov:~:ioxs
As Gustav Casscl wrotc in a book rst publishcd in nglish long ago, it
was an absurd wastc ol intcllcctual cncrgy lor cconomists still to bc dis
puting whcthcr priccs wcrc dctcrmincd by objcctivc lactors or subjcctivc
lactors (.a/.6,, p. .6). Rclcrring to intcrcst thcory in particular, !rving
Fishcr (.c/.,c, p. .a) callcd it a scandal in cconomic scicncc that two
schools wcrc still crossing swords on thc supposcd issuc. Priccs, including
intcrcst ratcs, arc dctcrmincd by lactors ol both kinds. As notcd carlicr,
saying so docs not mcan idcntilying objcctivc lactors with thc supply sidc
and subjcctivc lactors with thc dcmand sidc ol markcts, nor vicc vcrsa.
8oth sorts ol lactors opcratc on both sidcs.
For a grasp ol how subjcctivc and objcctivc lactors thoroughly intcr
twinc in a systcm ol cconomic intcrdcpcndcncc, a study ol thc simplicd
gcncralcquilibrium cquation systcm prcscntcd in Casscls (.a/.6,)
chaptcr is wcll worth whilc. Tc rcadcr should pay attcntion, among
othcr things, to thc rolc ol thc tcchnical coccicnts, oncs indicating thc
amounts ol cach input uscd in producing a unit ol cach product. Cas
scl docs not nccd to supposc, ol coursc, that thcsc coccicnts arc rigidly
dctcrmincd solcly by naturc and tcchnology. n thc contrary, an clabora
tion ol his systcm can takc account ol how many ol thcsc coccicnts arc
thcmsclvcs variablc and subjcct to choicc in rcsponsc to priccs, which arc
thcmsclvcs dctcrmincd in thc systcm ol mutual intcrdcpcndcncc.
Study ol Casscls chaptcr (or similar cxpositions) should also disabusc
thc opcnmindcd rcadcr ol any lingcring bclicl in unidircctional causality.
Mutual dctcrmination ol cconomic variablcs is a lact ol rcality, and no
blankct prcjudicc against gcncralcquilibrium thcory, which docs aord
important insights, should blind onc to that lact.
l coursc, whcn onc invcstigatcs thc conscqucnccs ol a spccicd
changcsay in tastcs, tcchnology, taxcs, or a xcd cxchangc ratcit is
not cnough (nor, rcalistically, is it possiblc) to solvc a gcncralcquilibrium
cquation systcm with onc or morc paramctcrs changcd and thcn com
parc thc ncw and old solutions. An adcquatc analysis traccs out, pcr
haps cvcn scqucntially, thc rcactions ol thc pcrsons involvcd and shows
thc rcasonablcncss ol thcir thcorizcd rcactions lrom thcir own points ol
vicw. 8ut insisting on such a causal analysis docs not prcsupposc bclicl in
Chapter :: !hy Subjecti.ism? ,
monocausality. Tc spccicd disturbancc docs indccd impingc on a sys
tcm ol mutual dctcrmination. 8oth thc ncw and old constcllations ol cco
nomic activitics rcsult lrom multidircctional intcractions ol a grcat many
subjcctivc and objcctivc lactors.
Austrian cconomists havc important mcssagcs to convcy about subjcc
tivc clcmcnts that, on all sidcs, pcrvadc markct bchavior, signals, and out
comcs. Tcir insights havc important implications lor policy. !t is a shamc
to impcdc communication by rcmarks about purcly subjcctivc valuc thc
ory, purc timcprclcrcncc intcrcst thcory, and thc allcgcd lallacy ol mul
tidircctional causality.
Austrians cannot rcally mcan what such rcmarks, takcn litcrally, con
vcy. Tcy mislcad and rcpcl pcoplc outsidc thc inncr circlc. Tc main
goal ol thc Austrians is prcsumably not to rccitc slogans that rcinlorcc
cozy lcclings ol camaradcric among mcmbcrs ol an clitc. !nstcad, thcir
goal, sharcd with othcr cconomists who wish wcll lor mankind, is prcsum
ably to gain and communicatc undcrstanding ol cconomic (and political)
proccsscs in thc world as it is, has bccn, and potcntially could bc. Tcy
want to cxtcnd and communicatc such knowlcdgc so as to incrcasc what
cvcr chancc thcrc may bc that mans dccpcst valucs will ultimatcly prc
vail. Rcspcct lor thc straightlorward mcanings ol words will aid in that
cndcavor.
8csidcs shunning dcccptivc slogans, Austrian cconomists should bc
warc ol surrounding thcir doctrincs with a log ol mcthodological prcach
mcnts, prcachmcnts suggcstivc, morcovcr, ol pcrvasivc sniping and sour
grapcs (as, lor cxamplc, about thc clcgant lormal thcory that somc main
strcam cconomists rightly or wrongly dclight in). Abovc all, Austrians
should avoid discrcditing thc sound corc ol thcir doctrinc by contaminat
ing it with bits ol downright and rcadily cxposablc crror (or what comcs
across as crror on any straightlorward rcading ol thc words uscd). Austri
ans havc positivc contributions to makc and should makc thcm.
vvvvvvxcvs
8ohm8awcrk, ugcn von. Capital and Interest. ., ., .c..a. Translatcd
by G.. Hunckc and H.F. Scnnholz. vols. South Holland, !ll.: Libcrtarian
Prcss, ..
8uchanan, Jamcs M. Cost and Choice. Chicago: Markham, .6.
. Public Principles of Public Debt. .. !ndianapolis: Libcrty Fund, ..
Part : Economics
8uchanan, Jamcs M., and G.F. Tirlby, cds. L.S.E. Essays on Cost. .,. Ncw
York: Ncw York Univcrsity Prcss, ...
Casscl, Gustav. Te Nature and Necessity of Interest. .c. Ncw York: Kcllcy, .,..
. Te Teory of Social Economy. .a. Translatcd by S.L. 8arron. Ncw York:
Kcllcy, .6,.
Committcc lor conomic cvclopmcnt. chie.ing Energy Independence. Ncw
York: C, .,.
olan, dwin G., cd. Te Foundations of Modern ustrian Economics. Kansas City,
Kans.: Shccd and Vard, .,6.
Fcllncr, Villiam. To.ards a Feconstruction of Macroeconomics. Vashington, .C.:
Amcrican ntcrprisc !nstitutc, .,6.
Fcttcr, Frank A. Capital, Interest, and Fent. ditcd with an introduction by Mur
ray N. Rothbard. Kansas City, Kans.: Shccd Andrcws and McMccl, .,,.
Fishcr, !rving. Te Teory of Interest. .c. Ncw York: Kcllcy, .,c.
Frccman, S. avid. Energy: Te Ne. Era. Ncw York: Valkcr, .,.
Garrison, Rogcr. Vaiting in \icnna. !n Time, Uncertainty, and Disequilibrium,
cditcd by Mario J. Rizzo, a.aa6. Lcxington, Mass.: Lcxington 8ooks, .,.
Gcorgc, Hcnry. Te Science of Political Economy. .. Ncw York: Schalkcnbach
Foundation, ...
Hayck, Fricdrich A. Tc Usc ol Knowlcdgc in Socicty. merican Economic
Fe.ie. (Scptcmbcr .): .c.
. Te Counter-Fe.olution of Science. Glcncoc, !ll.: Frcc Prcss, .a.
. Te Constitution of Liberty. Chicago: Univcrsity ol Chicago Prcss, .6c.
Hirshlcilcr, Jack. In.estment, Interest, and Capital. nglcwood Clis, N.J.: Prcn
ticc Hall, .,c.
Kirzncr, !sracl M. Purc TimcPrclcrcncc Tcory: A Post Script to thc Grand
cbatc. Ncw York: Ncw York Univcrsity, manuscript, undatcd but carly
.cs.
Lachmann, Ludwig M. Capital, Expectations, and the Market Process. ditcd with
an introduction by Valtcr . Grindcr. Kansas City, Kans.: Shccd Andrcws
and McMccl, .,,.
Chapter :: !hy Subjecti.ism?
. Rcvicw ol Te Economics of Time and Ignorance, by Gcrald P. riscoll
and Mario J. Rizzo. Market Process (Fall .): ., .,..
Littlcchild, Stcphcn C. Te Fallacy of the Mixed Economy. San Francisco: Cato
!nstitutc, .,.
Machlup, Fritz. Statistics and ynamics: Kalcidoscopic Vords. .. !n Essays
in Economic Semantics, a. Ncw York: Ncw York Univcrsity Prcss, .,.
Marshall, Allrcd. Principles of Economics. .ac. ' cd. London: Macmillan, .,.
Mcngcr, Carl. Principles of Economics. .,.. Translatcd by J. ingwall and 8.F.
Hosclitz. Glcncoc, !ll.: Frcc Prcss, .c.
Millcr, Jamcs C., !!!, cd. !hy the Draft? Te Case for a !olunteer rmy. 8altimorc:
Pcnguin, .6.
Miscs, Ludwig von. Human ction. .. a cd. Ncw Havcn, Conn.: Yalc Uni
vcrsity Prcss, .6.
. Te Teory of Money and Credit. .. Translatcd by H.. 8atson. !ndi
anapolis: Libcrty Classics, ...
Mitchcll, dward J., cd. Dialogue on !orld Oil. Vashington, .C.: Amcrican
ntcrprisc !nstitutc, .,.
Nozick, Robcrt. n Austrian Mcthodology. Synthese 6 (Novcmbcr .,,):
a.
Rothbard, Murray N. Man, Economy, and State. a vols. Princcton, N.J.: . \an
Nostrand, .6a.
. Te Ethics of Liberty. Atlantic Highlands, N.J.: Humanitics Prcss, .a.
Scldon, Jamcs R. Tc Rclcvancc ol Subjcctivc Costs: Commcnt. Southern Eco-
nomic Journal ( July ..): a.6aa..
Shacklc, G.L.S. Epistemics and Economics. Ncw York: Cambridgc Univcrsity
Prcss, .,a.
Shand, Alcxandcr H. Te Capitalist lternati.e: n Introduction to Neo-ustrian
Economics. Ncw York: Ncw York Univcrsity Prcss, ..
Spadaro, Louis M., cd. Ne.Directions in ustrian Economics. Kansas City, Kans.:
Shccd Andrcws and McMccl, .,.
Taylor, Tomas C. Te Fundamentals of ustrian Economics. San Francisco: Cato
!nstitutc, .c.
c Part : Economics
\aughn, Karcn !. ocs !t Mattcr Tat Costs Arc Subjcctivc: Southern Economic
Journal 6 ( January .c): ,ca,..
. Tc Rclcvancc ol Subjcctivc Costs: Rcply. Southern Economic Journal
( July ..): aaaaa6.
\ining, Rutlcdgc. On ppraising the Performance of an Economic System. Ncw
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Vaismann, Fricdrich. \criability. !n Logic and Language, Anchor cd., cditcd
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cn~v:vv
Hcnry Gcorgc and Austrian
conomics

Hcnry Gcorgc has bccn widcly pigconholcd and dismisscd as a singlc

taxcr. Actually, hc was a prolound and original cconomist. Hc indcpcn
dcntly arrivcd at scvcral ol thc most charactcristic insights ol thc Austrian
School, which is cnjoying a rcvival nowadays. Yct Gcorgc scorncd thc
Austrians ol his timc, and thcir prcscntday succcssors show scant apprc
ciation ol his work. An apparcnt lapsc in intcllcctual communication calls
lor rcpair.
~us:vi~x vcoxo:ics
Tc Austrian School traccs to thc work ol Carl Mcngcr, onc ol thc lcadcrs
ol thc marginalutility rcvolution ol thc .,cs, and his lcllow countrymcn,
ugcn von 8ohm8awcrk and Fricdrich von Vicscr. Notablc contribu
tors ol a latcr gcncration includc Ludwig von Miscs, F.A. Hayck, and
Ludwig Lachmann, cach ol whom workcd rst in Austria or Gcrmany
and latcr in thc Unitcd Statcs, and also thc Amcrican Frank A. Fcttcr. !n
a still latcr gcncration, cmincnt Austriansthc word no longcr carrics
any implications about nationality or mothcr tongucincludc Murray
Rothbard and !sracl Kirzncr. Somc cmincnt young mcmbcrs ol thc school
arc ominick Armcntano, Gcrald riscoll, Mario Rizzo, Stcvcn Lit
tlcchild, and Karcn \aughn, and apologics arc in ordcr lor not cxtcnding
thc list lurthcr.
.

FromHistory of Political Economy .6 (Summcr .): .,.,. Tis articlc dcrivcs lrom
a talk givcn at St. Johns Univcrsity, Jamaica, Ncw York, on a March .a. ! am indcbtcd
to my hosts thcrc, and particularly to Prolcssor M. Northrup 8ucchncr, lor suggcstions
and cncouragcmcnt.
.
Sincc this articlc chicy conccrns Hcnry Gcorgc, ! am assuming that thc rcadcr has
cnough acquaintancc with contcmporary Austrian cconomics to makc dctailcd citations
unncccssary. !n addition to thc spccically citcd works ol Mcngcr, 8ohm8awcrk, Miscs,
.
a Part : Economics
Vhat lollows is an imprcssion ol thc lcading charactcristics ol Aus
trian cconomics.
(i) Austrians arc conccrncd with thc big picturcwith how a wholc
cconomic systcm lunctions. Tcy avoid tunncl vision, thcy do not locus
too narrowly on thc administration ol thc individual busincss rm and
thc individual houschold. Tcy invcstigatc how thc spccializcd activitics
ol millions ol pcrsons, who arc making thcir dccisions in a dcccntralizcd
manncr, can bc coordinatcd. Tcsc divcrsc activitics arc intcrdcpcndcnt,
yct no particular agcncy takcs chargc ol coordinating thcm, and nonc
would bc compctcnt to do so. Tc rclcvant knowlcdgcabout rcsourccs,
tcchnology, human wants, and markct conditionsis incvitably lrag
mcntcd among millions, cvcn billions, ol scparatc human minds.
(ii) Austrians takc intcrcst in how altcrnativc scts ol institutions can
lunction. Miscs in particular, and latcr Hayck, dcmonstratcd thc impos
sibility ol cconomic calculationschcduling ol cconomic activitics in
accordancc with accuratc asscssmcnt ol valucs and costsundcr socialism.
Ccntralizcd mobilization ol knowlcdgc and planning ol activitics is admit
tcdly conccivablc. !n a Swiss Family Robinson sctting, thc hcad ol thc
lamily could survcy thc availablc rcsourccs and tcchnology and thc capabil
itics and nccds and wants ol lamily mcmbcrs and could scnsibly dccidc on
and monitor production and consumption in somc dctail. !n a largc, mod
crn cconomy, howcvcr, scnsiblc ccntral dircction is not possiblc. Austri
ans arc alcrt to possibilitics ol unplanncd ordcr and to what Hayck (.6,)
has callcd thc rcsults ol human action but not ol human dcsign. Tcy
invcstigatc how thc markct and priccs lunction as a vast communications
systcm and computcr, transmitting inlormation and inccntivcs and so
putting to usc scattcrcd knowlcdgc that would othcrwisc ncccssarily go to
wastc.
(iii) Not only do Austrians apprcciatc thc implications ol incomplctc,
impcrlcct, and scattcrcd knowlcdgc, thcy also apprcciatc thc implications
ol changc, unccrtainty, and unprcdictability in human aairs. Tcy takc
thcsc lacts ol rcality scriously not only in conlronting supposcd thcorctical
and cconomctric modcls ol thc cconomy but also in asscssing altcrnativc
scts ol institutions and lincs ol policy.
(iv) !n conncction with thc implications ol lragmcntcd knowlcdgc,
changc, and unprcdictability, Austrians pay attcntion to discquilibrium,
Hayck, and Rothbard, hc might wcll consult, lor oricntation, books writtcn or cditcd by
olan, Moss, riscoll, and Spadaro, scc thc bibliography.
Chapter : Henry George and ustrian Economics
proccss, and cntrcprcncurship. Vhilc not totally scornlul ol claboratc
analysis ol thc propcrtics ol imaginary cquilibrium statcs and ol compar
ativcstatic analysis, thcy rccognizc how incomplctc a contribution such
analyscs can makc to thc undcrstanding ol how cconomic systcms lunc
tion. Tcy do not supposc, lor cxamplc, that cost curvcs and dcmand
curvcs arc somchow givcn to busincss dccisionmakcrs. n thc contrary,
onc ol thc scrviccs ol thc compctitivc proccss is to prcss lor discovcry ol
ways to gct thc costs curvcs downil onc adopts such tcrminology at all.
Austrians tcnd to acccpt thc conccpt ol Xccicncy
a
and to apprcciatc thc
rolc ol compctition in promoting it. Far lrombcing an idcal statc ol aairs
with which thc rcal world is to bc comparcdunlavorablycompctition
is sccn as a proccss. ntrcprcncurs play kcy rolcs in that proccss, thcy arc
mcn and womcn alcrt to opportunitics lor advantagcously undcrtaking
ncw activitics or adopting ncw mcthods.
(v) As alrcady implicd, Austrians havc ccrtain mcthodological prc
dilcctions. Tcy arc unhappy with thc tacit vicw ol cconomic activity
as thc rcsultant ol intcrplay among objcctivc conditions and impcrsonal
lorccs. Tcy arc unhappy with thcorizing in tcrms ol aggrcgatcs and
avcragcs (rcal GNP, thc pricc lcvcl, and thc likc). Tcy takc pains to
tracc thcir analyscs back to thc pcrccptions, dccisions, and actions ol
individual pcrsons: mcthodological individualism is a kcy aspcct ol thcir
approach. Austrians rccognizc introspcction as onc lcgitimatc sourcc ol
thc lacts undcrpinning cconomic thcory. Tcy cmphasizc subjcctivism:
not only do pcrsonal tastcs hclp dctcrminc thc coursc ol cconomic activ
ity, but cvcn thc objcctivc lacts ol rcsourccs and tcchnology opcratc
only as thcy arc ltcrcd through thc pcrccptions and cvaluations ol indi
viduals. !nsolar as Austrians rccognizc macrocconomics as a lcgitimatc
topic at all, thcy arc conccrncd to providc it with microcconomic undcr
pinnings.
(vi) Although Austrians likc to think ol thcir cconomics as valuclrcc
and although somc ol thcm, at lcast, cmphasizc that it is not logically
linkcd with any particular policy position, Austrian insights into positivc
cconomics, couplcd with plausiblc valuc judgmcnts ol a humanitarian
and individualistic naturc, undcniably do tcnd toward a particular pol
icy positionnonintcrvcntionistic, laissczlairc, libcrtarian. Morc about
this latcr.
a
Scc, in particular, Lcibcnstcin .,6. (Lcibcnstcin himscll, howcvcr, is not usually
considcrcd an Austrian.)
Part : Economics
cvovcvs ixbvvvxbvxcv
! shall try to show Hcnry Gcorgcs anitics with thc Austrians by cit
ing passagcs lrom his writings. Tc dcmonstration procccds lrom partial
agrccmcnt on thcorctical points to agrccmcnt on major qucstions. First,
howcvcr, wc should notc Gcorgcs misundcrstanding ol and cvcn scorn
lor thc Austrians ol his timc, suggcsting that his Austrianlikc insights
wcrc original with him.

Gcorgc did not undcrstand thc marginal rcvolu

tion in valuc thcory that was gctting undcr way in thc last dccadcs ol his
lilc. Hc rcgrcttcd that thc classical school ol political cconomy sccmcd
to havc bccn abandoncd:
Vhat has succccdcd is usually dcnominatcd thc Austrian School, lor no
othcr rcason that ! can discovcr than that lar kind havc long horns. !l it
has any principlcs, ! havc bccn uttcrly unablc to nd thcm. Tc inquircr
is usually rclcrrcd to thc incomprchcnsiblc works ol Prolcssor Allrcd
Marshall ol Cambridgc, ngland . . . , to thc pondcrous works ol ugcn
\. 8ohm8awcrk, Prolcssor ol Political conomy, rst in !nnsbruck and
thcn at \icnna . . . , or to a lot ol Gcrman works writtcn by mcn hc ncvcr
hcard ol and whosc namcs hc cannot cvcn pronouncc.
Tis pscudoscicncc gcts its namc lrom a lorcign languagc, and uscs lor
its tcrms words adaptcd lrom thc Gcrmanwords that havc no placc
and no mcaning in an nglish work. !t is, indccd, admirably calculatcd
to scrvc thc purposc ol thosc powcrlul intcrcsts dominant in thc collcgcs
. . . that must lcar a simplc and undcrstandablc political cconomy, and
who vagucly wish to havc thc poor boys who arc subjcctcd to it by thcir
prolcssors rcndcrcd incapablc ol thought on cconomic subjccts. (SPE,
p. ac)

Latcr, as quotcd bclow, Gcorgc complains about thc grotcsquc con

lusions ol thc Austrian School.

nc rclcrcc hypothcsizcs that Gcorgc and somc ol thc Austrians, including Miscs,
wcrc dcriving inspiration in common lrom Frcnch libcrals such as 8astiat and unoycr.
!nvcstigating that hypothcsis must bc lclt lor anothcr occasionor lor anothcr rcscarchcr.

Citations arc madc to Gcorgcs works by abbrcviatcd titlcs. Tc abbrcviations, in thc

samc ordcr as thc titlcs in thc bibliography, arc P.P, SP, PFT, PPH, and SPE.
Rclcrring in particular to conlusion ovcr thc mcaning ol wcalth, Gcorgc complains
that thc cconomic rcvolution which has in thc mcanwhilc displaccd lrom thcir chairs
thc prolcssors ol thc thcn orthodox political cconomy in ordcr to givc placc to socallcd
Austrians, or similar prolcssors ol cconomics, ha|s| only madc conlusion worsc con
loundcd (SPE, p. .a.).
Chapter : Henry George and ustrian Economics
Tc Austrians, lor thcir part, havc not adcquatcly apprcciatcd Gcorgc.
8ohm8awcrk criticizcd thc naturallructication thcory ol intcrcst prc
scntcd in Progress and Po.erty, apparcntly unawarc ol thc advancc (dis
cusscd bclow) that Gcorgc achicvcd in Te Science of Political Economy
(8ohm8awcrk ./., vol. .: pp. 6, 66, ,). Among prcscnt
day Austrians, Murray Rothbard shows thc grcatcst acquaintancc with
Gcorgcs writings, or somc ol thcm. (For cxamplc, hc rccognizcs Gcorgc
as a lrcc tradcr and applauds his cxccllcnt discussion ol thc distinction
bctwccn patcnts and copyrights.) Yct Rothbard is mostly conccrncd with
what hc considcrs thc unsatislactory moral and cconomic argumcnts uscd
in lavor ol thc singlc tax.

Vith thc Austrians, as with othcr prcscnt

day cconomists, Gcorgcs rcputation docs sccm to sucr lrom his bcing
pigconholcd as a propagandist lor dubious rclorms.
v~iuv :nvovv: sun,vc:ivis:, vvobuc:ivi:v, ~xb :i:v
Gcorgc hcld a kind ol laborincxchangc or cxcrtionsavcd thcory ol
valuc, lollowing Adam Smith, but not a Marxian laborcost thcory (SPE,
pp. a.aa6, c). Still, hc had somc Austrianlikc subjcctivist insights:
thc valuc ol a thing in any timc and placc is thc largcst amount ol cxcrtion
that any onc will rcndcr in cxchangc lor it, or to makc thc cstimatc lrom
thc othcr sidc, . . . it is thc smallcst amount ol cxcrtion lor which any onc
will part with it in cxchangc.
\aluc is thus an cxprcssion which, whcn uscd in its propcr cconomic
scnsc ol valuc in cxchangc, has no dircct rclation to any intrinsic qual
ity ol cxtcrnal things, but only to mans dcsircs. !ts csscntial clcmcnt is
subjcctivc, not objcctivc, that is to say, lying in thc mind or will ol man,
and not lying in thc naturc ol things cxtcrnal to thc human will or mind.
Tcrc is no matcrial tcst lor valuc. Vhcthcr a thing is valuablc or not
valuablc, or what may bc thc dcgrcc ol its valuc, wc cannot rcally tcll by
its sizc or shapc or color or smcll, or any othcr matcrial quality, cxccpt
so lar as such invcstigations may cnablc us to inlcr how othcr mcn may
rcgard thcm. . . .
Now this lact that thc pcrccption ol valuc springs lrom a lccling ol man,
and has not at bottom any rclation to thc cxtcrnal worlda lact that

Rothbard .6a, vol. .: pp. .., .a, .c, a, vol. a: pp. .a., .., , .,
c, , , Rothbard .,c, pp. ,, ,, ..cc, acc, ac., ac, ac, a.c, Rothbard
.,, pp. .
6 Part : Economics
has bccn much ignorcd in thc tcachings and cxpositions ol acccptcd
cconomistsis what lics at thc bottom ol thc grotcsquc conlusions
which, undcr thc namc ol thc Austrian school ol political cconomy,
havc within rcccnt ycars so casily capturcd thc tcachings ol prctty much
all thc univcrsitics and collcgcs in thc nglishspcaking world. (SPE,
pp. a.aa)
Gcorgc gocs on to say that thc Austrians havc drawn wrong inlcrcnccs
lrom
thc truth that valuc is not a quality ol things but an acctation ol thc
human mind toward things. . . .
Vhat is subjcctivc is in itscll incommunicablc. A lccling so long as it
rcmains mcrcly a lccling can bc known only to and can bc mcasurcd
only by himwho lccls it. !t must comc out in somc way into thc objcctivc
through action bclorc any onc clsc can apprcciatc or in any way mcasurc
it. . . .
. . . what valuc dctcrmincs is not how much a thing is dcsircd, but how
much any onc is willing to givc lor it, not dcsirc in itscll, but . . . thc dcsirc
to posscss, accompanicd by thc ability and willingncss to givc in rcturn.
Tus it is that thcrc is no mcasurc ol valuc among mcn savc compctition
or thc jiggling ol thc markct, a mattcr that might bc worth thc con
sidcration ol thosc amiablc rclormcrs who so lightly proposc to abolish
compctition.
!t is ncvcr thc amount ol labor that has bccn cxcrtcd in bringing a thing
into bcing that dctcrmincs its valuc, but always thc amount ol labor that
will bc rcndcrcd in cxchangc lor it. (SPE, pp. aaa)
Actually, Gcorgc and thc Austrians wcrc not as lar apart as hc thought
whcn allcging grotcsquc conlusions. Admittcdly, though, somc prcscnt
day Austrians do invitc misundcrstanding by insisting that valuc in gcn
cral, as wcll as thc intcrcst ratc in particular, is entirely a subjcctivc phc
nomcnon, instcad ol bcing dctcrmincdas ol coursc it isby intcraction
bctwccn objcctivc rcality and subjcctivc pcrccptions and appraisals.
Tc valid subjcctivc clcmcnt in Gcorgcs doctrinc also appcars in his
rccognition that wcalth can bc produccd not only (+) by physically shaping
things and (:) by growing things but also () by exchanging things:
this third modc ol production consists in thc utilization ol a powcr or
principlc or tcndcncy manilcstcd only in man, and bclonging to him by
virtuc ol his pcculiar gilt ol rcason. . . .
Chapter : Henry George and ustrian Economics ,
. . . |!|t is by and through his disposition and powcr to cxchangc, in which
man csscntially dicrs lrom all othcr animals, that human advancc gocs
on. . . . |!|n itscll cxchangc brings about a pcrccptiblc incrcasc in thc sum
ol wcalth. . . . ach ol thc two partics to an cxchangc aims to gct, and
as a rulc docs gct, somcthing that is morc valuablc to him than what
hc givcsthat is to say, that rcprcscnts to him a grcatcr powcr ol labor
to satisly dcsirc. Tus thcrc is in thc transaction an actual incrcasc in
thc sum ol wcalth, an actual production ol wcalth. . . . ach party to thc
cxchangc gcts in rcturn lor what costs it comparativcly littlc labor what
would cost it a grcat dcal ol labor to gct by cithcr ol thc othcr modcs ol
production. ach gains by thc act. . . . |T|hc joint wcalth ol both partics,
thc sum ol thc wcalth ol thc world, is by thc cxchangc itscll incrcascd.
(SPE, pp. .a)
Gcorgc had somc glimmcrings ol thc marginalist and Austrian idca
ol imputation: thc valucs and rcmuncrations ol thc lactors ol production
arc imputcd to thcm according to what thcy contributc to producing out
puts valucd by consumcrs. Labor, Gcorgc cxplaincd, docs not transmit
valuc into whatcvcr it is applicd to. !nstcad, labor dcrivcs its wagcs lrom
its productivc contribution and lrom thc valuc that consumcrs attributc to
thc output produccd. Tis insight rclutcd thc wagcslund doctrinc (P.P,
pp. a, c,c). vcn labor cmploycd on a projcct ol long duration is ccc
tivcly dcriving its wagcs lrom thc projccts growth in valuc as it comcs
gradually closcr to complction.
Somc authoritics crcdit Gcorgc with contributing to dcvclopmcnt ol
thc marginalproductivity thcory ol lunctional incomc distribution.
6
vcn
John 8atcs Clark rccognizcd his contribution:
!t was thc claim advanccd by Mr. Hcnry Gcorgc, that wagcs arc xcd
by thc product which a man can crcatc by tilling rcntlcss land, that rst
lcd mc to scck a mcthod by which thc product ol labor cvcrywhcrc may
bc discntanglcd lrom thc product ol coopcrating agcnts and scparatcly
idcnticd, and it was this qucst which lcd to thc attainmcnt ol thc law
that is hcrc prcscntcd, according to which thc wagcs ol all labor tcnd,
undcr pcrlcctly lrcc compctition, to cqual thc product that is scparatcly
attributablc to thc labor. Tc product ol thc nal unit ol labor is thc
samc as that ol cvcry unit, scparatcly considcrcd, and il normal tcndcn
cics could work in pcrlcction, it would bc truc not only ol cach unit, but
6
Scc Charlcs Collicr, pp. aaaa6, and Aaron Fullcr, pp. acc, both in Andclson
.,.
Part : Economics
ol thc working lorcc as a wholc, that its product and its pay arc idcntical.
(./.c, p. viii)
Gcorgc did not scc howhis marginalproductivity thcory ol thc wagcs
ol labor applicd in a similar way to all lactor rcmuncrations (Collicr in
Andclson .,, p. aa). Ncithcr did thc carly Austrians, it was lclt to Vick
stccd to makc that contribution in ..
Rcgarding landrcnt, Gcorgc was avowcdly a lollowcr ol Ricardo (P.P,
pp. .6.,a). His conccptions ol capital and its productivity wcrc incom
plctc. Hc had a lructication thcory ol intcrcst, ccntcring around a sup
poscd rcproductivc or vital lorcc ol naturc, illustratcd by thc growth ol
crops, thc rcproduction ol animals, and thc maturing ol winc in storagc
(P.P, csp. pp. .,.a).
Hc did sharc insights with thc Austrians, howcvcr, on thc vital rolc ol
timc in thc productivc proccss. Hc dcvotcs a wholc chaptcr ol SPE to this
topic:
il ! go to a buildcr and say to him, !n what timc and at what pricc will you
build mc such and such a housc: hc would, altcr thinking, namc a timc,
and a pricc bascd on it. Tis spccication ol timc would bc csscntial. . . .
Tis ! would soon nd il, not quarrcling with thc pricc, ! ask him largcly
to lcsscn thc timc . . . ! might gct thc buildcr somcwhat to lcsscn thc
timc . . . , but only by grcatly incrcasing thc pricc, until nally a point
would bc rcachcd whcrc hc would not conscnt to build thc housc in lcss
timc no mattcr at what pricc. Hc would say |that thc housc just could
not bc built any lastcr|. . . .
Tc importancc . . . ol this principlc that all production ol wcalth rcquircs
timc as wcll as labor wc shall scc latcr on, but thc principlc that timc is a
ncccssary clcmcnt in all production wc must takc into account lrom thc
vcry rst. (SPE, pp. 6,c)
Tc implication, which practically crics out to bc madc cxplicit, is that
output is not cvcn ultimatcly attributablc to labor (and land) alonc, thc
tying up ol wcalth ovcr timc is also ncccssary. Sincc this scrvicc is both
productivc and scarccsincc it is dcmandcd and is limitcd in supplyonc
can hardly cxpcct it to bc lrcc. !n short, Gcorgc was on thc right track in
capital and intcrcst thcory, but his achicvcmcnt was incomplctc.
:oxvv
Gcorgc and thc Austrians sharcd insights cvcn on such rclativcly spccic
topics as moncy and thc analogy that moncy and languagc bcar to cach
Chapter : Henry George and ustrian Economics
othcr. Tcy wcrc not simply agrccing with cvcryonc clsc that both arc
usclul social institutions. Tcy rccognizcd both, in Haycks words, as
rcsults ol human action but not ol human dcsign. (Tat insight may
bc lamiliar nowadays, but it was not so whcn Gcorgc and Mcngcr and
cvcn whcn Hayck wcrc dcvcloping it.) !nstcad ol bcing dclibcratcly
invcntcd and institutcd, moncy cvolvcd spontancously. Gcorgc cxplains
that it cvolvcd lrom thc most rcadily cxchangcablc commoditics, which
individuals cmploycd in indircct bartcr bccausc doing so aordcd thcm
cconomics in conducting thcir transactions. Tc mcdium ol cxchangc
naturally driltcd into bcing also uscd as thc mcasurc ol valuc or unit ol
account.
Gcorgc anticipatcd thc analogy morc rcccntly dcvclopcd by Hayck
and othcrs:
Vhilc thc usc ol moncy is almost as univcrsal as thc usc ol languagcs,
and it cvcrywhcrc lollows gcncral laws as docs thc usc ol languagcs, yct
as wc nd languagc dicring in timc and placc, so do wc nd moncy
dicring. !n lact, as wc shall scc, moncy is in onc ol its lunctions a kind
ol languagcthc languagc ol valuc. (SPE, p. )
Gcorgc anticipatcd, in at lcast a rudimcntary way, thc cashbalancc
approach to monctary thcory latcr dcvclopcd indcpcndcntly by Miscs
(..a/..) and othcrs. Tc dcmand lor cash balanccs is accountcd lor by
thc scrviccs that thcy rcndcr to thcir holdcrs (Gcorgc prcscnts cxamplcs in
SPE, pp. ,). Tc dcvclopmcnt ol crcdit promotcs cconomics in thc
holding and translcr ol thc actual mcdium ol cxchangc. Moncys most
important usc today is as a mcasurc ol valuc.
,
xxowivbcv, coovbix~:iox, ~xb uxvi~xxvb ovbvv
So lar this study has rcvicwcd points on which Gcorgc sharcd or antic
ipatcd Austrian insights only incomplctcly. Now it turns to somc major
points ol agrccmcnt.
,
Tc quotation is takcn lrom a subhcading in SPE, p. c. Tc insight cxprcsscd
thcrc brings to mind prcscntday proposals lor achicving monctary rclorm and macroc
conomic stability by dcning a stablc mcasurc ol valuc distinct lrom thc mcdium ol
cxchangc, with thc choicc and thc supply ol thc lattcr bcing lclt to unrcgulatcd privatc
cntcrprisc. cscribing such proposals, howcvcr, would carry us too lar lrom our prcscnt
topic.
6c Part : Economics
Hc and thc Austrians agrcc that a ccntral task ol cconomics is to
cxplain how spccializcd human activitics may bc coordinatcd without
dclibcratc dircction. First hc distinguishcs two kinds ol coopcration, cach
ol which incrcascs productivc powcr. nc kind is thc combination ol
cort, illustratcd by mcn joining lorccs to rcmovc a rock or lilt a log too
hcavy lor any onc to movc alonc. Tc othcr is thc scparation ol cortthc
division ol labor, spccialization. Ncxt Gcorgc distinguishcs two ways ol
arranging coopcration itscll. Tc rst is conscious dircction by a control
ling will, illustratcd (idcally) by thc dcploymcnt ol an army.
Tc sccond way, achicving spontancous or unconscious coopcration,
draws Gcorgcs chicl attcntion. nc cxamplc, rcminisccnt ol 8astiats
cssay, Natural and articial social ordcr (.c/.6, pp. ..), is
Tc providing ol a grcat city with all thc manilold things which arc con
stantly nccdcd by its inhabitants. . . . Tis kind ol coopcration is lar widcr,
lar ncr, lar morc strongly and dclicatcly organizcd, than thc kind ol
coopcration involvcd in thc movcmcnts ol an army, yct it is brought
about not by subordination to thc dircction ol onc conscious will, which
knows thc gcncral rcsult at which it aims, but by thc corrclation ol actions
originating in many indcpcndcnt wills, cach aiming at its own small pur
posc without carc lor or thought ol thc gcncral rcsult. (SPE, p. )
As lurthcr cxamplcs ol thc two kinds ol coordination, Gcorgc ocrcd,
rcspcctivcly, thc sailing (arrangcmcnt ol sails and so lorth) and thc con
struction and cquipping ol a largc ship. Hc claboratcd on thc lattcr cxam
plc in rathcr poctic passagcs:
Considcr thc timbcrs, thc planks, thc spars, thc iron and stccl ol various
kinds and lorms, thc coppcr, thc brass, thc bolts, scrcws, spikcs, chains,
thc ropcs, ol stccl and hcmp and cotton, thc canvas ol various tcxturcs,
thc blocks and winchcs and windlasscs, thc pumps, thc boats, thc scx
tants, thc chronomctcrs, thc spyglasscs and patcnt logs, thc baromctcrs
and thcrmomctcrs, charts, nautical almanacs, rockcts and colorcd lights,
lood, clothing, tools, mcdicincs and lurniturc, and all thc various things,
which it would bc tircsomc lully to spccily, that go to thc construction
and lurnishing ol a rstclass sailing ship ol modcrn typc, to say nothing
ol thc still grcatcr complcxity ol thc rstclass stcamcr. ircctcd coopcr
ation ncvcr did, and ! do not think in thc naturc ol things it cvcr could,
makc and asscmblc such a varicty ol products, involving as many ol thcm
do thc usc ol costly machincry and consummatc skill, and thc cxistcncc
ol subsidiary products and proccsscs. (SPE, p. )
Chapter : Henry George and ustrian Economics 6.
Vhcn hc rcccivcs an ordcr lor such a ship, thc buildcr docs not scnd
mcn out with dctailcd instructions lor doing all thc ncccssary workcut
ting various woods, mining andrcning various mctals, planting hcmpand
cotton and brccding silkworms:
Nor docs hc attcmpt to dircct thc manilold opcrations by which thcsc
raw matcrials arc to bc brought into thc rcquircd lorms and combina
tions, and asscmblcd in thc placc whcrc thc ship is to bc built. Such a
task would transccnd thc wisdom and powcr ol a Solomon. Vhat hc
docs is to avail himscll ol thc rcsourccs ol a high civilization, lor without
that hc would bc hclplcss, and to makc usc lor his purposc ol thc uncon
scious coopcration by which without his dircction, or any gcncral dircc
tion, thc corts ol many mcn, working in many dicrcnt placcs and in
occupations which covcr almost thc wholc cld ol a minutcly divcrsicd
industry, cach animatcd solcly by thc cort to obtain thc satislaction
ol his pcrsonal dcsircs in what to him is thc casicst way, havc brought
togcthcr thc matcrials and productions nccdcd lor thc putting togcthcr
ol such a ship. (SPE, pp. c)
cploying insights latcr also achicvcd by F.A. Hayck (.), Gcorgc
gocs on to spcak ol thc mobilization ol knowlcdgc that is incvitably dis
pcrscd and that simply could not bc ccntralizcd and put to usc by a singlc
mind or a singlc organization:
So lar lromany lilctimc sucing to acquirc, or any singlc brain bcing ablc
to hold, thc varicd knowlcdgc that gocs to thc building and cquipping
ol a modcrn sailingship, alrcady bccoming antiquatcd by thc still morc
complcx stcamcr, ! doubt il thc bcstinlormcd man on such subjccts,
cvcn though hc took a twclvcmonth to study up, could givc cvcn thc
namcs ol thc various scparatc divisions ol labor involvcd.
A modcrn ship, likc a modcrn railway, is a product ol modcrn civiliza
tion . . . , ol that unconscious coopcration which docs not comc by pcr
sonal dircction . . . but grows . . . by thc rclation ol thc corts ol individu
als, cach sccking thc satislaction ol individual dcsircs. A mcrc mastcr ol
mcn, though hc might command thc scrviccs ol millions, could not makc
such a ship unlcss in a civilization prcparcd lor it. (SPE, pp. c.)
Tc coopcration rcquircd lor sailing a ship is rclativcly simplc. Tc
kind rcquircd lor building onc is bcyond thc powcr ol conscious dircction
to ordcr or improvc. Tc only thing that conscious dircction can do to aid
it is to lct it alonc, to givc it lrccdom to grow, lcaving mcn lrcc to scck thc
6a Part : Economics
gratication ol thcir own dcsircs in ways that to thcm sccm bcst (SPE,
p. .).
Gcorgc has morc to say on thc spontancous mobilization ol dispcrscd
knowlcdgc. Physical lorcc can bc aggrcgatcd, but not intclligcncc:
Two mcn cannot scc twicc as lar as onc man, nor a hundrcd thousand
dctcrminc onc hundrcd thousand timcs as wcll. . . . No onc cvcr said, !n
a multitudc ol gcncrals thcrc is victory. n thc contrary, thc adagc is,
nc poor gcncral is bcttcr than two good oncs. (SPE, p. a)
!n spontancous coopcration, howcvcr,
what is utilizcd in production is not mcrcly thc sumol thc physical powcr
ol thc units, but thc sum ol thcir intclligcncc.
. . . whilc in thc sccond kind ol coopcration thc sum ol intclligcncc uti
lizcd is that ol thc wholc ol thc coopcrating units, in thc rst kind ol
coopcration it is only that ol a vcry small part.
!n othcr words it is only in indcpcndcnt action that thc lull powcrs ol thc
man may bc utilizcd. Tc subordination ol onc human will to anothcr
human will, whilc it may in ccrtain ways sccurc unity ol action, must
always, whcrc intclligcncc is nccdcd, involvc loss ol productivc powcr.
(SPE, pp. a)
Gcorgc undcrstands thc rolcs ol cxchangc, markcts, priccs, and moncy
in accomplishing spontancous coordination, and hc is skcptical (SPE,
pp. 6) that govcrnmcnt rcgulation ol priccs and wagcs and intcr
cst ratcs can achicvc its intcndcd purposcs:
xchangc is thc grcat agcncy by which . . . thc spontancous or uncon
scious coopcration ol mcn in thc production ol wcalth is brought about
and cconomic units arc wcldcd into that social organism which is thc
Grcatcr Lcviathan. To this cconomic body, this Grcatcr Lcviathan, into
which it builds thc cconomic units, it is what thc ncrvcs or pcrhaps thc
ganglions arc to thc individual body. r, to makc usc ol anothcr illus
tration, it is to our matcrial dcsircs and powcrs ol satislying thcm what
thc switchboard ol a tclcgraph or tclcphonc or othcr clcctric systcm is to
that systcm, a mcans by which cxcrtion ol onc kind in onc placc may bc
transmittcd into satislaction ol anothcr kind in anothcr placc, and thus
thc corts ol individual units bc conjoincd and corrclatcd so as to yicld
satislactions in most usclul placc and lorm, and to an amount cxcccding
what othcrwisc would bc possiblc. (SPE, pp. cc)
Chapter : Henry George and ustrian Economics 6
soci~iis:
Gcorgc rcjccts socialism, undcrstood as collcctivc or statc managcmcnt ol
all mcans ol production (SPE, p. .), on thc grounds that it would rcstrict
thc scopc ol spontancous coordination. Attcmpting conscious coordina
tion ol work rcquiring spontancous coordination
is likc asking thc carpcntcr who can build a chickcnhousc to build a
chickcn also.
Tis is thc latal dclcct ol all lorms ol socialismthc rcason ol thc lact,
which all obscrvation shows, that any attcmpt to carry conscious rcgula
tion and dircction bcyond thc narrow sphcrc ol social lilc in which it is
ncccssary, incvitably works injury, hindcring cvcn what it is intcndcd to
hclp.
And thc rationalc ol this grcat lact may . . . bc pcrccivcd whcn wc considcr
that thc originating clcmcnt in all production is thought or intclligcncc,
thc spiritual not thc matcrial. Tis spiritual clcmcnt, this intclligcncc or
thought powcr as it appcars in man, cannot bc combincd or luscd as can
matcrial lorcc. (SPE, pp. .a)
Tc last scntcnccs quotcd rcmind us ol thc cmphasis ol prcscntday
Austrians on thc crcativc rolc ol cntrcprcncurship. Tcy also rcmind us ol
Julian Simons cmphasis, in a rcccnt book, on Te Ultimate Fesourcehu
man intclligcncc and ingcnuity.
To dcvclop his points lurthcr, Gcorgc asks us to imaginc that thc
vcry wiscst and bcst ol mcn wcrc sclcctcd to dircct a socialist cconomy.
Considcr
thc task that would bc put upon thcm in thc ordcring ol thc whcn,
whcrc, how and by whom that would bc involvcd in thc intclligcnt
dircction and supcrvision ol thc almost innitcly complcx and con
stantly changing rclations and adjustmcnts involvcd in such division
ol labor as gocs on in a civilizcd community. Tc task transccnds thc
powcr ol human intclligcncc at its vcry highcst. !t is cvidcntly as much
bcyond thc ability ol conscious dircction as thc corrclation ol thc pro
ccsscs that maintain thc human body in hcalth and vigor is bcyond it.
|Tc human body lunctions without bcing consciously dircctcd by thc
mind.| . . .
And so it is thc spontancous, unconscious coopcration ol individuals
which, going on in thc industrial body, . . . conjoins individual corts in
thc production ol wcalth, to thc cnormous incrcasc in productivc powcr,
6 Part : Economics
and distributcs thc product among thc units ol which it is composcd. !t
is thc naturc and laws ol such coopcration that it is thc primary provincc
ol political cconomy to asccrtain. (SPE, pp. 6)
Tcsc passagcs rcmind us again ol Haycks conccption ol thc chicl task
ol cconomics and ol his and Miscss analyscs ol why accuratc cconomic
calculation would bc impossiblc undcr lullcdgcd socialism.

:v:noboiocv
Gcorgcs vicws on mcthodology arc rcmarkably similar to thosc ol Carl
Mcngcr and ol thc modcrn Austrians.

Gcorgc and Mcngcr agrcc that

thc cconomists job is not mcrcly to cataloguc cconomic phcnomcna but
to scarch lor causcandccct rclations among thcm, to lormulatc laws
cxprcssing dcpcndablc cocxistcnccs and scqucnccs, and to discovcr uni
lormitics undcrlying supcrcial divcrsitics.
Pcrhaps thc lcading mcthodological tcnct ol both mcn is that thcsc
clcmcntary unilormitics cannot bc lound solcly in panoramic study ol thc
cconomic systcm as a wholc. Tcy must bc sought by pcnctrating to thc
lcvcl whcrc dccisions arc actually madc, thc lcvcl ol thc individual pcrson,
lamily, rm, and agcncy. Tis approach, rccommcndcd by todays Austri
ans as methodological indi.idualism, rccognizcs thc lcgitimacy and ncccs
sity ol appcaling to purposc and motivc. Tc rclcvant lacts includc not
only thc objcctivc charactcristics ol rcsourccs and activitics and products
but also thc charactcristics attributcd to thcm by lalliblc human bcings,
as wcll as human prclcrcnccs and intcntions. Again thc subjcctivism ol
Gcorgc and thc Austrians comcs to thc lorc. 8oth rccognizc that cco
nomics docs, altcr all, conccrn human action (and thcsc two words lorm
thc titlc ol Miscss magnum opus).
Gcorgc asscrts a basic principlc that pcoplc scck to satisly thcir dcsircs
with thc lcast possiblc cxcrtion, and Mcngcr cxprcsscs similar idcas. Tis

For othcr commcnts by Gcorgc on socialism, though carlicr and lcss insightlul oncs,
scc his PFT, pp. ac. Although an cmphatic opponcnt ol socialism, Gcorgc did advo
catc not only public schools but also govcrnmcnt owncrship ol what hc conccivcd to bc
natural monopolics. !n thcsc hc includcd railroads, thc tclcgraph and tclcphonc, and urban
systcms ol watcr, gas, hcat, and clcctricity (SP, p. ..).

Gcorgcs rcmarks on thc topic occur mostly in SPE, with a chaptcr in PFT and
scattcrcd obscrvations in P.P. Mcngcr dcvclops his vicws in .,./.c and in .. An
carlicr discussion, with morc dctailcd citations, appcars in Ycagcr ..
Chapter : Henry George and ustrian Economics 6
is not an assumption that pcoplc bchavc likc thc cconomic man ol thc
lamiliar caricaturc or that thcy act only on sclsh motivcs.
.c
Gcorgc and Mcngcr, as wcll as Miscs and othcr latcr Austrians, hclp
clarily thc naturc ol socallcd armchair thcorizing. conomists can dis
covcr basic lacts by obscrvation ol thcir own and othcr pcoplcs dcci
sionmaking. Tcy cvcn havc thc advantagc ol bcing ablc to obscrvc thc
basic clcmcnts ol thcir thcorctical gcncralizations (human individuals and
thcir strivings) dircctly, whilc thc natural scicntists must postulatc or inlcr
thcir basic but not dircctly obscrvablc clcmcnts lrom whatcvcr phcnom
cna thcy can obscrvc dircctly. Much as gcomctcrs dcducc many thco
rcms lrom a lcw axioms, so cconomists dcducc a powcrlul body ol thcory
lrom a rclativcly lcw cmpirical gcncralizations, oncs so crushingly obvi
ous that thcir lailurc to hold truc is almost inconccivablc in thc world
as wc know it. Tc axioms undcrpinning cconomic thcory includc oncs
likc Gcorgcs lcastcxcrtion principlc and thc lact that labor continucd
bcyond somc point bccomcs irksomc (as wcll as othcrs that could bc
addcd to Gcorgcs list, such as thc lact ol scarcity itscll and thc princi
plc ol cvcntually diminishing marginal rcturns). (Tc banality ol cmpir
ical obscrvations is not rclatcd invcrscly to thc scopc and importancc ol
thcir implications in cconomics, indccd, onc might arguc that a dircct
rclation is thc morc plausiblc.) Armchair thcorizing nccd not bc thc mcrc
stcrilc juggling ol arbitrary assumptions, it can havc a sound cmpirical
basis.
Gcorgc considcrs how cconomists can discntanglc thc complcx intcr
mingling ol many causcs and many cccts that occurs in thc rcal world. Hc
cxplains thc mcthod ol mcntal or imaginativc cxpcrimcnt, thc mcthod
ol tcsting thc working ol known principlcs by mcntally scparating, com
bining or climinating conditions (SPE, p. .cc, PFT, pp. a,a).
Gcorgc and Mcngcr sharc a skcptical attitudc toward thc organic
conccption ol socicty. 8oth rccognizc how an cconomic systcm sccms to
havc a lilc and purposc and ordcrlincss ol its own, as il it had bccn shapcd
and wcrc opcrating by dclibcratc dcsign. Yct thcy do not join thc holists
and institutionalists in supposing that this apparcnt organic unity rcquircs
conccntrating rcscarch on thc systcms ovcrall institutional arrangcmcnts
and supposcd cvolutionary trcnds. !nstcad ol taking thc cohcrcncc and
ordcr ol a markct cconomy lor grantcd, thcy rcgard thcsc as among thc
.c
Scc SPE, csp. pp. ., . !n this rcspcct Gcorgc anticipatcd Vickstccd ..c/., csp.
chap. .
66 Part : Economics
chicl phcnomcna crying out lor cxplanation. 8oth cmploy mcthodological
individualism in dcvcloping thcir cxplanations.
Gcorgc and Mcngcr ocr thc samc two cxamplcs ol how lcaturcs
ol thc systcm as a wholc can arisc, without bcing dclibcratcly contrivcd,
lrom thc corts ol individuals to gratily thcir scparatc dcsircs: (+) moncy
cvolvcs lrom thc most markctablc ol commoditics undcr bartcr, (:) ncw
communitics grow and thcir cconomic activitics cvolvc into thc appcar
ancc ol a rational pattcrn, cvcn though scttlcrs movc in and takc up par
ticular occupations only with a vicw to satislying thcir scparatc dcsircs.
Gcorgc and Mcngcrto summarizcconccivc ol cconomic thcory
as a body ol dcductions lrom a lcw compcllingly strong cmpirical gcncr
alizations. Tcy cmploy mcthodological individualism bccausc thcy rcal
izc that cconomists insidc undcrstanding ol human purposcs and dcci
sions is a lcading sourcc ol cmpirical axioms. (Not sharing Gcorgcs and
Mcngcrs undcrstanding ol howcmpirical contcnt can cntcr into armchair
thcory, many cconomists ol our own day apparcntly rcgard thcorctical and
cmpirical work as two distinct clds, with advcrsc conscqucnccs lor both.)
soci~i vniiosovnv
A nal anity bctwccn Gcorgc and thc modcrn Austrians conccrns
social or political philosophy. Austrian cconomists tcnd to bc libcrtari
ans (although scvcral ol thcm insist that thcrc is no necessary conncction).
Many libcrtariansto look at thc rclation thc othcr way aroundtcnd
to rcgard Austrianism as thcir own housc brand ol cconomics. Tis is
unlortunatc.
..
Anyway, thc idcological anity bctwccn Gcorgc and thc Austrians
rcmains a lact. As C. Lowcll Harriss says:
Gcorgc could probably havc considcrcd himscll a libcrtarian had thc
tcrm bccn currcnt in his day. . . . And such twcnticthccntury libcrtarian
..
conomics is a tool lor undcrstanding and possibly rcshaping thc worldlor trying
to makc oncs dccpcst valucs prcvail, whatcvcr thcy may bc. vcryonc, thcrclorc, has an
intcrcst in gctting his cconomics straight. Tc truths ol cconomics, as ol any othcr cld
ol objcctivc rcscarch, oncc discovcrcd, will bc thc samc lor cvcryonc. Tcrc is no onc
truth lor libcrtarians, anothcr lor collcctivists, and so on. l coursc, both Gcorgc and thc
Austrians havc much to contributc toward gctting cconomics straight, and thc capacity
to contributc is not conncd to any particular school. Vhat is unlortunatc is a bclicl in
dicrcnt housc brands ol truth. Ludwig von Miscs (.) was duly cmphatic in attacking
this notion, which hc callcd polylogism.
Chapter : Henry George and ustrian Economics 6,
champions as Albcrt Jay Nock and Frank Chodorov prolcsscd thcm
sclvcs outright Gcorgists. !t was Nock, in lact, who acclaimcd Gcorgc
thc philosophcr ol lrccdom, thc cxponcnt ol individualism as against
Statism, thc vcry bcst lricnd thc capitalist cvcr had, and thc archi
tcct ol a socicty bascd on voluntary coopcration rathcr than on cnlorccd
coopcration. (Harriss in Andclson .,, p. 6,, citations omittcd hcrc.)
.a
Gcorgc rcjcctcd socialism not only out ol conccrn lor cconomic c
cicncy but also (anticipating Hayck .) out ol conccrn lor human lrcc
dom:
Tc proposal which socialism makcs is that thc collcctivity or statc shall
assumc thc managcmcnt ol all mcans ol production, including land, capi
tal and man himscll, do away with all compctition, and convcrt mankind
into two classcs, thc dircctors, taking thcir ordcrs lrom govcrnmcnt and
acting by govcrnmcntal authority, and thc workcrs, lor whomcvcrything
shall bc providcd, including thc dircctors thcmsclvcs. . . . !t is morc dcs
titutc ol any ccntral and guiding principlc than any philosophy ! know
ol. . . . !t has no systcm ol individual rights whcrcby it can dcnc thc
cxtcnt to which thc individual is cntitlcd to libcrty or to which thc statc
may go in rcstraining it. (SPE, p. .)
Gcorgc, likc many libcrtarian Austrians, champions thc conccpt ol
natural rights or thc rights ol man.
.
Hc cmphatically includcs propcrty
rights. Hc was no rcdistributionist.
!n a chaptcr cntitlcd Tc Rights ol Man, hc asscrts:
somc lacts |arc| so obvious as to bc bcyond thc ncccssity ol argumcnt.
And onc ol thcsc lacts, attcstcd by univcrsal consciousncss, is that thcrc
arc rights as bctwccn man and man which cxistcd bclorc thc lormation
ol govcrnmcnt, and which continuc to cxist in spitc ol thc abusc ol gov
crnmcnt, that thcrc is a highcr law than any human lawto wit, thc law
ol thc Crcator, imprcsscd upon and rcvcalcd through naturc, which is
bclorc and abovc human laws, and upon conlormity to which all human
laws must dcpcnd lor thcir validity. To dcny this is to asscrt that thcrc is
no standard whatcvcr by which thc rightlulncss or wronglulncss ol laws
and institutions can bc mcasurcd, to asscrt that thcrc can bc no actions
in thcmsclvcs right and nonc in thcmsclvcs wrong, to asscrt that an cdict
.a
Harriss gocs on to citc passagcs lrom P.P, pp. 6, that makc Gcorgc look likc
a supplysidcr also, passagcs on thc grcat rclcasc ol productivc cncrgics to bc cxpcctcd il
laborcr and capitalist alikc wcrc allowcd, through thc abolition ol taxcs (othcr than thc
singlc tax), to rcap thc lull rcward ol what thcy producc.
.
8csidcs thc passagcs citcd bclow, scc Andclson in Andclson .,, pp. 6,.
6 Part : Economics
which commandcd mothcrs to kill thcir childrcn should rcccivc thc samc
rcspcct as a law prohibiting inlanticidc.
Tcsc natural rights, this highcr law, lorm thc only truc and surc basis
lor social organization. (SP, p. a)
Hc dcnics any rcal antagonism bctwccn thc rights ol mcn and thc
rights ol propcrtysincc thc right ol propcrty is but thc cxprcssion ol a
lundamcntal right ol man. Hc challcngcs thosc who imaginc any conict
bctwccn human and propcrty rights to namc any dcnial ol thc rights ol
mcn which is not or docs not involvc a dcnial ol thc rights ol propcrty,
or any dcnial ol thc rights ol propcrty which is not or docs not involvc a
dcnial ol thc rights ol mcn (PPH, pp. aca.c):
Tis is not an accidcntal, but a ncccssary conncction. Tc right ol lilc
and libcrtythat is to say, thc right ol thc man to himscllis not rcally
onc right and thc right ol propcrty anothcr right. Tcy arc two aspccts
ol thc samc pcrccptionthc right ol propcrty bcing but anothcr sidc, a
dicrcntly statcd cxprcssion, ol thc right ol man to himscll. Tc right
ol lilc and libcrty, thc right ol thc individual to himscll, prcsupposcs
and involvcs thc right ol propcrty, which is thc cxclusivc right ol thc
individual to thc things his cxcrtion has produccd.
Tis is thc rcason why wc who rcally bclicvc in thc law ol libcrty, wc
who scc in lrccdom thc grcat solvcnt lor all social cvils, arc thc stanchcst
and most uninching supportcrs ol thc rights ol propcrty, and would
guard it as scrupulously in thc casc ol thc millionairc as in thc casc ol thc
daylaborcr. (PPH, pp. a.ca..)
! havc bccn an activc, consistcnt and absolutc lrcc tradcr, and an oppo
ncnt ol all schcmcs that would limit thc lrccdomol thc individual. ! havc
bccn a stanchcr dcnicr ol thc assumption ol thc right ol socicty to thc
posscssions ol cach mcmbcr, and a clcarcr and morc rcsolutc upholdcr ol
thc rights ol propcrty than has Mr. Spcnccr. ! havc opposcd cvcry propo
sition to hclp thc poor at thc cxpcnsc ol thc rich. ! havc always insistcd
that no man should bc taxcd bccausc ol his wcalth, and that no mattcr
how many millions a man might rightlully gct, socicty should lcavc to
him cvcry pcnny ol thcm.
.
(PPH, pp. ,c,.)
Tis, and this alonc, ! contcnd lorthat hc who makcs should havc, that
hc who savcs should cnjoy. ! ask in bchall ol thc poor nothing whatcvcr
that propcrly bclongs to thc rich. !nstcad ol wcakcning and conlusing
thc idca ol propcrty, ! would surround it with strongcr sanctions. !nstcad
.
Hcrbcrt Spcnccr is thc pcrson rclcrrcd to in thc books titlc and in thc passagc quotcd.
Chapter : Henry George and ustrian Economics 6
ol lcsscning thc inccntivc to thc production ol wcalth, ! would makc it
morc powcrlul by making thc rcward morc ccrtain. Vhatcvcr any man
has addcd to thc gcncral stock ol wcalth, or has rcccivcd ol thc lrcc will
ol him who did producc it, lct that bc his as against all thc worldhis to
usc or to givc, to do with it whatcvcr hc may plcasc, so long as such usc
docs not intcrlcrc with thc cqual lrccdomol othcrs. For my part, ! would
put no limit on acquisition. No mattcr how many millions any man can
gct by mcthods which do not involvc thc robbcry ol othcrsthcy arc
his: lct him havc thcm. ! would not cvcn ask him lor charity, or havc
it dinncd into his cars that it is his duty to hclp thc poor. Tat is his
own aair. Lct him do as hc plcascs with his own, without rcstriction
and without suggcstion. !l hc gcts without taking lrom othcrs, and uscs
without hurting othcrs, what hc docs with his wcalth is his own busincss
and his own rcsponsibility. (SP, pp. 6,)
scnu:vv:vvs ~ssvss:vx:
!n conclusion ! rcmind thc rcadcr, but without quoting thc wholc passagc
vcrbatim, ol Joscph Schumpctcrs asscssmcnt ol Hcnry Gcorgc. Hc was
a sclltaught cconomist, but hc .as an cconomist. Hc acquircd most ol
thc cconomics taught in thc univcrsitics ol his timc. Hc was at homc in
scicntic cconomics up to and including Mills Principles, although hc
did lail to undcrstand Marshall and 8ohm8awcrk. 8arring his singlc tax
and thc phrascology conncctcd with it, hc was an orthodox cconomist,
conscrvativc in mcthod. Vhatcvcr clsc might bc said about his panacca,
it was not nonscnsc, and as a compctcnt cconomist, hc was carclul to
lramc his rcmcdy in such a manncr as to causc thc minimum injury to
thc ccicncy ol thc privatccntcrprisc cconomy. Vhat Gcorgc said about
thc cconomic bcncts to bc cxpcctcd il it wcrc possiblc (as Schumpctcr
doubtcd) to rcmovc othcr taxcs was cvcn obvious wisdom (Schumpctcr
., p. 6).
Tc prcscnt articlc lcnds support, ! hopc, to this asscssmcnt.
vvvvvvxcvs
Andclson, Robcrt V., cd. Critics of Henry George. Ruthcrlord, N.J.: Fairlcigh
ickinson Univcrsity Prcss, .,. Articlcs citcd: Andclson, NcoGcorgism,
pp. ., Charlcs Collicr, Ruthcrlord: Tc cvil Quotcs Scripturc,
pp. aaaa, Aaron 8. Fullcr, avcnport: Singlc Taxcr ol thc Looscr
bscrvancc, pp. aca, and C. Lowcll Harriss, Rothbards Anarcho
Capitalist Critiquc, pp. ,c.
,c Part : Economics
8astiat, Frdric. .c. Economic Harmonies. Translatcd by V. Haydcn 8oycrs.
Princcton, N.J.: . \an Nostrand, .6.
8ohm8awcrk, ugcn von. Capital and Interest. .. Translatcd by Gcorgc .
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..
Clark, John 8atcs. Te Distribution of !ealth. .. Ncw York: Macmillan, .c.
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. .. Social Problems. Ncw York: oublcday Pagc, .c. SP.
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..
. Tc Usc ol Knowlcdgc in Socicty. merican Economic Fe.ie.
(Scptcmbcr .): .c.
. Tc Rcsults ol Human Action but Not ol Human csign. !n Studies
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Lcibcnstcin, Harvcy. Beyond Economic Man. Cambridgc, Mass.: Harvard Uni
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Mcngcr, Carl. Untersuchungen uber die Methode der Social.issenschaften und der
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..
. Te Teory of Money and Credit. ..a. Translatcd by H.. 8atson. !ndi
anapolis: Libcrty Classics, ...
Chapter : Henry George and ustrian Economics ,.
Moss, Laurcncc S., cd. Te Economics of Lud.ig .on Mises. Kansas City, Kans.:
Shccd and Vard, .,6.
riscoll, Gcrald P. Economics as a Coordination Problem. Kansas City, Kans.:
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Rothbard, Murray N. Man, Economy, and State. a vols. Princcton, N.J.: . \an
Nostrand, .6a.
. Po.er and Market. Mcnlo Park, Calil.: !nstitutc lor Humanc Studics,
.,c.
. For a Ne. Liberty. Ncw York: Macmillan, .,.
Schumpctcr, Joscph. History of Economic nalysis. Ncw York: xlord Univcrsity
Prcss, ..
Simon, Julian L. Te Ultimate Fesource. Princcton, N.J.: Princcton Univcrsity
Prcss, ...
Spadaro, Louis M., cd. Ne.Directions in ustrian Economics. Kansas City, Kans.:
Shccd Andrcws and McMccl, .,.
Vickstccd, Philip H. ..c. Te Common Sense of Political Economy. Rcv. and
cnlargcd cd. London: Routlcdgc, ..
. n Essay on the Coordination of the La.s of Distribution. .. London:
London School ol conomics, .a.
Ycagcr, Lcland 8. Tc Mcthodology ol Hcnry Gcorgc and Carl Mcngcr. mer-
ican Journal of Economics and Sociology . (.): aa.
cn~v:vv
Tc cbatc about thc cicncy ol
a Socialist conomy

Nonacadcmic socialists havc in gcncral bothcrcd littlc about howa social

ist cconomy would work. vcn Karl Marx prclcrrcd to attack capitalism
rathcr than dcscribc socialism. !n popular thought, socialist production
was to bc organizcd vcry simply, with solc rcgard to thc nccds ol thc com
radcs.
Tc popular slogan production lor usc, not lor prot ovcrlooks thc
lundamcntal cconomic problcm ol scarcity. !t is simply impossiblc to sat
isly all ol cvcrybodys wants lully. Vithout somc indcxcs ol thc intcnsity
and satiability ol wants and ol thc scarcity ol rcsourccs rclativc to usc
lulncss, rational cconomic calculation is out ol thc qucstion. Supposc tcn
morc small radios could bc produccd at thc sacricc ol onc largc tclcvision
sct. Vould national output thcrcby bc incrcascd or dccrcascd: Vithout
somc conccpt ol valuc, thc qucstion is mcaninglcss. Supposc a ccrtain
product could bc produccd cithcr with tcn units ol land plus vc ol labor
or with lour units ol land plus ninc ol labor. Vhich mcthod ol produc
tion is morc cconomical: Vithout somc conccpt ol valuc, thc qucstion
is mcaninglcss.
Vhcn socialism bccamc an immcdiatc political issuc at thc cnd ol
Vorld Var !, thc Austrian cconomist Ludwig von Miscs spokc lorth to
dcny that socialism is cconomically practicablc. Miscss main argumcnt
can bc summarizcdas thc socialist H.. ickinson (., p. ...) has
doncin thrcc statcmcnts:
+. Rational cconomic activity rcquircs thc pricing ol all goods, produc
tion goods as wcll as consumption goods.

Prcscntcd in thc cpartmcnt ol conomics sta scminar, Tcxas A&M Univcrsity

(thcn Collcgc), Novcmbcr .. Printcd hcrc unchangcd cxccpt lor standardization ol thc
lormat ol rclcrcnccs.
,a
Chapter ,: Te Debate about the Eciency of a Socialist Economy ,
:. Pricing rcquircs thc cxistcncc ol a markct.
. A markct rcquircs thc cxistcncc ol indcpcndcnt owncrs ol thc goods
cxchangcd.
Listcn to Miscss own words:
!n any social ordcr, cvcn undcr Socialism, it can vcry casily bc dccidcd
which kind and what numbcr ol consumption goods should bc produccd.
No onc has cvcr dcnicd that. 8ut oncc this dccision has bccn madc, thcrc
still rcmains thc problcm ol asccrtaining how thc cxisting mcans ol pro
duction can bc uscd most ccctivcly to producc thcsc goods in qucs
tion. !n ordcr to solvc this problcm it is ncccssary that thcrc should bc
cconomic calculation. And cconomic calculation can only takc placc by
mcans ol moncy priccs cstablishcd in thc markct lor production goods
in a socicty rcsting on privatc propcrty in thc mcans ol production. Tat
is to say, thcrc must cxist moncy priccs ol land, raw matcrials, scmi
manulacturcs, that is to say, thcrc must bc moncy wagcs and intcrcst
ratcs. (.aa/.., pp. ...a)
At about thc samc timc that Miscss lamous articlc appcarcd in .ac,
similar idcas camc lrom thc pcns ol Max Vcbcr in Gcrmany and 8oris
8rutzkus inol all placcsRussia. 8rutzkus, lor instancc, wrotc:
just as capitalism posscsscd a gcncral mcasurc ol valuc in thc roublc, so
socialismwould havc to posscss an analogous unit lor thc cvaluation ol its
clcmcnts. . . . !ithout e.aluation any rational economic conduct, under .hat-
e.er kind of economic system, is impossible. (., p. ., italics in original)
Miscs, Vcbcr, and 8rutzkus wcrc not thc rst writcrs to qucstion thc
cconomic ccicncy ol arbitrary planning. For instancc, as carly as .ca,
thc utch cconomist Nicolaas G. Picrson (., pp. .) had cmpha
sizcd that a socialist community would havc to lacc thc problcm ol valuc.
8ut it was lclt lor Prolcssor Miscs to rcvolutionizc acadcmic discussion.
Tis Miscs accomplishcd by his dogmatic insistcncc that rational cco
nomic calculation undcr socialism would bc impossiblc. !n Miscss own
words, vcry stcp that takcs us away lromprivatc owncrship ol thc mcans
ol production and lrom thc usc ol moncy also takcs us away lrom rational
cconomics (.ac/., p. .c).
nsuing discussion ol how to avoid thc pitlalls strcsscd by Miscs bc
camc rcminisccnt ol an articlc publishcd by nrico 8aronc in .c. !n his
Tc Ministry ol Production in thc Collcctivist Statc, 8aronc had applicd
, Part : Economics
Parctos systcm ol cquations to dcmonstratc that all thc cconomic catc
gorics ol thc old rcgimc must rcappcar, though maybc with othcr namcs:
priccs, salarics, intcrcst, rcnt, prot, saving, ctc. (.c/., p. a). Tc
Ministry ol Production, through dclibcratc arrangcmcnt, would havc to
satisly thc two conditions that would rcsult automatically lrom pcrlcct
compctition, that is, cqualization ol priccs with cost, and minimization
ol costs ol production. Tc systcm ol cquations giving thc corrcct allo
cation ol rcsourccs and labor would bc idcntical with thc systcm rccct
ing thc opcration ol lrcc compctition. Howcvcr, 8aronc assumcd that thc
Ministry would actually havc to lormulatc and solvc such cquations, so
hc rclcrrcd skcptically to thc laborious and colossal ccntralization work
ol thc Ministry (assuming thc practical possibility ol such a systcm)
(p. ac).
Tc conccpt ol optimum conditions is cithcr cxplicit or implicit in
thc work ol 8aronc and many postMiscs writcrs. !l onc makcs a numbcr
ol assumptionssuch as that pcoplcs prclcrcnccs as workcrs and con
sumcrs arc to count and that an cthically dcsirablc incomc distribu
tion can bc achicvcdthcn it is possiblc to dcducc ccrtain conditions
which must prcvail in a situation ol maximum wcllarc as a situation in
which no houschold could bc madc still bcttcr without somc othcr housc
hold bcing madc worsc o in conscqucncc. Following \illrcdo Parcto,
J.R. Hicks, Paul Samuclson, Abram 8crgson, M.V. Rcdcr, Abba Lcrncr,
skar Langc, and othcr rcccnt writcrs havc cxplicitly lormulatcd scts ol
optimum conditions. Tc optimum conditions arc thc hcart ol modcrn
wcllarc cconomics.
To savc timc, ! shall not rcad a typical sct ol optimum conditions. Tc
conditions arc morc casily lollowcd whcn sccn in print than whcn mcrcly
hcard, anyway. Succ to say that Prolcssor Hayck has summcd up scvcral
ol thc conditions vcry ncatly: thc marginal ratcs ol substitution bctwccn
any two commoditics or lactors must bc thc samc in all thcir dicrcnt
uscs (., p. ,,).
Tc optimum conditions may bc rcstatcd bricy in tcrms ol costs.
Tc total cost incurrcd in thc production ol thc optimum amount ol
any commodity must bc a minimum, that is, thc avcragc cost at opti
mum output must bc a minimum. Tc optimum output ol cach com
modity is spccicd by thc condition that marginal cost cqual pricc. Tc
priccs uscd in valuing outputs and mcasuring costs nccd not bc thought
ol as markct priccs, thcy canin principlcbc mcrc indcxcs invcrscly
proportional to thc common subjcctivc marginal ratcs ol substitution lor
Chapter ,: Te Debate about the Eciency of a Socialist Economy ,
houscholds and thc common marginal tcchnical ratcs ol substitution lor
rms.
Tc point ol thc discussion so lar is that a socialist planning board
could lormulatc a sct ol optimum conditions and translatc thcsc condi
tions into mathcmatical cquations. !l thc planning board kncw in com
plctc dctail thc prclcrcnccs ol all pcoplc as workcrs and as consumcrs,
il it kncw thc production lunctions ol all productivc proccsscs, il it had
dctailcd inlormation on thc stocks ol all rcsourccs, and il it could dccidc on
somc schcmc ol incomc distribution, thcnconccivablyit could dctcr
minc thc amounts ol cach and cvcry sort ol good and scrvicc which
should bc allocatcd to cach and cvcry usc. !l thc planning board wcrc
omniscicnt, thcnas Hayck rcmarksthc solution ol thc communitys
cconomic problcm would bc a mattcr ol purc logic (Hayck ., p. ,,).
For thc board would cmbody its omniscicncc in mathcmatical cquations.
As 8aronc showcd, thcrc would bc as many cquations as unknowns. Tc
cquations arc to bc solvcd simultancously, and thc solution would bc dctcr
minatc.
Vritcrs bclorc thc timc ol Miscss lamous articlcnotably Vicscr,
Parcto, and Casscl, as wcll as 8aronchad uscd thc conccpt ol cqui
librium dctcrmination through simultancous cquations as an cxpository
dcvicc. 8ut somc socialist writcrs havc cnvisagcd thc solution ol simulta
ncous cquations as thc actual mcthod ol socialist rcsourcc allocation (lor
instancc, Carl Landaucr, andat onc timcH.. ickinson).
n this approach, thc commcnts ol Lioncl Robbins arc most pcrti
ncnt. ! quotc lrom Robbins, Te Great Depression (., pp. .c..).
n papcr wc can conccivc this problcm to bc solvcd by a scrics ol math
cmatical calculations. Vc can imaginc tablcs to bc drawn up cxprcssing
thc consumcrs dcmands lor all thc dicrcnt commoditics at all concciv
ablc priccs. And wc can conccivc tcchnical inlormation giving us thc
productivity, in tcrms ol cach ol thc dicrcnt commoditics, which could
bc produccd by cach ol thc various possiblc combinations ol thc lactors
ol production. n such a basis a systcm ol simultancous cquations could
bc constructcd whosc solution would show thc cquilibrium distribution
ol lactors and thc cquilibrium production ol commoditics.
8ut in practicc this solution is quitc unworkablc. !t would ncccssitatc thc
drawing up ol millions ol cquations on thc basis ol millions ol statisti
cal tablcs bascd on many morc millions ol individual computations. 8y
thc timc thc cquations wcrc solvcd, thc inlormation on which thcy wcrc
bascd would havc bccamc obsolctc and thcy would nccd to bc calculatcd
,6 Part : Economics
ancw. Tc suggcstion that a practical solution ol thc problcmol planning
is possiblc on thc basis ol thc Parctian cquations simply indicatcs that
thosc who put it lorward havc not bcgun to grasp what thcsc cquations
rcally mcan. Tcrc is no hopc in this dircction ol discovcring thc rclativc
sacriccs ol altcrnativc kinds ol invcstmcnt. Tcrc is no hopc hcrc ol a
mcans ol adjusting production to mcct thc prclcrcnccs ol consumcrs.
!n his articlc n thc conomic Tcory ol Socialism, skar Langc
makcs lun ol Robbins and Hayck lor worrying about whcthcr socialists
proposc to solvc simultancous cquations (Langc and Taylor ., p. ).
8ut bclorc dcciding whcthcr Robbins and Hayck dcscrvc this ridiculc,
lcts scc what Carl Landaucr wrotc in a book publishcd as rcccntly as ..
Tc lollowing lincs arc, to mc, among thc lunnicst in all cconomics:
Pricc lormation on thc markct is a scarch lor an cquilibrium through
trial and crror. Tc scllcrs and buycrs changc thcir chargcs and biddings
until a pricc is cstablishcd which just cquilibratcs supply and dcmand.
Tc planning board can carry this proccss out on papcr with innitcly
lcss cost and loss ol timc than it can bc carricd out by scllcrs and buycrs
in rcality.
. . . it is possiblc to cstablish a systcm ol simultancous cquations, in which
thc combincd cccts, in tcrms ol utility produccd, and thc physical quan
titics ol cach clcmcnt in cach combination appcar as thc knowns and thc
unit valucs ol thc clcmcnts as thc unknowns.
Tcrc is no diculty at all in nding as many cquations as wc wish, sincc
thcrc arc almost innumcrablc combinations ol goods and wc havc always
cnough to calculatc thc unknowns.
!nstcad ol lollowing thc rulcs ol thc mathcmatical tcxtbook, wc may
systcmatically changc all thc clcmcnts ol thc cquations until wc arrivc at
magnitudcs which will satisly thc conditions.
Tc planning board . . . applics thc trialandcrror proccss on papcr. . . .
Tis lorm ol cxpcrimcntal variation is an immcnsc cconomy in timc,
cort, and matcrial as comparcd with thc cxpcrimcnts in stccl and tim
bcr, coppcr and labor, sclcction ol occupation and cxpcnditurc ol con
sumcr dollars, which is thc prcvalcnt lormol approaching an cquilibrium
undcr thc status quo.
. . . thc cquations will not rcach a labulous numbcr, but it is quitc possiblc
that a lcwhundrcd thousand combinations havc to bc takcn into account.
Vhy this should cxcccd thc powcr ol algcbraic analysis is dicult
to scc. !t probably docs not cxcccd thc amount ol calculation work
Chapter ,: Te Debate about the Eciency of a Socialist Economy ,,
which a hundrcd middlcsizcd cnginccring rms havc to pcrlorm in a
wcck.
!t is a crudc mcthod to scarch lor an cquilibrium by cxpcrimcntally
varying all thc dctcrminants until thcy t togcthcr, and, although it is
innitcly morc cconomical to carry out thcsc variations on papcr than in
rcality, a lurthcr grcat cconomy ol cort might bc achicvcd through thc
dcvclopmcnt ol mathcmatical shortcuts. A luturc gcncration may look
upon thc trialandcrror proccss vcry much as a sccondycar schoolboy,
knowing thc usc ol multiplying and dividing tcchniqucs, looks at thc
abacus. 8ut in thc mcantimc, thc abacus mcthod scrvcs thc purposc ol
dcmonstrating that thc problcm is in any casc solublc, practically as wcll
as thcorctically.
.
(Landaucr ., pp. .)
8clorc procccding to socialist schcmcs that assign a largc rolc to priccs,
lcts cxaminc thc optimum condition that lor cvcry product, marginal cost
should cqual pricc. Tis is Abba Lcrncrs lamous instruction to managcrs
ol socializcd cntcrpriscs. !ts implications havc bccn onc ol thc hottcst
topics ol dcbatc in thc cld ol wcllarc cconomics.
First, just .hy should marginal cost and pricc bc cqual: Tc marginal
cost ol commodity is thc sum ol thc priccs ol thc additional lactorunits
nccdcd to makc an cxtra unit ol commodity . Tc pricc to a produccr ol
commodity ol cach lactorunit cquals thc lactors marginal valuc pro
ductivity clscwhcrc. !l consumcrs will pay morc lor commodity than
its marginal cost, this mcans that thc ncccssary additional lactors will pro
ducc morc satislaction (as mcasurcd by what consumcrs arc willing to pay)
in thc production ol commodity than in thc production ol anything clsc.
!l, on thc othcr hand, consumcrs will not pay as much lor commodity as
its marginal cost, this mcans that marginal lactors will producc morc con
sumcr satislaction clscwhcrc. Now, an additional unit ol any lactor should
havc thc samc marginal valuc productivitythat is, thc samc marginal
productivity ol consumcr satislactionsin all its uscs. Tcrclorc, produc
tion ol commodity should bc cxpandcd or contractcd to thc point at
which marginal cost and pricc arc cqual.
!l avcragc cost ol a commodity dccrcascs throughout thc rclcvant rangc
as output cxpands, marginal cost is lcss than avcragc cost. Tc total amount
.
!n a lootnotc Landaucr citcs thc work ol Hcnry Schultz to show that actual dcmand
curvcs can bc lound.
!n thc book quotcd, Landaucr, an oldtimc socialist, is ostcnsibly arguing lor planning
rathcr than lor socialism. Howcvcr, it would bc mcrc quibbling about thc usc ol words
to dcny that Landaucrs proposals arc socialism.
, Part : Economics
paid lor thc commodity on thc basis ol marginalcost pricing will thus
lall short ol total costs. 8ut sincc pricc should cqual marginal cost, thc
industry should run at a loss, and thc govcrnmcnt should makc up thc
loss out ol gcncral taxation.
Allrcd Marshall had alrcady in his Principles (.c/.ac, pp. 6,)
championcd subsidics to dccrcasingcost industrics in thc oldlashioncd
languagc ol consumcrs surplus. !n rcccnt ycars Harold Hotclling (.,
pp. aaa6) and Abba Lcrncr (.,, csp. pp. ..) havc insistcd vig
orously on thc proposition, and though thc conclusion is startling, thc
HotcllingLcrncr logic, summarizcd abovc, sccms impcccablc.
Tc disconccrting thing is that anothcr chain ol rcasoning lcads to a
sccmingly oppositc conclusion. R.H. Coasc (.6, pp. .6.a, csp. p. .,a)
statcs two principlcs ol optimum pricing:
+. For cach individual consumcr thc samc lactor should havc thc samc
pricc in whatcvcr usc it is cmploycd. thcrwisc consumcrs would not
bc ablc to choosc rationally, on thc basis ol pricc, thc usc in which thcy
prclcrrcd to havc thc lactor cmploycd.
:. Tc pricc ol a lactor should cquatc its supply and dcmand and should
bc thc samc lor all consumcrs and in all uscs.
From thcsc principlcs Coasc draws thc implication that thc amount
paid lor a product should bc cqual to thc total valuc that thc lactors uscd
in its production havc in anothcr usc or to anothcr uscr. !n othcr words,
thc pricc ol a product should bc cqual to its lull cost.
Coasc argucs that il ccrtain lactors ol production can bc obtaincd lrcc
in onc usc (bccausc thcy do not cntcr into marginal cost), but havc to
bc paid lor in anothcr usc (bccausc thcy do cntcr into marginal cost),
thcn consumcrs may choosc to cmploy thcsc lactors in thc usc in which
thcy arc lrcc, cvcn though thcy would in lact prclcr to cmploy thcm in
somc othcr way. !l thc HotcllingLcrncr solution wcrc adoptcd, thcrc
would bc only onc way out ol thc diculty. Tat would bc lor thc statc
to dccidc whcthcr or not cach consumcr should bc supplicd with thc
particular good in qucstion. Tis would bc donc by cstimating whcthcr
or not cach consumcr .ould bc willing to pay thc lull cost ol supply
ing him il hc wcrc callcd upon to do so. Coasc lurthcr argucs that no
govcrnmcnt could cstimatc individual dcmands accuratcly, that il all pric
ing wcrc on a marginalcost basis, thcrc would bc lcss inlormation avail
ablc by which such an cstimatc could bc madc, and that thc inccntivc
Chapter ,: Te Debate about the Eciency of a Socialist Economy ,
to corrcct lorccasting would sucr il thcrc wcrc no subscqucnt mar
kct tcst ol whcthcr such cstimatcs ol individual dcmand wcrc corrcct
or not.
Coascs sccond objcction to HotcllingLcrncr pricing is that it would
rcdistributc incomc in lavor ol patrons ol dccrcasingcost industrics. !t is
not casy to imaginc how such a rcdistribution might bc considcrcd cthi
cally dcsirablc. For instancc, Harry Norris (.,, pp. 6a) imagincs two
countrics which arc idcntical cxccpt that onc is lightcd by a constantcost
gas industry and thc othcr is lightcd by a dccrcasingcost clcctric industry.
!n cach country tcn pcrccnt ol thc taxpaycrs arc backwoodsmcn living
bcyond thc rangc ol utility scrvicc. !n thc gaslit country, cach housc
hold pays lor its lighting in lull. 8ut according to thc HotcllingLcrncr
solution, thc backwoods taxpaycrs in thc clcctric country should subsi
dizc thc lighting ol thc city dwcllcrs. Yct this arrangcmcnt could hardly
bc dclcndcd on cthical grounds.
A third objcction to Hotclling and Lcrncr is that thc taxation ncccs
sary to raisc subsidy moncy would havc thc lamiliar disinccntivc cccts
whcrc imposcd.
A lourth sct ol objcctions to marginalcost pricing is mcntioncd,
strangcly cnough, by a champion ol thc HotcllingLcrncr solution and
opponcnt ol Coascs proposals. Villiam\ickrcy (., pp. a.a) points
out that in somc instanccs thc application ol HotcllingLcrncr pricing
might involvc scrious political and sociological conscqucnccs. \ickrcy
may havc in mind thc dangcrs ol any ncw cxcusc lor raids on thc Unitcd
Statcs Trcasury.
R.H. Coasc (.6, pp. .6.a, csp. pp. .,.) sccks to rcconcilc thc
implications ol his own and thc HotcllingLcrncr rcasoning by thc ingc
nious dcvicc ol multipart pricing. Patrons ol dccrcasingcost industrics
arc chargcd a lump sum or scrics ol lump sums which arc supposcd to
covcr intramarginal costs. ach consumcr is thcn allowcd to obtain addi
tional units ol product at thc marginal cost. Tc advantagc ol multipart
pricing is that consumcrs can bc askcd to pay a total amount which is cqual
to thc total cost. Tcrclorc, it is possiblc to discovcr whcthcr consumcrs
valuc thc total supply at lcast thc total cost ol supplying thcm. (Undcr a
pricing systcm, whcthcr consumcrs arc willing to pay an amount cqual
to total cost can bc discovcrcd only by actually asking thcm to pay this
amount.) At thc samc timc, additional units arc supplicd at additional
cost, and so thc right output can bc obtaincd, that is, thc Lcrncr alloca
tion ol lactors can bc achicvcd.
c Part : Economics
Villiam \ickrcy (., pp. a.a) raiscs a numbcr ol practical objcc
tions to multipart pricing. 8utto put it mildlya numbcr ol practi
cal objcctions could bc lcvclcd against HotcllingLcrncr pricing also. !n
summary, ! bclicvc that Coascs multipart pricing schcmc rcmains at lcast
as intcllcctually rcspcctablc as marginalcost pricing.
Vritcrs who wcrc unhappy about thc prospcct ol actually having to
solvc millions ol simultancous cquations lormulatcd thc socallcd com
pctitivc or trialandcrror solution to thc problcm ol socialist rcsourcc
allocation. Tcrc is a largc mcasurc ol agrccmcnt in thc idcas ol skar
Langc and Frcd V. Taylor (.), A.C. Pigou (.,), R.L. Hall (.,),
H.. ickinson (.), and 8urnham P. 8cckwith (.).
According to thc compctitivc solution, houscholds havc lrccdom ol
choicc in rcgard to jobs and consumcr goods. Houscholds rcccivc and
spcnd actual cash. Tc ccntral authority instructs thc managcr ol cach
production unit to opcratc in accord with two basic rulcs. For any givcn
scalc ol output, hc must combinc thc lactors ol production in such a way
as, at thc cstablishcd priccs, to minimizc avcragc cost pcr unit ol output.
Sccondly, hc must x output so that marginal cost ol thc product cquals
its cstablishcd pricc.
Tc qucstion ariscs: How do thc priccs ol consumcr goods, intcrmcdi
atc goods, and productivc rcsourccs get cstablishcd: Answcr: thc ccntral
authority docs it. (!ncidcntally, thc priccs lor all things cxccpt labor and
consumcr goods nccd not bc markct priccs, thcy can bc mcrc accounting
priccs.) Tc ccntral authority dccrccs a pricc lor cach good. !l thc man
agcrs ol productivc units lollow thc rulcs, thcy willlikc cntrcprcncurs
undcr pcrlcct compctitionrcgard thc priccs as paramctcrs. l coursc,
thc priccs dccrccd by thc ccntral authority will not bc corrcct at rst. Tcrc
will bc shortagcs ol somc things and surpluscs ol othcrs. Conscqucntly,
thc authority will raisc thc priccs ol things in cxccss dcmand, and lowcr
thc priccs ol things in cxccss supply. 8y constant cxpcrimcntingby trial
andcrrorthc ccntral authority is supposcd to makc cvcrything work out
all right.
Similarly, thc ccntral authority could makc capital lrccly availablc to
thc socialist cntcrpriscs at an cstablishcd ratc ol intcrcst. !ntcrcst would
bc rcckoncd among thc clcmcnts in cost. !n many socialist blucprints,
thc ccntral authority would arbitrarily x thc total amount ol liquid cap
ital availablc. !n any casc, thc authority could conccivably cquatc thc
dcmand and supply ol capital by manipulating thc intcrcst ratc, just as it
would manipulatc othcr priccs. !ncidcntally, nrico 8aronc had alrcady
Chapter ,: Te Debate about the Eciency of a Socialist Economy .
mcntioncd thc idca ol sctting thc intcrcst ratc by trial and crror in his
cssay ol .c (pp. a6a6).
Tc main lcaturc ol thc Compctitivc Solution, thcn, is that somc
8oard, rathcr than thc markct, adjusts priccs to bring supply and dcmand
into linc.
Scvcral qucstions about this LangcTaylor solution arc obvious:
+. How would thc 8oard lorcc managcrs to obcy thc rulcs: For
instancc, cntcrpriscs that wcrc largc in rclation to thcir markct might
prot by taking into account thc cccts ol thcir actions on thc 8oards
priccsctting dccisions. Tc managcrs might rcstrict output in much thc
samc way as monopolists do undcr capitalism. vcn assuming away all
qucstions ol monopolistic motivcs, thcrc still rcmains thc problcm ol
whcthcr managcrs should bc allowcd to act upon thcir anticipations ol
pricc changcs by thc 8oard.
:. How would thc 8oard judgc thc ccicncy ol managcrs:
l coursc, in coping with thosc two dicultics, thc 8oard might look
into thc books ol thc individual production units. 8ut il carricd to any
lcngth, this practicc would conict with thc csscntial aimol dcccntralizing
dccisionmaking.
. How would thc LangcTaylor solution apply to thc priccs ol com
moditics that cannot bc standardizcd, such as largc units ol capital cquip
mcnt which must bc madc to ordcr: !n all such cascs thcrc would bc no
basis lor ccntralizcd xing ol priccs so as to cqualizc dcmand and supply.
Socialist writcrs simply ignorc thc various complications that would
arisc.
. !l thc priccsctting authority pcrccivcs, lor cxamplc, that thc dc
mand lor rubbcr cxcccds thc supply, how is it to know whcthcr this indi
catcs too low a pricc lor rubbcr or too high a pricc lor tircs: !l thc dcmand
lor shcct aluminum is lcss than thc supply, is thc pricc ol aluminum too
high, or is thc pricc ol plywood too low: !l thc dcmand lor gasolinc lalls
short ol thc supply, is this duc to too high a pricc lor gasolinc or too high
a pricc lor automobilcs: Tc point is that thc ccntral authority would havc
to work with Valrasian, and not mcrcly Marshallian supply and dcmand
lunctions. Tc authority could not changc a singlc pricc without chang
ing thc cquilibrium priccs ol othcr goods. Trialandcrror would not bc
simply a mattcr ol making particular priccs highcr or lowcr, it would bc
a problcm involving at lcast many millions ol possiblc pattcrns ol pricc
incrcascs or dccrcascs. And lor cach incrcasc or dccrcasc thcrc would bc
thc problcm ol how much.
a Part : Economics
Furthcrmorc, continual shilts and changcs in supply and dcmand lunc
tions thcmsclvcs would blur thc ccntral authoritys vicw ol thc cccts ol
its trialsandcrrors.
Still lurthcr commcnts on LangcTaylor socialism arc in ordcr. Likc
somc ol thc lorcgoing points, thcy arc statcd most cogcntly in thc writ
ings ol Prolcssor Hayck (., chaps. ix and iv). For instancc, by thc vcry
naturc ol administrativc dccisions, such pricc changcs as wcrc madc would
occur latcr than il thc priccs wcrc dctcrmincd on a lrcc markct. Sccondly,
thc ccntral pricc authority would dicrcntiatc much lcss than a lrcc mar
kct would bctwccn thc priccs ol commoditics according to dicrcnccs ol
quality and thc circumstanccs ol timc and placc. Tis mcans that managcrs
ol production would havc no induccmcnt, and cvcn no rcal possibility, to
makc usc ol spccial opportunitics, spccial bargains, and all thc littlc advan
tagcs ocrcd by spccial tcmporary or local conditions. Socicty could not
makc lull usc ol thc sort ol dispcrscd knowlcdgc that cannot bc collcctcd
in thc lorm ol statistics, lor cxamplc, knowlcdgc ol vacant spacc in thc
hold ol a tramp stcamcr about to sail, knowlcdgc ol a machinc that is not
bcing lully uscd, knowlcdgc ol a particular pcrsons skill that might bc
bcttcr utilizcd.
Furthcrmorc, thcorists ol thc LangcTaylor school crr in rcgarding
cost curvcs as givcn. nc lunction ol capitalist pricc compctition is
to rcducc costs to a minimum. Undcr socialism, thc ncw man with thc
ncw idca is not ablc to cntcr an industry and undcrcut old produccrs
unlcss thc ccntral authority approvcs his projccts und providcs him with
capital.
Furthcr commcnts on LangcTaylor socialism apply to an cvcn morc
dcccntralizcd typc ol socialism as wcll. ! will savc thcsc commcnts until
thc discussion ol that othcr typc.
Prolcssor Pigou, lor onc, rccognizcs thc dicultics that would bcsct
any attcmpt to apply his Compctitivc Solution to thc problcmol socialism.
Hc says: vidcntly . . . thc practical diculty ol working such a proccss
will bc cnormous. . . . Farrcaching crrors arc almost incvitablc. Ncvcrthc
lcss, Pigou congratulatcs himscll on thc lact that his analysis shows that
thc allocation problcm is solublc in principle (.,, p. ..). Tis brings
mc to rcmark that ! cannot undcrstand thc common chargc that critics
ol socialism basc thcir casc on mcrcly practical objcctions. As Lioncl
Robbins obscrvcs, it is onc thing to skctch thc rcquircmcnts ol thc plan.
!t is anothcr thing to conccivc ol its cxccution (., p. .c). l coursc
thc allocation problcm is solublc in principle. 8ut it is just as possiblc, in
Chapter ,: Te Debate about the Eciency of a Socialist Economy
principle, to brccd wingcd clcphants. Anyonc who doubts this can nd out
how lrom mc latcr.
Somc socialist writcrs, notably Mauricc obb, nd it hard to takc scri
ously thc suggcstion that plant managcrs should play an claboratc gamc
ol bidding lor capital on a markct, instcad ol transmitting thc inlormation
(about productivitics) dircct to somc planning authority (.6, p. ca).
obb and his school takc rclugc in a largc mcasurc ol ccntral planning ol
thc Sovict typc. Paul Swcczy, also, lavors comprchcnsivc planning, indccd,
hc agrccs with H.. ickinson that ccntralization is all but incvitablc
undcr socialism. Yct Swcczy (., pp. aaa) citcs Langcs On the Eco-
nomic Teory of Socialism as having nally rcmovcd any doubts about thc
capacity ol socialism to utilizc rcsourccs rationally, and hc sccms not to
rcalizc thc inconsistcncy ol his own position.
Sincc thc ccntralizcdplanning approach is unqucstionably vulncrablc
to thc criticisms advanccd long ago by Miscs, ! nd it a pcculiarly unin
tcrcsting lorm ol socialism. Tcrclorc, lcts go on to an cxtrcmcly dcccn
tralizcd lorm ol socialism.
Abba Lcrncr, in Te Economics of Control (.,), and Lcrncr and skar
Langc, in a pamphlct publishcd in ., advocatc lrcc cntcrprisc. 8y this,
Lcrncr and Langc mcan that both govcrnmcnt and privatc cntrcprcncurs
should bc lrcc to cntcr any linc ol busincss not rcscrvcd to thc govcrn
mcnt. Pcrhaps this arrangcmcnt would bc thc lamous mixcd cconomy
rathcr than lullblown socialism. Franco Modigliani (.,, pp. ..)
advocatcs a dcccntralizcd socialism in a lcngthy articlc publishcd in .,,
though hc docs not go ncarly as lar towards socallcd lrcc cntcrprisc as
do Lcrncr and Langc.
Lcrncr and Langc rccognizc that
what thc managcr ol cvcry lactory nccds is somc simplc indication
ol thc usclulncss lor altcrnativc production ol cach ol thc goods that
hc might usc. Such an indication ol thc altcrnativc productivity ol
cach lactor is providcd by its price. For this wc must havc markcts
lor thc lactors in which thc pricc cquatcs thc supply to thc dcmand,
with appropriatc rulcs govcrning thc dcmand lor thc lactors ol produc
tion by thc various managcrs in chargc ol thc public cntcrpriscs. (.,
p. .)
!ncidcntally, ! cannot hclp but intcrprct that quotation lrom two ol
thc most compctcnt socialist writcrs as anything lcss than an outright
conccssion ol at lcast twothirds ol Prolcssor Miscss original argumcnt.
Part : Economics
!t is also notcworthy that Langc has abandoncd thc position hc hcld in
On the Economic Teory of Socialism.
l thc various instructions which Lcrncr, Langc, and Modigliani
addrcss to thc managcrs ol production, thc most important is our old
lricnd: cquatc marginal cost and pricc. 8ut thc ccntral planning board
now sccms to havc lost its job ol sctting priccs by trial and crror.
!n Te Economics of Control , Lcrncr writcs:
!n cach markct, whcthcr lor lactors or lor products, priccs arc raiscd
whcncvcr thc dcmand lor any product or lactor is grcatcr than thc supply
and lowcrcd whcn thc supply is grcatcr than thc dcmand until a sct ol
priccs is rcachcd in which cach dcmand is cqual to thc corrcsponding
supply. (p. 6)
!t is not clcar who is to do thc raising and lowcring. Lcrncr sccms to
lcavc thc task to a markct rathcr than to a 8oard. 8ut il priccs arc not
paramctcrs cithcr cstablishcd by atomistic compctition or by somc 8oard,
thcn thc rulc cquatc marginal cost and pricc is not unambiguous.
Prolcssor Morgncr has suggcstcd to mc that pcrhaps thc idca is to
havc cach managcr opcratc at thc output and scll at thc pricc indicatcd
by thc intcrscction ol his avcragc rcvcnuc and marginal cost curvcs. Somc
rcmarks by Paul A. Samuclson suggcst that this intcrprctation may bc
corrcct:
thc dcccntralizcd opcrators in a planncd socicty should rclrain lrom a
litcral aping ol atomistic, passivc, paramctric pricc bchavior. !nstcad ol
prctcnding that dcmand curvcs arc innitcly clastic whcn thcy arc not,
thc corrcct shapc ol that curvc is to bc takcn into account. Tis docs
not mcan that thc dcccntralizcd opcrators should takc account ol thcir
inucncc on pricc as a monopolist would. (., p. aa)
Assuming that thc cquating ol marginal cost and avcragc rcvcnuc is
what Lcrncr, Langc, and Modigliani havc in mind, lcts scc how this sys
tcm would work:
+. 8arring cxtrcmc coincidcnccs, dicrcnt cntcrpriscs would bc try
ing to chargc dicrcnt priccs lor thc samc product. Tcrc is no rcason lor
assuming that thc marginalcostavcragcrcvcnuc intcrscctions ol dicr
cnt cntcrpriscs would bc at thc samc pricc.
:. !l managcrs rcccivc prcstigc, powcr, or bonuscs according to thc
prospcrity ol thcir cntcrpriscs, thcy would havc an inccntivc to takc
Chapter ,: Te Debate about the Eciency of a Socialist Economy
advantagc ol impcrlcct compctition by ovcrcharging buycrs and undcrpay
ing supplicrs. !l thc ccntral authority tricd to cnlorcc rigorous adhcrcncc
to thc rulcs, thcrc would havc to bc duplication ol managcmcnt and so
pcrhaps ccntralizcd planning altcr all.
. Managcrs might not know thcir own marginal cost curvcs, cvcn il
dctcrminatc. Most important, managcrs almost ccrtainly could not know
thcir avcragc rcvcnuc curvcs lor thc simplc rcason that such curvcs would
not cxist as indcpcndcnt cntitics. To bc spccic, thc socializcd cntcrpriscs
would almost ccrtainly bc oligopolics, and thc outstanding charactcristic
ol oligopoly is abscncc ol any determinate avcragc rcvcnuc curvc. Noticc
that ! am not talking about mcrc practical dicultics ol mcasurcmcnt.
My point is that ncithcr thc most powcrlul statistical tcchniqucs nor thc
lact ol govcrnmcnt owncrship could providc an oligopolistic rm with
somcthing noncxistcnt, that is, with a dctcrminatc avcragc rcvcnuc curvc.
Tus it appcars that thc LcrncrLangcModigliani rulcs do not yicld
any dctcrminatc priccoutput situation at all. Tc socialist cconomy would
simply havc to wallow in chaos.
Scvcral obscrvations apply both to LangcTaylor socialism and to
LcrncrLangcModigliani socialism:
+. Tc adoption ol compctition or quasicompctition mcans giving up
whatcvcr advantagcs ccntralizcd planning might aord (il thosc advan
tagcs wcrc considcrcd worth thc pricc in tcrms ol gravc disadvantagcs).
For cxamplc, compctitivc socialism has no surc curc lor thc busincss cyclc.
ickinson, Modigliani, and othcrs who discuss thc problcmpin thcir laith
on what arc csscntially thc sort ol Kcyncsian scal policics that capitalism
could adopt. 8ut 8cckwith has thc most clcgantly simplc dcvicc lor gct
ting rid ol uncmploymcnt: just cut wagc ratcs to whatcvcr cxtcnt may bc
ncccssary. Vith rcgard to wagcs, ickinson and 8cckwith dcclarc thcm
sclvcs lor picccratcs and thc othcr trappings ol Taylorism. !ncidcntally,
lcw socialist priccthcorists try to prctcnd that thcir systcms hold any
placc lor unionism as wc know it today. To my knowlcdgc, only Lcrncr
and Langc cannot bcar to stop mouthing thc shibbolcths ol contcmporary
unionism.
:. !t is qucstionablc whcthcr thc diligcncc and thc dccisions ol social
ist managcrs ol production would bc govcrncd by suitablc inccntivcs. As
Miscs points out, thc capitalist cntrcprcncur
docs not just invcst his capital in thosc undcrtakings which ocr high
intcrcst or high prot, hc attcmpts rathcr to strikc a balancc bctwccn his
dcsirc lor prot and his cstimatc ol thc risk ol loss. Hc must cxcrcisc
6 Part : Economics
lorcsight. !l hc docs not do so thcn hc sucrs losscslosscs that bring
it about that his disposition ovcr thc lactors ol production is translcrrcd
to thc hands ol othcrs who know bcttcr how to wcigh thc risks and thc
prospccts ol busincss spcculation.
Capitalists and spcculators cannot bc cxpcctcd to act as mcrc agcnts
ol thc community, lor
thc lunction which capitalists and spcculators pcrlorm undcr Capital
ism, namcly dirccting thc usc ol capital goods into that dircction in
which thcy bcst scrvc thc dcmands ol thc consumcr, is only pcrlormcd
bccausc thcy arc undcr thc inccntivc to prcscrvc thcir propcrty and to
makc prots. (.aa/.., pp. .c..)
Furthcrmorc, thcrc is no rcason to think that thc rccklcssncss ol somc
socialist managcrs would compcnsatc lor thc ovcrcautiousncss ol othcrs.
Two wrongs dont makc a right.
. As ! havc alrcady implicd, thc schcmcs ol priccthcory socialists
havc an cxtrcmc static bias. Vc may wcll join with Prolcssors Hayck,
Miscs, and Robbins in asking: Vhat is to bc thc indcpcndcnt busincss
unit: Vho is to bc thc managcr: Vhat rcsourccs arc to bc cntrustcd to
him: How is his succcss or lailurc to bc tcstcd: n what principlc is
thc control ol productivc lacilitics to bc translcrrcd lrom onc managcr
to anothcr (Hayck ., csp. pp. .,a, .6.,): Tc idca ol instructing
thc controllcrs ol various industrial units to act as if thcy wcrc capitalist
cntrcprcncurs ignorcs thc lundamcntal problcm ol a dynamic cconomy,
thc problcm ol dcciding what rcsourccs should bc riskcd in what vcnturcs
undcr thc control ol what mcn. As Robbins says,
For compctition to bc lrcc thc entrepreneur must bc at libcrty to withdraw
his capital altogcthcr lrom onc linc ol production, scll his plant and his
stocks and go into othcr lincs. Hc must bc at libcrty to brcak up thc
administrativc unit. !t is dicult to scc how libcrty ol this sort, which
is ncccssary il thc markct is to bc thc rcgistcr ol thc varying pulls ol
all thc changcs in thc data, is compatiblc with thc rcquircmcnts ol a
socicty whosc raison detre is owncrship and control at thc ccntrc. (.,
pp. ..)
Miscs rcmarks that whcn socialist thcorists assumc stationary con
ditions, thc csscntial lunction ol cconomic calculation has by hypothesis
alrcady bccn pcrlormcd (., pp. .,.).
R.L. Hall worrics about how anyonc could tcll whcthcr a socialist
monopoly wcrc as ccicnt as it might bc. !n Halls words,
Chapter ,: Te Debate about the Eciency of a Socialist Economy ,
!l a world champion has no onc against which to mcasurc himscll, how
can hc tcll ol what hc is capablc: A runncr can run against himscll by
mcans ol a stopwatch: will a statc conccrn bc prcparcd to makc contin
uous corts to rcducc its own costs: !l it docs not do so, no onc clsc can.
!n a capitalist statc Ncmcsis is always waiting lor thc lcthargic monopoly,
as thc calamity ol thc intcrnal combustion cnginc lcll upon thc railways.
8ut it is doubtlul whcthcr anyonc in a collcctivist statc would havc any
hopc ol starting a rival dcpartmcnt. (.,, pp. ..)
. Fcw blucprints ol socialism makc much spccic provisions lor
cconomic dcvclopmcnt. vcn Franco Modiglianis mcagcr rcmarks arc
unusual in thc litcraturc (.,, pp. 66). Modigliani laccs squarcly thc
disadvantagc that dccisions about ncw products would havc to bc madc
by an administrativc body. Hc pcrccivcs thc twin dangcrs ol incrtia duc to
lack ol a prot inccntivc and ol rccklcssncss duc to lack ol a losspcnalty.
(Modigliani lccls that thc tcndcncy toward incrtia is probably morc char
actcristic ol burcaucracy.) To avoid thcsc dangcrs, Modigliani proposcs
a Rcscarch Commission to dccidc on ncw big invcstmcnts and on ncw
products rcquiring ncw plants. Tc Rcscarch Commission and thc vari
ous industrial managcrs arc to sharc thc rcsponsibility lor mcrc product
modications, and thc managcrs arc to rcccivc bonuscs lor succcsslul inno
vations.
oubts about thc progrcssivcncss ol socialism do not rcst on any sup
poscd lack ol inccntivcs lor scicntists. As 8rutzkus writcs,
Scicntic discovcrics, it is truc, arc not madc out ol a dcsirc lor prot
but in answcr to humanitys unqucnchablc scarch lor truth. !n thc casc
ol invcntions thc scicntic intcrcst rcccdcs in lavour ol practical motivcs.
8ut ncithcr scicntists nor cvcn invcntors arc dircctly rcsponsiblc lor cco
nomic progrcss, it is thc organizcrs and practical mcn who stimulatc
dcvclopmcnt.
vcn supposing . . . that thc highcst posts wcrc llcd in thc bcst possiblc
manncr, thcrc would still rcmain thc dangcr that cach innovation could
only bc tcstcd in a dcnitc placc. . . .
!l . . . thc socialist organization succccdcd in assuming stablc lorms it
wouldbc distinguishcdby immcnsc indolcncc andconscrvatism. !t would
ocr nothing which could bc comparcd to thc unccasing movcmcnt ol
cconomic lilc undcr capitalism. (., pp. 6,6)
!n his cssay On Liberty, John Stuart Mill uscs his argumcnts lor lrcc
dom ol cxprcssion as a casc lor lrccdom ol cntcrprisc:
Part : Economics
Tc managcmcnt ol purcly local busincss by thc localitics, and ol thc
grcat cntcrpriscs ol industry by thc union ol thosc who voluntarily sup
ply thc pccuniary mcans, is lurthcr rccommcndcd by all thc advantagcs
which havc bccn sct lorth in this ssay as bclonging to individuality ol
dcvclopmcnt, and divcrsity ol modcs ol action. Govcrnmcnt opcrations
tcnd to bc cvcrywhcrc alikc. Vith individuals and voluntary associations,
on thc contrary, thcrc arc varicd cxpcrimcnts, and cndlcss divcrsity ol
cxpcricncc. (./.a, p. ..)
Modiglianis Rcscarch Commission would hardly bc an adcquatc sub
stitutc lor Mills divcrsity ol modcs ol action, cvcn il it wcrc stacd
cntircly by scicntic and tcchnical cxpcrts. Tc vcry csscncc ol innova
tion is that it cmbodics idcas divcrgcnt lrom prcvailing thought. Progrcss
cannot bc complctcly plottcd and blucprintcd in advancc, that is why it is
progrcss. ltcn discovcry can bc idcnticd only in rctrospcct (cl. Harpcr
., pp. ,a,6). !l thc govcrnmcnt Rcscarch Commission dccidcd not to
wastc rcsourccs on somc ncw idca, it would bc rulcd out, thats all. 8ut
in a compctitivc cntcrprisc systcm, an idca discardcd by ninctyninc com
panics still has a chancc with a hundrcdth company. And no company can
aord to bc too rash in rcjccting innovations, lor lcar that its compctitors
will gct thc jump on it. !n a compctitivc systcm, a rcscarch workcr who
lccls lrustratcd in onc job can takc his idcas to anothcr cmploycr. Undcr
socialism things would bc dicrcnt.
Vith rcgard to invcntion, R.L. Hall writcs:
thcrc docs not sccm to bc any critcrion by which thc Socialist statc can
dccidc thc amount ol rcsourccs which it is propcr to spcnd: so that thcy
cannot rationally crcatc a prolcssion ol invcntors. n thc othcr hand, il
thcsc mattcrs arc lclt to thc chancc on which thcy dcpcnd thc path ol
thc innovator will bc cvcn hardcr than it is in thc capitalist statc. !n thc
intcrcsts ol cconomy it is ncccssary to discouragc cranks, but it is proba
blc that thc lcadcrs ol industry will considcr that all innovators arc cranks.
!n thc capitalist statc thc invcntor is lrcc to dcvotc any rcsourccs which
hc inhcrits, or can carn or can whccdlc lrom patrons, to his rcscarchcs.
!n a socialist statc hc will gct nothing which hc docs not carn and hc
may nd himscll in a labour camp il hc ncglccts his work. Tc progrcss
ol spontancous invcntion may wcll bc slowcd unlcss carc is dcvotcd to
prcscrving a rcccptivc lramc ol mind in thc highcr ocials. 8ut il thcy
arc too rcccptivc thcrc may bc dissipation ol thc national rcsourccs in
grandiosc projcctions doomcd to lailurc. !t is dicult to lollow a middlc
coursc whcn no onc knows whcrc thc middlc is: thc socialist statc will
Chapter ,: Te Debate about the Eciency of a Socialist Economy
havc no ccrtainty, nor can any othcr lorm ol organization givc it. (.,,
pp. .a.)
!n summary, innovations start out in a progrcssivc cconomy as thc
whimol thc lcwand arc adoptcd only latcr by thc incrt masscs. !nnovation
would bc slowcd in an cconomy which did not allow thc widcst possiblc
scopc lor varicty, whims, cvcn ccccntricitics.
!t may bc objcctcd that thc lorcgoing considcrations arc political objcc
tions to socialism, but do not constitutc an economic argumcnt. ! do not
think this is so. Vhcthcr an cconomic systcm is ccicnt or not is vcry
largcly a mattcr ol whcthcr it is progrcssivc or not. Tc mcrc lact that
wc cannot handlc qucstions ol cconomic dcvclopmcnt by thc prccisc and
clcgant tcchniqucs ol pricc thcory docs not mcan that such qucstions lall
outsidc thc scopc ol cconomics.
Tc political casc against socialism is quitc dicrcnt. !t would cmpha
sizc, among othcr mattcrs, thc dangcr that prcssurc groups could sabo
tagc progrcss. Supposc, lor instancc, that thc automobilc had not yct bccn
invcntcd, but that somc mcn had idcas lor dcvcloping horsclcss carriagcs.
Nowwhich prcssurc group would havc thc car ol thc govcrnmcnt Rcscarch
Commissionthc buggy makcrs, with thcir thousands ol votcs, or thc
wouldbc automobilc makcrs, with thcir mcrc handlul ol votcs:
Tis papcr docs not handlc thc political casc against socialism or thc
qucstion ol lrccdomor scrldomundcr socialism. !ll lcavc thcsc mattcrs lor
discussion altcrward. 8ut ! do want to rccord my conviction that political
and cultural considcrations about socialism rival in importancc thc purcly
cconomic considcrations. !t docs sccm lutilc to worry about whcthcr a
socialist govcrnmcnt could managc thc cconomy ccicntly and in accord
with pcoplcs wishcs, whcn thc morc immcdiatc qucstion is whcthcr pow
crlul rulcrs could at all timcs bc lorccd to want to rulc in thc intcrcsts ol
all thc pcoplc.
!t sccms to mc that thc history ol socialist litcraturc is a history ol
continual attcmpts to gct rid ol thc dicultics in socialist blucprints. And
as thcsc dicultics arc climinatcd, socialismcomcs to look morc and morc
likc compctitivc cntcrprisc. Tcrclorc, it is not without somc justication
that Prolcssor Miscs, with his charactcristic dogmatism, now claims nal
victory in thc dcbatc ovcr thc ccicncy ol socialism. !n his latcst book
Miscs writcs:
!t is . . . nothing short ol a lull acknowlcdgmcnt ol thc corrcctncss and
irrclutability ol thc cconomists analysis and dcvastating critiquc ol thc
c Part : Economics
socialists plans that thc intcllcctual lcadcrs ol socialism arc now busy
dcsigning schcmcs lor a socialist systcm in which thc markct, markct
priccs lor thc lactors ol production, and catallactic compctition arc to bc
prcscrvcd. Tc ovcrwhclmingly rapid triumph ol thc dcmonstration that
no cconomic calculation is possiblc undcr a socialist systcm is without
prcccdcnt indccd in thc history ol human thought. Tc socialists cannot
hclp admitting thcir crushing nal dclcat. Tcy no longcr claim that
socialism is matchlcssly supcrior to capitalism bccausc it brushcs away
markcts, markct priccs, and compctition. n thc contrary. Tcy arc now
cagcr to justily socialism by pointing out that it is possiblc to prcscrvc
thcsc institutions cvcn undcr socialism. Tcy arc dralting outlincs lor a
socialism in which thcrc arc priccs and compctition.
Vhat thcsc ncosocialists suggcst is rcally paradoxical. Tcy want to abol
ish privatc control ol thc mcans ol production, markct cxchangc, mar
kct priccs, and compctition. 8ut at thc samc timc thcy want to orga
nizc thc socialist Utopia in such a way that pcoplc could act as if thcsc
things wcrc still prcscnt. Tcy want pcoplc to play markct as childrcn
play war, railroad, or school. Tcy do not comprchcnd how such child
ish play dicrs lrom thc rcal thing it trics to imitatc. (., pp. ,ca,c,
lootnotc omittcd)
Pcrhaps thc culmination ol thc lrcccntcrprisc trcnd in socialist think
ing is Jamcs . Mcadcs Planning and the Price Mechanism (.). Mcadc
calls himscll a socialist, but his proposals amount to scarccly morc than
a program lor thc rcconstruction ol compctitivc capitalism, including a
modcratc amount ol govcrnmcnt cntcrprisc.
Tc implication ol my rcmarks should bc clcar by now. !l cconomists
arc bcnt on sccing socialism substitutcd lor capitalism, thcy should lcavc
thc task to thcir collcagucs who arc bcttcr qualicd lor thc job, namcly, to
thc lcxicographcrs.
vvvvvvxcvs
8aronc, nrico. Tc Ministry ol Production in thc Collcctivist Statc. .c. !n
Hayck ..
8cckwith, 8urnham P. Te Economic Teory of a Socialist Economy. Stanlord,
Calil.: Stanlord Univcrsity Prcss, ..
8rutzkus, 8oris. Economic Planning in So.iet Fussia. London: Routlcdgc &Sons,
..
Chapter ,: Te Debate about the Eciency of a Socialist Economy .
Coasc, R.H. Tc Marginal Cost Controvcrsy. Economica (August .6):
.6.a.
ickinson, H.. Te Economics of Socialism. London: xlord Univcrsity Prcss,
..
obb, Mauricc. Political Economy and Capitalism. London: Routlcdgc, .6.
Hall, R.L. Te Economic System in a Socialist State. London: Macmillan, .,.
Harpcr, F.A. Liberty. !rvingtononHudson, N.Y.: Foundation lor conomic
ducation, ..
. Indi.idualism and Economic Order. Chicago: Univcrsity ol Chicago
Prcss, ..
Hayck, F.A., cd. Collecti.ist Economic Planning. London: Routlcdgc & Kcgan
Paul, ..
Hotclling, Harold. Tc Gcncral Vcllarc in Rclation to Problcms ol Taxation
and ol Railway and Utility Ratcs. Econometrica ( July .): aaa6.
Landaucr, Carl. Teory of National Economic Planning. 8crkclcy and Los Angclcs:
Univcrsity ol Calilornia Prcss, ..
Langc, skar, and Frcd M. Taylor. On the Economic Teory of Socialism. ditcd by
8cnjamin . Lippincott. Minncapolis: Univcrsity ol Minncsota Prcss, ..
Lcrncr, Abba. Te Economics of Control. Ncw York: Macmillan, .,.
Lcrncr, Abba, and skar Langc. Te merican !ay of Business. Vashington:
National ducation Association, ..
Marshall, Allrcd. Principles of Economics. .c. ' cd. London: Macmillan, .ac.
Mcadc, Jamcs . Planning and the Price Mechanism. London: Allcn & Unwin,
..
Mill, John Stuart. On Liberty and Other Essays. .. Ncw York: 8ook Lcaguc ol
Amcrica, .a.
Miscs, Ludwig von. conomic Calculation in thc Socialist Commonwcalth.
.ac. !n Hayck ..
. Human ction. Ncw Havcn, Conn.: Yalc Univcrsity Prcss, ..
. Socialism: n Economic and Sociological nalysis. .aa. Translatcd by
J. Kahanc. !ndianapolis: Libcrty Fund, ...
a Part : Economics
Modigliani, Franco. Lorganizzazionc c la dirczionc dclla produzionc in
uncconomia socialista. Giornale degli Economisti (Scptcmbcr/ctobcr .,):
...
Norris, Harry. Statc ntcrprisc Pricc and utput Policy and thc Problcm ol
Cost !mputation. Economica (Fcbruary .,): 6a.
Picrson, Nicolaas G. Tc Problcm ol \aluc in thc Socialist Community. .ca.
!n Collecti.ist Economic Planning, cditcd by F.A. Hayck. London: Routlcdgc
& Kcgan Paul, ..
Pigou, A.C. Socialism .ersus Capitalism. London: Macmillan, .,.
Robbins, Lioncl. Te Great Depression. London: Macmillan, ..
Samuclson, Paul A. Foundations of Economic nalysis. Cambridgc, Mass.: Har
vard Univcrsity Prcss, ..
Swcczy, Paul. Socialism. Ncw York: McGrawHill, ..
\ickrcy, Villiam. Somc bjcctions to MarginalCost Pricing. Journal of Polit-
ical Economy ( Junc .): a.a.
cn~v:vv
Tc cbatc ovcr
Calculation and Knowlcdgc

Pctcr 8octtkc and Rogcr Koppl join a discussion launchcd by Murray

Rothbard, Joscph Salcrno, Jcrcy Hcrbcncr, HansHcrmann Hoppc, and
Jorg Guido Hulsmann. Tosc vc contributors to thc Fe.ie. of ustrian
Economics scck, as thcy say, to dchomogcnizc Ludwig von Miscs and
F.A. Hayck, dicrcntiating bctwccn thcir doctrincs. Subtly or not so sub
tly, thcsc chasmologists, as Koppl calls thcm, oltcn disparagc Hayck.
!n many writings Hayck portraycd social institutionsnotably, lan
guagc, thc common law, moncy, and thc markct cconomy itscllas spon
tancous products ol cvolutionary proccsscs. Tough thcsc institutions
wcrc unplanncd as wholcs, thcy havc bcnctcd lrom a kind ol natural
sclcction tcnding to wccd out thcir most incxpcdicnt lorms, lcaving thcir
rclativcly succcsslul oncs still in thc running.
Salcrno (.ca) attacks thcsc aspccts ol Haycks work. Somc ol
Haycks lormulations, takcn out ol contcxt, may admittcdly sccm cxag
gcratcd. Somc disciplcs havc indccd somctimcs pcrvcrtcd Haycks idcas,
crccting thc lact ol or capacity lor spontancous cmcrgcncc into a tcst ol

riginally cntitlcd !ntroduction to Papcrs by 8octtkc and Koppl, lrom a Sympo

sium: id Miscs and Hayck Havc Conicting \icws ol thc Vorld: Tis papcr comcs
lromPctcr 8octtkc and Sanlord !kcda, cds., d.ances inustrianEconomics (.): .a.a.
Pctcr 8octtkc and Rogcr Koppl originally wrotc thcir contributions lor a scssion at thc
mcctings ol thc Southcrn conomic Association in Vashington, Novcmbcr .6. 8octtkc
addrcsscs thc calculation issuc spccically. Koppl probcs bcncath it, cxamining philosoph
ical, psychological, and mcthodological aspccts ol Miscss and Haycks work. Tcy both
nd thc positions ol Miscs and Hayck largcly rcconcilablc.
My introduction, slightly modicd hcrc, summarizcs points madc by 8octtkc and
Koppl in thc Symposium, by mc in Miscs and Hayck on Calculation and Knowlcdgc,
Fe.ie. of ustrian Economics ,, no. a (.): .c, and by Joscph Salcrno, Jorg Guido
Hulsmann, Jcrcy M. Hcrbcncr, HansHcrmann Hoppc, and mc in thc Fe.ie. of us-
trian Economics (.6 and .,): vols. and .c. For thc calculationnotknowlcdgc (Miscs
notHayck) sidc ol this dcbatc in its mcmbcrs own words, scc thcir papcrs availablc at
http://mises.org/periodical.aspx?Id=5.

Part : Economics
whcthcr particular institutions arc dcsirablc. Haycks own insight is consis
tcnt, though, with points madc by Miscs and rcitcratcd by Salcrno: how
cvcr unplanncd as a wholc thc cvolution ol an institution may bc, most
stcps in thc proccss wcrc takcn by individuals acting rationally in thc light
ol thcir own purposcs and inlormation. Human rationality must not bc
disparagcd and blind impcrsonal proccsscs cxaltcd. Surcly, howcvcr, thcrc
is no nccd to imaginc a rationalist Miscs and irrationalist Hayck at loggcr
hcads with onc anothcr. Nor is thcrc any warrant lor imputing to Hayck
thc vicw that Vhatcvcr is, is right, his writings on cconomic and politi
cal rclorm dcmonstratc thc contrary. Tc two mcns insights arc mutually
rcinlorcing.
Tc dchomogcnizcrs particularly disparagc Haycks claborations on
Miscss analysis ol why accuratc cconomic calculation is impossiblc undcr
socialism. An carly cxamplc appcars in Salcrnos . articlc, which crit
icizcs scvcral Austrian cconomists divcrsc contributions to a Festschrift
lor Hans Scnnholz. Salcrno distinguishcs bctwccn two paradigms. Tc
Hayckian onc strcsscs thc lragmcntation ol knowlcdgc and its dispcr
sion among thc multitudc ol individual consumcrs and produccrs as thc
primary problcm ol cconomic and social coopcration and vicws thc mar
kcts pricc systcm as thc mcans by which such dispcrscd knowlcdgc is
lcrrctcd out and communicatcd to thc rclcvant dccisionmakcrs in thc
production proccss (., p. ..). Tc Miscsian paradigm locuscs on
monctary calculation using actual markct priccs as thc ncccssary prccon
dition lor thc rational allocation ol rcsourccs within an cconomic systcm
lcaturing spccialization and thc division ol labor (p. .a). Surcly, though,
no sharp contrast is warrantcd. 8oth strands cntcr into a lull dcscription
ol thc problcm and proccss ol cconomic calculation.
Salcrno cmphasizcs that numcrical data, cspccially markct priccs, arc
ncccssary lor cconomic calculation, qualitativc inlormation is not cnough
(., p. .a.). Vithout gcnuinc cxchangcs ol lactors and gcnuinc markct
dctcrmination ol thcir priccs, ccntral planncrs could not cost rcsourccs
and allocatc thcm ccicntly or purposclully (p. .c). Agrccd: quantita
tivc rcsultssuitablc product and lactor quantiticsprcsupposc quantita
tivc inputs. Tcsc must includc, somcwhcrc in thc calculation proccss, thc
numcrical spccics ol utility and production lunctions. 8ut thcsc, along
with thc qualitativc inlormation also ncccssary, could ncvcr all bc availablc
lor ccntralizcd, nonmarkct dccisions.
Markct priccs, though ncccssary lor calculation, arc not ultimatc data.
Priccs rcprcscnt intcrmcdiatc stcps in taking account ol thc morc ncarly
Chapter : Te Debate o.er Calculation and Kno.ledge
ultimatc data (oltcn labclcd wants, rcsourccs, and tcchnology). 8y cost
ing, Salcrno prcsumably (and il so, corrcctly) mcans taking account both
ol how much ol othcr outputs would havc to bc lorgonc to makc incrc
mcntal quantitics ol a rcsourcc availablc lor thc linc ol production contcm
platcd and also ol how highly consumcrs would havc valucd thc lorgonc
altcrnativc outputs. Costing includcs, thcn, taking account ol innumcr
ablc bits ol inlormation about production opportunitics and proccsscs and
about consumcr tastcs. Calculating thc worth a prospcctivc action rcquircs
knowing thc importancc to othcrs ol thc goods and scrviccs onc commits
to that action, and thc importancc to othcrs ol thc goods onc will obtain
lrom that action (Kirzncr .6, p. .c, quotcd in 8octtkcs Symposium
contribution, notc aa).
Alrcady it is clcar that thc calculation problcmcannot bc distinct lrom
thc knowlcdgc problcm.
Unlikc Fricdrich von Vicscr and Hayck, according to Salcrno, Miscs
hcld that thc social appraiscmcnt ol productivc lactors via cntrcprcncurial
compctition in rcsourcc markcts, which is thc vcry basis ol cconomic cal
culation and purposivc action, can only procccd in monctary tcrms (.,
p. .). As il Hayck would dcny that, as il his strcss on thc knowlcdgc
problcm disparagcd moncy priccs and appraisals in moncy!
Strangcly, thc chasmologists lail to givc a clcar, prccisc, and compact
statcmcnt ol just how thcy conccivc thc problcm ol cconomic calculation.
Tcir writings havc a curiously allusivc tonc, at bcst alluding to points
that thcy and thcir rcadcrs alikc arc prcsumcd to havc in mind. To dcmon
stratcnot just asscrtthat thc knowlcdgc and calculation problcms ol
socialism arc distinct, onc would rst havc to statc thc calculation prob
lcm adcquatcly. Surcly it involvcs morc than bits ol arithmctic pcrlormcd
on moncy priccs. ! am tcmptcd to spcculatcbut pcrhaps thc spcculation
is wild il not lorbiddcnthat abscncc ol a lull statcmcnt ol thc problcm
rcccts an inadcquatc grasp ol it.
Surc, thc dchomogcnizcrs do cmphasizc that calculation includcs
comparing bcncts and costs and cstimating prospcctivc prots and losscs
and that thcsc comparisons and cstimatcs rcquirc arithmctic donc with
cardinal units ol valuc. choing Miscs and Hayck both, thcy placc wcll
warrantcd cmphasis on thc crucial importancc ol gcnuinc priccs cxprcsscd
in moncy, including priccs ol privatcly owncd lactors ol production and
capital goods cxchangcd on gcnuinc markcts. Yct thcir writings arc curi
ously inadcquatc in cxplaining what rcal circumstanccs arc rccctcd, and
how, in moncy priccs, costs, and incomcs. 8chind thc transactions and
6 Part : Economics
abstcntions and bids and ocrs ol currcnt and wouldbc owncrs ol thc
things cxchangcd lic thcsc tradcrs purposcs and thcir knowlcdgc and
cstimatcs ol and cntrcprcncurial conjccturcs about rcsourcc availabili
tics, tcchnical possibilitics, including complcmcntaritics and substitutabil
itics in production, and thcir own and othcr pcrsons tastcs. Moncy
priccs cmbody or rccct kno.ledge, knowlcdgc brought through thcm
to bcar on production and consumption dccisions without bcing ccntral
izcd and, lor much ol it, without cvcn bcing articulatcd in words and
numbcrs.
! wont rcpcat my . dcscription ol thc cconomiccalculation prob
lcm, but !ll add a bit to what ! havc alrcady said hcrc. Accuratc calculation
would assign productivc rcsourccs to thcir most highly valucd uscs, taking
account ol pcoplcs divcrsc tastcs (as consumcrs, workcrs, and invcstors),
as wcll as ol production tcchnologics, rcsourcc availabilitics, and thc prin
ciplcs ol diminishing marginal utility and marginal productivity. !dcally,
cach consumcr is inlormcd how much worth ol othcr things must bc lor
gonc to supply him with an incrcmcnt ol cach particular product. Tus
inlormcd about altcrnativcs, cach consumcr idcally lcavcs no opportunity
uncxploitcd to incrcasc his cxpcctcd total satislaction by divcrting any dol
lar lrom onc purchasc to anothcr. !n this scnsc consumcrs choosc thc pat
tcrn ol production and rcsourcc usc that thcy prclcr. !dcally, thcir bidding
kccps any unit ol a rcsourcc lrom going to satisly a lcss intcnsc ccctivc
dcmand to thc dcnial ol a morc intcnsc onc.
Tc rcsult ol lully succcsslul cconomic calculation is a statc ol aairs in
whichapart lrom changcs in wants, tcchnology, and rcsourcc availabil
iticsno lurthcr rcarrangcmcnt ol pattcrns ol production and rcsourcc
allocation could achicvc an incrcasc ol valuc to consumcrs lrom any par
ticular good at thc mcrc cost ol a lcsscr sacricc ol valuc lrom somc othcr
good. (vcn il a dictatorial ccntral planncr totally disrcgardcd consumcrs
tastcs and was conccrncd only with gratilying his own, hc would still nccd
vast amounts ol othcr inlormation.)
!n a compctitivc markct cconomy, pattcrns ol rcsourcc allocation, pro
duction, and consumption gct cstablishcd on a dcccntralizcd basis. l
coursc, thc markct docs not work with all imaginablc pcrlcction, nor docs
any othcr human institution. 8ut cntrcprcncurs havc inccntivcs to lcrrct
out pricc discrcpancics and uncxploitcd opportunitics.
Tings arc dicrcnt undcr socialism. Vhcn Miscs rst wrotc about
thc calculation problcm in .ac and .aa, socialism was gcncrally undcr
stood as a ccntrally dircctcd (or planncd) cconomy, with govcrnmcnt
Chapter : Te Debate o.er Calculation and Kno.ledge ,
owncrship (or thc cquivalcnt) ol thc mcans ol production. Miscs main
taincd that socialist planncrs could not adcquatcly duplicatc thc rcsults ol
a markct cconomy.
!n a scrics ol articlcs bcginning in thc .cs and culminating in his
. articlc on Tc Usc ol Knowlcdgc in Socicty, Hayck spcllcd out and
claboratcd on Miscss argumcnt. Tis, anyway, is thc intcrprctation ol thc
discussion that ! sharc with Prolcssors 8octtkc and Koppl. How could
ccntral planncrs know, lor cach rcsourcc, its potcntial contribution to thc
valuc ol output at all possiblc margins, in all possiblc combinations with
othcr lactors ol production, in all possiblc lincs ol production:
Tc planncrs would nccd to know morc than thc tcchnical aspccts ol
production and morc than thc actual and potcntial tastcs ol consumcrs and
workcrs. cicnt usc ol rcsourccs would lurthcr rcquirc thcir bringing to
bcar ol what Hayck callcd knowlcdgc ol thc particular circumstanccs ol
timc and placc. xamplcs arc knowlcdgc ol a machinc oltcn standing
idlc, ol whom to call on lor cmcrgcncy rcpair ol a lcaking boilcr, ol an
cmployccs skills that could bc put to morc valuablc usc, ol stocks ol matc
rials that might bc drawn on during an intcrruption ol supplics, ol cmpty
spacc in a lrcightcr about to sct sail, and ol ccting intcrlocal dicrcnccs
in commodity priccs. Such localizcd and tcmporary knowlcdgc can bc
uscd only by dccisionmakcrs on thc spot and would go to wastc undcr
ccntralization.
8ut dcccntralizcd dccision makcrs cannot work with this particular
knowlcdgc alonc, or with it combincd with tcchnological knowlcdgc.
cicnt dccisions must also takc account ol conditions in thc wholc rcst
ol thc cconomic systcmthc availabilitics and valucproductivitics ol
rcsourccs in thc innumcrablc lincs ol production that compctc lor thcm.
Hcrc Haycks story brings in thc rolc ol thc pricc systcmas a vast computcr
and as a communicator ol inlormation and inccntivcs, in abbrcviatcd lorm,
to all consumcr and busincss dccisionmakcrs to whom particular bits arc
rclcvant. Hcrc, alsoil thc cxamplc wcrc not alrcady so lamiliarwould
bc thc placc to rccitc Haycks cxamplc ol thc rolc ol changcd priccs in
motivating appropriatc rcsponscs to an incrcascd scarcity ol tin, whcthcr
causcd by a blockagc ol normal supplics or by dcvclopmcnt ol ncw uscs
lor tin.
Avagucly cxprcsscd misundcrstanding somctimcs attributcs to Hayck
thc claim that priccs convcy all thc inlormation ncccssary lor wcllcal
culatcd cconomic dccisions. Yct priccs arc no substitutc lor knowlcdgc
ol production tcchniqucs in various industrics and rms. Nor arc priccs
Part : Economics
a substitutc lor knowlcdgc ol thc particular circumstanccs ol timc and
placc, which is not so much convcycd by priccs as, rathcr, rccctcd in thc
actions ol thc dcccntralizcd dccision makcrs who posscss it.
8ut priccs do convcy much knowlcdgc, though not all. Tcy play an
csscntial rolc in thc cconomywidc coordination ol innumcrablc dcccntral
izcd dccisions. Tcy arc csscntial to cconomic calculation in thc narrowcst
scnscthc cvaluation ol bcncts and costs and thc calculation ol past and
prospcctivc prots and losscs.
!n cmphasizing thc rolc ol knowlcdgc in cconomic calculation, Hayck
was making cxplicit and claborating on points alrcady implicit in thc argu
mcnts ol Miscs. !n no way was hc crcating a chasm bctwccn two rival
positions. Tis, in agrccmcnt with Kirzncr (.,, .6), is what ! havc
argucd in my . articlc and my .6 and ., rcplics to thc contrary
intcrprctations ol Salcrno, Hcrbcncr, Hulsmann, and Hoppc. To try to
drivc a wcdgc bctwccn Miscs and Hayck on this issuc, cspccially to thc
disparagcmcnt ol Hayck, is unlair to thcsc two grcat mcn, unlaithlul to
thc history ol cconomic thought, subvcrsivc ol undcrstanding an impor
tant strand ol cconomic analysis and thc naturc and ultimatc collapsc ol
thc communist cconomics ol astcrn uropc, and subvcrsivc ol analytical
and historical undcrstanding that is vital lor luturc policymaking.
vvvvvvxcvs
8octtkc, Pctcr, and Sanlord !kcda, cds. d.ances in ustrian Economics , Grccn
wich, Conn.: JA! Prcss, .. !ncludcs thc Symposiumcontributions ol Pctcr
8octtkc and Rogcr Koppl, pp. ... and ..,.
Hayck, F.A. Tc Usc ol Knowlcdgc in Socicty. merican Economic Fe.ie.
(Scptcmbcr .): .c.
Hcrbcncr, Jcrcy M. Ludwig von Miscs and thc Austrian School ol conom
ics. Fe.ie. of ustrian Economics , no. a (..): c.
. Calculation and thc Qucstion ol Arithmctic. Fe.ie. of ustrian Eco-
nomics , no. . (.6): ...6a.
Hoppc, HansHcrmann. Socialism: APropcrty or Knowlcdgc Problcm. Fe.ie.
of ustrian Economics , no. . (.6): ...
Hulsmann, Jorg Guido. Knowlcdgc, Judgmcnt, andthc Usc ol Propcrty. Fe.ie.
of ustrian Economics , no. . (.,): aa.
Chapter : Te Debate o.er Calculation and Kno.ledge
Kirzncr, !sracl. Tc conomic Calculation cbatc: Lcssons lor Austrians.
Fe.ie. of ustrian Economics a (.,): ...
. Rccctions on thc Miscsian Lcgacy in conomics. Fe.ie.of ustrian
Economics , no. a (.6): ...
Miscs, Ludwig von. conomic Calculation in thc Socialist Commonwcalth.
.ac. Translatcd by S. Adlcr. Auburn, Ala.: Ludwig von Miscs !nstitutc,
.c.
. Socialism: n Economic and Sociological nalysis. .aa. !ndianapolis: Lib
crty Fund, ...
. Human ction. cd. Chicago: Hcnry Rcgncry, ..
Rothbard, Murray N. Tc nd ol Socialism and thc Calculation cbatc
Rcvisitcd. Fe.ie. of ustrian Economics , no. a (..): .,6.
Salcrno, Joscph T. Ludwig von Miscs as Social Rationalist. Fe.ie. of ustrian
Economics (.c): a6.
. Postscript: Vhy a Socialist conomy is !mpossiblc. Postscript to
Economic Calculation in the Socialist Common.ealth, by Ludwig von Miscs.
Auburn, Ala.: Ludwig von Miscs !nstitutc, .c.
. Miscs and Hayck chomogcnizcd. Fe.ie. of ustrian Economics 6,
no. a (.): ...6.
. Rcply to Lcland 8. Ycagcr on Miscs and Hayck on Calculation and
Knowlcdgc. Fe.ie. of ustrian Economics ,, no. a (.): ....a.
. A Final Vord: Calculation, Knowlcdgc, and Appraiscmcnt. Fe.ie.
of ustrian Economics , no. . (.6): ...a.
Ycagcr, Lcland 8. Miscs and Hayck on Calculation and Knowlcdgc. Fe.ie. of
ustrian Economics ., no. a (.): .c.
. Salcrno on Calculation, Knowlcdgc, and Appraiscmcnt. Fe.ie. of
ustrian Economics , no. . (.6): .,..
. Calculation and Knowlcdgc: Lcts Vritc Finis. Fe.ie. of ustrian
Economics .c, no. . (.,): ..6.
cn~v:vv 6
Austrian conomics, Ncoclassicism,
and thc Markct Tcst

uring a conlcrcncc in .,, a mcmbcr ol thc audicncc askcd mc what

school ol cconomics ! bclongcd to. !nstcad ol rcpudiating this labclmon
gcring, as pcrhaps ! should havc, ! answcrcd that ! was a cardcarrying
mcmbcr ol no school but a lcllowtravclcr ol thc Chicago and Austrian
schools bothil that is possiblc. Ycs, it is possiblc, said Frcd Glahc,
anothcr mcmbcr ol thc pancl, lor hc too was a lcllowtravclcr ol both
schools. ! havc bccn studying works in thc Austrian tradition cvcr sincc
happcning onto writings by Ludwig von Miscs and F.A. Hayck in .6 or
.,. nly a small part ol my own work, howcvcr, has had a dclibcratcly
Austrian charactcr. ! say this bccausc two things might othcrwisc suggcst,
wrongly, that ! ama spokcsman lor thc Austrian School: my acadcmic titlc
and my bcing askcd to commcnt on an carlicr vcrsion ol Shcrwin Roscns
papcr at thc Mont Plcrin Socicty mccting in \icnna in Scptcmbcr .6
and again on its rcvision in this journal.
Roscn rccognizcs, in broad strokcs, somc contributions ol Austrian
cconomics, cspccially its insights into dcccntralization and compctition.
Howcvcr, his rccognition ol Austrian strcngths should bc amplicd and
his criticisms soltcncd. ! will also arguc that his appcal to a markct tcst
lor judging acadcmic work risks cncouraging antiintcllcctual attitudcs
and practiccs.
~us:vi~x s:vvxc:ns
!ll list somc Austrian strcngths that mcrit morc attcntion, cautioning,
howcvcr, that not all Austrians cultivatc cvcry onc ol thc thcmcs mcn
tioncd.
Austrians arc conccrncd with thc big picturc, with how a wholc cco
nomic systcm lunctions, and with altcrnativc scts ol institutions. Tis is

From Journal of Economic Perspecti.es .. (Fall .,): ..6.

.cc
Chapter o: ustrian Economics, Neoclassicism, and the Market Test .c.
what Roscn prcsumably mcans by curiously labcling Austrian cconomics a
macro rathcr than micro thcory. Austrians invcstigatc how thc spccial
izcd activitics and dcccntralizcd dccisions ol millions or billions ol pcr
sons and busincss rms arc coordinatcd. cccntralization allows usc ol
what Hayck callcd knowlcdgc ol thc particular circumstanccs ol timc and
placcinlormation that would othcrwisc go to wastc or not cvcn cmcrgc
in thc rst placc. !n bringing lurthcr inlormation cvcn about rcmotc parts
ol thc cconomy to thc attcntion ol dcccntralizcd dccisionmakcrs and by
applying inccntivcs lor its usc, thc markct systcm and priccs lunction
as a vast computcr and communications systcm. No particular agcncy
takcs chargc ol this coordination, and nonc would bc compctcnt to do so.
!n what Roscn calls thcir ncst hour, Miscs and Hayck dcmonstratcd
that ccicnt cconomic calculation was impossiblc undcr ccntrally planncd
socialism. To most ncoclassical cconomists with whom Roscn idcntics,
howcvcr, and as hc acknowlcdgcs, thc rcccnt collapsc ol communist ccon
omics camc as a surprisc.
Austrians undcrstand how usclul institutions, including thc markct
systcm itscll, moncy, thc common law, cthics, and languagc, can cvolvc
spontancously, by a kind ol natural sclcction, rathcr than by conscious
implcmcntation ol any ovcrall dcsign. l coursc, individual participants
in unplanncd proccsscs act rationally by thcir own lights. Austrians trcat
institutions not as givcns that can bc capturcd by a paramctcr or two in an
cconomic modcl but rathcr as complcx social arrangcmcnts whosc cvo
lution rcquircs scrious thought. Vhilc not asscrting that whatcvcr is,
is right and without rcjccting possiblc rclorms, Austrians do counscl a
ccrtain humility against tcmptations to ovcrthrow spontancously cvolvcd
institutions and practiccs mcrcly bccausc thcir rationalcs havc not bccn
lully undcrstood and articulatcd.
Austrians rccognizc thc timc dimcnsion in cconomic lilc. Tcy takc
changc, unccrtainty, and unprcdictability scriously not only in conlronting
thcorctical and cconomctric modcls but also in asscssing institutions and
policics. Tcy rccognizc that complcx structurcs ol hctcrogcncous capital
goods rccct not only divcrsc and changcablc consumption pattcrns and
production proccsscs but also divcrsc timc horizons adoptcd in spccic
invcstmcnt dccisions.
Austrians arc not obscsscd with contcmplating and comparing cqui
librium statcs. Tcy pay attcntion to discquilibrium and proccss. Tcy do
not supposc that dcmand curvcs and cost curvcs, nor cvcn tastcs and tcch
nologics, arc somchow givcn to dccisionmakcrs. Tcy rccognizc that
.ca Part : Economics
such cntitics cmcrgc within thc proccsscs ol making and implcmcnting
dccisions. Tcy scc how compctition prcsscs toward rcducing costs. Tcy
valuc thc activity ol cntrcprcncurs alcrt to prot opportunitics in arbitrag
ing away impcrlcctions ol coordination and in trying ncw products and
mcthods. Tcy rcjcct policics aimcd at making rcality conlormto tcxtbook
modcls ol purc and pcrlcct compctition.
Austrians arc rclativcly rcsistant to thc mcthodological lads and hall
tacit scrmons ol thc acadcmic mainstrcam. Austrians strcss thc subjcctivc
clcmcnt in valuc: cconomics is primarily about pcoplc and thcir purposcs,
not about things and quantitics. Tcy push thcir analysis to thc lcvcl whcrc
dccisions arc actually madc, thc lcvcl ol thc individual pcrson, lamily, rm,
and agcncy. Howcvcr, thcy do not gct trappcd in a narrow pcrspcctivc,
thcy rcmcmbcr that thc rcal challcngc is to undcrstand cconomywidc coor
dination.
Austrians, or many ol thcm, corrcctly distinguish bctwccn valuc judg
mcnts and valuclrcc propositions ol positivc cconomics. Tcy undcrstand
how thc corpus ol cconomic propositions can itscll rcmain positivc, cvcn
though it combincs with plausiblc humanitarian valuc judgmcnts in sup
porting a libcrtarian political philosophy.
!s Roscns locus on thc proccsscs ol compctition a lair skctch ol what
is ccntral to Austrian cconomics and dicrcntiatcs it lrom ncoclassicism:
Tc two schools trcatmcnts ol compctition do charactcrizc thcir dicr
cnccs but hardly cxhaust thcm. !n ncoclassical compctition, buycrs arc
typically pricctakcrs, whilc scllcrs lacc at dcmand curvcs (in purc com
pctition) or downsloping dcmand curvcs (in impcrlcct compctition) and
maximizc prots accordingly. Tc Austrian conccption is closcr to thc
cvcryday undcrstanding ol compctition: rivalry to gain customcrs by bct
tcr scrvicc, and not ncccssarily in pricc alonc but in othcr dimcnsions as
wcll. Machovcc (.) rcvicws howclassical and Austrian insights into thc
compctitivc proccss bccamc lost lrom thc ncoclassical mainstrcam.
Vhcrc docs lack ol thc Austrian pcrspcctivc takc ncoclassical cco
nomics lurthcst o track: Ncoclassicism downplays thc rcality ol lrag
mcntary, scattcrcd, unarticulatcd, and undiscovcrcd knowlcdgc. Ncoclas
sicals tcnd to trcat inlormation as somcthing objcctivc, bought and sold on
thc markct, in carrying out maximization dccisions. Tcy tcnd to ignorc
thc rolc ol knowlcdgc that simply docs not cxist bclorc cntrcprcncurs dis
covcr or crcatc it (Hucrta dc Soto, .6, p. ). Tc big cconomic problcm
compriscs morc than just scarcity and choicc. quilibrium is not auto
matic and is in lact ncvcr rcachcd. ntrcprcncurs havc widc scopc and
Chapter o: ustrian Economics, Neoclassicism, and the Market Test .c
play a ccntral rolc. All this gcts shuntcd asidc by lascination with thc max
imization ol an objcctivc lunction subjcct to known constraints.
cvi:icis:s ov ~us:vi~x vcoxo:ics
As a mcrc lcllowtravclcr ol thc Austrian School, and not cvcn ol it alonc,
! am bound by no party linc and am lrcc to rcjcct somc lavoritc posi
tions hcld by many (but ccrtainly not all) Austrians. Tcsc includc thc
spccics ol thcir busincsscyclc thcory, thcir ultrasubjcctivism in valuc
thcory and particularly in intcrcstratc thcory, thcir insistcncc on unidircc
tional causality rathcr than gcncral intcrdcpcndcncc, and thcir londncss
lor mcthodological brooding, pointlcss prolunditics, and vcrbal gymnas
tics. Provokcd by mainstrcam abuscs ol mathcmatics, including thc lrc
qucnt mcrcly dccorativc and prctcntious usc ol symbols, somc Austrians
havc wantcd to ban mathcmatics lrom cconomics. 8ut is it not arrogant
lor somconc who docs not scc how to usc ccrtain tcchniqucs construc
tivcly to supposc that no onc clsc will cvcr scc howcithcr: Tcsc Austrians
should rcmcmbcr how, in othcr contcxts, thcy cmphasizc thc opcnncss ol
thc luturc and scopc lor novclty.
My ncxt complaint prcsupposcs knowing that lairly distinct groups
ol Austrians arc activc or havc studicd at Ncw York Univcrsity, Gcorgc
Mason Univcrsity, thc Univcrsity ol Gcorgia, and Calilornia Statc Uni
vcrsity at Hayward. thcrs arc associatcd with, though not ncccssarily
locatcd at, Auburn Univcrsitys Ludwig von Miscs !nstitutc. Still othcr
Austrians arc scattcrcd clscwhcrc in thc Unitcd Statcs and abroad, with
a lcw cvcn in Austria. Somc ol thcsc groups scvcrcly criticizc not only
mainstrcam cconomics but cach othcr. !ntcrprctcd optimistically, thcir
mutual criticisms bctokcn a dynamic rcscarch program. n thc othcr
hand, inghting among thc various Austrian sccts somctimcs thrcatcns to
makc thc wholc school look ridiculous, cspccially as somc ol thc combat
ants, lortunatcly lcw, cmploy qucstionablc tactics ol scholarly controvcrsy.
Vhilc not all is wcll in thc Austrian camp, thc samc is truc, lor dicrcnt
rcasons, in thc ncoclassical campmorc on this latcr.
Roscn strcsscs a criticism rclatcd to thc Austrians distastc lor math
cmatics. Hc prclcrs thc mainstrcam practicc ol manipulating prcciscly
spccicd modcls to obtain prccisc rcsults. Tc Austrians, in contrast, dis
likc pursuing thc conscqucnccs ol givcn conditions, which grcatly limits
thc cmpirical scopc and conscqucnccs ol thcir thcory. Tcy shun what
thcy considcr to bc routinc mathcmatical optimization problcms that
.c Part : Economics
undcrlic much ol cmpirical cconomics. Somc Austrians go so lar as to
suspcct an anity bctwccn statism and a passion lor statistics. Austrian
cmpirical work consists mainly ol historical casc studics, but Roscn nds
thc uniqucncss ol cach casc limiting thc usclulncss ol that approach.
.
Hc
cxpccts a morc quantitativc approach to rcmain dominant, thus alrcady
alluding to a markct tcst and a notion that dominant mcans bcttcr.
!l Roscns critiquc ol Austrian noncmpiricism is on targct, it hits an
outcr ring, not thc bullscyc. First, an intcllcctual division ol labor can bc
lcgitimatc and lruitlul, a divcrsity ol rcscarch stylcs is not a wcakncss but
a strcngth ol thc disciplinc. Sccond, thc lrcqucntly narrow and honoric
usc ol thc tcrm cmpirical is mislcading. Austrians do takc scriously thc
most pcrvasivc and dcpcndablc lacts about cmpirical rcality. Tcsc includc
human purposc and othcr introspcctivcly known rcalitics, scarcity and thc
ncccssity ol choicc, thc phcnomcnon ol diminishing marginal rcturns, and
thc lragmcntation ol knowlcdgc. Tcy includc othcr lcaturcs ol thc rcal
world that unavoidably rcstrict atomistic compctition to bcing thc cxccp
tion rathcr than thc rulc and that accord cntrcprcncurs a largc rolc in thc
working ol markcts. Furthcr obscrvcd lacts arc that scllcrs arc typically
not sclling as much ol thcir output or labor as thcy would likc to scll at
prcvailing priccs, that most priccs and wagcs arc not dctcrmincd impcr
sonally but arc consciously sct (although sct with an cyc on supply and
dcmand), and that thcsc and othcr circumstanccs causc or rcvcal pricc
stickincss (a lact crucial to macrocconomics). Facts arc lacts, rcgardlcss ol
whcthcr thcy arc known in a mcthodologically lashionablc way. Austri
ans arc guilty lcss oltcn than thc ncoclassicals ol what P.T. 8aucr (.,)
aptly diagnoscd as thc disrcgard ol rcality.
a
Austrians do not connc thc
honoric tcrm cmpirical to propositions dug out by arduous cconomct
ric labor and, altcr all, ol doubtlul gcncral validity (as distinguishcd lrom
possiblc validity in spccic historical circumstanccs).
Rcadcrs should not misundcrstand Ludwig von Miscss calling cco
nomic thcory (unlikc cconomic history) an a priori scicncc. Miscs uscd
thc tcrm in an unusual way. Hc rclcrrcd to cmpirical axioms likc thc oncs
.
Yct hcar Hcrbcrt Simon (.a, p. .c), rcvicwing studics ol rms and govcrnmcnt
agcncics: Although casc studics arc only samplcs ol onc, such samplcs arc innitcly morc
inlormativc than samplcs ol nonc . . . valid hypothcscs arc morc likcly to cmcrgc lrom
dircct, intimatc cncountcr with organizations than lrom spcculation.
a
Mathcmatics and cconomctrics contributc, says 8aucr (.,, p. 6), to invcrting thc
story ol thc mpcrors Ncw Clothcs. Hcrc thcrc arc ncw clothcs, and at timcs thcy arc
hautc couturc. 8ut all too oltcn thcrc is no mpcror within.
Chapter o: ustrian Economics, Neoclassicism, and the Market Test .c
alludcd to abovc, oncs incscapably obvious cvcn to mcrc armchair obscrva
tion. Roscn himscll rccognizcs that largcscalc, gross, nonnumcrical cvi
dcncc oltcn is morc sccurc than quantitativc cvidcncc, and oltcn quitc
usclul (comparc Summcrs ..).
Austrians arc also morc lactoricntcd in rccognizing what mcthods
havc and what mcthods havc not bccn rclativcly lruitlul in thc progrcss
ol cconomic thought. As lor prcdictions, Austrians takc anothcr lact scri
ously: thc cconomic world is an opcn rathcr than closcd systcm and as
such has an unknowablc luturc. xccpt, pcrhaps, lor shortrun cxtrapola
tions or in idcntilying widc rangcs ol possiblc outcomcs, numcrical lorc
casts cannot bc rcliablc. A prctcnsc ol satislying unsatisablc dcmands
lor lorccasts is intcllcctually disrcputablc. Tc bcst that can bc supplicd
arc qualitativc prcdictions, rccognitions ol pattcrns, and cxplanations ol
thc likcly conscqucnccs ol contcmplatcd actions. Such prcdictions arc wcll
worth hccding, as thcir lrcqucnt disrcgard in policymaking illustratcs by
contrast.
Austrians makc too much ol dcning and intcrprcting cntrcprcncurial
activitics, says Roscn, sincc wc cannot mcasurc thcm, wc cannot asscss
thcir importancc. My rcply is thc standard rcmark about kcys and lamp
post. Again wc scc thc dicrcncc bctwccn a narrow cmpiricism that looks
only at numbcrs and a broadcr cmpiricism that draws on dircct obscrva
tion. Roscn docs rccognizc, on thc othcr hand, that ignoring cntrcprcncur
ship constrains thc ncoclassical vicw ol compctition, and on this topic hc
cxpccts thc largcst gains lrom intcllcctual tradc.
Roscn laults thc Austrians lor not spclling out cmpirical critcria lor
asscssing thc pcrlormancc ol an cconomic systcm. Vhilc ncoclassical wcl
larc cconomics must rcspcct givcn prclcrcnccs and tcchnologics, Austrians
arc willing, as hc notcs, to ask what kinds ol social institutions and rulcs
ol thc gamc makc lor a good socicty. Vcll, good lor thc Austrians. Tc
conccpts ol thcorctical wcllarc cconomics, though applicablc in ccrtain
cxcrciscs, arc no substitutc lor noholdsbarrcd analysis ol how altcrna
tivc scts ol institutions arc likcly to lacilitatc or impcdc pcoplcs pursuit ol
happincss.
:nv xvoci~ssic~i :~ixs:vv~:
Ncoclassicism is mainly conccrncd with cstablishmcnt ol cquilibrium
undcr known conditions. Vith thc choicc sct, tcchnology, prclcrcnccs,
and thc numbcr and varictics ol goods all givcn and known, it invcstigatcs
.c6 Part : Economics
a wclldcncd solution to thc rcsourccallocation problcm. Roscn admircs
this approach. As hc cxplains, ncoclassical cconomists oltcn apply thc wcl
larc thcorcms to dcscribc an optimum or ccntralplanning solution con
sistcnt with spccicd tcchnology and tastcs and thcn, without studying
individual maximizing dccisions at all, supposc that markcts somchow
must do it that way. Roscn also notcs that discquilibrium analysis is
not possiblc in thc ncoclassical schcmc, and thc cntrcprcncur has noth
ing to do.
Jamcs 8uchanan, who acknowlcdgcs Austrian inucncc but is no card
carrying mcmbcr ol thc school, has notcd such ncoclassical lcaturcs by
way ol scvcrc criticism. Hc dcplorcs thc mainstrcam tcndcncy to trivi
alizc thc cconomic problcm by lorcing all analyzablc bchavior into thc
straitjackct ol maximizing an objcctivc lunction undcr known constraints.
Utility lunctions arc prcsumcd to cxist indcpcndcntly ol thc proccsscs
whcrcby pcrsons makc actual choiccs. Conccrn with proccsscs ol volun
tary agrccmcnt among trading partics givcs way to thc conccpt ol an
ccicnt allocation ol rcsourccs cxisting out thcrc, against which all
institutional arrangcmcnts arc to bc tcstcd. conomics turns into applicd
mathcmatics or cnginccring. Actually, thc cconomy docs not havc a sin
glc objcctivc lunction to bc maximizcd, nor docs it havc a singlc maxi
mizcr. No wondcr 8uchanan said that an articlc choscn at random out
ol any cconomics journal is unlikcly to havc a social productivity grcatcr
than zcro. Acadcmic programs almost cvcrywhcrc arc controllcd by rcnt
rccipicnts who simply try to apc thc mainstrcam work ol thcir pccrs in thc
disciplinc. (Quotations, paraphrascs, and citations appcar in Ycagcr .c,
csp. pp. aca...)
Tc acadcmic rcspcctability ol various idcologics has shiltcd so much
in rcccnt dccadcs that somc scllconscious ncoclassicals havc now carricd
thcir lrccmarkctry, along with thcir mcthodological prcjudiccs, to thc
cxtcnt ol its contaminating thcir positivc analysis. Tis phcnomcnon is
particularly cvidcnt in onc ol my own lavoritc clds, macrocconomics.
Unlortunatcly, many Austrians vcnturc bcyond suchcriticisms to makc
a bugbcar ol what thcy blankct undcr thc labcl ol gcncralcquilibrium
thcory. Yct thcrc nccd bc no tcnsion bctwccn it and Austrian cconomics.
Miscss and Haycks insights about socialist calculation illuminatc gcncral
intcrdcpcndcncc and thc various tasks to bc accomplishcd somchow or
othcr in any cconomic systcm. Gcncral cquilibrium illuminatcs opportu
nity costa lavoritc Austrian conccptin a way not othcrwisc possiblc.
All too commonly, opportunity cost is dcncd in thc contcxt ol choiccs
Chapter o: ustrian Economics, Neoclassicism, and the Market Test .c,
madc by a particular dccisionmakcr: thc cost ol a choscn coursc ol action is
thc ncxt bcst coursc thcrcby lorgonc. Tat dcnition, bringing to mind thc
considcrations and cvcn thc agonics involvcd in making a dccision, sccms
lamiliar to thc layman. Tis dcccptivc lamiliarity trivializcs thc conccpt.
Vhat rcquircs thc cconomists cxpcrtisc is cxplaining opportunity cost in
a dccpcr scnscthc widcr social signicancc ol moncy cost. Vhat nccds
rcpcatcd cxplanation is how moncy costs rccct thc subjcctivcly appraiscd
valucs or utilitics ol thc othcr outputs and activitics ncccssarily lorgonc
il rcsourccs arc withhcld lrom thcm lor thc sakc ol thc particular output
or activity in qucstion, as wcll as how moncy costs and priccs transmit
inlormation and inccntivcs. Tc mainstrcam apparatus can dccpcn thc
undcrstanding ol subjcctivist insights so dcar to Austrian hcarts.
succvss ~xb v~iiuvv ix :nv :~vxv:vi~cv ov ibv~s
ntrcprcncurial vcnturcs undcrgo a markct tcst, and Roscn would put
idcas to thc samc tcst. Hc sccs an cnormous amount ol cvolutionary Aus
trian compctition in thc markctplacc lor idcas, cvcn though lashion and
pccr prcssurc arc somctimcs at work. Austrians larc poorly in this com
pctition. Tcir approach cxcludcs most ol thc things that most ccono
mists do, lcwAustrians bclong to todays prolcssional cconomics commu
nity. Vhat is thc lact that ncoclassical cconomics has scorcd highcr than
Austrian cconomics on thc cvolutionary/survival tcst tclling us: Roscn
rhctorically asks. Hc cvidcntly holds it against thc Austrians that thcy do
not pass his markct tcst in thc intcllcctual atmosphcrc crcatcd by mcmbcrs
ol his own camp, an atmosphcrc pcrvadcd by narrow yct tacit mcthod
ological prcaching. (Tacit prcachmcnts arc thc worst kind, or so my thus
cntitlcd articlc rcprintcd bclow argucs.)
My collcaguc Rogcr Garrison is probably right in warning against
counting notchcs on acadcmic armchairs. Partly lor this rcason, ! havc
omittcd capsulc dcscriptions ol work by contcmporary Austrian ccono
mists. Sincc Roscn has raiscd thc issuc, howcvcr, ! should mcntion thc
troublc that authors havc gcncrally had in thc last c ycars or so in gctting
articlcs on Austrian thcmcs into prcstigious journals. Pctcr 8octtkc (.,
p. 6c) notcs somc conscqucnccs:
Most ol thc articlcs by thc youngcr gcncration ol Austrians that havc
appcarcd in thc top prolcssional journals arc stratcgic articlcs. Tcsc arti
clcs takc thc lormol cithcr tcnurc articlcs (that is, articlcs which do not
cvcn prctcnd to advancc Austrian idcas but rathcr pass thc prolcssional
.c Part : Economics
tcst nccdcd to carn tcnurc) or synthcsis articlcs (articlcs which nd a
sympathctic trcnd within thc mainstrcam and thcn try to build a bridgc
to Austrian idcaswhich arc usually hiddcn in thc lootnotcs). . . . cspitc
thcir stratcgic importancc, howcvcr, thcsc articlcs in thcmsclvcs do not
rcprcscnt thc kind ol scicntic work rcquircd to advancc an Austrian
undcrstanding ol thc cconomic and social world.
8octtkc and avid Prychitko (., pp. aca.) lurthcr cxplain prcs
surcs laccd by young cconomists with Austrian inclinations:
to mcct thc lormal, positivistic canons ol thc mainstrcam, Ph.. candi
datcs and cspccially untcnurcd cconomists still committcd to lrcc markct
libcralism tcnd to switch thcir human capital invcstmcnt to ncoclassi
cism, to crcatc and maintain a rclativc dcgrcc ol prolcssional rcspcctabil
ity and acccptancc. . . . Timc and again young intcllcctuals born lrom thc
idcological womb ol Austrian cconomics maturc ycars latcr as scholars
in thc halls ol thc Univcrsity ol Chicago or UCLA. Rcswitching back
to Austrian cconomics sccms all too costly oncc oncs prolcssional rcpu
tation has bccn cstablishcd.
Tc ccntral lcssons ol Austrian cconomics do not rcadily lcnd thcm
sclvcs to thc kinds ol cmbroidcry that win high scorcs in thc acadcmic
gamc as currcntly playcd. Yct this docs not mcan that thosc lcssons arc
unimportant lor undcrstanding thc rcal world. Rcality cmbraccs morc than
thc acadcmic gamc. At timcs, as P.T. 8aucr has said (., pp. .6c.6.,
.,, .,, pp. .a), thc most important duty ol an acadcmic is to kccp on
insisting on thc obvious.
Roscn rctclls a lightbulb story which, in thc vcrsion ! hcard, gocs:
How many rightwing cconomists docs it takc to changc a light bulb:
Nonc, bccausc thc lrcc markct will takc carc ol cvcrything. ! wondcr
whcthcr Roscn has lully absorbcd thc storys point. !t takcs a jab at thco
rists who tacitly rcgard thc markct as an cntity in its own right, distinct
lrom and supcrior to thc mcrc human bcings who intcract on it. !t takcs a
jab at thc dcpcrsonalization ol cconomics, as in ncglcct ol thc cntrcprcncur
and as in a conccption ol compctition that abstracts lrom rivalry. n my
intcrprctation, thc storys targcts also includc pcrsons who scc thc sup
poscd intcllcctual markctplacc as a mcchanismlor dicrcntiating bctwccn
admirablc and disrcputablc thcorics and mcthods. Actually, it is individ
uals who makc appraisals. To rcly on thc supposcd markct tcst instcad is
to ridc piggyback on thc appraisals ol othcr pcoplc, who may in turn bc
doing thc samc thing.
Chapter o: ustrian Economics, Neoclassicism, and the Market Test .c
An cxamplc ol appcal to thc markct tcst ol mcrit occurrcd whcn board
mcmbcrs ol a prolcssional association wcrc discussing whcthcr to nom
inatc a particular cconomist lor occ. nc mcmbcr said in ccct: !t
docsnt mattcr what wc hcrc think ol his work, lct thc markct dccidc. Hc
wcnt on to namc journals that had printcd thc candidatcs work. ! oncc
scrvcd on a promotions committcc whosc mcmbcrs spcnt much timc dis
cussing thc supposcd prcstigc ol thc journals listcd on thc candidatcs vitas.
Not only had thc othcr mcmbcrs cvidcntly not lookcd through thc arti
clcs thcmsclvcs, thcy had not cvcn noticcd that onc candidatc had lailcd
to makc copics ol his articlcs availablc.

A broadly similar appcal to thc markct occurs in a rcbu to calls

lor bcttcr writing in cconomics. Tcir numcrical cvidcncc pcrsuadcs thc
authors that cort spcnt on bcttcr writing docs not pay o in grcatcr suc
ccss on thc markct lor acccptanccs and citations ol articlcs (Laband and
Taylor .a, McCloskcy .a rcsponds appropriatcly).
v~ii~civs ~xb vvvvvvsi:v ov :nv :~vxv: :vs:
At lcast two things arc wrong with such appcals to thc markct. First,
thc mctaphorical acadcmic markct is lcss rcsponsivc to thc wishcs ol who
cvcr thc ultimatc consumcr may bc than is thc actual markct in goods
and scrviccs. Tc subscribcr to journals has an inucncc morc attcnu
atcd and morc subjcct to manipulation by othcrs than thc inucncc ol
thc consumcr ol ordinary goods and scrviccs. ditors and rclcrccs havc
scopc lor hccding lads and cliquish and pcrsonal considcrations. Tcy arc
not risking thcir own moncy. Subscribcrs lacc ticin salcs, which includc
association mcmbcrships and thc supposcd prcstigc ol subscribing, and
thcy havc rcason, anyway, to lcarn cvcn about disagrccablc lads. Cus
tomcrs havc a hardcr timc in thc supposcd acadcmic markct than in thc
rcal markct knowing whcthcr thcy got what thcy paid lor. Tc analogy
bctwccn thc acadcmic and busincss markcts is lurthcr disscctcd in 8art
lcy (.c, chaps. 6 and ,), Mirowski (.a, pp. a, a,), and Maycr (.,
pp. .c., ).
Appcaling to thc mctaphorical markct tcst is a variant ol thc lallacy
ol argumcntum ad populum. Somc kindcrgartncrs wcrc studying a lrog,
wondcring whcthcr it was a boy lrog or a girl lrog. nc child pipcd up:

Tc cpartmcnt ol conomics at thc Univcrsity ol \irginia was bcttcr in this rcspcct:

it appointcd committccs to actually rcad thc writings ol promotion candidatcs and rcport
back on thcir contcnts and mcrits.
..c Part : Economics
! know how wc can tcll! All right, said thc tcachcr, cxpccting thc
worst, how: Tc child bcamcd, Vc can votc (Fumcnto ., p. a).
!n anothcr variant ol this approach, an cditorial in thc !all Street Journal
drcw an admiring analogy bctwccn thc markct ol voting and thc markct
in nancial instrumcnts (Toward accc .6, p. ~aa).
! do not dcny that thc markct mctaphor can havc somc application.
8ut as Rogcr Garrison asks, is thc acadcmic markct morc likc thc markct
lor whcat in Chicago or thc markct lor tulips in .,thccntury Holland:
A sccond objcction to thc mctaphorical markct tcst is dccpcr than
that thc mctaphor is dclcctivc. Sincc whcn, anyway, was thc markct, cvcn
thc actual busincss markct, thc arbitcr ol cxccllcncc in consumcr goods,
litcraturc, art, music, scicncc, or scholarship: Sincc whcn docs thc markct
dccidc truth and bcauty: Aparticular good or scrvicc passcs a rathcr litcral
markct tcst il thc quantity produccd nds buycrs willing to pay at lcast
its lull costs. Tat rcsult suggcsts that rcsourccs arc not bcing divcrtcd
lrom altcrnativc uscs in which thcy could havc yicldcd grcatcr valuc to
consumcrs. Succcss in a markct nichc, cvcn a largc onc, has no dccpcr
signicancc. All ol us can namc busincss succcsscs achicvcd by catcring
to cxccrablc tastcs, and analogucs occur in thc acadcmic world. (A hcalthy
socicty aords scopc lor noncocrcivc criticism cvcn ol tastcs, scc Vright
.. /.6a, chap. a.)
Tc casc lor thc lrcc markct is somcthing quitc othcr than that it con
stitutcs thc vcry critcrion ol what should bc admircd. An cconomist igno
rant ol thc valid casc is in rcal troublc.
Tc attitudc ol thc board and committcc mcmbcrs mcntioncd abovc,
and ol thc child in thc lrog story, is thc vcry prototypc ol thc sccond
handism diagnoscd by Ayn Rand. Tc villains in hcr novcls arc sccond
handcrs thcmsclvcs or tradc on thc prcvalcncc ol that mindsct among
othcr pcoplc. An ambitious sccondhandcr sccks lamc, prcstigc, admira
tion, cnvygrcatncss in othcr pcoplcs cycs. Tc sccondhandcr sccks not
so much actual achicvcmcnt as thc rcputation lor achicvcmcnt. Sccond
handism mcans taking oncs valucs lrom othcr pcoplc, cspccially pcoplc
thought to bc succcsslul, admircd, and wcllconncctcd. !t makcs a virtuc
out ol conlormity to thcir standards or cxamplcs. A casc in point is lawn
ing ovcr cclcbritics and thc markct valuc ol thcir product cndorscmcnts.
Sccondhandism cntcrs into groupthink (t Hart .c). iscussions ol
thc two phcnomcna dicr largcly in cmphasis: thosc ol groupthink locus
on contcxts in which it is likcly to occur, thosc ol sccondhandism on thc
charactcrs and attitudcs ol pcrsons pronc to it.
Chapter o: ustrian Economics, Neoclassicism, and the Market Test ...
nc varicty ol acadcmic sccondhandism is thc qucst lor pcrccivcd
inucncc on policy. A practitioncr ol thc rcalism disscctcd by Philbrook
(.) compromiscs bctwccn advising thc policy that hc, as an cxpcrt,
rcally thinks bcst and giving thc advicc hc thinks most likcly to bc hccdcd.
Philbrook scts lorth scvcral rcasons why such rcalism is immoral. Fur
thcrmorc, it promotcs |c|onlusion bctwccn advanccmcnt ol knowlcdgc
and promotion ol policy, which in turn contributcs to indicrcncc to
rcality (8aucr .,, p. ,). Conlusion bctwccn thc two quitc dicrcnt
kinds ol rcsult also impcdcs asscssmcnt ol prolcssional compctcncc (8aucr
., csp. p. .c,).
A probably morc prcvalcnt and insidious varicty ol acadcmic sccond
handism makcs a virtuc out ol aping thc pcoplc who congratulatc cach
othcr on working at thc supposcd lronticrs ol thc disciplinc.

!t accts
judgmcnts about what qucstions arc worth pursuing, what mcthods arc
worth using, and how much mcrit individual prolcssors havc acquircd.
Young prolcssors do rcspond to thc indicators ol succcss applicd (as notcd
by 8octtkc and Prychitko ., quotcd abovc), cvcn il thcsc indicators
may somctimcs lcad to dyslunctional outcomcs, just as manulacturcrs in
thc Sovict Union rcspondcd, oltcn wastclully, to thc succcss indicators
applicd by ccntral planncrs. Hccding thc critcria ol thc sccondhandcrs
obstructs thc act ol an indcpcndcnt mind trying to undcrstand and tcach
howthc rcal world opcratcs. !t undcrcuts thc valuc and thc joy ol acadcmic
work.
! knowa dcpartmcnt hcad who unabashcdly practiccs sccondhandism.
Hc awards points to journals lor thcir supposcd prcstigc. Hc awards points
to articlcs lor thcir lcngththc wordicr thc bcttcrand lor his prcstigc
scorcs ol thc journals whcrc thcy appcar. Hc awards points to thcir authors
according to thcsc scorcs ol thcir articlcs and to citation indcxcs. Tis
supposcd mcasurcmcnt, which sparcs its practitioncrs actually having to
rcad pcoplcs writings and comc to grips with idcas, joins with acadcmic
politics in dccisions on salarics and promotions. Tc pcrson in qucstion
cvcn docs supposcd rcscarch ol his own on this sort ol mcasurcmcnt, as
il it wcrc cquivalcnt to invcstigating thc rcal cconomic world. Acadcmic
narcissism joins acadcmic sccondhandism.

t Hart .c, p. , notcs how rituals and symbolism rcinlorcc a scnsc ol wcncss.
!n cconomics, thc ritual ol thc modcl and usc ol mathcmatical symbols comc to mind. So
do psychological cxpcrimcnts in which group prcssurc sccms to acct an individuals vcry
pcrccptions, or rcportcd pcrccptions, as ol motions ol an actually stationary point ol light
in a dark room or ol dicrcnccs bctwccn thc lcngths ol two lincs (Tajlcl .6, p. ,).
..a Part : Economics
!dcally, scholars build on and criticizc cach othcrs work in thcir corts
to advancc knowlcdgc. Counting citations to mcasurc cxccllcncc is somc
thing clsc again. !t is parasitic on thc pursuit ol knowlcdgc, and cvcn sub
vcrsivc ol it il thc workcrs in a cld takc account ol cxtrancous inucnccs
that citations may havc. l coursc, not all idcas and approachcs dcscrvc
cqual attcntion. As P.T. 8aucr has rcmarkcd somcwhcrc, il cvcryonc has
his say, no onc can bc hcard. Scholars must havc somc notions ol standards
and ol lruitlul allocations ol thcir own timc and cncrgy. Tc pcrnicious
thing is subvcrsion ol gcnuinc standards by outsidcrs practicing parasitical
sccondhandism, somctimcs garbcd in spuriously scicntic quantication.
Roscn, with his notions ol succcss in thc markctplacc ol idcas, unin
tcntionally aids and abcts that sort ol thing. Hc aids and abcts rcsulting
prcssurcs to climb onto bandwagons.

Hc now qualics his notions with

rclcrcncc to thc long run: cvcntually thc markct tcst works and corrcct
doctrincs and lruitlul mcthods tcnd to prcvail. ! too want to bclicvc so.
xamplcs comc rcadily to mind, howcvcr, ol lalsc but longdominant
idcas in natural scicncc, mcdicinc, gcography, and cvcn cconomics. Any
way, no impcrsonal markct achicvcs thc cvcntual triumph ol truth. Tat
rcsult dcpcnds on honcst and compctcnt mcn and womcn cxcrcising thcir
own indcpcndcnt judgmcnt cvcn against prcstigious opinion. Furthcr
morc, invoking thc long run in dclcnsc ol thc markct tcst is an cxamplc
ol what Karl Poppcr would call an immunizing stratagcm: cvidcnt lail
urcs can bc talkcd away with thc claim that thcy will turn into succcsscs
cvcntually.
Firsthand appraisals arc not always possiblc. !n cvcryday lilc wc must
takc most ol our bclicls and bascs ol action lrom othcr pcoplc. Timc is
scarcc and division ol knowlcdgc ncccssary. Acadcmic administrators and
committccs may undcrstandably lccl a nccd lor outsidc hclp in asscssing
thc qualications and charactcr ol a candidatc lor a post. !n ccrtain circum
stanccs, howcvcr, wc as individuals havc a duty to cxprcss judgmcnts ol
our own. Tcn wc arc dcrclict il wc subordinatc our own dircct knowlcdgc
(as ol candidatcs pcrsonal and prolcssional charactcrs) to thc opinions ol
othcr pcoplc. !l an clcmcnt ol sccondhandismsomctimcs sccms ncccssary,
wc must rccognizc it as a shortcut and scck to rcducc its inucncc, rathcr
than praisc our cxpcdicncy in thc namc ol somc sort ol markct tcst. Abovc
all, wc acadcmics havc thc prolcssional duty ol trcating sccondhandism,

Machovccs story (.) ol what happcncd to thc conccpt ol compctition illustratcs

thc harm donc by bandwagonry, by obscssion with what is thought most publishablc
thanks to attuncmcnt to contcmporary notions ol thc lronticr ol rcscarch.
Chapter o: ustrian Economics, Neoclassicism, and the Market Test ..
groupthink, antiintcllcctualism, phony quantication, divcrsionary nar
cissism, and pcrvcrsc succcss indicators with thc contcmpt thcy dcscrvc.
co:viv:vx:~vv scnoois
Schools in acadcmcgroups ol scholars working on lavoritc topics and
with lavoritc mcthodshavc valuc. Scrutiny within and across schools can
shoot down bad idcas and cmpty lads. Schools can hclp motivatc rcscarch
by giving thcir mcmbcrs thc prcsumption ol a sympathctic audicncc.
Scholars should approach cach school (and cach scct) lor what thcy
can lcarn lrom it, not as a targct ol polcmics lor polcmics sakc and not as
a loil lor scllcongratulation. Tc ncoclassical and Austrian schools, cach
strippcd ol cxcrcsccnccs, arc complcmcntary. Aspiring Austrian ccono
mists should indccd takc thc standard Ph.. courscs. Austrian cconomics
is rcady again to contributc, as it oncc did, to thc mainstrcam. Contcm
porary Austrians havc bccn sctting good cxamplcs in thcir work on com
parativc systcms, cconomic history, and cntrcprcncurial history, industrial
organization, labor cconomics, monctary and nancial thcory and institu
tions, othcr markct institutions lor coping with ignorancc and unccrtainty,
thc history ol thought, and political philosophy. Austrian macrocconom
ics has much and could dcvclop morc in common with ncw Kcyncsianism
(which in its lundamcntals, dcspitc its labcl, is ncithcr ncw nor Kcync
sian). vcn in clds usually considcrcd rcmotc lromdistinctivcly Austrian
intcrcsts, criticism lrom an Austrian pcrspcctivc, likc scicntic criticism
gcncrally, can cxcrt hcalthy disciplinc.
!l thc ncoclassicals who arc obscsscd nowadaysapparcntly without
cvcn rcalizing itwith mcthodology, prcstigc, and lronticrsmanship can
shakc o thcsc obscssions, and il, lurthcr, thcy can rcsist thc badgcring ol
parasitical sccondhandcrs, thcy can rcap gains lrom tradc with thc Austri
ans.
vvvvvvxcvs
8artlcy, V.V., !!!. Unfathomed Kno.ledge, Unmeasured !ealth: On Uni.ersities
and the !ealth of Nations. La Sallc, !ll.: pcn Court, .c.
8aucr, P.T. !ntcrnational conomic cvclopmcnt. Economic Journal 6 (March
.): .c.a.
. Furthcr Rccctions on thc Statc ol conomics, !n Feality and Fhetoric,
chap. .c. Cambridgc, Mass.: Harvard Univcrsity Prcss, ..
.. Part : Economics
. Tc isrcgard ol Rcality. Cato Journal , (Spring/Summcr .,): aa.
8octtkc, Pctcr J., cd. Te Elgar Companion to ustrian Economics. Aldcrshot, U.K.,
and 8rookcld, \t.: lgar, ..
8octtkc, Pctcr J., and avid L. Prychitko, cds. Te Market Process: Essays in Con-
temporary ustrian Economics. Aldcrshot, U.K., and 8rookcld, \t.: lgar,
..
Fumcnto, Michacl. Science under Siege. Ncw York: Morrow, ..
t Hart, Paul. Groupthink in Go.ernment: Study of Small Groups and Policy Fail-
ure. Amstcrdam, Rockland, Mass., and 8crwyn, Pa.: Swcts & Zcitlingcr,
.c.
Hucrta dc Soto, Jcss. Tc ngoing Methodenstreit ol thc Austrian School.
Commcnt on papcrs by Shcrwin Roscn and rich Strcisslcr. Prcscntcd at
thc mccting ol thc Mont Plcrin Socicty, \icnna, Scptcmbcr .6.
Laband, avid N., and Christophcr N. Taylor. Tc !mpact ol 8ad Vriting in
conomics. Economic Inquiry (ctobcr .a): c, 6,6.
Machovcc, Frank M. Perfect Competition and the Transformation of Economics.
London and Ncw York: Routlcdgc, ..
Maycr, Tomas. Truth .ersus Precision in Economics. Aldcrshot, U.K., and 8rook
cld, \t.: lgar, ..
McCloskcy, .N. Vriting as a Rcsponsibility ol Scicncc: A Rcply to Laband
and Taylor. Economic Inquiry c (ctobcr .a): 66.
Mirowski, Philip. Trcc \igncttcs on thc Statc ol conomic Rhctoric. !n
Post-Popperian Methodology of Economics, cditcd by Ncil dc Marchi, aa.
8oston: Kluwcr, .a.
Philbrook, Clarcncc. Rcalism in Policy spousal. merican Economic Fe.ie.
(cccmbcr .): 6.
Roscn, Shcrwin. Austrian and Ncoclassical conomics: Any Gains lromTradc:
Journal of Economic Perspecti.es .. (Fall .,): ..a.
Simon, Hcrbcrt A. Rcvicwol Organi.ation Teory, cditcd by .. Villiamson.
Journal of Economic Literature c (Scptcmbcr .a): .c.c.
Strcisslcr, richV. Mcthodcnstrcit: Tc Austrianvs. NcoClassical Approachcs
to conomics. Papcr prcscntcd at thc mccting ol thc Mont Plcrin Socicty,
\icnna, Scptcmbcr .6.
Chapter o: ustrian Economics, Neoclassicism, and the Market Test ..
Summcrs, Lawrcncc H. Tc Scicntic !llusion in mpirical Macrocconomics.
Scandina.ian Journal of Economics , no. a (..): .a..
Tajlcl, Hcnri. Social Pcrccption. !n International Encyclopedia of the Social Sci-
ences, vol. ..: 6,,. Ncw York: Macmillan and Frcc Prcss, .6.
Toward accc. !all Street Journal, , Novcmbcr .6.
Vright, avid M. Capitalism. ... Chicago: Rcgncry, .6a.
Ycagcr, Lcland 8. 8uchanan on Scopc and Mcthod. Constitutional Political
Economy ., no. a (.c): .,aac.
. Tacit Prcachmcnts Arc thc Vorst Kind. Journal of Economic Method-
ology a, no. . (.): .. Rcprintcd hcrc as chaptcr ..
cn~v:vv
!s thc Markct a Tcst ol
Truth and 8cauty:

:~vxv: :vs:s
!n this Journal ol Spring accc, Robcrt Tollison joins avid Laband in
rcitcrating a strctchcd conccption ol markct tcst. Laband and Tollison
rccommcnd grading acadcmic pcrlormancc by thc sorts ol statistics that
Laband compilcs, which involvc articlc and pagc counts, imprcssions ol
journal quality, and citations. As ! said in thc ., articlc that Laband
and Tollison attack (thc prcccding chaptcr hcrc), not cvcn thc actual com
mcrcial markct is a tcst ol truth and bcauty or cxccllcncc. Grantcd, il
thc quantity produccd ol somc good or scrvicc nds willing buycrs at a
pricc at lcast covcring all costs, that lact implics that rcsourccs havc not
bccn divcrtcd lrom altcrnativc outputs that consumcrs would havc valucd
morc highly. Losscs arc a rctrospcctivc sign ol wastc (apart lrom a quasi
cxccption lor busincss owncrs who dcrivc satislaction lrom using thcir
own wcalth cvcn in moncylosing ways). Such a markct tcst cxcrts hcalthy
disciplinc.
Furthcrmorc, social coopcration through thc markct and in othcr ways
itscll has moral valuc. Tc markct mcthod ol organizing cconomic activ
ity is indccd bcttcr, by thc standard ol human happincss, than altcrnativc
mcthods. 8ut nancial succcss in somc broad or narrow markct nichc has
no dccpcr philosophical signicancc, in itscll, it is no lurthcr sign ol cxccl
lcncc or virtuc. (Tc lcsson ol Hayck .6c, chap. 6, is wcll worth taking
to hcart.) Markct succcss docs not provc that thc tastcs catcrcd to, thc

riginally cntitlcd Tc Tactics ol Sccondhandism, this papcr comcs lrom thc

Quarterly Journal of ustrian Economics (Fall accc): .6.. !t rcplics to a commcnt
that avid N. Laband and Robcrt . Tollison had madc on my articlc rcprintcd just
abovc. For Laband and Tollisons own words, scc thcir n Sccondhandism and Sci
cntic Appraisal, Quarterly Journal of ustrian Economics , no. . (Spring accc): ,
http://mises.org/journals/qjae/pdf/qjae3_1_4.pdf.
..6
Chapter ,: Is the Market a Test of Truth and Beauty? ..,
goods and scrviccs providcd, or thc providcrs thcmsclvcs arc admirablc.
Facts alonc do not yicld appraisals (you cant gct an ought lrom an is).
Tc markct is a mctaphor. !t makcs no appraisals. Choiccs arc madc
only by humans rathcr than by pcrsonicd abstractions such as thc mar
kct ( Jamcs M. 8uchanan ., quotcd in Lcc .6, p. ,,, hcrc and in
his articlc ol accc, Lcc makcs thc point cloqucntly). vcrrcaching claims
lor thc markct, cspccially as a transpcrsonal arbitcr ol truth, dcccncy, and
cxccllcncc, tcnd to discrcdit thc valid and quitc dicrcnt casc lor a lrcc
socicty. (n backlash lrom cxaggcratcd claims ol markct pcrlcction, com
parc Hcync accc, rst lull paragraph ol p. ..) Hc is a poor champion ol
thc markct systcm who cannot dclcnd it as it rcally is, warts and all. !t
is sad to scc public undcrstanding ol thc casc lor thc markct undcrcut by
thc markcts wouldbc lricnds.
Laband and Tollison invitc such backlash, unintcntionally. Tcy idcn
tily thcir own position on sccondhandism and scicntic appraisal with
thc lrccmarkct sidc ol thc disciplinc, thcy imputc bclicl in markct lail
urc to thcir critics (accc, p. ). Tc markct systcm, lar lrom bcing a
substitutc lor good judgmcnt and morality, prcsupposcs morality. Yct scc
ondhandism has morally qucstionablc aspccts in somc ol its applications
(cl. McCloskcy .a, commcnting on Laband and Taylor .a).
!l thc lairly litcral tcst ol thc commcrcial markct has limitcd (though
grcat) signicancc, cvcn lcss signicant is its supposcd analoguc in thc
mctaphorical markct lor scicncc and scholarship. Tcrc, truth, not mar
kctability, is thc goaland truth as such, not dicrcnt, incompatiblc
brands ol truth lor dicrcnt consumcrs. (!n thc commcrcial markct, by
contrast, busincsscs do catcr to widcly divcrgcnt tastcs and do, appropri
atcly, satisly cvcn dcmands lor incxpcnsivc goods ol rclativcly low quality.)
To spcak ol truth is not to trac in mctaphysics about Truth with a capi
tal T. ! mcan mcrcly that scicntic cndcavor is thc pursuit ol propositions
ol gcncrality and dcpth corrcsponding to thc way things actually arc (to
borrow words lrom Pctcr 8aucr and Gcorgc Vill scparatcly).
:vu:n ~xb c~:vs
Scicntic or scholarly or acadcmic lilc has at lcast two strands. First is
trying to nd and communicatc truth or knowlcdgc. Sccond is thc aca
dcmic gamc itscllthc pursuit ol prcstigc, admiration, and moncy. Scll
promotion and gamcsmanship cntcr in. l coursc, thc two aspccts ol
acadcmic lilc ovcrlap. vcn somconc ovcrridingly conccrncd with truth
.. Part : Economics
dcsircs admiration, wants to dcscrvc it, and carcs about its sourccs and
rcasons. Furthcrmorc, hopc lor lamc and lortunc can indccd bc a strong
and rcspcctablc inccntivc to thc pursuit ol scicntic truth (as wcll as a
tcmptation to politicking and thc likc).
Still, how closcly thc two aspccts ol scicntic activity corrcspond is
acctcd by thc tonc and policics prcvailing in thc acadcmic world. Tc
prcachings ol Laband and Tollison, il hccdcd, would impair thc corrc
spondcncc and incrcasc tcnsion bctwccn thc two aspccts.
Tc truth is not rclcvant il it is not a sharcd truth, thcy writc (Laband
and Tollison accc, p. ). ! am not surc just what thcy mcan by rclcvant
or in how broad or how narrow a contcxt thcy apply thcir rcmark. Pcrhaps
thcy mcan rclcvancc to scoring wcll in thc acadcmic gamc. Tcir rcmark
docs sound likc rclativism. Yct rcality is what it is, rcgardlcss ol how many
or how lcw pcoplc sharc a corrcct pcrccption ol it. 8cing inucntial or
cnjoying prcstigc may somctimcs carry a prcsumption that oncs idcas arc
right, but it is not thc samc as thcir actually bcing right.
Sharing truthcommunicating idcasis important, ol coursc. Curi
ously, Laband and Tollison sccm to valuc communication only in a nar
row markct associatcd with a notion ol prcstigious journals. 8ut how
narrow or how broad a markct propcrly countshow small or largc a
sct ol pcrsons addrcsscd: No markct answcrs that qucstion by itscll. ocs
thc appropriatc markct includc all cmploycrs and potcntial cmploycrs ol
cconomists or all actual and potcntial consumcrs ol cconomic inlorma
tion: r is it a much narrowcr sct ol appraiscrs, pcoplc inclincd to rcccivc
and transmit bandwagon cccts rclating to thc supposcd lronticrs ol thc
disciplinc: Morc comcs latcr about qucstions likc thcsc.
s:~xb~vbs ~xb vvs~:z s:~xb~vbs
! want to lorcstall misintcrprctation. !l wc had to rank cconomists ol thc
past, il all copics ol thcir writings and ol othcrs discussions ol thcir writ
ings had bccn irrccovcrably lost, il no inlormation about thcm survivcd
othcr than statistics ol thc kinds that Laband compilcs, and il wc waivc
thc qucstion ol what purposc a ranking undcr such circumstanccs might
scrvc, thcn ! do supposc that consulting thosc statistics would bc morc
plausiblc than any altcrnativc that comcs to mind. Saying so is not much
ol a conccssion. Acting on a hunch with somc slight basis is morc plausi
blc than acting at random. Actually, wc do not havc to rank cconomists
undcr such circumstanccs and by such a mcthod.
Chapter ,: Is the Market a Test of Truth and Beauty? ..
Two othcr points, which arc not cvcn semiconccssions, alrcady ap
pcarcd in my ., articlc.
.
First, somc standards must apply in scicncc
and scholarship, not all scribblings can command cqual rcspcct and attcn
tion. Partly in unavoidablc conscqucncc, unlashionablc idcas lacc an
uphill battlc. Sccond, lilc rcquircs much rcliancc on sccondhand knowl
cdgc. Vholly rsthand appraisals (as ol acadcmic candidatcs qualica
tions, accomplishmcnts, and charactcrs) arc scarccly possiblc, oltcn oncs
own dircct knowlcdgc must bc supplcmcntcd by thc judgmcnts ol othcr
pcoplc.
Laband and Tollisons crsatz standards partly crowd out soundcr oncs.
Far lrom bcing apologctic, Laband and Tollison makc an actual virtuc
ol cxaggcratcd sccondhandism and thcir strctchcd conccption ol markct
tcst. Such thinking and attitudcs, to thc cxtcnt that thcy havc inucncc,
worscn thc dclccts ol thc alrcady wcak analogy bctwccn thc acadcmic
quasimarkct and thc rcal markct. Acadcmc is not immunc lrom lads and
bandwagon cccts such as occur in many arcas ol lilc, lor cxamplc, thc
adulation ol cclcbritics. Analogucs ol thc Kcyncsian bcauty contcst appcar
in cconomic rcscarch and stylcs ol cxposition undcr prcssurcs to do not
so much what thc individual cconomist thinks bcst as what is thought to
win acclaim.
a
Such tcndcncics tilt thc playing cld morc stccply against
unlashionablc idcas.
Laband and Tollison makc much ol citations as indicators ol inucncc
or lamc.

Admiring inucncc so rcgistcrcd, cvcn indcpcndcntly ol sub

stancc, is analogous to admiring thc political rcalism justly attackcd
by Clarcncc Philbrook (.)admiring pcrccivcd inucncc on policy
.
n thcsc and othcr mattcrs, ! am struck by how littlc attcntion Laband and Tollison
pay to what ! actually wrotc in thc articlc undcr attack and to thc writings ! citcd. My and
othcr obscrvcrs rcasons lor conccrn about sccondhandism and groupthink may pcrhaps
bc mistakcn, but thcy arc rclcvant to thc issucs undcr discussion.
a
8rown (./.c, pp. ., 66), providcs an carly and cloqucnt diagnosis ol
laddism in cconomics. Morc rcccntly, macrocconomics providcs glaring cxamplcs. Tc
impact ol big playcrs has bccn analyzcd chicy in actual markcts, but thc analysis can bc
cxtcndcd to lads and bandwagon cccts in othcr activitics. A 8ig Playcr is anyonc who
habitually cxcrciscs discrctionary powcr to inucncc thc markct whilc himscll rcmaining
wholly or largcly immunc lrom thc disciplinc ol prot and loss. Koppl and Ycagcr .6,
p. 6, also scc works citcd thcrc, as wcll as 8utos and Koppl ..

r cvcn ol notoricty, as notcd in thc tcxt bclow. Ronald Coasc rcmarkcd many ycars
ago (in convcrsation, so ! quotc only lrommcmory): !n thc acadcmic gamc, thc important
thing is to havc bccn hcard ol. Pcoplc may lorgct in just what conncction thcy hcard ol
you, but thcyrc likcly to rcmcmbcr whcthcr thcy hcard ol you. !t is bcttcr to havc bccn
hcard ol lor murdcring your wilc than not to havc bccn hcard ol at all.
.ac Part : Economics
cvcn whcn obtaincd by thc advisors compromising with his own honcst
judgmcnts. Citations propcrly scrvc any ol scvcral purposcs: Tcy stccr
thc rcadcr to lacts and argumcnts supporting thc authors points or to
supplcmcntary discussions. Tcy givc crcdit to othcr authors lor idcas or
ndings or particularly apt lormulations. Vhcn onc rcscarchcr is criticiz
ing anothcrs idcas or rcsults, citations givc thc rcadcr a chancc to chcck thc
attackcd work and scc whcthcr it is bcing dcalt with lairly. Lcss admirably,
citations may bc uscd as movcs in thc acadcmic gamcto borrowthc prcs
tigc ol thc othcr writcrs citcd, to signal that oncs own work is a la modc,
on thc supposcd lronticr ol thc disciplinc, or to signal lamiliarity with
rcconditc sourccs or arcas ol knowlcdgc. !l an author cxpccts citations to
bc put to thc uscs ol Laband and Tollison, hc might cvcn givc or with
hold thcm lor that rcason. Tc parasitic usc ol citations can corrupt thcir
primary usc.
Laband and Tollison cvcn claim morc lor citations as thcy usc thcm
than lor thc actual markct (accc, p. 6):
dollar votcs arc an imprccisc mcasurc ol valuc. Morc accuratcly, thcy
rccct minimum cxpcctcd valuc. Citations, by contrast, clcarly rcvcal
that thc acadcmic consumcr rcccivcd valuc lrom thc product citcd, irrc
spcctivc ol whcthcr thc citation was positivc or ncgativc. Tis is bccausc
thc citations arc issucd only altcr purchasc and consumption ol thc prod
uct. Tus, a casc can bc madc that thc acadcmic markct convcys product
inlormation cvcn morc accuratcly through citations than do markcts lor
goods and scrviccs using dollar voting.
Tc tcrminology and thc wholc analogy arc straincd, thc claim is bi
zarrc. ! know somconc whosc idca ol cconomic rcscarchas ! havc told
himis to ransack thc litcraturc lor passagcs that cxprcss or can bc intcr
prctcd as cxprcssing lallacics, thcn triumphantly to pouncc on and dcmol
ish thosc lallacics. According to thc Laband and Tollison tcst, cvcn pcr
pctrators ol crudc lallacics, lar lrom dcscrving scorn lor cluttcring up thc
litcraturc, dcscrvc thc positivc points that thcir citations bring thcm, lor
thc lallacyhuntcrs havc rcccivcd valuc lrom thc works citcd.
Laband and Tollison makc cxcuscs lor asscssing pcoplc by Laban
dian numbcrs. Somc such mcthod is a practical ncccssity. !t posscsscs
objcctivity (or so Laband and Tollison sccm to suggcst on p. ,). Yct pcr
sonal judgmcnt ncccssarily cntcrs into constructing thc numcrical indcxcs.
Conlormably with thcir sccondhand naturc, thc indcxcs lail to show
who judgcd whosc work up or down and lor what rcasons. Furthcrmorc,
Chapter ,: Is the Market a Test of Truth and Beauty? .a.
publication indcxcs cannot rcalistically bc thc solc mcasurc ol acadcmic
pcrlormancc. Prolcssors havc othcr dutics, cvcn tcaching, and subjcctivc
judgmcnt unavoidably cntcrs into asscssing and wcighting various kinds
ol pcrlormancc.
!n Laband and Tollisons vicw, thc altcrnativc to rclying on markcts to
assign valuc to scicntic contributions is that wc must rcly on thc ostcnsi
bly rsthand knowlcdgc ol somc ccntral authority, such as Ycagcr (p. 6).
Ncvcr mind thc insinuation that ! aspirc to thc rolc ol ccntral authority.
Noticc again thc notion that markcts, impcrsonal markcts, makc judg
mcnts and that somc mcchanismor statistical proccss should assign valuc
to scicntic contributions. Yct such valuc docs not cxist in thc abstract.
A rcscarchcr lcarns lrom thc actual substancc ol his collcagucs work, not
lrom mcrc summary numbcrs pcrtaining to journal quality and citations.
Vritings havc valuc lor thc pcrsons who usc thc rcportcd lacts and idcas,
such as othcr scicntists, cnginccrs and tcchnicians, consumcrs who ulti
matcly bcnct lrom tcchnological progrcss, and citizcns in gcncral who
bcnct lrom progrcss in cconomic knowlcdgc (to thc cxtcnt that such
knowlcdgc is actually hccdcd in policymaking).
!n grading acadcmics lor appointmcnts, promotions, and so lorth,
thc altcrnativc to Labands approach is not rcliancc on somc supposcd
ccntral authority, such as mc. No, thc altcrnativc is that thc dccision
makcrs and thcir inlormcd consultants lrankly lay out thcir own judg
mcnts, lor which thcy takc rcsponsibility, and thc rcasons lor thcm. Lct
thcm not hidc bchind somc sort ol statistical prccipitatc ol thc anony
mous judgmcnts ol othcr pcoplc. Lct thcsc appraiscrs discuss thcir tcnta
tivc judgmcnts with onc anothcr and possibly rcvisc thcm. An acadcmic
dcpartmcnt might namc a committcc to actually rcad candidatcs writings,
pcrhaps sccking supplcmcntary inlormation lrom outsidc, and to rcport
its mcmbcrs asscssmcnts and rcasons to thc broadcr dccisionmaking
group.
vuv:nvv wovvivs
conomists should undcrstand that pcoplc, including acadcmics, rcspond
to inccntivcs and that inappropriatc inccntivcs can bring unintcndcd con
scqucnccs. Rcsponscs to succcss indicators in thc Sovict planncd ccon
omy providcd cxamplcs. As caricaturcd in thc humor magazinc Krokodil ,
il a nail lactorys output was mcasurcd in numbcr ol units, thc lactory
would producc vcry many tiny nails, but il total wcight countcd instcad,
.aa Part : Economics
it would producc lcw but hugc nails. (Comparc Tullock .6, chap. a, on
how burcaucrats rcact to attcmpts to mcasurc thcir pcrlormanccs numcri
cally.) Standardizcd tcsts ol school childrcn rcportcdly clicit tcaching to
tcst, ccrtain mcasurcs ol pcrlormancc stccr thc attcntion ol thc policc to
violators casy to catch.
Tc individually scnsiblc rcsponsc ol young prolcssors undcr Laband
andTollisontypc prcssurcs may wcll bc to toil away in somc prcvalcnt lad
on onc ol thc supposcd lronticrs ol thc disciplinc, which may wcll involvc
work addrcsscd to somc small ingroup, rcsistant to inlormcd cvaluation
by outsidcrs and cnjoying scant widcr rclcvanccall in hopcs ol bcing
prcstigiously publishcd. (Tcrc is no ncccssary contradiction in idcntilying
both laddism and narrow spccialization. Numcrous small modish topics
may cxist, as wcll as mcthodological, rhctorical, and stylistic lads inlccting
many spccialtics at oncc.)
!t is pcrvcrsc to push acadcmics lacking a comparativc advantagc in
modish work to wastc thcir cncrgics on it anyway. Vhy prod thcm to
writc articlcs in which lcw pcoplc arc rcally intcrcstcd (cxccpt pcrhaps as
a basis lor 8rownic points or as inputs to morc such work by othcr simi
larly motivatcd acadcmics):

Tcy might makc morc solid contributions

in othcr ways, thc principlc ol opportunity cost applics cvcn in acadcmc.
vcn within an acadcmic dcpartmcnt, divcrsity ol talcnts and spccializa
tions has valuc.
Lcts lacc it: lcw cconomists arc capablc ol lrcqucntly nding impor
tant ncw knowlcdgc. At thc samc timc, widcsprcad ignorancc prcvails
about thc corc ol cconomics, thc vcry logic ol a markct cconomy. Long
cxplodcd crrors pcrsist among policymakcrs and thc gcncral public. Tc
quasimarkct works lcss wcll lor knowlcdgc in cconomics than lor knowl
cdgc in thc natural scicnccs (cspccially than lor industrially applicablc,
as distinct lrom politically applicablc, scicntic knowlcdgc). vcn ccono
mists lar apart on thc idcological spcctrum do agrcc on important issucs
about which thc gcncral public and cvcn noncconomist intcllcctuals arc
ignorant.
!l cconomics has much ol valuc to tcach, thc pcrsistcncc ol ignorancc
and crror ovcr thc dccadcs and ccnturics suggcsts a lapsc ol communica
tion worth trying to rcmcdy. Roomrcmains lor dcvising improvcd ways to

Howcvcr thc points arc calculatcd, only x pcrccnt ol candidatcs can wind up in thc
top x pcrccnt, yct much cort and talcnt may bc misdircctcd into trying to wind up thcrc
anyway. conomists should undcrstand thc dicrcnccs bctwccn a racc lor positional valucs
and thc crcation ol valucs ol othcr kinds.
Chapter ,: Is the Market a Test of Truth and Beauty? .a
makc cconomic principlcs clcar and to communicatc thcm widcly. Vhy
should such corts bc disdaincd: Procicncy in somc advanccd tcchniquc
or work on thc lronticr ol somc narrow spccialty may indccd bc valuablc,
but it is no prool in itscll ol undcrstanding thc vcry basics ol cconomics.
(! havc cncountcrcd a lcw cconomists who constitutc cxamplcs ol this
point.)
Tcsc thoughts makc mc wondcr howconsistcnt Laband and Tollison
arc in thcir laith in thc markct tcst. Arc thcy prcparcd to rank publications
by thcir circulation numbcrs: r, as in somc circlcs, do skilllully writtcn
contcnts and widc rcadcrship acct appraisals ncgativcly:
As lor appraising pcrsons, it is onc thing to makc appraisals rcspon
sibly whcn choiccs must bc madc, as among candidatcs lor cmploymcnt,
promotion, and prolcssional honors. !t is anothcr thing to makc appraisals
in a vacuum, out ol thc contcxt ol ncccssitysccondhand appraisals that
may cvcn bc abuscd lor thirdhand appraisals. Turning acadcmic cconomics
into its own subjcct mattcr is narcissism. ! wondcr whcthcr thc appar
cnt popularity ol articlcs ranking dcpartmcnts and journals and pcrsons
traccs to thcir appcal as matcrial lor gossip, likc thc appcal ol tabloids sold
at supcrmarkct chcckouts. (Similar thoughts comc to mind about somc
strands ol cconomic impcrialism, as in writings that strain to attributc
rcntsccking motivcs to cvcr morc institutions and ocials.)
is i~n~xb~xb:oiiisox:vvv :nixxixc ix v~c:
ixvuvx:i~i-
So lar ! havc bccn worrying about thc Laband and Tollison markct tcst
to thc cxtcnt that it is applicd. 8ut do Laband and Tollison in lact havc
inucncc: ! do not know. Conccivably, almost cvcrybody ignorcs thcm,
on thc othcr hand, thcy arc not uniquc in thinking as thcy do. Vhat !
do know is that thcy try to havc an impact. Tcir numcrical systcms ol
rating pcrsons and dcpartmcnts and journals arc intcndcd to acct what
pcoplc do. vcn in thcir articlc, thcy prcach at cconomists. Tcy prcach
about publishing in prcstigious journals, which implics (pcrhaps unintcn
tionally) prcaching about rcscarch on topics considcrcd most acccptablc
to prcstigious journals, prcaching about what to cmphasizc and what not,
prcaching about rcscarch mcthods, prcaching about stylcs ol cxposition
(somctimcs cvcn involving stratcgic obscurity), and prcaching about try
ing to associatc oncscll (as by judicious citations) to currcnt lashions in
thc prolcssion. Tc mcssagc, in short, is: compromisc your standards. Put
.a Part : Economics
lcss cort into thc kinds ol work that you considcr important, in which
you havc a comparativc advantagc, and that you cnjoy. ( Joy is a lcgiti
matc inccntivc, but onc crodcd by LabandandTollisontypc attitudcs
and practiccs.) Switch toward catcring to cditors and rclcrccs (who thcm
sclvcs opcratc undcr similar prcssurcs to thc cxtcnt that Laband and Tol
lison prcvail).
Such prcaching distrcsscs mc not mcrcly bccausc it is or might bccomc
inucntial but bccausc it is ocious and rcpcllcnt in itscll.
s:viv ov ~vcu:vx:
Laband and Tollison bcg thc qucstion thcy purportcdly discuss: as un
abashcd sccondhandcrs, thcy simply asscrt or assumc that thcir supposcd
markct tcst is indccd thc corrcct mcasurc ol cxccllcncc. 8ut what justi
cation is it ol ccrtain critcria that thc playcrs try to satisly thcm whcn
thcy arc applicd: Laband and Tollison, citing carlicr papcrs coauthorcd
by Laband, arguc, lor cxamplc, that journal cditors try to publish high
impact papcrs. Vcll, it is no surprisc that pcoplc rcspond to inccntivcs,
but to ocr this lact as justilying a particular structurc ol inccntivcs is
circular rcasoning.
A lurthcr sign ol thc wcakncss ol Laband and Tollisons casc is thcir
rcsort to cmotivc words likc sour grapcs and crybabyism. Such namc
calling hardly applics to thc cmincnt cconomists, including Nobcl laurc
atcs, who havc cxprcsscd conccrn about thc statc ol much ol thc acadcmic
litcraturc, including what might bc callcd its narcissistic or inccstuous
aspccts.

Vhat opinion ol thc litcraturc may wc inlcr, by thc way, prc

ciscly among cconomists who cxcusc ncglccting actually to rcad thc work
cvcn ol candidatcs bcing appraiscd:
Tc pcrsonal naturc ol Laband and Tollisons attack lurthcr appcars
in how thcy charactcrizc an altcrnativc to sccondhand appraisals, namcly,
rcliancc on thc ostcnsibly rsthand knowlcdgc ol somc ccntral authority,

xamplcs ol conccrn arc citcd in my articlcs ol . and .,. Anothcr cxamplc is

McCloskcy .. ! cannot rcsist rcquoting lrom McCloskcy (p. .) an cxchangc bctwccn
Gcorgc 8orts and Harry Johnson whcn both wcrc journal cditors. 8orts: |V|c gct morc
good articlcs than wc know what to do with! Johnson: Tcn why dont you publish
a lcw:
Tc tragcdy ol misdircctcd corts is cvcn worsc than onc might think lrom what actu
ally gcts into thc journals. conomists with cxpcricncc in rclcrccing manuscripts could
tcstily to this point.
Chapter ,: Is the Market a Test of Truth and Beauty? .a
such as Ycagcr.
6
Yct this is not thc altcrnativc, as ! havc cxplaincd abovc.
Furthcr, Laband and Tollison makc a snidc rcmark about thc litcraturc
that Prolcssor Ycagcr dotcs onthc litcraturc ol a cult lor which up is
down and down is up, lor which lailing a markct tcst is rcally passing it,
and whosc mcmbcrs arc contcnt just to chat among thcmsclvcs, lorgoing
Vimblcdon in hopcs ol winning thc Austrian pcn (p. ). How do thcy
know that ! dotc on such litcraturc or that ! dotc on any litcraturc: As
! madc clcar in .,, ! amno spokcsman lor any particular school or scct. !
havc a low opinion ol much Austrian litcraturc, as wcll as a high opinion
ol somc ol it, opinions that ! havc lormcd myscll and havc not takcn
ovcr sccondhand. l coursc much crummy work, along with cxcuscs lor
it, is knocking around in cconomics, as in othcr clds. Vhat docs that
lact havc to do with thc issuc undcr discussionappraisal by a supposcd
markct tcst:
Arc Laband and Tollison willing to lct thcir rcmark about what !
dotc on rcmain as an cxamplc ol thcir standards ol accuracy and rclc
vancc: Tcir analogy with tcnnis tournamcnts rcccts, by thc way, thcir
obscssion with thc gamc aspcct ol acadcmic lilc.
coxciusiox
Lct mc bc clcar about what ! am not saying. ! ncvcr qucstioncd thc nccd
lor standards, nor thc uphill battlc that unpopular idcas ncccssarily and
cvcn appropriatcly lacc, nor thc ncccssity ol sccondhandismol somc kinds
and dcgrccs and lor somc purposcs. ! am not swccpingly condcmning
thc litcraturc ol acadcmic cconomics. conomists continuc making solid
contributions dcspitc cvcrything.
! rcgrct thc pcrvcrsion ol standards through glorication ol sccond
handism. Vhcn appraisals arc ncccssary, thcy should bc kcpt as closc as
practicablc to pcrsons who havc thc most dircct knowlcdgc and who bcar
rcsponsibility lor thcir judgmcnts. ! rcgrct thc strcngthcning ol inccntivcs
to jump onto bandwagons. ! implorc rcadcrs to lcarn lcssons lrom thc
charactcrs in Ayn Rands novcls who cithcr arc sccondhandcrs thcmsclvcs
6
! do not know whcthcr thc lollowing rcmark (accc, p. ) is also dircctcd against
mc pcrsonally, but it is a snccr at somconc, il only a straw man: !t is not cnough lor thc
individual qua scicntist to maintain that hc has bccn cnlightcncd and kno.s thc truth.
Vhilc unhappy about thc likcly conscqucnccs ol Laband and Tollisons attitudcs and
practiccs, ! am not angry about bcing pcrsonally attackcd. Tcir attack hclps rcvcal thc
naturc and wcakncss ol thcir casc.
.a6 Part : Economics
or cxploit othcr pcoplcs sccondhandism and thcir susccptibility to intcl
lcctual intimidation.
,
(Rand providcs insights into thc craving lor prcstigc
that ! could scarccly hopc to rcproducc hcrc.)
Vc should bcwarc ol rclativism about truth. 8cyond thc gamclikc
or lamcandlortunc sidc ol acadcmic carccrs, thc truthandbcauty sidc
dcscrvcs cultivation. Communication is important, cvcn including skilllul
communication ol knowlcdgc to studcnts and to thc broad public.
Abovc all, ! warn against discrcditing thc valid casc lor thc lrcc socicty
by misconstruing thc markct as an cntity in its own right that transccnds
thc mcrc mcn and womcn who tradc on it, an cntity that makcs supcrior
judgmcnts cvcn about good and bad. bstaclcs to undcrstanding thc logic
ol a markct cconomy arc grcat cnough alrcady. A spurious linkagc in pco
plcs minds bctwccn a twistcd vcrsion ol lrccmarkctry and thc scrious,
valid, and quitc dicrcnt casc lor thc lrcc markct can only harm thc causc
ol lrccdom. vcrrcaching boomcrangs.
vvvvvvxcvs
8inswangcr, Harry, cd. Te yn Fand Lexicon. NcwYork: NcwAmcrican Library,
.6.
8rown, Harry Gunnison. Two ccadcs ol ccadcncc in conomic Tcorizing.
.. !n Some Disturbing Inhibitions and Fallacies in Current cademic Eco-
nomics, pp. ,6. Ncw York: Robcrt Schalkcnbach Foundation, .c.
8uchanan, Jamcs M. Tc Mctamorphosis ol John Gray. Constitutional Political
Economy 6, no. (.): aa.
8utos, Villiam N., and Rogcr Koppl. 8ig Playcrs and ntrcprcncurial Tradi
tions: How Kcyncsian Policics May Crcatc a Kalcidic conomy. Papcr lor
thc Southcrn conomic Association Mcctings, Ncw rlcans, ..
Hayck, F.A. Te Constitution of Liberty. Chicago: Univcrsity ol Chicago Prcss,
.6c.
Hcync, Paul. Rcvicw ol Te Moral Economy, by John P. Powclson. Independent
Fe.ie. (Summcr accc): .,.c.
,
Considcr thc way Laband and Tollison draw a scarccly vcilcd contrast bctwccn work
at thc supposcd lronticr ol thc disciplinc and inlcrior work, as wcll as thc gcncral tonc ol
thcir writing. A whi appcars ol thc argumcnt lrom intimidation, so idcnticd by Ayn
Rand (8inswangcr .6, pp. a).
Chapter ,: Is the Market a Test of Truth and Beauty? .a,
Koppl, Rogcr, and Lcland 8. Ycagcr. 8ig Playcrs and Hcrding in Assct Markcts:
Tc Casc ol thc Russian Rublc. Explorations in Economic History (.6):
6,.
Laband, avid N., and Christophcr N. Taylor. Tc !mpact ol 8ad Vriting in
conomics. Economic Inquiry c (ctobcr .a): 6,6.
Laband, avid N., and Robcrt . Tollison. n Sccondhandism and Scicntic
Appraisal. Quarterly Journal of ustrian Economics (Spring accc): .
Lcc, wight R. Tc Markct idnt o !t. Te Freeman: Ideas on Liberty 6
(cccmbcr .6): ,,,.
. conomics with Romancc. Independent Fe.ie. (Summcr accc):
.a..a.
McCloskcy, .N. Vriting as a Rcsponsibility ol Scicncc: A Rcply to Laband
and Taylor. Economic Inquiry c (ctobcr .a): 66.
. Kclly Grccn Goll Shocs and thc !ntcllcctual Rangc lrom M to N.
Eastern Economic Journal a. (Summcr .): ....
Philbrook, Clarcncc . Rcalism in Policy spousal. mericanEconomic Fe.ie.
(cccmbcr .): 6.
Tullock, Gordon. Te Politics of Bureaucracy. Vashington, .C.: Public Aairs
Prcss, .6.
Ycagcr, Lcland 8. Tacit Prcachmcnts Arc thc Vorst Kind. Journal of Economic
Methodology a, no. . (.): .. Rcprintcd hcrc as chaptcr ..
. Austrian conomics, Ncoclassicism, and thc Markct Tcst. Journal of
Economic Perspecti.es .. (Fall .,): ..6. Rcprintcd hcrc as chaptcr 6.
cn~v:vv 8
Macrocconomics and
Coordination

A morc cxact, though wordy, titlc lor this chaptcr would bc Macrocc
onomics, Coordination, and iscoordination. Macrocconomics studics
disruptions to thc cconomywidc coordination proccsscs that microcco
nomics cxplains. An cmphasis, instcad, on aggrcgatc dcmand lacing aggrc
gatc supply is hopclcssly supcrcial.
bis~vv~v ~xb ovvov:uxi:v
!t is standard nowadays to bcwail disarray in macrocconomics and monc
tary thcory. Fundamcntalist Kcyncsianism, as wc might call it, dominatcd
tcxtbooks and policy circlcs lor roughly thrcc dccadcs. xpcricncc and thc
ory thcn discrcditcd it. Tc lundamcntalists broodcd about inadcquacy ol
total spcnding (or occasionally thc rcvcrsc), about thc propcnsity to con
sumc out ol rcal incomc, and about a saving gap that grows with incomc
and wcalth and so bccomcs all thc hardcr to ll with invcstmcnt spcnding,
cspccially as rcal capital lormation lcavcs lcwcr attractivc opportunitics lor
still lurthcr privatc invcstmcnt. vcn nowadays, policymakcrs and a lcw
cconomists still cling to somc such doctrinc by dclault and still rccom
mcnd cxpanding aggrcgatc dcmand to stimulatc national and world
cconomics, albcit at thc risk ol pricc ination implicd by thc cqually dis
crcditcd notion ol thc Phillips curvc.
An altcrnativc school ol Kcyncsian intcrprctation stcms lrom Robcrt
Clowcr (.) and Axcl Lcijonhulvud (.6, ..). As history ol cconomic
thought it may bc qucstionablc, but its substancc dcscrvcs amplc attcntion.

riginally cntitlcd Austrian Tcmcs in a Rcconstructcd Macrocconomics, this

chaptcr dcrivcs lrom a conlcrcncc prcscntation in Amstcrdam, January ., publishcd
in ustrian Economics in Debate, cds. Villcm Kcizcr ct al. (London and Ncw York: Rout
lcdgc, .,): aa.. !t is considcrably updatcd hcrc.
.a
Chapter 8: Macroeconomics and Coordination .a
!t lcaturcs such conccpts as abscncc ol thc (supposcd) Valrasian auction
ccr, incomplctc and costly and impcrlcct inlormation, lalsc pricc signals,
sluggish pricc adjustmcnts, quantity changcs as wcll as pricc adjustmcnts,
thc duality ol pcoplcs dccisions about particular transactions according
as thcy arc or arc not lrustratcd in accomplishing othcr dcsircd transac
tions, and thc incomcconstraincd proccss ol inlcctious rcccssion and
rccovcry.
A quitc dicrcnt group ol scllstylcd Kcyncsians ccntcrcd at Cam
bridgc Univcrsity cxprcsscs swccping skcpticism about markctoricntcd
cconomic thcory. !n thc Unitcd Statcs, cconomists associatcd with thc
Journal of Post Keynesian Economics lorm still anothcr school.
Somc monctarists or monctarydiscquilibrium thcorists continuc
activc in thc tradition ol avid Humc, Hcnry Tornton, Clark Varbur
ton, Milton Fricdman, Anna Schwartz, Karl 8runncr, and Allan Mcltzcr.
Tcir inucncc has bccn crodcd, howcvcr, by dcvclopmcnts that havc
madc thcir lormcrly suggcstcd policy ol stcady monctary growth no longcr
applicablc and also by misintcrprctations ol cxpcricncc. Monctarism has
also sucrcd lrom attcntion paid to two schools that havc distortcd and
cxaggcratcd ccrtain ol its tcncts. Tc Ncw Classical cconomists (includ
ing Robcrt Lucas, Tomas Sargcnt, and Robcrt 8arro) proclaimcd ratio
nal cxpcctations and cquilibrium always. (!n ccct, cvcrything is always
coordinatcd, or almost so.) Tcir position gaincd attcntion morc bccausc
ol its cohcrcncc with thcorctical and mcthodological lashion than bccausc
ol its cmpirical substancc, latcr widcly qucstioncd (Howitt .c, chap. ).
Tc rcalbusincsscyclc school carricd thc cxaggcrations ol Ncw Clas
sical cconomics still lurthcr. !t intcrprctcd macrocconomic uctuations as
ccicnt rcsponscs to undcrlying rcal changcs (as in tcchnology) rathcr
than as conscqucnccs ol monctary disturbanccs. Robcrt King, Charlcs
Plosscr, and dward Prcscott havc writtcn along this linc, Strongin (.)
and Stockman (.) providc convcnicnt survcys. Gary Hanscn and Ran
dall Vright (.a) providc an cxamplc ol tinkcring with this thcory to
rcscuc it lrom rccalcitrant lacts, thcy would do wcll to rcmcmbcr about
Ptolcmy and cpicyclcs. Gary Hanscn and dward Prcscott convcycd thc
imprcssion, without cxplicitly saying so, that thcy wcrc answcring ycs
to thc qucstion poscd by thc titlc ol thcir . articlc, id Tcchnology
Shocks Causc thc .c.. Rcccssion:
8oth thc Ncw Classical and rcalbusincsscyclc schools tacitly attrib
utcd ncarpcrlcction to markcts (including ccicnt markcts in sccuri
tics), as il thcir mcmbcrs wcrc congratulating thcmsclvcs on bcing morc
.c Part : Economics
lrccmarkctoricntcd than thou. (! am rcporting my imprcssion ol doc
trincs, not conjccturing about anyoncs motivcs nor saying that cxaggcr
ation crowds out scholarly substancc, still, lads do comc and go in thc
acadcmic world.)
Scllparodying lrccmarkctry has handcd an opportunity to look scn
siblc by contrast to scllstylcd Ncw Kcyncsians, who sharc scvcral pcrccp
tions ol rcality with thc monctarists and who takc impcrlcct compctition
and pricc and wagc stickincss scriously. (xamplcs ol thc work ol this mis
lcadingly namcd school appcar in Mankiw and Romcr ...) As Axcl Lci
jonhulvud (.6) has notcd in a morc gcncral contcxt, macrocconomists
havc bccn playing musical chairs with doctrinal positions and labcls.
Nowadays (around ac.c), a ncwclassical/ncwKcyncsian synthcsis,
also callcd dynamic (or dynamic stochastic) gcncralcquilibrium thcory,
cnjoys acadcmic prcstigc. !t cxplorcs thc propcrtics ol mathcmatical mod
cls and twcaks thcm to rcmovc blatant contrasts with statistics ol thc
rcal world. !t assumcs rational cxpcctations, which is scnsiblc cnough il
takcn to mcan no morc than that pcoplc will not pcrsist in making rcc
ognizcd mistakcs. !t assumcs that markcts arc always in or ncar cquilib
riumin somc strctchcd scnsc ol that wordso showing scant attcntion
to thc issucs ol coordination and discoordination that conccrn Austrian
cconomists.
.
Tis disarray in macrocconomics givcs Austrianschool cconomists, as
wcll as monctarists and Ncw Kcyncsians, an opportunity to sct thc main
strcam ol macrocconomics on a soundcr coursc. Two major charactcris
tics, bcsidcs othcrs mcntioncd bclow, cspccially cquip Austrians to scizc
this opportunity. First, it locuscs on thc ccntral problcm bridging micro
and macro cconomics, thc problcm ol cconomywidc coordination. (Gcr
ald riscoll aptly cntitlcd his doctoral disscrtation Economics as a Coor-
dination Problem.) Sccond, it is rcadicr than othcr lrccmarkctoricntcd
schools to lacc rcality as it is, warts and all.
coovbix~:iox
Robcrt Clowcr (., p. a,a) obscrvcd that
thc approachcs ol thc Kcyncsians, monctarists, and ncw classical ccono
mists tomonctary thcory andmacrocconomics will gct us cxactly nowhcrc
.
Somc might considcr this charactcrization unlair. For an cnthusiastic tcxtbook trcat
mcnt, scc Vickcns acc.
Chapter 8: Macroeconomics and Coordination ..
bccausc cach is loundcd, onc way or anothcr, on thc convcntional but
cmpirically lallacious assumption that thc coordination ol cconomic
activitics is costlcss.
As this rcmark suggcsts, thc kcy qucstion ol moncy/macro thcory is
not Vhat dctcrmincs whcthcr aggrcgatc dcmand lor goods and scrviccs
is dccicnt or cxccssivc or just right: but Vhat dctcrmincs whcthcr thc
proccsscs ol cxchangc and coordination in an cconomy ol dcccntralizcd
dccisionmaking arc working smoothly:
Austrian cconomists rccognizc thc disaggrcgatcd charactcr ol cco
nomic activity. Tcy takc scriously thc prolound dicrcnccs bctwccn an
advanccd cconomy ol ncgraincd division ol labor and thc ncarly scll
sucicnt miniaturc cconomy ol a mcdicval monastcry or manor or ol
Swiss lamily Robinson on its dcscrt island (cl. uckcn .c). Knowl
cdgc ol wants, rcsourccs, tcchnology, and markct opportunitics, including
knowlcdgc ol tcmporary and local conditions, is radically dcccntralizcd
and simply could not bc madc availablc to ccntral planncrs in anything
approaching its lullncss. !l knowlcdgc is not to go to wastc, produc
tion and consumption dccisions must bc radically dcccntralizcd (Hayck
./.). Spccialization grcatly cnhanccs productivity. Pcoplc producc
thcir own particular goods and scrviccs to cxchangc thcm away, thcrcby
cxcrcising dcmand lor what othcr spccialists arc producing. 8ut what coor
dinatcs all thcsc lragmcntcd activitics:
Tc dcbatcs ovcr cconomic calculation undcr socialism and capital
ism initiatcd by Ludwig von Miscs and Fricdrich Hayck illuminatc thc
scopc ol this qucstion (cl. thc litcraturc rcvicwcd in Ycagcr .). vcn
thc mcrc physical mcshing ol activitics as portraycd in a scllconsistcnt
inputoutput tablc is hard cnough to achicvc in thc abscncc ol gcnuinc
markcts and priccs, as Sovict cxpcricncc tcstics. Full coordination is a
still morc dcmanding task. !t rcquircs taking account ol physical and sub
jcctivc substitutabilitics and complcmcntaritics among goods and scrviccs
and lactors ol production in thcir various uscs in consumption and produc
tion so that no unit ol a productivc rcsourcc gocs to satisly a lcss intcnsc
ccctivc nal dcmand to thc dcnial ol a morc intcnsc dcmand. Markct
bids and ocrs lor rcsourccs and nal goods play a ccntral rolc in this
proccss, but its vcry complcxity pcrmits glitchcs.
Forccs ol unbalanccd supply and dcmand tcnd, to bc surc, to prcss
discquilibrium priccs toward thcir markctclcaring lcvcls. Vhat cnsurcs,
howcvcr, that thcsc coordinating lorccs opcratc rapidly cnough and that
impcdimcnts to transactions do not rcinlorcc cach othcr in thc mcanwhilc
.a Part : Economics
to a dcgrcc that shows up as rcccssion or dcprcssion: 8ccausc thc lunda
mcntal insight ol Says Law is corrcctsupplics ol particular goods and
scrviccs constitutc dcmands lor othcrs, sooncr or latcrthc fundamen-
tal macrocconomic problcm cannot bc a dccicncy ol aggrcgatc dcmand.
Howcvcr, anything that impairs thc proccsscs ol markct cxchangc also
impairs production. Pcoplc work and producc in thc cxpcctation ol bcing
ablc to cxchangc thcir outputs away, and thcy will not pcrsist indcnitcly
(cspccially not in buying inputs lor unsalablc outputs) il thcir attcmptcd
cxchangcs kccp on bcing lrustratcd. Goods and scrviccs cxchangc lor cach
othcr not dircctly but through thc intcrmcdiarics ol moncy and ol crcdit
dcnominatcd in and ultimatcly to bc scttlcd in moncy. Monctary disordcr
can snarl up thc proccss ol cxchangc and so impcdc production. Austrians,
likc monctarists, arc prcparcd to takc this snarl scriously.
Tcsc considcrations hclp arguc, incidcntally, lor putting thc micro
scmcstcr ol a Principlcs ol conomics coursc bclorc thc macro scmcstcr.
Studcnts can hardly undcrstand disruptions ol coordination until thcy
know that a coordination problcm cxists in thc rst placc and undcrstand
how thc markct proccss solvcs it whcn it is working wcll.
Coordination rcquircs morc than corrcct priccs. !n Valrasian modcls
ol gcncral cquilibrium, thc auctionccr not only achicvcs thc wholc array
ol markctclcaring priccs but also puts trading partncrs in contact with
onc anothcr, obviating thc costly mutual scarchcs othcrwisc ncccssary.
!n ccct hc makcs all asscts cqually liquidcqually rcadily markctablc
or usablc as mcans ol paymcntat thcir gcncralcquilibrium priccs. !t
is qucstionablc whcthcr modcls lcaturing such a mythical pcrsonagc can
contributc much to illuminating macrocconomic issucs.
a
!n thc rcal world, howcvcr, a workcr may bc uncmploycd not ncc
cssarily bccausc hc insists on too high a wagc ratc but bccausc hc and
a suitablc cmploycr havc not yct madc contact. \arious startup costs ol
a ncw cmploycrcmploycc rclation also cntcr into thc story. !n thc rcal
world, priccs arc not thc only bcarcrs ol signals and inccntivcs about potcn
tial transactions. Quantitics also pcrlorm thcsc lunctionsquantitics ol
goods, scrviccs, and lactors in accomplishcd transactions, lrustratcd trans
actions, and invcntory buildups and rundowns. !nvcntory managcmcnt,
quality vcrication, advcrtising, and inlormational and othcr such activi
tics bcar on whcthcr transactions can go lorward to thc mutual bcnct ol
a
Lon Valras did not postulatc thc auctionccr cxplicitly, that sccrctary ol thc mar
kct, posscssing prodigious inlormational and calculating abilitics, is an invcntion ol intcr
prctcrs. Scc chaptcr ., notc .
Chapter 8: Macroeconomics and Coordination .
thc partics. Tcsc activitics havc transactions costs in an inclusivc scnsc
ol thc tcrm. Many ol thcm impcdc not only actual transactions but cvcn
mcssagcs ol willingncss to buy or scll.
Rccoordination to rccovcr lrom rcccssion rcquircs morc, thcn, than
just adjusting priccs and wagcs. 8usincss contacts must bc rcstorcd or
rcviscd. !nlormation, including inlormation about markct conditions,
must bc brought up to datc and transmittcd.
ons:~civs :o coovbix~:iox
Costs and complcxitics ol rcality hclp cxplain thc valuc ol habits, rou
tincs, and longtcrm busincss rclations, as bctwccn supplicr and customcr,
cmploycr and workcr, and borrowcr and bank. Not cvcry busincss rcla
tion is continuously opcn to pricc rcvision, as abstract cquilibrium thcory
might sccm to rccommcnd. Tc vcry conccpt ol dicrcnt dcgrccs ol liq
uidity ol various nancial and rcal asscts rcccts rccognition that pricc
is not thc only dctcrminant ol whcthcr potcntial transactions gct con
summatcd. !l all goods wcrc pcrlcctly liquid, as tacitly assumcd in thc
Valrasian modcl, thcn impcdimcnts to communication would havc bccn
rcmovcd. Howitt (.c), writing partly undcr thc inspiration ol Clowcr
and Lcijonhulvud, survcys somc ol lorcgoing thcmcs, as docs kun (..).
Howitt, as wcll as Hall (..), commcnts on dicultics ol nding trading
partncrs in thin as opposcd to thick markcts. 8y analogy, my installing
a tclcphonc bcncts pcoplc who might want to rcach mc but imposcs
a congcstion cost on pcoplc who might want to rcach pcoplc talking
with mc.
Vhcthcr a particular transaction can go lorward dcpcnds on much
morc than thc tcrms subjcct to ncgotiation bctwccn thc two potcntial
trading partncrs. Vhcthcr a manulacturcr and a potcntial cmploycc could
both bcnct lrom thcir rclation dcpcnds on morc than thc wagc ratc. !t
dcpcnds on priccs chargcd by compctitors and by supplicrs ol matcrials,
on tcrms on which cncrgy, transportation, and crcdit arc availablc, on mar
kct conditions lacing potcntial customcrs, on invcntorics ol various kinds,
and on much clsc bcsidcs.
Changcs accting such conditions arc continually going on, challcng
ing cntrcprcncurs to copc with thcm, as by dcvcloping ncwbusincss oppor
tunitics to rcplacc lading oncs. !n ordinary timcs, cntrcprcncurs continu
ally accomplish myriads ol intcrdcpcndcnt microcconomic adjustmcnts
without palpablc macrocconomic disordcr.
. Part : Economics
Vhcn major cconomywidc disruptions occur, howcvcr, it is not sur
prising that thc many ncccssary intcrlocking adjustmcnts should strctch
out painlully ovcr timc. Much bcsidcs priccs and wagcs must changc, lor
cvcn a purcly monctary shock (whatcvcr onc might bc) has rcal con
scqucnccs. Knowlcdgc must bc transmittcd and rcccivcd, risk allowcd
lor, combinations ol lactors and products in production and consumption
rcviscd, scarch conductcd, trading partncrs contactcd, and ncw quantitics
ol goods produccd and cxchangcd. Stickincss ol priccs and wagcs dclays
thc transmission ol appropriatc signals and inccntivcs. (Pricc stickincss
may scrvc as a convcnicnt tcrm alluding to myriad obstaclcs to prompt
and painlcss adjustmcnt. !t is a shorthand labcl lor a widc rangc ol cir
cumstanccs.)
8y adopting thc lashionablc assumption ol rational cxpcctations, Ncw
Classicals and subscqucntly cvcn thc Ncw Kcyncsians tacitly assumcd
away ccntral aspccts ol thc cconomywidc coordination problcm. Tcy
rcplaccd a vision ol pcoplc trying to sct priccs and quantitics and strikc
bargains in a world ol lragmcntary and dispcrscd inlormation with an
unrcalistic vision ol rcmarkably wcllinlormcd pcoplcinlormcd, to bc
surc, not ol spccic luturc quantitics and priccs but wcll inlormcd on
avcragc about probability distributions. To assumc rational cxpcctations
ovcrsimplics problcms ol coordinating pcoplcs bclicls: No onc makcs
systcmatic crrors in gucssing thc valucs ol variablcs that dcpcnd in turn
upon othcrs gucsscs (Howitt .c, pp. .a.).
i:vvvvvc:ioxs ov vv~ii:v
!n using thcir word, ! amdclying thcorists who judgc rcality impcrlcct in
comparison with tcxtbook chaptcrs on cquilibriumundcr purc and pcrlcct
compctition and who thcrcby damn rcality lor bcing rcal. l coursc no
Valrasian auctionccr is at work achicving idcal outcomcs. l coursc not
all imaginablc intcrtcmporal markcts and contingcntstatc markcts cxist.
l coursc lull coordination is ncvcr achicvcd, and it is approachcd, to thc
cxtcnt that it is, through thc picccmcal, asynchronous gropings ol myriads
ol cntrcprcncurs. Tcory rclcvant to thc rcal world cannot connc itscll to
cquilibrium analysis and comparativc statics. !nstcad ol a statc ol aairs,
compctition is a proccss. xccpt pcrhaps lor organizcd cxchangcs lor
standardizcd commoditics and sccuritics, no impcrsonal markct adjusts
priccs to changcd conditions. People changc priccs, and only altcr thcy
havc pcrccivcd reasons to do so. Rcasons includc opportunitics ocrcd
Chapter 8: Macroeconomics and Coordination .
by changcs in tcchnology and notably includc pcrccivcd markct imbal
anccs and lrustrations ol transactions at thc old priccs. Pcrccptions and
rcsponscs arc not instantancous.
Alrcady in his Teory of Money and Credit (..a/.., pp. .6.,), Lud
wig von Miscs rccognizcd such lacts ol rcality. Many priccs arc dclibcr
atcly sct, obviously in rctail tradc, and sct by trial and crror.
Now this phcnomcnon is not accidcntal. !t is an incvitablc phcnomcnon
ol thc unorganizcd markct. !n thc unorganizcd markct, thc scllcr docs
not comc into contact with all ol thc buycrs, but only with singlc individ
uals or groups. . . . Conscqucntly thc scllcr xcs a pricc that in his opinion
corrcsponds approximatcly to what thc pricc ought to bc (in which it is
undcrstandablc that hc is morc likcly to aim too high than too low), and
waits to scc what thc buycrs will do. . . . Tc solc way by which scllcrs can
arrivc at rcliablc knowlcdgc about thc valuations ol consumcrs is thc way
ol trial and crror.
!nstitutional lorccs work to postponc pricc changcs othcrwisc callcd
lor by small or transitory changcs in supply and dcmand (..a/.., p. .).
vcry changc in thc markct data has its dcnitc cccts upon thc markct.
!t takcs a dcnitc lcngth ol timc bclorc all thcsc cccts arc consummatcd,
i.c., bclorc thc markct is complctcly adjustcd to thc ncw statc ol aairs
(Miscs ./.6, p. 6a).
|C|hangcs in thc lactors which dctcrminc thc lormation ol priccs do
not producc all thcir cccts at oncc. A span ol timc must clapsc bclorc
all thcir cccts arc cxhaustcd. 8ctwccn thc appcarancc ol a ncw datum
and thc pcrlcct adjustmcnt ol thc markct to it somc timc must pass. . . .
!n dcaling with thc cccts ol any changc in thc lactors opcrating on
thc markct, wc must ncvcr lorgct that wc arc dcaling with cvcnts taking
placc in succcssion, with a scrics ol cccts succccding onc anothcr. Vc
arc not in a position to know in advancc how much timc will havc to
clapsc. (p. a6)
Miscs rccognizcs a ccrtain incrtia ol priccs (..a/.., pp. ..6).
Rclatcdly, hc rccognizcs that cxiblc cxchangc ratcs tcnd to movc ahcad
ol thcir purchasingpowcr paritics, rclativcly, priccs ol many goods
and scrviccs arc sluggish (./.6, pp. 6). Mitchcll (.c/.66,
pp. aa) obscrvcd thc samc phcnomcnon in dctail in thc U.S. grccn
back pcriod ol .6a.,. Miscs also obscrvcs morc ol a historical clcmcnt
in thc valuc ol moncy than in thc valuc ol any ordinary good.
.6 Part : Economics
|A| historically continuous componcnt is containcd in thc objcctivc cx
changc valuc ol moncy. Tc past valuc ol moncy is takcn ovcr by thc
prcscnt and translormcd by it. . . . Priccs changc slowly bccausc thc sub
jcctivc valuations ol human bcings changc slowly. . . . !l rapid and crratic
valuations in priccs wcrc usually cncountcrcd in thc markct, thc conccp
tion ol objcctivc cxchangc valuc would not havc attaincd thc signicancc
that it is actually accordcd both by consumcr and produccr.
!nthis scnsc, rclcrcncc toanincrtia ol priccs is unobjcctionablc. (..a/..,
p. .)
!t is so lar as thc moncy priccs ol goods arc dctcrmincd by monetary
lactors, that a historically continuous componcnt is includcd in thcm,
without which thcir actual lcvcl could not bc cxplaincd. (p. .)
:oxvv ~xb vvicv s:icxixvss
Vithout cxplicitly saying so, thcn, Miscs clcarly implics that moncys rolc
as unit ol account contributcs to thc stickincss ol priccs. Pcoplc arc in thc
habit ol lormulating thcir subjcctivc valuations ol goods in tcrms ol thc
moncy unit, and subjcctivc valuations ordinarily do not changc suddcnly.
vcn il rclativcly objcctivc dcvclopmcnts do call lor a changc in thc markct
valuc ol any ordinary good or ol thc moncy unit itscll, pcoplc rcquirc timc
to pcrccivc and rcact to thcsc changcs and to rclormulatc thcir valuations
ol goods in moncy (..a/.., pp. .., ./.6, p. a6).

nc might add, as Lcrncr (.a, pp. ...) did, that thc most swccp
ing sourcc ol pricc stickincss lics in thc vcry naturc ol moncy. !n a moncy
cconomy, unlikc a bartcr cconomy, pcoplc nccd not bothcr about all thc
rcal (rclativc) priccs that might conccrn thcm, lor a things moncy pricc
indicatcs thc valuc ol othcr things that onc might havc instcad. A pricc
convcys inlormation and guidcs dccisions, howcvcr, only il it is rcason
ably dcpcndablc. !maginc how dicult dccisions and coordination would
bc il a things pricc today wcrc only a poor cluc to its pricc tomorrow.
Substantial moncy and pricc ination or dcation distorts rclativc priccs
and dccisions and impairs coordination bccausc not all moncy priccs can
bc cqually cxiblc. n thc othcr hand, stability in thc purchasing powcr
ol moncy tcnds to rcinlorcc itscll and dctcr accidcntal or random uctu
ations, bcing thc gcncral mcasurc ol valuc supports institutions, habits,

Miscs is only onc ol many cconomists who sincc long ago havc rccognizcd pricc
stickincss. Tc notion that attcntion to it is distinctivcly a contribution ol Kcyncs is just
wrong as history ol cconomic thought. Scc my ../.,.
Chapter 8: Macroeconomics and Coordination .,
and cxpcctations that work to this ccct. !n short, thoroughgoing wagc
and pricc cxibility would kccp moncy lrom scrving its normal purposcs,
it could not survivc. A dcgrcc ol pricc stickincssor dcpcndabilityis no
mystcry.

A lcading thcmc ol Miscss thcory is that moncy is lar lrom ncutral in

its cccts on quantitics, incomcs, and rclativc priccs (./.6, pp. c.).
Priccs do not automatically sct thcmsclvcs in proportion to thc total quan
tity ol moncy, as a naivc intcrprctation ol thc quantitythcory cquation
might suggcst. Somc changcs occur rclativcly rapidly, othcrs altcr long
dclays. Pcoplcs rcsponscs to ongoing monctary and pricc ination changc
as cxpcricncc accumulatcs and cxpcctations changc accordingly. Miscss
discussion ol dierential pricc changcs constitutcs cmphatic rccognition
ol thc stickincss ol many priccs. Tis rccognition is not a distinctivcly
Kcyncsian notion, dcspitc rcmarks by tcxtbook authors ncglcctlul ol thc
history ol cconomic thought.
Miscs acccpts thc conccpt ol gcncral cquilibriumthc cvcnly rotating
cconomy, as hc calls itas a tool ol analysis. Using it in no way cntails
supposing that thc
nal priccs corrcsponding to this imaginary conccption arc . . . idcntical
with thc markct priccs. Tc activitics ol thc cntrcprcncurs or ol any othcr
actors on thc cconomic sccnc arc not guidcd by considcration ol any such
things as cquilibriumpriccs and thc cvcnly rotating cconomy. (./.6,
p. a)
Austrians arc conccrncd with proccssnot mcrcly with lunctional
rclations in thc mathcmatical scnsc but with who docs what, why, whcn,
and how. Attcntion to proccss bars cxclusivc inlatuation with thc cqui
librium statc. (Austrian scorn lor thc ncoValrasian brand ol gcncral
cquilibrium thcory is wcll known. !t might wcll bc bcttcr locuscd, how
cvcr, than it habitually is.) Austrian cconomics rccognizcs thc scopc lor
cntrcprcncurship in discquilibrium. Rccognizing discquilibrium is onc
aspcct ol Austrian realism. Austrians arc willing to scc thc world as it
actually is. Tcy arc not sidctrackcd into supposcdly rigorous thcoriz
ing about imaginary worlds that divcrgc lrom rcality in crucial rcspccts.
Austrians rccognizc that purc and pcrlcct compctition, likc cquilibrium,
arc abstractions and not rcality. Tcsc imaginary cxtrcmc conditions do

Rogcr Garrison objccts to thc tcrm sticky priccs on thc grounds that stickincss
implics somc sort ol dclcct, as ol a valvc. Pcrhaps, thcn, thc tcrm dcpcndablc priccs
would scrvc bcttcr.
. Part : Economics
havc rolcs to play in thcorizing, but cconomists should rccognizc whcn
thcy arc inapplicablc. !n undcrstanding moncy/macro phcnomcna and in
building bridgcs bctwccn macro and micro cconomics, it is csscntial to
rccognizc that scllcrs arc in gcncral not purc pricc takcrs and that thcy arc
not alrcady sclling all ol thcir product or ol thcir labor that thcy want to
scll at thc prcvailing pricc. !n macrocconomics it is important to rccognizc
that most priccs arc set and not impcrsonally dctcrmincd by thc intcrplay
ol atomistic supply and dcmand.
Tc Austrians conccrn lor lacts ol rcality is oltcn ovcrlookcd bccausc
ol thcir supposcd insistcncc on a purely a priori mcthod. Tis tcrm, notably
as uscd by Ludwig von Miscs, unlortunatcly invitcs misintcrprctation. So
uscd, a priori suggcsts an unintcndcd sharp contrast with empirical. Miscs
did not mcan that all important propositions ol cconomic thcory can bc
spun out ol lactually cmpty logical truisms. Hc rclicd, rathcr, on axioms
lor which lactual cvidcncc constantly prcsscs itscll on us so abundantly
that wc can hardly imaginc a world to which thosc axioms did not apply
(cl. Rothbard .,). Austrians do notor should notconnc thc hon
oric tcrm cmpirical to propositions dug out by arduous labor and ol
doubtlul gcncral validity altcr all.
!n rclatcd rcspccts, Austrians arc morc rcalistic than scllcongratulat
ing cmpirical rcscarchcrs. Tcy opcn thcir cycs to what sorts ol mcthod
havc and what sorts havc not brought important rcsults. Tcy look at thc
lacts bcaring on whcthcr or not stablc lunctions cxist that quantitativcly
and dcpcndably dcscribc rclations among cconomic magnitudcs and that
might bc rclicd on lor lorccasting. Tcy arc at lcast as rcady as othcr ccon
omists to acccpt thc lacts that call into qucstion ovcrambitious, activist,
nctuning policics whosc succcss prcsupposcs knowing durablc quanti
tativc rclations.
noo:s, siu:vs, ~xb cox:~ciox
Vhat cxplains thc rcccssions that intcrrupt prospcrity lromtimc to timc:

ach rcccssion is a spccic historical cvcnt. Rcscarchcrs havc thc job ol

invcstigating cach onc, asking whcthcr many ol thcm sharc somc dom
inant lcaturc and discarding hypothcscs that do not t thc lacts. !t is

! may sccm to givc unsuitably lcss attcntion to ination than rcccssion. Tc rcason is
not complaccncy, on thc contrary, ! am somcthing ol an antiination hawk. Tc rcason
is that thc thcory ol moncy and pricc ination is straightlorward and wcll undcrstood.
!ncomprchcnsibility is not thc rcason why impccunious govcrnmcnts so oltcn disrcgard it.
Chapter 8: Macroeconomics and Coordination .
prcmaturc to start by supposing that onc thcory ts all, just as it would
bc to cxpcct a singlc causc ol wars or rcvolutions or clcctoral landslidcs.
Macrocconomics is inhcrcntly a mcssicr cld than micro. Micro dcscribcs
straightlorward principlcs that bcar on dccisionmaking, coordination, and
possiblc spccic distortions ol rcsourcc allocation. Macro studics what
might go wrong on a largc scalc. Micro bcars an analogy with dcscribing
thc structurc and lunctioning ol a hcalthy human body, macro rcscmblcs
thc study ol what might go wrongdiscascs and wounds ol innumcrablc
kinds.
Narrativc and statistical history has convinccd monctarists that most
rcccssions cxhibit a monctary disturbancca shrinkagc ol thc quantity
ol moncy or, anyway, its downward dcviation lrom a trcnd that would
accommodatc rcal cconomic growth without a gcncral lall in priccs and
wagcs. Monctarists can citc amplc historical and statistical cvidcncc lrom
many timcs and placcs. !t is unncccssary to rcvicw this cvidcncc hcrc, but
unduc ncglcct warrants a plug in thc list ol Rclcrcnccs lor an insightlul and
prcscicnt articlc in thc monctarist tradition writtcn by Harry Gunnison
8rown just a lcw days bclorc Franklin Rooscvclt took occ at thc dcpths
ol thc Grcat cprcssion in .. !n articlcs ol . and .c, Christina
and avid Romcr rcvicw rcccssions cvidcntly causcd by monctary policy
in thc Unitcd Statcs sincc Vorld Var !!.
Moncy is not thc only thing, howcvcr, conccivably disrupting coordi
nation. Scvcrc rcal disturbanccs might ovcrwhclmcntrcprcncurial corts
to copc with thcm. !t is instructivc to pondcr what would happcn to total
output il thc countrys tclcphonc systcm (Hall .., p. a) or, morc starkly,
il all ol its clcctronic communications and data proccssing wcrc somchow
to lail lor scvcral months.
!n historical lact, howcvcr, it is implausiblc to put spccial blamc on
such rcal disturbanccs lor thc major rcccssions and dcprcssions actually
cxpcricnccd. !nstcad ol bcing rcadily attributablc to changcs in productivc
capacity, rcccssions and dcprcssions cxhibit what look likc pcrvasivc dc
cicncics ol dcmand, pcrvasivc dicultics in nding customcrs and nding
jobs. Arcal thcory assuming continuous markct cquilibriumis cspccially
hard put to cxplain cvcntual macrocconomic rccovcrics.
vcn a rcal disturbancc as grcat as thc shilt lrom war to pcacc in
..6 brought a surprisingly modcst macrocconomic ripplc, with low
uncmploymcnt dcspitc dcmobilization. Tc two oilpricc shocks ol thc
.,cs might count as rcal causcs ol rcccssion, but cvcn thcsc had mon
ctary aspccts. Tcy not only madc old pattcrns ol quantitics and rclativc
.c Part : Economics
priccs wrong but also shrank rcal cash balanccs and rcshucd thcir owncr
ship. Furthcrmorc, prcvious moncy and pricc ination had hclpcd triggcr
thc oil shocks thcmsclvcs (and this ination in turn arguably traccd to a
builtin bias ol thc 8rctton Voods systcm).
Ludwig von Miscs aptly cntitlcs onc ol his chaptcr scctions Tc Fal
lacics ol thc Nonmonctary xplanations ol thc Tradc Cyclc (./.6,
pp. c6, cl. pp. ). Hc particularly criticizcs thc two most pop
ular varictics ol thcsc disproportionality doctrincs: thc durablcgoods (or
cchoccct) doctrinc and thc accclcration principlc. Hc judgcs thcm hard
to squarc with thc general, cconomywidc charactcr ol busincss cxpansions
and contractions (pp. , ).
Tc crisis and rcccssion bcginning in acc, had a conspicuous rcal
clcmcntthc collapsc ol a housing boom. !n its background, howcvcr,
lurkcd a monctary policy ol arguably cxccssivc liquidity and toolow intcr
cst ratcs, as wcll as illconsidcrcd govcrnmcnt housing and mortgagc poli
cics and privatc nancial imprudcncc.
Tis rcccssion illustratcs thc contagion ol distrcss through scvcral
channcls. !nsolvcncy or illiquidity ol somc institutions wcakcns othcrs
holding claims on thcm. Considcr an cxamplc. Consumcrs buy houscs,
putting up only a vcry small lraction ol thc purchasc priccs in moncy
ol thcir own and obtaining mortgagc loans lor thc rcst. Now a nancicr
packagcs thcsc mortgagcs into bonds. Morc spccically, hc buys thcsc
mortgagc claims lrom thc original lcndcrs (unlcss hc alrcady owns thcm
by himscll bcing thc original lcndcr). Hc gcts thc ncccssary lunds only
lractionally lrom rcsourccs ol his own and issucs bonds lor thc dicr
cncc. His bonds arc in turn bought by lurthcr nancicrs, who also pay
only a lraction ol thc purchasc pricc in cash and obtain thc rcst by issu
ing still lurthcr bonds. 8onds bought scrvc as collatcral lor thc loans
obtaincd (that is, lurthcr bonds issucd) to pay lor thc bond purchascs.
And so on. !n short, loans arc madc with borrowcd moncy obtaincd in
turn mostly by borrowing: bond salcs nancc bond purchascs. At thc cnd
ol thc chain arc thc savcrinvcstors who pay in lull, lor cxamplc, individ
uals who invcst in bonds or bond mutual lunds or participatc in pcnsion
lunds.
At somc stagc in thc chain, a nancicr may issuc bonds dividcd into
two or morc tranchcs, somc appcaring salcr by having a primary claim
on carnings and ultimatc rcpaymcnt and lowcr tranchcs bcing riskicr by
having only subordinatc claims. Uppcrtranchc ultrasalc bonds arc appar
cntly manulacturcd, thcn, out ol lowquality mortgagc loans.
Chapter 8: Macroeconomics and Coordination ..
!nvcsting largcly with borrowcd moncy is lcvcragc. clcvcraging
shook a multiticrcd structurc ol claims bascd on claims. Tc markctability
ol sccuritics dcclincd as thcir actual valucs bccamc unknown.
Crcditdclault swaps arc in ccct insurancc policics issucd to covcr
thc risk ol dclault on bonds and so makc thc bonds morc markctablc.
rdinarily thc insurancc providcrs nccd not cxpcct having to makc good
on any substantial lraction ol thcir policics at oncc, so thcy hold liquid
lunds amounting to only a small lraction ol thcir total potcntial liabilitics.
rdinarily, lor in timcs ol crisis thc crcditdclault swaps cntcr into thc
crumbling ol thc lcvcragcd chain.
Tc chain is morc lragilc than onc might supposc on thc grounds
that, indircctly and ultimatcly, houscs largcly back thc bonds hcld by thc
invcstors at thc cnd ol thc chain. Tc ncttingout ol intcrmcdiatc stagcs
is not rcassuring, lor nancial distrcss might strikc any ol thc scvcral insti
tutions in thc chain and brcak it.
vcn so, compoundcd lcvcragc is not inhcrcntly lraudulcnt, lor it can
providc thc bcncts ol sophisticatcd nancial intcrmcdiation. !t produc
tivcly allocatcs thc burdcns ol saving and riskbcaring to thc partics most
ablc and willing to bcar thcm in vicw ol prospcctivc rcturns. Complcxity
brccds ignorancc, howcvcr, and unscrupulous opcrators may cxploit it.
Contagion marks booms and slumps. !n timcs ol cxubcrancc, things
usablc as collatcral risc in pricc, pcrmitting biggcr loans. Furthcrmorc,
lcndcrs grant largcr loans rclativc to collatcral. Tis cxpandcd crcdit bids
up assct priccs lurthcr. And so on upwards until thc spiral gocs into rcvcrsc.
Lcndcrs bccomc morc dcmanding. Tc troublcs ol opcrators holding
dcprcciating asscts inlcct thcir crcditors. Tc multiticrcd lcvcragc aggra
vatcs thc downward spiral (Gcanakoplos ac.c).
Mortgagc lorcclosurcs charactcrizc just onc channcl ol contagion.
Houscs stand cmpty, lawns go untrimmcd, thc ncighborhood dcprcci
atcs, housc priccs lall lurthcr and triggcr lurthcr dclaults, and holdcrs ol
mortgagcbackcd bonds sucr.
Structural contagion through thcsc channcls, as onc might call it, is
joincd by cxpcctational and psychological cccts. Tc stock markct is just
onc ol thc things rcgistcring and pcrhaps intcnsilying optimism or pcs
simism. !nvcstmcnt lads and hcrd bchavior arc cvidcnt as pcoplc takc
clucs lrom onc anothcr. Altcr a bubblc collapscs, lcar cngcndcrs morc
lcar. Gcanakoplos (ac.c) writcs rcpcatcdly ol scary bad ncws, by which
hc mcans ncws that is not mcrcly bad but that intcnsics itscll by wors
cning gcncral unccrtainty. Gorton (acc) cmphasizcs inlormation and its
.a Part : Economics
abscncc, as about thc dcgrcc and location ol risk. Financial complcxity
crodcs inlormation.
uring thc rcccssion that bcgan in acc,, lcndcrs hcld back lrom lcnd
ing, banks accumulatcd hugc cxccss rcscrvcs ol basc moncy ncwly crcatcd
by thc Fcdcral Rcscrvc, and invcstors and consumcrs postponcd spcnd
ing. Tc dcmand to hold moncy and ncarmoncy asscts strcngthcncd rcl
ativc to incomc and cxpcnditurc: thc vclocity ol moncy lcll. Unccrtainty
was at work according to intcrprctations circulating widcly toward thc
cnd ol ac.c. 8usincsscs could hardly prcdict thc impact ol thc mammoth
ncw laws accting hcalth carc and nancc. Unccrtainty about whcthcr
thc 8ushcra tax cuts would bc allowcd to cxpirc, cxtcndcd, or modicd
contributcd to hcsitation in hiring and in making major cxpcnditurcs.
:oxv:~vv bisovbvv
To undcrstand what scopc disordcrcd moncy has lor doing damagc, it
hclps to rccall moncys immcnscly valuablc scrviccs whcn it works cvcn
hallway propcrly. !t vastly lacilitatcs thc cxchangc ol goods and scrviccs
lor onc anothcr. !ndircct cxchangc through moncy takcs placc not only
among pcoplc working in dicrcnt scctors ol thc cconomy but also ovcr
timc. Trough building up and drawing down cash balanccs and through
crcdit transactions, pcoplc can arrangc to rcccivc what othcr pcoplc pro
ducc cithcr bclorc or altcr thcy dclivcr thcir own outputs. Tis intcrtcmpo
ral aspcct ol moncy lacilitatcs thc pooling and mobilization ol savings and
so promotcs rcal capital lormation, which, likc spccialization, cnhanccs
productivity.
Moncy scrvcs not only as thc mcdium ol cxchangc but also as thc
unit ol account, thc unit in which priccs arc quotcd, bookkccping accom
plishcd, contracts writtcn, dcbts cxprcsscd, subjcctivc cvaluations lormu
latcd, bcncts and costs ol activitics appraiscd, prospcctivc and past prots
and losscs cstimatcd and rccordcd, and taxcs lcvicd. Tc vital rolcs ol mar
kct priccs, prots, and losscs cxprcsscd in moncy rcccivcd attcntion in thc
dcbatcs ovcr socialist cconomic calculation initiatcd by Ludwig von Miscs.
Vhcn monctary disturbanccs rcquirc substantial changcs in gcncral lcvcls
ol priccs and wagcs, thcn, .hether or not thcsc changcs occur promptly, thc
lunctions ol priccs, prots, and losscs in convcying signals and inccntivcs
sucr disruption. nc notablc glitch is thc dcbtdcation aspcct ol dcprcs
sion dcscribcd by !rving Fishcr (.). Comparablc cccts occur whcn
pricc ination or dcation turns out substantially grcatcr or slightcr than
Chapter 8: Macroeconomics and Coordination .
pcoplc had allowcd lor in thcir borrowing and lcnding and othcr plans.
Prcviously schcdulcd dcbt and intcrcst paymcnts can bccomc disruptivcly
burdcnsomc whcn dcbtors and so thcir crcditors sucr disappointmcnts
ol kinds othcr than or in addition to pricclcvcl or pricctrcnd changcs.
Moncy is potcntially a loosc joint, as F.A. Hayck said (Garrison .,
acc.), bctwccn dccisions to producc and scll things on thc onc hand and
dccisions to buy on thc othcr hand. !n accomplishing cxchangcs, pcoplc
(and busincss rms) routincly rcccivc paymcnts into and makc paymcnts
lromholdings ol moncy, a lact whosc signicancc Miscs wcll undcrstood in
dcvcloping his cashbalancc approach to monctary thcory (..a/..). Tc
sizcs ol cash balanccs dcsircd arc rclatcd to thc sizcs ol pcoplcs and rms
cxpcctcd inward and outward ows ol paymcnts (among othcr variablcs).
!l dcsircd amounts ol moncy cxcccd or lall short ol actual amounts, thcn
pcoplc try to adjust thcir holdings by modilying thcir bchavior on thc
markcts lor goods and scrviccs and sccuritics. As Miscs wrotc,
A shortagc ol moncy mcans a diculty in disposing ol commoditics lor
moncy. . . . Undcr thc prcscnt organization ol thc markct, which lcavcs
a dccp gull bctwccn thc markctability ol moncy on thc onc hand and
thc markctability ol othcr cconomic goods on thc othcr hand, nothing
but moncy cntcrs into considcration at all as a mcdium ol cxchangc.
(..a/.., p. .,)
Tcorics ol diculty in making contact with potcntial trading part
ncrs hclp illuminatc thc dcclinc ol thc vclocity ol moncy in rcccssions
(scc thc citcd works ol Clowcr, Lcijonhulvud, and Hall, and particularly
Clowcr .c, p. a). Vith many dcsircd salcs thwartcd, pcoplc nd thcm
sclvcs, morc or lcss by dclault, holding morc moncy than usual rclativc to
thcir incomcs and cxpcnditurcs. Tc grim busincss sccnc, togcthcr with
unccrtainty and prccaution, counts against acting to gct rid quickly ol cash
balanccs that would othcrwisc sccm cxccssivc.
!n somc ways, as just implicd, imbalancc bctwccn moncys supply and
dcmand is scllaggravating. Morc gcncrally, supply and dcmand stay in
cquilibrium lcss rcadily lor moncy than lor ordinary goods and scrviccs.
8ccausc moncy is thc onc thing routincly tradcd on all markcts, its supply
and dcmand do not conlront cach othcr on a markct ol its own and can
not bc cquilibratcd with cach othcr through a pricc adjustmcnt ol its own.
quilibrating proccsscs do opcratc, but only indircctly, ovcr timc, and
in a picccmcal manncr through trials and crrors in adjusting quantitics
and priccs on innumcrablc spccic markcts. Vhcn an cxccss dcmand
. Part : Economics
lor moncy rcquircs widcsprcad cuts in priccs and wagcs, scllcrs and wagc
ncgotiators in many or most ol thc markcts lor individual goods and scr
viccs havc rcason to dclay cuts ol thcir own whilc waiting lor a clcarcr
rcading on markct conditions and waiting to scc what othcr scllcrscom
pctitors, workcrs, supplicrswill do.
Rapid coping with monctary discquilibriumis dicult bccausc knowl
cdgc is scattcrcd in millions ol scparatc mindsknowlcdgc about tastcs,
rcsourccs, production possibilitics, cxchangc opportunitics, moncy and
crcdit conditions, and conditions on spccic markcts. 8ccausc thc markct
is, among othcr things, a mcchanism lor convcying signals and inccntivcs,
it would bc inconsistcnt both to rccognizc thcsc lunctions yct to supposc
(as thc rationalcxpcctations thcorists ncarly do) that transactors somc
how already havc thc knowlcdgc that thc pricc systcm works to convcy.
Tc markct proccss has no quick and casy substitutc.
Miscs rcpcatcdly cmphasizcd thc dclaycd and nonunilorm rcsponscs
to moncysupply changcs (..a/.., pp. .6a.6, whcrc hc citcs obscrva
tions ol avid Humc and John Stuart Mill, Miscs .c, chaps. 6). Tc
csscncc ol monctary thcory is thc cognition that cashinduccd changcs
in thc moncy rclation acct thc various priccs, wagc ratcs, and intcrcst
ratcs ncithcr at thc samc timc nor to thc samc cxtcnt (./.6, p. ).
Although Miscs locuscs his critical attcntion on moncy and crcdit cxpan
sion and its conscqucnccs, hc rccognizcs thc damagc donc to busincss
whcn a crcdit cxpansion ccascs (p. 6). cation and crcdit contraction
no lcss than ination and crcdit cxpansion arc clcmcnts disarranging thc
smooth coursc ol cconomic activitics (p. 6,). Miscs alludcs (p. 6) to
thc damagc donc by dcation and crcdit rcstriction rcquircd by 8ritains
rcturn to thc prcwar gold parity ol its currcncy altcr both thc Napolconic
wars and Vorld Var !.
cvvbi: ~xb :oxvv
Crcdit disruption accompanics or cvcn sccms to ovcrshadow monctary
disruption in somc cpisodcs. Again thc currcnt rcccssion providcs an
cxamplc. Vhcn thc housing boom lcd by chcap crcdit wcnt into rcvcrsc,
sprcading lcar madc banks and othcr lcndcrs, including thosc in thc com
mcrcialpapcr markct, hcsitant to lcnd. Somc busincsscs, dcprivcd ol
crcdit, had to curtail thcir opcrations, sprcading distrcss to thcir supplicrs
and laido cmployccs. thcrs that might still havc obtaincd crcdit did
not scck it lor lack ol attractivc opportunitics to cmploy thc moncy.
Chapter 8: Macroeconomics and Coordination .
Crcdit contraction may indccd count as a rcal, nonmonctary, lactor
in rcccssion, but it still had monctary aspccts. \clocity, as alrcady mcn
tioncd, lcll, and lor any plausiblc conccpt and mcasurc ol moncy uscd in
thc calculation. !ncomc savcd lrom consumption but not dcvotcd to rcal
invcstmcnt or to nonmonctary asscts was allocatcd to thc onc rcmaining
assct, namcly moncy, narrowly or broadly dcncd. !l thcrc wcrc no such
assct to latch onto, crcdit contraction could not havc occurrcd, or not in
any lamiliar way (Covcr and Hooks .). M!=PQ, thc lamiliar tautolog
ical cquation ol cxchangc, rcmains a usclul chcck on what implics what.
:nv :i:v viv:vx:
Pcrhaps morc so than othcr schools, Austrian cconomists cmphasizc onc
banal lact: cconomic plans and activitics strctch out ovcr timc. (ynamic
gcncralcquilibrium thcory docs lormally takc account ol timc in its mod
cls, but not in thc way Austrians do.) Tis is onc morc rcason why pricc
cxibility cannot kccp markcts continuously clcarcd. Pcoplc cannot do
cvcrything at oncc, thcy cannot sct all priccs at thc samc timc and rcvisc
all ol thcm cqually oltcn. Longtcrm contracts x somc priccs, principal
and intcrcst on dcbt arc in thc naturc ol prcsct priccs. A changc in thc
gcncral lcvcl ol priccs ncccssarily disrupts prcvious pricc rclations.
A morc gcncral point is that coordination rcquircs intcrtcmporal as
wcll as intcrindustry mcshing ol plans and activitics. Rogcr Garrison
(., acc.) idcntics thc intcrscction ol thc markct lor timc and thc
markct lor moncy as thc subjcct mattcr ol macrocconomics. Moncy
is not thc only Hayckian loosc joint in a markct systcm. A mcrcly
loosc rclation also holds bctwccn a dcnitc assortmcnt ol capital goods
and thc subscqucnt dcmand lor thc corrcsponding consumcr goods. Tis
looscncss pcrmits maladics such as ovcrinvcstmcnt or undcrinvcstmcnt
or malinvcstmcnt. ncc committcd to a ccrtain coursc, pcoplc cannot
instantancously and costlcssly changc that commitmcnt, thus thc pas
sagc ol timc and its irrcvcrsibility arc mattcrs ol paramount importancc in
undcrstanding cconomic activity (Laidlcr .,, p. ).
A lurthcr link bctwccn thc univcrsals ol timc and moncy (so callcd by
Garrison ., acc.) is that pcoplc hold moncy to copc with Kcyncss
dark lorccs ol timc and ignorancc. To thc cxtcnt that thcy want to
postponc consumption whilc kccping thcir options opcn about thc timing
and spccic typcs and amounts ol thcir luturc consumption and invcst
mcnt, pcoplc hold nancial claims, including moncy. Kccping options
.6 Part : Economics
opcn is possiblc lor individuals but is not possiblc lor thc cconomy as a
wholc (or is possiblc only to a lcsscr cxtcnt, through construction ol vcr
satilc rathcr than highly spccializcd capital goods). Privatc attcmpts to do
thc socially impossiblckccping options opcncpitomizc thc intcrtcm
poral loosc joint.
s~vixc, ixvvs::vx:, ~xb :oxvv
Fundamcntalist Kcyncsianism worricd about thc scparation ol saving and
invcstmcnt dccisions. Sincc both typcs ol dccision conccrn thc luturc, an
imbalancc bctwccn dcsircd saving and dcsircd invcstmcnt implics intcr
tcmporal discoordination. Tc intcrcst ratc (or array ol ratcs) alonc cannot
cnsurc saving/invcstmcnt cquilibrium, lor intcrcst is not thc pricc ol thosc
two aggrcgatc ow magnitudcs. !nstcad, it is thc pricc ol loans, broadly
intcrprctcd, or, morc comprchcnsivcly, thc pricc ol waiting pcrlormcd
through owncrship ol claims and othcr asscts.
!mbalancc implics monctary discquilibrium, yct thc intcrcst ratc is not
thc cquilibrator ol moncys supply and dcmand, cithcr. To undcrstand thc
rclation bctwccn saving, invcstmcnt, and moncy, lct us locus on thc casc
ol ovcrsaving, sccn as pcrvasivc dccicncy ol dcmand lor currcntly pro
duccd or produciblc goods and scrviccs. As lollows lrom thc twosidcd
charactcr ol markcts and ol both actually accomplishcd and unsucccsslully
attcmptcd transactions and as Valrass Law statcs, supplyanddcmand
imbalancc lor somc things implics imbalancc in thc oppositc dircction
lor othcr things. (Tc aggrcgatc valuc ol all cxccss dcmand quantitics,
duc account takcn ol algcbraic sign, is tautologically cqual to zcro.) !n
thc casc considcrcd, cxccss supply (ncgativc cxccss dcmand) lor currcntly
produccd goods and scrviccs implics (positivc) cxccss dcmand lor othcr
things. Vhat might this othcr thing or things bc:
Pcoplc who arc trying to savc (instcad ol lully spcnding thcir currcnt
incomcs on consumption) arc by that vcry tokcn trying to acquirc savings
(savings with thc s) in thc lorm ol rcal or nancial asscts. Vhich asscts:
!l thc savcrs thcmsclvcs arc buying labor and othcr rcsourccs to construct
ncw capital goods, thcy arc not contributing to any dccicncy ol currcnt
total spcnding. (Hindsight might latcr rcvcal thc particular mix ol cap
ital goods constructcd to bc inappropriatc, but that is a problcm dicr
cnt lrom ovcrsaving.) !l, instcad, savcrs arc acquiring ncw stocks or bonds
lromissucrs who usc thc monctary procccds (thc command ovcr rcsourccs
rclcascd lrom supplying currcnt consumption) to construct capital goods,
Chapter 8: Macroeconomics and Coordination .,
again no ovcrsaving occurs. !l savcrs arc buying alrcady cxisting physical
asscts or sccuritics, thc qucstion shilts to what thcir scllcrs arc trying to
do with thc procccds. !l thosc assct scllcrs arc using thc procccds lor con
sumption or ncw capital construction, again no ovcrsaving occurs. !l thcy
arc trying to shilt wcalth into othcr vchiclcs ol saving, thc qucstion rcap
pcars ol what thcsc othcr vchiclcs might bc: what is thc thing or things
whosc cxccss dcmand matchcs thc dccicncy ol dcmand lor currcntly pro
duccd goods and scrviccs:
How, lurthcrmorc, could thc cxccss dcmand lor this somcthing pcr
sist: Considcr howan cxccss dcmand might work itscll out. (+) Tc things
quantity might incrcasc, as with automobilcs and ccrtain claims on nan
cialintcrmcdiary institutions. (:) !ts pricc might risc or its yicld lall, as
with ld Mastcrs, sccuritics, and claims on nancial intcrmcdiarics. () !l
its quantity and pricc arc both rigid, lrustratcd dcmand lor thc thing
might divcrt itscll onto othcr things, with macrocconomic conscqucnccs
much thc samc as il thc divcrtcd dcmand had run in lavor ol thc substi
tutc goods in thc rst placc. () For only onc thing docs nonc ol thcsc
rcsponscs to cxccss dcmand opcratc, rcquiring somc quitc dicrcnt pro
ccss. Tat thing is moncy, thc mcdium ol cxchangc. (vcn ncarmoncys
can rcspond in quantity or pricc or yicld.)
!n thc currcnt U.S. monctary systcm, thc quantity ol moncy dcpcnds
on thc policydctcrmincd stock ol govcrnmcnt basc moncy and thc cir
cumstanccs rcprcscntcd in thc tcxtbook moncymultiplicr lormula. l thc
lour supplyanddcmandcquilibrating mcchanisms, thc rst, thc quan
tity rcsponsc, is not lrcc to work automatically (not apart lrom monc
tary policy, lor cxisting institutions do not allow thc actual quantity lully
to accommodatc itscll to changcs in thc dcmand lor moncy at thc cxist
ing pricc lcvcl). Mcchanism a, thc pricc rcsponsc, docs not work bccausc
moncy lacks a pricc ol its own. Mcchanism , divcrsion ol dcmand, docs
not work bccausc moncy supply and dcmand do not cxhibit thcir imbal
ancc on a spccic markct lrom which cxccss dcmand might bc divcrtcd.
(8csidcs, what would divcrsion mcan lor thc mcdium ol cxchangc itscll :)
8ccausc moncy is thc mcdium ol cxchangc, cxccss dcmand lor it is not
clcarly apparcnt. vcryonc can obtain as much moncy as hc thinks hc can
aord to hold undcr his circumstanccs by rcstraining his purchascs, il
not by cagcrncss in sclling whatcvcr hc has lor salc. (A dcprcsscd lcvcl
ol incomc docs acct how much moncy pcoplc think thcy can aord.)
Markct dicultics appcar to pcrtain to salcs ol goods and scrviccs, not to
moncy.
. Part : Economics
Vith nonc ol rcsponscs ., a, and opcrating, thc markct proccss ol
rccquilibrating moncys supply and dcmand has to bc thc roundabout pro
ccss ol adjusting innumcrablc priccs and wagcs on thc individual markcts
lor goods and scrviccs. For rcasons alrcady notcd, priccs and wagcs cannot
immcdiatcly jump to thcir ncw cquilibrium lcvcl and pattcrn. Mcanwhilc,
transactions, production, and cmploymcnt sucr.
Tc supposcd problcmol ovcrsaving boils down, thcn, to monctary dis
cquilibrium. Unsurprisingly, what looks likc ovcrsavinga gcncral dc
cicncy ol dcmand posing an cconomywidc impcdimcnt to transactionsis
conncctcd with thc mcdium ol cxchangc, which is also, in our currcnt sys
tcm, thc mcdiumin which priccs arc corrcctly or incorrcctly sct or adjustcd
or lclt unadjustcd.
Suitablc monctary institutions and policy might avoid macro disco
ordination involving saving and invcstmcnt and a gcncral dccicncy or
cxccss ol dcmand lor currcnt output. 8y thcmsclvcs, howcvcr, thcy can
not cnsurc both that a propcr sharc ol currcnt incomc is savcd and dcvotcd
to capital lormation and that rcsourccs arc propcrly allocatcd among cap
italconstruction projccts by cconomic scctors and by dcgrccs ol rcmotc
ncss lrom nal consumption. Nothing can cnsurc such idcal rcsultsand
thc vcry mcaning ol propcr in this contcxt is unclcar. Pcoplc do not
havc pcrlcct lorcsight, so somc capitalconstruction projccts arc bound
to turn out, in rctrospcct, to havc bccn unwisc, whilc othcrs will turn
out to havc bccn worth cxpanding. Furthcrmorc, nothing guarantccs that
thc propcr sharc ol incomc will bc savcd and invcstcd or, in othcr words,
that socicty will discount thc luturc at thc propcr ratc. (Tcsc arc inhcr
cntly luzzy conccpts anyway, and again, it is pointlcss to blamc rcality lor
bcing rcal.)
Still, avoiding monctary disruption mcans avoiding a major obstaclc to
thc lunctioning ol thc pricc systcm. Undistortcd by monctary inucnccs,
thc intcrcst ratc is lrcc to play its coordinating rolc, along with othcr priccs.
A wcll lunctioning pricc systcm allows pcoplc to usc thcir own dcccn
tralizcd knowlcdgc and judgmcnts in allocating thcir rcsourccs bctwccn
currcnt consumption and invcstmcnt to achicvc grcatcr luturc consump
tion. Monolithic ccntral dccisions that might turn out monstrously wrong
arc avoidcd. ntrcprcncurs whosc judgmcnts turn out consistcntly sound
will acquirc grcatcr control ovcr rcsourcc allocation than thosc whosc
judgmcnts turn out consistcntly mistakcn. vcn il thc inhcritcd array ol
capital goods docs provc at any timc to bc what hindsight dccms a mis
takcas incvitably it will to somc cxtcntmarkct signals and inccntivcs
Chapter 8: Macroeconomics and Coordination .
will hclp promotc an ccicnt usc ol this array. Tc bond and stock mar
kcts play a rolc in mobilizing inlormation and in lacilitating rccombina
tions ol thc inhcritcd complcx ol capital goods. A stablc unit ol account
would aid thcsc markct proccsscs and thc cconomic calculation that thcy
prcsupposc.
c~vi:~i ~xb ix:vvvs:
Rccognizing thc timc clcmcnt as thcy do, Austrians givc grcat attcntion
to capital and intcrcst and thc importancc ol saving and invcstmcnt lor
growth ol productivity and rcal incomcs. Undcrstanding that branch ol
thcory is csscntial to undcrstanding cvcn thc basics ol cconomics, cspc
cially microcconomics and thc logic ol a pricc systcm. 8ohm8awcrk and
writcrs in his tradition havc madc indispcnsablc contributions hcrc.
Kcyncs saw invcstmcnt spcnding as a stratcgic part ol thc total spcnd
ing that sustains cconomic activity, but hc did not trcat what capital goods
arc built or not built as a crucial issuc.
Monctarists ccrtainly rccognizc thc importancc ol capital and intcrcst
thcory. Unlikc somc Austrians, howcvcr, thcy do not scc it as a dominant
strand ol cxplaining thc uctuations ol boom and rcccssion. Similarly,
although a discquilibrium pattcrn ol relati.e priccs and wagcs is impor
tant in somc contcxts, it is not ccntral to cxplaining cyclical uctuations.
Tc ccntcrpiccc ol thc monctarist story, instcad, is a discquilibrium rcla
tion bctwccn thc nominal quantity ol moncy and thc gcncral lcvcl ol priccs
and wagcs. Crucial hcrc arc thc lactors dctcrmining thc quantity ol moncy
and thc dcmand lor cash balanccs.
Ccntralbank policy has much to do with dctcrmining thc quantity ol
moncy. Trying to kccp a targct ratc ol intcrcst bclowthc natural ratc that
would othcrwisc clcar thc crcdit markct cntails cxpanding thc quantity ol
moncy, as Knut Vickscll cxplaincd, and (lcss lamiliarly) trying to kccp a
targct ratc abovc thc natural ratc involvcs shrinking thc quantity ol moncy
or slowing its growth. Truc as all this is, howcvcr, it docs not clcvatc capital
and intcrcst thcory to thc crucial rolc spccically in macrocconomics that
somc Austrians would accord to it.
~ guvs:iox~niv nusixvsscvciv :nvovv
Partly lor such rcasons my cnthusiasm lor Austrian cconomics docs not
cxtcnd to a thcory propoundcd by Ludwig von Miscs and F.A. Hayck
.c Part : Economics
carly in thc twcnticth ccntury and still rccitcd by somc Austrians as thc
dominant strand ol thcir macrocconomics. Tc thcory blamcs rcccssion
on a prcccding policy ol cxccssivcly casy moncy. Articially low intcr
cst ratcs lalsily pricc signals, cxaggcrating how much saving is lrccing
rcsourccs lrom consumption lor rcal invcstmcnt. Tc lalsc chcapncss ol
crcdit lurcs cntrcprcncurs into othcrwisc unattractivc longtcrmoricntcd,
intcrcstscnsitivc projccts. !n timc thc scarcity ol savcd rcsourccs lor com
plcting uncomplctcd projccts or opcrating complctcd oncs lorccs aban
doning somc ol thcm. cmands lor complcmcntary inputs and lactors ol
production, including labor, lall o. Tc downturn arrivcs. Nothing can bc
donc about thc misallocation and wastc ol rcsourccs cxccpt to rcstructurc
somc ol thc mistakcn projccts lor whatcvcr altcrnativc uscs can bc lound.
Tc lcsson about not rcpcating thc casy moncy that may havc causcd such
distrcss is oltcn, sadly, not takcn to hcart.
Tis sccnario, although conccivablc cnough, nds littlc historical sup
port. vcrambitious invcstmcnt projccts arc typically abandoncd or rc
structurcd not lor lack ol rcal rcsourccs to complctc and opcratc thcm
but lrom disappointingly wcak dcmand lor thcm and lor thc goods and
scrviccs into whosc production thcy wcrc mcant to cntcr. Considcr gluts
in thc past scvcral ycars ol bcroptic cablc and ol houscs and highrisc
condominiums.
Strands ol thc Austrian busincsscyclc thcory may wcll bclong in thc
tool kit ol thcorics that rcscarchcrs may draw on in invcstigating histori
cal cpisodcs. vcrcmphasis on it, howcvcr, is an cmbarrassmcnt that thc
Austrian school would wcll bc rid ol. (For a lullcr critiquc, scc Ycagcr
.6/.,, pp. aaa.) xccssivcly casy moncy can indccd do damagc in
various ways, but justicd warnings against it had bcst not bc tarrcd by
association with a qucstionablc onc.
ixs:i:u:ioxs
Not cvcrything said hcrc is standard Austrian cconomics. !t docs t in
wcll, howcvcr, with scvcral lcading traits ol thc Austrian schoolits
cmphasis on thc coordination problcm, its lorthright pcrccption ol mcssy
rcality and thc scopc it lcavcs lor cntrcprcncurial activitics, and its put
ting moncy and timc at thc ccntcr ol macrocconomics. nc lurthcr
trait is conccrn lor institutions. !t contrasts in this rcspcct with thc
hypcrlrccmarkctry ol thc NcwClassical and rcalbusincsscyclc schools,
which havc cultivatcd analysis ol abstract modcls uncontaminatcd by
Chapter 8: Macroeconomics and Coordination ..
institutional dctail. Austrians practicc comparativcinstitutional analysis,
which docs not mcan comparing thc rcal world unlavorably with thc Val
rasian vision ol gcncral cquilibrium. Vhcn told that rcality is unsatislac
tory in this or that rcspcct, Austrians arc inclincd to ask, Unsatislactory
comparcd to what: Likc mcmbcrs ol thc Public Choicc school, Austri
ans know bcttcr than automatically to rcgard govcrnmcnt as supcrior to
privatc cntcrprisc in accomplishing various tasks.
Tc aggrcgatcdcmand/aggrcgatcsupply analysis still dominating thc
tcxtbooks almost invitcs itchyngcrcd attcmpts to nctunc thc macro
cconomy. Tc Austrians conccrn with ncgraincd spccialization and thc
task ol coordination dirccts attcntion, by contrast, to thc qucstion ol what
lramcwork ol institutions and ol morc or lcss stcady policics, institution
alizcd policics, can bcst allow markct proccsscs to opcratc.
Tc Austrian conccrn with institutions shows up in thc dcbatc ovcr
cconomic calculation undcr socialism and capitalism and in discussions
ol monctary standards and monctary rclorms. !t shows up in thc attcn
tion that Ludwig von Miscs and Fricdrich Hayck paid to history. istin
guishing bctwccn thcory and history, thcy warncd against misconcciving
ol cconomics as numcrical aspccts ol rcccnt or carlicr cconomic history.
Awarc ol how important and how changcablc institutions arc, Austrians
arc skcptical that a countrys cconomic structurc can bc pinncd down
cconomctrically in lunctions ol stablc lorm and with stablc coccicnts.
Nothing can lully substitutc lor insights lrom history.
~vvv~is~i ~xb ovvov:uxi:ivs
Tc largc institutional and historical clcmcnt in macrocconomics bars a
spccic gcncral thcory and any wcllspccicd modcl ol thc macrocconomy.
mphasizing that clcmcnt may sccm antithcorctical, uninlormativc, and
sloppy, but il that is thc way things arc, supposing othcrwisc sabotagcs
undcrstanding. Scarccly conccivablc progrcss in macrocconomics might
somc day changc that condition, but mcanwhilc wc must acknowlcdgc
thc contrast bctwccn micro and macrocconomics.
6
cvising a gcncral
thcory is as dicult lor macrocconomics as lor discascs and wounds ol
thc human body.
!n policy, also, a rcalistic macrocconomics might sccm dccicnt. Un
likc what a wcllspccicd modcl might sccm to do, it cannot grind out
6
For an appcal lor duc modcsty in macrocconomics by an cmincnt mainstrcam ccon
omist, scc Summcrs ...
.a Part : Economics
spccic rccommcndations, cspccially not quantitativc oncs. Tc bcst it
can rccommcnd to policymakcrs is to avoid disrupting an cconomic cnvi
ronmcnt that lacilitatcs thc coordination ol privatc plans. Vhat history
particularly warns against is disruptions lrom cxccssivcly contractionary
or cxpansionary monctary policy. Tc casc lor dcpcndability in monctary
policylor rulcs, not cpisodctocpisodc discrctiondcscrvcs attcntion.
Macrocconomics givcs scant spccic guidancc lor rcmcdying thc lcars
and unccrtaintics ol latc ac.c. !t is truc in principlc that a monctary pol
icy cvcn morc cxpansionary than alrcady adoptcd could rcvivc spcnding by
osctting thc lall in moncys vclocityby gratilying thc tcmporarily intcn
sicd dcmand to hold moncy. Unlikc many carlicr rcccssions, howcvcr,
thc currcnt onc is not markcd by monctary tightncss. To casc moncy and
crcdit lurthcr would aggravatc thc cxitstratcgy problcm lor thc Fcdcral
Rcscrvc, thc problcm ol how salcly to rcvcrsc thc grcat cxpansion ol its
balancc shcct. Furthcrmorc, such a shortrunoricntcd cxpcdicnt might
wcll dcstroy thc Fcdcral Rcscrvcs hardwon rcputation as guardian ol thc
valuc ol moncy.
!n summary, Austrian cconomics, including macrocconomics, rccog
nizcs how mcssy (impcrlcct) rcality is, with so much dcpcnding on rad
ically dcccntralizcd knowlcdgc and dccisions to bc coordinatcd somchow.
ccisions arc guidcd, not only by currcnt conditions but also by chang
ing cxpcricncc, thcorics, cntrcprcncurial spirit (Kcyncss animal spirits),
intuitions, and hunchcs. Austrian cmphasis on thc subjcctivc clcmcnt is
amply warrantcd. Fortunatcly, attcntion to thc psychological contagion ol
spcculativc booms and paralyzing lcar is gaining acadcmic rcspcctability.
Tis cannot all bc lormalizcd and rigorizcd in thc way sought by
mainstrcam cconomic modcls, with thcir lunctional lorms and spccic
paramctcrs inlorming ambitious and succcsslul policy. Pcrhaps rcmark
ablc intcllcctual advanccs will somc day satisly such aspirations. Until
thcn, howcvcr, thcory and policy must rcmain modcst.
Tc currcnt disarray in macrocconomics and thc cxaggcrations ol latcly
lashionablc lrccmarkctry givc Austrian cconomists an opportunity to
carn thc attcntion ol thc mainstrcam. !n busincsscyclc thcory, thcir broad
timcandmoncy oricntation holds morc promisc than thcir spccic appli
cation ol capital and intcrcst thcory criticizcd abovc, which may havc
sccmcd morc plausiblc undcr ccrtain past historicalinstitutional condi
tions than it is in gcncral. Austrian macrocconomics has much in com
mon, and could dcvclop still morc in common, with monctarism, with
work likc that ol Clowcr and Lcijonhulvud and Howitt, and cvcn with
Chapter 8: Macroeconomics and Coordination .
Ncw Kcyncsianism. (Vc should not bc alraid ol mcrc labcls, which havc
bccn cspccially misapplicd in rcccnt ycars anyway.)
Rising Austrian cconomists might wcll nd disscrtation topics in
thc arcas ol monctary history, monctary rclorm, altcrnativc markct insti
tutions,
,
propcrty rights, and institutional and cntrcprcncurial history.
A scarch lor historical cpisodcs ol dcprcssion or rcccssion ol cntircly
nonmonctary origin and charactcr could bc instructivc, whcthcr or not
any actually turn up.
Going bcyond prcscrvation and transmission ol chcrishcd truths, Aus
trians can cxploit thcir insights to hclp gain ncw knowlcdgc and soundcr
public policy. Macrocconomics as rccommcndcd hcrc may ocr govcrn
mcnts unlashionably littlc spccic advicc, littlc numcrically dcnitc, lit
tlc bcyond warning against monctary disordcr and against othcrwisc con
tributing to unccrtainty and lcar. 8ut il that is thc way things arc, what
clsc can onc say:
Austrians can also point out thc absurdity ol our undcncd at dollar,
whosc valuc rcsts prccariously on nothing bcttcr than thc changcablc poli
cics ol thc Fcdcral Rcscrvc, badgcrcd lrom all sidcs with contradictory,
changcablc, and shortrunoricntcd advicc. Tcy havc much to say about
how this monctary anomaly abcts irrcsponsiblc govcrnmcnt, rccctcd in
pcrsistcnt budgct dccits. !t is unncccssary to idcntily sound moncy cxclu
sivcly with a particular commodity standard ol rclativcly bricl historical
duration. As F.A. Hayck and scvcral youngcr Austrian cconomists havc
shown, scvcral altcrnativc monctary rclorms arc ol thcorctical and practi
cal intcrcst.
vvvvvvxcvs
8rown, Harry G. Nonscnsc and Scnsc in caling with thc cprcssion. BGS
International Exchange (Spring .): ,.c,.
Clowcr, Robcrt V. Money and Markets. ditcd by onald Valkcr. Ncw York:
Cambridgc Univcrsity Prcss, ..
. Kcyncss Gcncral Tcory: A Contcmporary Pcrspcctivc. Greek Eco-
nomic Fe.ie. .a, Supplcmcnt (Autumn .c): ,.
,
Pctcr Howitt rccommcnds studying how rcalworld institutions lunction vcry dicr
cntly lrom thc ccntralizcd Valrasian auction (.c, p. .). Furthcr progrcss will dcpcnd
upon supplying institutional dctail . . . , including thc invcntoryholding, advcrtising, ncgo
tiating, inspcction, and cvcn priccquoting scrviccs ol intcrmcdiarics and othcr markct
making institutions ol rcal lilc (.c, p. .).
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cn~v:vv
Tc Kcyncsian Hcritagc
in conomics

xvvxvs :nv s~ivs:~x

Vhat dicrcncc has thc General Teory madc: How do cconomic thcory
and policy dicr lrom what thcy would havc bccn il Kcyncs had ncvcr
livcd:
Kcyncs sold thc cconomics prolcssion on conccrn with thc macro
problcms ol cmploymcnt and dcmand. Tis conccrn was not ncw.
vcnor cspcciallyamong Chicago cconomists in thc carly ycars ol thc
Grcat cprcssion, it had alrcady lcd to policy rccommcndations sounding
rcmarkably Kcyncsian (avis .,.). 8ut undcrstanding was lar lrom gcn
cral, as onc can vcrily by browsing through Joscph orlmans Economic
Mind in merican Ci.ilisation (.) and by considcring how cxpcrimcn
tal and cclcctic antidcprcssion policy was. Kcyncs sawand providcd what
would gain attcntionharsh polcmics, sardonic passagcs, bits ol csotcric
and shocking doctrinc. !t hclps a doctrinc makc a splash, as Harry John
son (.,.) suggcstcd, to posscss thc right dcgrcc ol dicultynot so
much as to discouragc thosc who would thrill at bcing rcvolutionarics,
yct cnough to allow thosc who think thcy undcrstand it to rcgard thcm
sclvcs as an clitc vanguard.
!l anyonc should arguc that prospcnding policics inspircd by Kcy
ncsian doctrincs contributcd to gcncral prospcrity in thc industrialiscd
countrics lor roughly two dccadcs altcr Vorld Var !!, ! would conccdc
thc point. !t took roughly that long lor cxpcctations to bccomc attuncd to
what was happcning, lor thc Phillips uncmploymcnt/ination tradco to
brcak down, and lor cxpansionary policics to wastc thcir impact in pricc

From Keyness General Teory: Fifty Years On, cds. John 8urton ct al. (London: !nsti
tutc ol conomic Aairs, .6), a,, rcprintcd in Critique of Keynesian Economics,
cd. Valtcr Allan (Ncw York: St. Martins Prcss, .), ,..
.,
. Part : Economics
ination rathcr than maintain thc dcsircd rcal stimulus. Tc longcrrun
cccts ol Kcyncsianism arc anothcr story.
wn~: xvvxvs cvowbvb ou:
vcninits carly ycars, Kcyncsianismmay havc bccna mislortunc. Soundcr
dcvclopmcnts in cconomic thcory might havc gaincd inucncc had not
Kcyncsianism crowdcd thcm o thc intcllcctual sccnc. Vhat Clark Var
burton has callcd monctary discquilibrium thcory alrcady had an hon
ourablc tradition, cxtcnding back at lcast as lar as avid Humc in .,a
and P.N. Christicrnin in .,6..
.
vcn carlicr in that ccntury, a rudimcntary
vcrsion cvidcntly lound succcsslul cxprcssion in policy in scvcral Amcr
ican colonics (Lcstcr ./.,c, chaps. iii, iv, and v). Varburtons own
corts to cxtcnd thc thcory and thc statistical cvidcncc lor it in thc .cs
and .cs wcrc robbcd ol attcntion by thc thcnprcvalcnt Kcyncsianism.
A sound approach to macrocconomics, in my vicw, runs as lollows
(it largcly ovcrlaps what V.H. Hutt tcachcs in his own idiosyncratic tcr
minology). Fundamcntally, bchind thc vcil ol moncy, pcoplc spccialisc
in producing particular goods and scrviccs to cxchangc thcm lor thc
spccialiscd outputs ol othcr pcoplc. Any particular output thus consti
tutcs dcmand lor othcr (noncompcting) outputs. Sincc supply constitutcs
dcmand in that scnsc, thcrc can bc no lundamcntal problcm ol dccicncy
ol aggrcgatc dcmand. vcn in a dcprcssion, mcn and womcn arc will
ing to work, producc, cxchangc, and consumc. !n particular, cmploycrs
arc willing to hirc morc workcrs and producc morc goods il only thcy
could nd customcrs, whilc uncmploycd workcrs arc willing and cagcr to
bccomc customcrs il only thcy could bc back at work carning moncy to
spcnd.
Tis doctrinc is not just a crudc, Panglossian vcrsion ol Says Law.
!t gocs on to rccognisc that somcthing may bc obstructing thc transac
tions whcrcby pcoplc might gratily unsatiscd dcsircs to thc bcnct ol all
conccrncd. !t inquircs into what thc obstruction might bc. !n Hutts vcr
sion, villains arc obstructing thc markct lorccs that would othcrwisc movc
wagcs and priccs to markctclcaring lcvcls.
Clark Varburton ocrcd a dicrcnt cmphasis. As hc argucd (c.g.,
.66, sclcction ., csp. pp. a6a,), a tcndcncy towards cquilibrium rathcr
.
Pchr Niclas Christicrnin (.,a.,) was a Swcdish philosophcr and cconomist at
thc Univcrsity ol Uppsala.
Chapter ,: Te Keynesian Heritage in Economics .
than discquilibrium is inhcrcnt in thc logic ol a markct cconomy. Vhcn
cvcr, thcrclorc, markcts arc quitc gcncrally and conspicuously lailing to
clcar, somc csscntially cxogcnous disturbancc must havc occurrcd, a dis
turbancc pcrvasivc cnough to rcsist quick, automatic corrcction. !n a
dcprcssion, what bars pcoplc lrom accomplishing all thc cxchangcs ol
cach othcrs goods and scrviccs that thcy dcsirc is a dccicnt rcal quan
tity ol moncy. Such a dccicncy could arisc cithcr lrom shrinkagc ol thc
moncy supply or lrom its lailurc to kccp pacc with thc dcmand lor moncy
associatcd with rcal cconomic growth. vcn thcn, thc rcal moncy sup
ply could rcmain adcquatc il pcoplc markcd down thcir priccs and wagcs
sucicntly and promptly. Pricc and wagc stickincss is, howcvcr, scnsiblc
lrom thc standpoint ol individual dccisionmakcrs, cvcn though that stick
incss, in thc lacc ol monctary disturbanccs, has painlul macrocconomic
conscqucnccs. (An adaptation ol this account, drawing on an analogy
bctwccn lcvcls and trcnds ol priccs, can handlc thc casc ol stagation. !t
is unncccssary to assumc, as simplistic Kcyncsian analysis docs, that ina
tion and dcprcssion arc cxact oppositcs associatcd rcspcctivcly with too
much and too littlc aggrcgatc dcmand.)
vvix:vvvvv:~:ioxs ov xvvxvs
Robcrt Clowcr (.6) and Axcl Lcijonhulvud (.6), and othcr writcrs
in thcir tradition, havc intcrprctcd Kcyncs as cspousing a good part ol thc
thcory just skctchcd out. (Tcy ignorcd its carlicr cxpositors.) Tcy cmpha
sisc such conccpts as thc abscncc ol thc Valrasian auctionccr, incom
plctc and costly and impcrlcct inlormation, lalsc pricc signals, sluggish or
poorly coordinatcd pricc adjustmcnts, quantity adjustmcnts bcsidcs pricc
adjustmcnts, thc dualdccision proccss (i.c., pcoplcs dccisions about try
ing to buy or scll in somc markcts dcpcnd on whcthcr or not thcy succccd
in carrying out dcsircd transactions in othcr markcts), and thc incomc
constraincd proccss (thc inlcctiousncss ol lailurc or succcss in accom
plishing transactions). !n bricl, inlormation gaps and othcr lrictions bar
thc swilt, coordinatcd, and appropriatc rcadjustmcnt ol intcrdcpcndcnt
yct scparatcly dccidcd priccs. !n thc lacc ol pcrvasivc disturbanccs, notably
monctary disturbanccs, thc pricc systcmcannot maintain or rcadily rcstorc
cquilibrium.
Clowcr and Lcijonhulvud admit that Kcyncs did not cxplicitly statc
what thcy supposc hc mcant. Tcy ocr cxcuscs lor him. !n trying to brcak
lrcc lrom orthodoxy, hc was handicappcd by unavailability ol thc rcquircd
.6c Part : Economics
conccpts. Tc orthodox doctrinc hc was attacking had not yct bccn spcllcd
out cxplicitly cnough. Still, amplc cxcuscs lor not having donc or said
somcthing arc not, altcr all, thc samc as actually having donc or said it.
w~s xvvxvs ~ xvvxvsi~x-
cspitc Clowcr and Lcijonhulvud, much ol what Kcyncs says in thc Gen-
eral Teory (.6) docs indccd rcscmblc thc supposcdly vulgar Kcyncsian
ism ol thc tcxtbooks. !l Kcyncs rcally was a discquilibrium thcorist, why
did hc makc so much ol thc possibility of equilibrium at undcrcmploy
mcnt: Vhy did hc minimisc and almost dcny thc automatic lorccs con
ccivably working, howcvcr sluggishly, towards lullcmploymcnt cquilib
rium: Vhy did hc rcpcatcdly worry (as in thc General Teory, p. ,) about
a chronic tcndcncy throughout human history lor thc propcnsity to savc
to bc strongcr than thc induccmcnt to invcst: Tc dcsirc ol thc indi
vidual to augmcnt his pcrsonal wcalth by abstaining lrom consumption,
Kcyncs continucd (p. ), has usually bccn strongcr than thc induccmcnt
to thc cntrcprcncur to augmcnt thc national wcalth by cmploying labour
on thc construction ol durablc asscts. Vhy did hc say (p. .) that a rich
community would nd it hardcr than a poor community to ll its saving
gap with invcstmcnt: Vhy did hc arguc (p. .c) that thc morc lully invcst
mcnt has alrcady providcd lor thc luturc, thc lcss scopc rcmains lor mak
ing still lurthcr provision: Kcyncss hints at thc stagnation thcsis and in
lavour ol govcrnmcnt rcsponsibility lor total invcstmcnt also suggcst that
hc worricd about real lactors making lor a chronic tcndcncy lor dcmand
to provc dccicnt. So docs his cmphasis on a lundamcntal psychological
law ol consumption spcnding and his hints in lavour ol incomc rcdistri
bution (p. ,) to raisc thc ovcrall propcnsity to consumc.
His worrics about cxccssivc thrilt datc back to bclorc thc General Te-
ory. Rccall, lor cxamplc, his parablc in thc Treatise on Money (.c, vol. i:
pp. .,6.,) about thc dcvastation wrought by a thrilt campaign in an
cconomy ol banana plantations, hc gocs on to comparc his own thcory
with thc ovcrsaving or undcrconsumption thcorics ol Mcntor 8ounia
tian, J.A. Hobson, V.T. Fostcr and V. Catchings. Kcyncss banana para
blc dcscribcs too simplc an cconomy to bc amcnablc to intcrprctation
along thc lincs ol Clowcr and Lcijonhulvud. Tc parablc docs not cvcn
mcntion moncy. Clcarly Kcyncs was worrying about ovcrsaving as such.
Kcyncss cmphasis in thc General Teory on a dcnitc multiplicr rcla
tion bctwccn changcs in invcstmcnt and in total incomc also suggcsts
Chapter ,: Te Keynesian Heritage in Economics .6.
conccrn about dilcultics morc dccpscatcd than thc ClowcrLcijonhul
vud analysis dcscribcs. Tis analysis intcrprcts Kcyncs in tcrms ol thc
dynamics ol incomcconstraincd proccsscs associatcd with dccicncics ol
inlormation, inadcquatcly adjustcd priccs, and thc attcndant discoordina
tion. !t sccms signicant that V.H. Hutt, whosc thcory ol cumulativc
dctcrioration in a dcprcssion is rcmarkably similar to that ol Clowcr and
Lcijonhulvud (Glazicr .,c), bclicvcs hc is cxpounding a doctrinc quitc
dicrcnt lrom what hc considcrs to bc thc cruditics ol Kcyncs.
Gcorgc 8rockway (.6, p. .) providcs an cxtrcmc cxamplc ol crudc,
populariscd Kcyncsianism. Possibly Kcyncss grcatcst contribution was
his dcmonstration that in a capitalist systcm (or in any systcm that is
advanccd much bcyond barc subsistcncc), glut is not only possiblc, it is
always immincnt.
Liquidity prclcrcncc makcs thc cconomy unablc to buy and pay lor
cvcrything it produccs, hcncc a glut. 8rockway nds disgusting and
stupid thc attcmpt bcing madc in thc Unitcd Statcs nowadays to bal
ancc thc budgct and thus rcducc govcrnmcnt cxpcnditurcs at thc vcry
momcnt thcy should bc cxpandcd.
Vas Kcyncs a Kcyncsian: ContradictingLcijonhulvuds thcsis, Hcr
schcl Grossman in ccct answcrs Ycsand propcrly, in my vicw (Yca
gcr .,): Kcyncs thinking was both substantially in accord with that ol
his populariscrs and similarly dccicnt (Grossman .,a, p. a6). Hc pro
vidcd no adcquatc microcconomic loundation lor his macrothcory. His
trcatmcnt ol thc dcmand lor labour, in particular, is inconsistcnt with thc
ClowcrLcijonhulvud intcrprctation. !nstcad ol locusing on thc labour
markct conscqucnccs ol discquilibrium in thc markct lor currcnt output,
Kcyncs acccptcd thc classical vicw that uncmploymcnt in a dcprcssion
dcrivcs lrom an cxccssivc rcal wagc ratc. Kcyncs had in mind nothing likc
Clowcrs intcrprctation ol thc consumption lunction and simply ocrcd
an ad hoc lormulation instcad. Ncithcr Kcyncss writings nor thc cnsuing
controvcrsy and popularisation accomplishcd a shilt away lrom a classical
analytical with such writcrs as Patinkin and Clowcr.
Prolcssor Allan Mcltzcr is anothcr cconomist who docs not acccpt
thc ClowcrLcijonhulvud intcrprctation ol thc General Teory as cmpha
sising thc supposcdly contagious lailurc ol markcts to clcar bccausc ol
sticky or malcoordinatcd priccs (Mcltzcr .., csp. pp. , , also Mcltzcr
.). Kcyncs was indccd conccrncd whcthcr invcstmcnt would bc adc
quatc to ll thc savings gap at lull cmploymcnt. !nvcstmcnt tcndcd to bc
inadcquatcnot always, but on thc avcragc ovcr timcbccausc invcstors
.6a Part : Economics
longtcrm cxpcctations wcrc bcdcvillcd by unccrtainty (nonquantiablc
contingcncics, not mcrc risks that might bc cstimatcd). 8ccausc cxpccta
tions wcrc poorly rootcd in objcctivc, mcasurablc circumstanccs, changcs
in invcstors animal spirits tcndcd to bc contagious. 8ccausc invcstmcnt
thus uctuatcd around a suboptimal lcvcl, so did total output and cmploy
mcnt. Somc sort ol govcrnmcnt planning ol largc scgmcnts ol invcstmcnt
sccmcd advisablc as a rcmcdy.
For Kcyncs, as also intcrprctcd by Mcltzcr, thcn, macrocconomic dil
cultics wcrc morc rcal than monctary oncs. Pottcd vcrsions ol Kcyncsian
thcory undcrstandably camc to locus on thosc ol its aspccts that arc rcla
tivcly casy to build into modclsthc consumption lunction, thc savings
gap to bc llcd by invcstmcnt, thc multiplicr, and various intcrcst clastic
itics or inclasticiticsrathcr than on thc shapclcss topic ol hcsitant and
changcablc cxpcctations.
Alan Coddington (.,6, in Vood ., vol. iv: p. aa,) commcntcd
aptly on Clowcrs suggcstion that Kcyncs must havc had thc dualdccision
hypothcsis, in particular, at thc back ol his mind:
Tc picturc hcrc sccms to bc onc ol Kcyncs with a mind lull ol idcas,
some ol which hc got onto thc pagcs ol thc General Teory, thc task bcing
to work out what thc rcmaindcr must havc bccn. Tis is a problcm ol
rcading not so much bctwccn thc lincs as o thc cdgc ol thc pagc.
arly rcvicws and annivcrsary rcvicws ol thc General Teory collcctcd
in thc volumcs cditcd by Vood, cspccially volumc ii, providc littlc or
no support lor thc ClowcrLcijonhulvud intcrprctation. Morc rcccnt dis
scntcrs lrom that intcrprctation, in articlcs also collcctcd in Voods vol
umcs, includc !van Johnson, Robin Jackman, and \ictoria Chick.
Tc distinctivc lcaturc ol thc General Teory, says on Patinkin,
is not simply its . . . conccrn with changcs in output, but thc crucial rolc
that it assigns to such changcs as an equilibrating force with rcspcct to
aggrcgatc dcmand and supplyor, cquivalcntly, with rcspcct to saving
and invcstmcnt.
Tis is what Kcyncss thcory ol ccctivc dcmand is all about and
what lcnds crucial signicancc to his lundamcntal psychological law ol
a marginal propcnsity to consumc lcss than onc (Patinkin .,, in Vood
., vol. i: p. ). !n lcttcrs to cconomists who had writtcn major rcvicw
articlcs on thc book, Kcyncs not only lailcd to rcjcct thc intcrprctation that
gavc risc to thc standard !S

LM apparatus but cvcn criticiscd rcvicwcrs

Chapter ,: Te Keynesian Heritage in Economics .6
who gavc insucicnt cmphasis to its corncrstonc, his thcory ol ccctivc
dcmand.
So thcrc is no basis lor thc . . . contcntion . . . that thc mcssagc which
Kcyncs rcally mcant to convcy with his General Teory has bccn distortcd
by this intcrprctation. (Patinkin .., in Vood ., vol. i: pp. 6c,6c)
w~s xvvxvs ~ :oxv:~vis:-
As a sclltaught Kcyncsian who had rcad and rcrcad thc General Te-
ory bclorc taking any collcgc courscs in cconomics, and also as a scll
taught monctarist, ! long ago was cnthusiastic about thc apparcntly mon
ctarist aspccts ol chaptcr ., in particular. Latcr ! bccamc disillusioncd.
!n dcscribing thc csscntial propcrtics that makc moncy a primc candi
datc lor bcing in cxccss dcmand and thcrcby causing dcprcssion, Kcyncs
cmphasiscs moncys yicld. !ts liquidity advantagcs in cxccss ol carrying
costs may wcll posc a targct ratc ol rcturn that ncw capital goods could
not match, in thc vicw ol potcntial invcstors. As a rcsult, invcstmcnt may
bc inadcquatc to ll thc savings gap. Kcyncs cvcn considcrs whcthcr asscts
othcr than moncy, such as land or mortgagcs, might posc thc samc sort
ol troublcsomcly high targct ratc ol rcturn. Hc docs not pcrccivc thc spc
cial snarl that rcsults whcn thc thing in cxccss dcmand is thc mcdium ol
cxchangc, so that thc supply ol somc goods and scrviccs can lail to consti
tutc dcmand lor othcrs. Hc docs not pcrccivc thc closcly rclatcd diculty
that moncy, alonc among all asscts, has no pricc ol its own and no markct
ol its own. Kcyncss contcxt ocrcd him an inviting opportunity to makc
Clowcrs point (.6,), il hc rcally had it in mind, about a possiblc hiatus
bctwccn salcs and purchascs involving thc onc thing uscd in practically all
transactions, yct hc did not scizc that opportunity.
a
Kcyncs is not cntircly consistcnt with himscll throughout thc General
Teory, but on thc wholc thc book convcys a rcal, nonmonctary, thcory ol
macrocconomic disordcr. !t di.erted cconomic rcscarch and policy away
lrom monctary discquilibrium thcory.
bisvguiiinviu: :nvovv ~c~ix
Tat (soundcr) thcory can cxplain thc conscqucnccs ol imbalanccs bc
twccn dcmand lor and supply ol moncy whcn priccs and wagcs arc not
a
For lurthcr argumcnt that Kcyncs was prcoccupicd with ovcrsaving as such rathcr
than with cxccss dcmand lor holdings ol moncy, scc Grcidanus .c, csp. pp. acaac.
.6 Part : Economics
sucicntly cxiblc promptly to absorb thc lull impact ol a monctary dis
turbancc. !t rccogniscs thc uttcr rcasonablcncss ol that incxibility lrom
thc standpoint ol individual priccscttcrs and wagc ncgotiators. Although
myriad priccs and wagcs arc intcrdcpcndcnt, thcy arc ncccssarily sct and
adjustcd picccmcal in a roundabout proccss. Vhcthcr a contcmplatcd
transaction can takc placc to thc advantagc ol both potcntial partics may
wcll dcpcnd on priccs bcsidcs thosc subjcct to thc dccisions ol thosc
partics.
H.J. avcnport, to mcntion just onc cxamplc lrom carly twcnticth
ccntury Amcrica, cmphasiscd thc monctary naturc ol dcprcssion.
!t rcmains dicult to nd a markct lor products, simply bccausc cach
produccr is attcmpting a lcat which must in thc avcragc bc an impossibil
itythc sclling ol goods to othcrs without a corrcsponding buying lrom
othcrs. . . . |T|hc prcvailing cmphasis is upon moncy, not as intcrmcdiatc
lor prcscnt purposcs, but as a commodity to bc kcpt. . . . |T|hc psychology
ol thc timc strcsscs not thc goods to bc cxchangcd through thc intcrmc
diary commodity, but thc commodity itscll. Tc hallway housc bccomcs
a housc ol stopping. . . . r to put thc casc in still anothcr way: thc sit
uation is onc ol withdrawal ol a largc part ol thc moncy supply at thc
cxisting lcvcl ol priccs, it is a changc ol thc cntirc dcmand schcdulc ol
moncy against goods. (.., pp. .ac)
avcnport also rccogniscd (p. a) that thc dcprcssion would bc mildcr
and shortcr il priccs could lall cvcnly all along thc linc. !n rcality, howcvcr,
not all priccs lall with cqual spccd. Vagcs lall only slowly and with painlul
strugglc, and cntrcprcncurs may bc caught in a costpricc squcczc. xist
ing nominal indcbtcdncss also poscs rcsistancc to adjustmcnts.

Monctary discquilibriumthcory not only has a long and vcncrablc his

tory but was at timcs thc dominant vicw on macrocconomics (cl. Varbur
tons writings). Much cvidcncc supports it, including statistical cvidcncc
ol thc sort that prcscntday monctarists producc.
iixcvvixc xvvxvsi~xis:
Unlortunatcly, that promising linc ol analysis was largcly crowdcd out lor
a long timc by such Kcyncsian conccpts as thc !S

LM apparatus, which

Furthcr quotations lrom and citations to prcKcyncsian writings on thc prcvalcncc

and rcasonablcncss ol pricc and wagc stickincss can bc lound in my Tc Kcyncsian ivcr
sion (.,).
Chapter ,: Te Keynesian Heritage in Economics .6
lor somc ycars trivialiscd thc conlrontation bctwccn Kcyncsians and mon
ctarists into supposcd dicrcnccs ol opinion about intcrcst clasticitics. !
conlcss that pcrsonal cxpcricncc has madc mc cvcn morc wcary ol such
conccpts. Vhilc a visiting prolcssor at Gcorgc Mason Univcrsity in thc
lall ol ., ! not only had to clcan thc blackboard altcr my classcs, as a
prolcssor should, ! also had to clcar away what thc inconsidcratc prolcssor
bclorc mc had lclt on thc board. Trough thc cntirc scmcstcr, morc oltcn
than not, it sccmcd to mc, what was lclt was thc Kcyncsian cross diagram
illustrating thc simplcmindcd Kcyncsian multiplicr.
! blamc thc Kcyncsians lor lingcring notions that govcrnmcnt bud
gct dccits, apart lrom how thcy arc nanccd, uncquivocally stimulatc
thc cconomy. xamplcs ol taking this lor grantcd arc Abrams and oth
crs (.) and isncr and Picpcr (.). Tc lattcr authors cvcn arguc, in
ccct, that partial rcpudiation ol thc U.S. govcrnmcnt dcbt through its
dcclinc in nominal markct valuc as intcrcst ratcs risc, and thcn through
crosion ol thc dollar itscll, should count as a kind ol govcrnmcnt rcvcnuc,
making thc real budgct dccit and its rcal stimulatory ccct slightcr than
thcy supcrcially appcar to bc.
8uchanan and Vagncr (.,,) arguc that thc Kcyncsian justication ol
budgct dccits in spccic circumstanccs has bccn illcgitimatcly cxtcndcd
by politicians into a rcason lor complaccncy about dccits cvcn in a much
widcncd rangc ol circumstanccs.
Although Kcyncs advocatcd govcrnmcnt dccits to boost total spcnding
in a slack cconomy, hc also callcd lor govcrnmcnt surpluscs to rcstrain
ination during booms. 8ut politicians havc sclcctivcly rccallcd thcir
Kcyncsian thcory, pcrcnnially invoking thc spcnding rationalc whilc con
vcnicntly ignoring thc rcstraint Kcyncs cnvisioncd. (8cndt ., p. )
Pcrhaps, as is oltcn said, Kcyncs was ovcrcondcnt ol his ability to
turn public opinion and policy choiccs around whcn his own asscssmcnts
changcd.

ovvvvv~c:iox ~xb i~nvisniv:ixc

! conjccturc that Kcyncsianism, lollowcd by disillusionmcnt with it, has
provokcd an intcllcctual ovcrrcaction. ! rclcr to doctrincs ol cquilibrium

Prolcssor Hayck rccountcd just such an cxprcssion by Kcyncs ol his bclicl in his
powcrs ol pcrsuasion in a convcrsation thcy had a lcw wccks bclorc his |Kcyncss| dcath.
!n Hayck .66/.,, p. .c.
.66 Part : Economics
always, which tcnd to bc associatcd with thc rationalcxpcctations or
NcwClassical school, and which trcat discquilibriumthcorics with scorn.

Vhy should stickincsscs pcrsist and contracts go unrcviscd, obstruct

ing cxchangcs, whcn rational markct participants would adjust priccs
promptly and complctcly to lcvcls at which mutually advantagcous trans
actions could procccd: quilibriumalways thcorists do not scc uctua
tions in output and cmploymcnt as rcccting changing dcgrccs ol disc
quilibrium. Tcy suggcst, instcad, that markcts arc still clcaring, but with
transactors somctimcs rcsponding to distortcd or mispcrccivcd priccs. Pcr
ccptions ol rclativc priccs and rclativc wagcs arc likcly to go awry whcn
pricc ination occurs at an uncxpcctcdly high or uncxpcctcdly lowratc. !n
thc scnsc that workcrs and produccrs arc still opcrating on thcir supply
curvcs, cquilibrium, though distortcd, continucs to prcvail. vcn this dis
tortion would supposcdly bc abscnt il pcoplc lully cxpcctcd and allowcd
lor thc undcrlying changcs in monctary policy, as scllintcrcst would lcad
thcm to do to thc cxtcnt that is costccctivcly possiblc.
xaggcratcd notions ol how ncarly pcrlcct markcts arc posscss a
strangc appcal lor somc thcorists. Anyway, thcsc cxaggcrations, togcthcr
with thc cxcgctical writings ol Clowcr and Lcijonhulvud, havc givcn pcr
ccptivc Kcyncsians an opportunity to shilt thcir ground gracclully, with an
ironic rcsult: somcthing likc thc vcncrablc monctarydiscquilibrium thc
ory, which Kcyncsianism had crowdcd out, now nds itscll labcllcd Kcy
ncsian by lcadcrs in thc ovcrrcaction. Tc vcry titlc, Sccond Toughts
on Kcyncsian conomics, ol an articlc by Robcrt 8arro (.,), a rccantcd
discquilibrium thcorist, suggcsts thc apparcnt notion that thcorics invok
ing wagc and pricc stickincss arc Kcyncsian.
6
Kcnncth Arrow(.c, p. .)
casually rclcrs to iscquilibrium thcorists, . . . stcmming lrom Kcyncs.
Stanlcy Fischcr (in Fischcr .c, p. aa) rclcrs to Kcyncsian discquilib
rium analysis. Jamcs Tobin (.ca, p. ,) rclcrs to thc Kcyncsian mcs
sagc as dcaling with discquilibrium and sluggishncss ol adjustmcnt.
Frank Hahn (.c, p. .,) notcs thc prcscnt thcorctical disillusion
mcnt with Kcyncs (which, hc conjccturcs, will bc rcvcrscd). Arthur
kuns posthumous book (..) spclling out much ol thc logic ol pricc
and wagc stickincss is widcly rcgardcd as Kcyncsian. !n a ncw tcxtbook,
Hall and Taylor (.6, pp. .., a) rcport that

Lucas ., and .c, Lucas and Sargcnt .,, and Villcs .c arc cxamplcs ol writ
ings to this ccct. Commcnts intcrprcting such writings prctty much as ! do includc
Arrow .c, 8uitcr .c, and Tobin .ca and .cb.
6
Also 8arro ., csp. chap. ..
Chapter ,: Te Keynesian Heritage in Economics .6,
Kcyncss idca was to look at what would happcn il priccs wcrc sticky. . . .
Macrocconomic modcls that assumc cxiblc priccs and wagcs bcar thc
namc classical, bccausc it was this assumption that was uscd by thc clas
sical cconomists ol thc carly twcnticth ccntury. . . . !n thc .cs, John
Maynard Kcyncs bcgan to cmphasisc thc importancc ol wagc and pricc
rigiditics.
Rcally! A manuscript oncc scnt mc by thc authors cvcn rclcrrcd to thc
clasticitics approach to balanccolpaymcnts analysis as Kcyncsian.
Among advanccd thinkcrs, or lcadcrs in thc ovcrrcaction, Kcyncsian
apparcntly scrvcs as a loosc synonym lor out ol lashion and thcrclorc
wrong. Morc gcncrally, though, Kcyncs cnjoys automatic charity. !t is
widcly takcn lor grantcd that such a thing as Kcyncsian cconomics cxists
and makcs scnsc. iscussion conccrns just what it is to which thc labcl
Kcyncsian propcrly applics. Pro and antiKcyncsians alikc could wcll
usc bcttcr carc in thc application ol labcls and morc rcspcct lor thc history
ol thought.
xvvxvss i~s:ixc ~vvv~i
! do not want to sccm too ncgativc. Much can bc said in Kcyncss lavour.
Hc activcly pursucd intcrcsts in thc arts, public scrvicc, and many othcr
clds. Hc madc contributions in analysing !ndian currcncy and nancc,
in asscssing cconomic conditions and thc pcacc scttlcmcnts altcr Vorld
Var !, in probability thcory, and in thc study ol monctary history and
institutions. Hc wrotc charming biographical and othcr cssays. His con
tributions in thc Tract ol .a ran soundly along lincs latcr callcd mon
ctarist. cspitc unintcndcd inucnccs that his latcr doctrincs may havc
had, Kcyncs himscll was a lilclong and cloqucnt opponcnt ol ination
(Humphrcy ..).
Hcrc, howcvcr, our conccrn is mainly with thc General Teory. !n writ
ing it, Kcyncs was no doubt movcd by a bcncvolcnt, il pcrhaps patri
cian, humanitarianismhc mcant wcll. Assuming that a rstbcst (mon
ctarist) diagnosis ol and policy rcsponsc to thc dcprcssion ol thc .cs was
somchow not in thc cards, thcn thc policics sccmingly rccommcndcd by
thc General Teory would havc bccn a good sccondbcst approach. !n thc
Unitcd Statcs, howcvcr, what brought rccovcry was not policics inspircd
by Kcyncs but an almost accidcntal monctary cxpansion, unlortunatcly
intcrruptcd in .6.,, and nally wartimc monctary cxpansion. Tc
idcas ol thc General Teory took scvcral ycars to ltcr down through thc
.6 Part : Economics
acadcmic world and did not gain major inucncc in thc policy arcna until
altcr thc war. Tosc policy idcas may wcll havc bccn bcnccial in thc short
run, but thcir longrun harmlulncss startcd bccoming cvidcnt in thc .6cs,
and morc so in thc .,cs.
Vhy, cvcn today, altcr so much acadcmic disscction ol Kcyncsian
idcas and so much sorry cxpcricncc with thcir rcsults in practicc, docs
thc Kcyncs ol thc General Teory rcmain lor many a lascinating and cvcn
hcroic gurc: Tc disorganisation, obscuritics, and contradictions ol thc
book, togcthcr with its apparcnt prolundity and novclty, actually kccp
drawing attcntion to it.
,
Vriting in .6, Paul Samuclson lound it
not unlikcly that luturc historians ol cconomic thought will concludc
that thc vcry obscurity and polcmical charactcr ol thc General Teory
ultimatcly scrvcd to maximizc its longrun inucncc. (Vood ., vol. ii:
p. .)
icrcnt cconomists can rcad thcir own lavouritc idcas into thc Gen-
eral Teory. Lcltwingcrs, dclightcd to lcarn that no mcchanism cxists to
kccp saving and invcstmcnt cqual at lull cmploymcnt, can usc that sup
poscd lundamcntal aw as onc morc stick to bcat thc capitalist systcm
with. Rightwing Kcyncsians (c.g., Polanyi .) rcjoicc that an casy rcpair
will prcscrvc and strcngthcn thc systcm.
Jamcs Schlcsingcr (.6, in Vood ., vol. ii: p. a.) suggcstcd that
what makcs Kcyncs so satislying is not his thcorctical structurc but his
cmotional attractivcncss. For many cconomists whosc vicws wcrc shapcd
by thc cvcnts ol thc .cs, hc rcprcscnts thc Propcr Attitudc Toward
Social Problcms. For thcm, thc symbolic Kcyncs will rctain his prcscnt
position ol vcncration, lor hc is thc continuing cmbodimcnt ol thc rcams
ol Tcir Youththc rclorming lcrvor ol ancicnt days.
~vvv~is~i
Tc discussions, rcscarch, and attitudcs cvokcd by thc General Teory ocr
much to admirc. vcn as propaganda lor a shortrun policy stancc, thc
book may havc had mcrit (as ! said abovc, with hcavy qualications). 8ut
docs it dcscrvc lasting admiration as a scicntic pcrlormancc: vcn lrom
,
Although ! am not dircctly acquaintcd with thc Jamcs Joycc industry, ! suspcct that
Ulysses and thc General Teory arc alikc in ocring cmploymcnt lor acadcmic labourcrs ol
a ccrtain kind. My own admittcdly lamc cxcusc is that ! havc ncvcr writtcn on Kcyncs
cxccpt by invitation.
Chapter ,: Te Keynesian Heritage in Economics .6
studcnts writing cxamination papcrs undcr timc constraint and strcss, wc
tcachcrs cxpcct adcquatcly clcar cxposition, and a studcnts protcsts about
what hc mcant. . .about what was at thc back ol his mind, to adopt a
phrasc lrom Kcyncss sympathctic intcrprctcrsdo not succ to gct his
gradc rcviscd upward. Kcyncs, likcwisc, hardly dcscrvcs crcdit lor what
hc supposcdly may havc mcant but did not know how to say. !l, morc
than c ycars latcr, scholars arc still disputing thc ccntral mcssagc ol thc
General Teory, that vcry lact should count against rathcr than in lavour
ol Kcyncss claim to scicntic staturc. Vhatcvcr thc General Teory was, it
was not grcat scicncc. !t was largcly a drcssingup ol old lallacics. Vorsc,
lor many ycars it crowdcd bcttcr scicncc o thc intcllcctual sccnc.
!l Kcyncs had ncvcr writtcn, ! conjccturc, cxpcricncc in thc Grcat
cprcssion would havc proddcd cconomists towards rcdiscovcring and
pcrlccting monctarydiscquilibrium thcory. Rcscarchcrs likc Clark Var
burton would havc gaincd rcspcctlul attcntion carlicr. Vhatcvcr onc may
say lavourably about Kcyncss work, it did divcrt attcntion away lrom thc
orics that stand up bcttcr to lactual cxpcricncc and critical inspcction.
vvvvvvxcvs
Abrams, Richard K., Richard Froycn, and Rogcr N. Vaud. Tc Statc ol thc
Fcdcral 8udgct and thc Statc ol thc conomy. Economic Inquiry a. (ctobcr
.): c.
Arrow, Kcnncth J. Rcal and Nominal Magnitudcs in conomics. Te Public
Interest, Spccial !ssuc (.c): ..c.
8arro, Robcrt J. Sccond Toughts on Kcyncsian conomics. merican Eco-
nomic Fe.ie. 6 (May .,): .
. Macroeconomics. Ncw York: Vilcy, ..
8cndt, ouglas L. Lcashing Fcdcral Spcnding. Te Chase Economic Obser.er
(March/April .): .
8rockway, Gcorgc P. Choking to cath on Crcam. Ne. Leader 6 ( January
.6): .a..
8uchanan, Jamcs M., and Richard . Vagncr. Democracy In Decit: Te Political
Legacy of Lord Keynes. Ncw York: Acadcmic Prcss, .,,.
8uitcr, Villcm. Tc Macrocconomics ol r. Pangloss: A Critical Survcy ol thc
Ncw Classical Macrocconomics. Economic Journal c (March .c): c.
.,c Part : Economics
Christicrnin, Pchr Niclas. Summary of Lectures on the High Price of Foreign
Exchange in S.eden. .,6.. !n Te S.edish Bullionist Contro.ersy, translatcd
and cditcd by Robcrt \. agly, .. Philadclphia: Amcrican Philosophi
cal Socicty, .,..
Clowcr, Robcrt V. Tc Kcyncsian Countcrrcvolution: ATcorctical Appraisal.
!n Te Teory of Interest Fates, cditcd by F.H. Hahn and F.P.R. 8rcchling,
.c.a. London: Macmillan, .6.
. A Rcconsidcration ol thc Microloundations ol Monctary Tcory.
!estern Economic Journal 6 (cccmbcr .6,): ..
avcnport, Hcrbcrt J. Te Economics of Enterprise. Ncw York: Macmillan, ...
avis, J. Ronnic. Te Ne. Economics and the Old Economists. Amcs: !owa Statc
Univcrsity Prcss, .,..
orlman, Joscph. Te Economic Mind in merican Ci.ili.ation. \ol. . Ncw York:
\iking Prcss, ..
isncr, Robcrt, and Paul J. Picpcr. ANcw\icwol thc Fcdcral cbt and 8udgct
ccits. merican Economic Fe.ie. , (March .): ..a.
Fischcr, Stanlcy, cd. Fational Expectations and Economic Policy. Chicago: Univcr
sity ol Chicago Prcss, .c.
Glazicr, vclyn M. Teories of Disequilibrium: Clo.er and Leijonhuf.ud Compared
to Hutt. MA thcsis, Univcrsity ol \irginia, .,c.
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Economic Literature .c (March .,a): a6c.
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(.c): .a..
Hall, Robcrt ., and John 8. Taylor. Macroeconomics. Ncw York: Norton, .6.
Hayck, F.A. Pcrsonal Rccollcctions ol Kcyncs and thc Kcyncsian Rcvolution.
.66. !n Tiger by the Tail, a cd. London: !A, .,.
Humc, avid. l Moncy. .,a. !n !ritings on Economics, cditcd by ugcnc
Rotwcin, 6. Madison: Univcrsity ol Visconsin Prcss, .,c.
Humphrcy, Tomas M. Kcyncs on !nation. Fcdcral Rcscrvc 8ank ol Rich
mond Economic Fe.ie. 6, ( January/Fcbruary ..): ..
Chapter ,: Te Keynesian Heritage in Economics .,.
Hutt, V.H. KeynesianismFetrospect and Prospect. Chicago: Rcgncry, .6.
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Credit, and Banking .a, Pt. a (Novcmbcr .c): 66,..
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.,): .c.6.
cn~v:vv +o
Hutt and Kcyncs

VilliamH. Hutts carccr involvcd work on thrcc contincnts. 8orn in Lon

don in ., hc studicd at thc London School ol conomics. From .a
to .6, thc Univcrsity ol Capc Town in South Alrica was his acadcmic
basc. Hc subscqucntly cmigratcd to thc Unitcd Statcs, tcaching at scvcral
Amcrican univcrsitics. Hc dicd in ..
Hutt was a widcranging scholar. Likc John Maynard Kcyncs, hc con
tributcd to topics bcyond monctary thcory and macrocconomics (scc, lor
cxamplc, Rcynolds .6). !n Economists and the Public and Politically Impos-
sible . . . ?, hc waxcd philosophical, cxploring thc propcr rolc ol acadcmic
cconomists in dcbatcs ovcr public policy. Hc counscllcd acadcmics to chcr
ish thcir ivorytowcr purity, avoiding cvcn thc appcarancc ol spcaking lor
political partics or industrics or othcr privatc intcrcsts, in ordcr to prcscrvc
thcir scicntic authority. Tcy should not compromisc in hopc ol bcing
inucntial. Hutt was sucicnt ol a rcalist to know that thc chanccs ol . . .
cxcrcising any inucncc on policy arc small. vcry truc cconomist in this
agc must bc satiscd with grcat hopcs and small cxpcctations (.aa, p. ,
quoting thc prclacc to his own Teory of Idle Fesources). Vhcn an ccono
mist docs considcr political lcasibility and so rccommcnds a policy othcr
than thc onc hc considcrs bcst on grounds ol cconomics (and avowablc
valuc judgmcnts), thcn hc should clcarly statc thc amatcur political asscss
mcnt undcrlying his rccommcndation, and also statc thc policy hc truly
considcrs bcst. Kcyncs, unlikc Hutt, rclishcd activc involvcmcnt outsidc
acadcmia. Hc wrotc much on policy issucs, was condcnt ol his ability to
sway public opinion rst onc way and thcn anothcr (as hc mcntioncd in a
convcrsation rccallcd by F.A. Hayck, .,, pp. .c..ca), and was inclincd
to dcvclop thcory to bolstcr cxisting policy intuitions. As its titlc suggcsts,
howcvcr, this chaptcr conccntratcs on work lor which Hutt and Kcyncs

From Perspecti.es on the History of Economic Tought, vol. 6, Sclcctcd Papcrs lrom
thc History ol conomics Conlcrcncc, ., cd. Villiam J. 8arbcr (Aldcrshot, U.K., and
8rookcld, \t.: lgar, ..).
.,
., Part : Economics
arc bcst known and in which thcy trcat thc samc topicsthcir moncy
macro thcorics.
xvvxvs ox bv:~xb v~iiuvv
As thc General Teory in particular shows, Kcyncs bclicvcd in a dccp
scatcd, rccurrcnt tcndcncy toward dccicncy ol ccctivc dcmand, caus
ing uncmploymcnt and loss ol potcntial output. Kcyncs had no particu
lar complaint about how thc pricc mcchanism would allocatc rcsourccs,
givcn adcquatc total dcmand. spccially in wcalthy communitics, how
cvcr, privatc invcstmcnt tcndcd to bc inadcquatc to absorb all thc saving
that would bc attcmptcd at lull cmploymcnt. Although Kcyncs and his
lollowcrs somctimcs idcnticd thc diculty as charactcristic ol a mon
ctary cconomy as opposcd to a bartcr cconomy, thcy did not tracc dc
cicncy ol dcmand to an unstablc and oltcn wrong quantity ol moncy.
vcn though Kcyncs wacd a bit on thc qucstion ol monctary disordcr
(notably in chaptcr ., ol thc General Teory), hc dcnitcly was not a monc
tarist in todays scnsc ol thc word. Monctary discquilibrium, il it occurrcd,
rccctcd real troublcs, hc saw markct lailurc, particularly lailurcs ccntrcd
in thc labour and stock and bond markcts. Hc bclicvcd that on avcragc
ovcr timc, busincss invcstmcnt was inadcquatc lor lull cmploymcnt and
was pronc to uctuatc with thc statc ol busincss condcncc, which in turn
was subjcct to suddcn changc bccausc cstimatcs ol prospcctivc yicld had
to bc madc using limitcd knowlcdgc. Kcyncs alludcd to wavcs ol opti
mism and pcssimism, an antisocial lctish ol liquidity, and dark lorccs ol
timc and ignorancc cnvcloping thc luturc (.6, pp. ..). For such
rcasons, hc thought that an acccptablc approximation to lull cmploymcnt
rcquircd sustaincd govcrnmcnt action to maintain adcquatc total spcnd
ing. (To avoid rcpcating myscll in dctail, and lor documcntation, ! rclcr
to my chaptcr .)
nu::s :icvo ovivx:~:iox
Hutts macrocconomics is morc disaggrcgativc and microoricntcd. Hutt
adopts a Says Law, or goodsagainstgoods, approach. Pcoplc spccializc
in producing particular goods and scrviccs to tradc thcm away lor thc spc
cializcd outputs ol othcr pcoplc. !ncomcs crcatcd in particular lincs ol
production arc thc sourccs ol dcmand lor thc outputs ol othcr lincs: sup
ply ol somc things constitutcs dcmand lor othcr (noncompcting) things.
Chapter zc: Hutt and Keynes .,
Fundamcntally, thcn, thcrc can bc no dccicncy ol dcmand. Any appar
cnt problcm ol that sort traccs to impcdimcnts to thc cxchangc ol goods
and scrviccs lor cach othcr. !mpcdimcnts to cxchangc discouragc thc pro
duction ol goods and scrviccs dcstincd lor cxchangc and discouragc thc
cmploymcnt ol labour and othcr productivc lactors. iagnosing thcsc
impcdimcnts is Hutts ovcrriding conccrn.
Says Law, as Hutt intcrprcts and cxtcnds it, cxplains how cuts in
production in somc scctors ol thc cconomy cntail cuts in rcal dcmands
lor thc outputs ol othcr scctors and so cuts in production in thosc othcr
scctors also. Tc rot is cumulativc, discquilibrium is inlcctious, a multi
plicr proccss opcratcs, although not in thc mcchanistic way suggcstcd by
Kcyncss spuriously prccisc lormulas. !n thc oppositc and morc chccrlul
dircction, anything promoting rccovcry ol production in somc scctors pro
motcs rccovcry in othcr scctors also.
8ut what arc thc impcdimcnts to cxchangc and production that trig
gcr thc downward movcmcnt and whosc allcviation triggcrs cumulativc
rccovcry: Hutt points to wrong priccs. Priccs too high to clcar thc mar
kcts lor thc outputs ol somc scctors causc cutbacks in thcir production
and in thcir dcmands lor thc outputs ol othcr scctors. Vhat might oth
crwisc havc bccn cquilibrium priccs lor thc outputs ol thosc othcr scctors
arc nowtoo high, and unlcss adjustcd downwards, thcy impcdc cxchangcs
and production lurthcr. Hutt blamcs wrong pricing, not any inadcquacy
ol spcnding. !nstcad ol dctcrmining thc volumc ol cxchangcs, spcnding
gcts dctcrmincd: thc ow ol moncy translcrrcd in lubricating transactions
dcpcnds on thcir physical volumc and on thc moncy priccs at which thosc
rcal transactions arc cvaluatcd. !t is lallacious to supposc, with thc Kcync
sians, that incomc is crcatcd by translcrs ol moncy (Hutt .,, pp. c, .).
Hutt docs not atly asscrt that monctary disordcr ncvcr plays any rolc at
all in lrustrating cxchangcs and production. His vicw ol thc rolc ol moncy
will rcquirc lurthcr attcntion latcr in this chaptcr. Mcanwhilc, wc may
notc his rcmark that Moncy is rclcvant to ccctivc dcmand only bccausc
unanticipated ination can, in a vcry crudc way, causc ccrtain priccs which
havc bccn lorccd abovc markctclcaring lcvcls (causing thcrclorc nonusc
or undcrusc ol mcn and asscts) to bccomc markctclcaring valucs, thcrcby
rclcasing withhcld potcntial productivc capacity and incrcasing ccctivc
dcmand in our scnsc and in Kcyncs scnsc (Hutt .,,, p. 6, cmphasis in
original).
Hutt scorns thc lundamcntalist Kcyncsianism that broods about adc
quacy or inadcquacy ol dcmand, about thc propcnsity to consumc out ol
.,6 Part : Economics
rcal incomc, and about a savings gap that grows with incomc and wcalth
and so supposcdly bccomcs all thc hardcr to ll with rcal invcstmcnt
spcnding, cspccially as rcal capital lormation supposcdly lcavcs lcwcr and
lcwcr attractivc opportunitics lor still lurthcr invcstmcnt. Saving, as such,
cannot posc a problcm. Pcoplc cannot savc without acquiring somc asscts
or othcr. !l this proccss, including thc associatcd nancial transactions,
rcsults in rcal capital lormation, wcll and good, opportunitics lor lurthcr
invcstmcnt still arc not lorccloscd. Complcmcntaritics cxist among capi
tal goods, having morc ol somc cxpands protablc opportunitics to con
struct morc ol othcrs. Furthcrmorc, scctors ol thc cconomy cmploying
additional capital goods cnjoy incrcascd productivity and rcal incomcs,
which incrcasc thc dcmands lor thc outputs ol othcr scctors and lor thc
rcsourccs to producc thcm. !l, on thc othcr hand, savcrs ncithcr acquirc
rcal asscts thcmsclvcs nor acquirc sccuritics by translcrring thcir command
ovcr rcsourccs to cntrcprcncurs who will construct asscts, thcn thcy must
bc trying to build up thcir holdings ol moncy. Yct Kcyncs, says Hutt, tricd
to put thc blamc on an cxccssivc propcnsity to savc as such, obscuring thc
liquidityprclcrcncc or dcmandlormoncy aspcct ol thc discquilibrium.
(Tis chargc, it sccms to mc, ovcrlooks chaptcr ., ol thc General Teory.
Vhat Kcyncs might bcttcr bc chargcd with is vagucncss, along with incon
sistcncy among dicrcnt parts ol his book.)
Actually, says Hutt (.,, p. a), saving prclcrcncc and liquidity
prclcrcncc arc as unrclatcd as dcmands lor monoclcs and bubblc gum.
vcn whcn an intcnsicd dcmand lor moncy balanccs is contributing to
macrocconomic discquilibrium, thc blamc should lall not on this particu
lar changc in prclcrcnccs but on thc lailurc ol priccs to accommodatc it.
Vith priccs insucicntly cxiblc, any changc in tcchnology or rcsourccs
or prclcrcnccs, including not only a strcngthcning but cvcn a wcakcning
ol savings prclcrcncc or ol liquidity prclcrcncc, can impcdc markct clcar
ing, cxchangcs, and production. iagnosis must thus locus on how wcll
or poorly thc pricing proccss is working, and why.
bisvguiiinviu: :nvovivs
!n cmphasizing thc inlcctiousncss ol thc lailurc ol somc markcts to clcar
(and, morc chccrlully, thc cumulativc charactcr ol rccovcry whcn somc
priccs initiatc adjustmcnt to markctclcaring lcvcls), Hutts doctrinc par
allcls a linc ol advancc in macrocconomics pionccrcd by Robcrt Clowcr
(.6, .6,) and Axcl Lcijonhulvud (.6) and lollowcd by such othcr
Chapter zc: Hutt and Keynes .,,
cconomists as onaldTuckcr (.,.) andRobcrt 8arro andHcrschcl Gross
man (.,., .,6). Tcir approach lcaturcs such conccpts as abscncc ol
thc (supposcd) Valrasian auctionccr, incomplctc and costly and impcr
lcct inlormation, lalsc pricc signals, sluggish pricc adjustmcnts, quantity
changcs as wcll as pricc adjustmcnts, thc duality ol pcoplcs dccisions
about particular transactions according to whcthcr thcy do or do not mcct
lrustration in accomplishing othcr dcsircd transactions, and thc incomc
constraincd proccss (thc countcrpart ol Hutts inlcctiousncss ol discqui
librium and rccovcry).
Clowcr and Lcijonhulvud ocrcd thcir approach as spclling out what
Kcyncs rcally mcant or had at thc back ol his mind whilc writing thc
General Teory. !n this thcy wcrc wrong, in my opinion. Actually, thcy
wcrc indcpcndcntly rcsurrccting an oldcr approach lrom which thc Kcy
ncsian rcvolution had divcrtcd attcntion (Ycagcr .,, cl. Grossman .,a).
Hutt bclicvcs that his own rcmarkably similar doctrinc stands polcs apart
lrom what hc considcrs thc cruditics ol Kcyncs. !n a thcsis on Teories
of Disequilibrium: Clo.er and Leijonhuf.ud Compared to Hutt, Mrs. vc
lyn Marr Glazicr notcs but docs not actually tacklc thc qucstion ol who
morc corrcctly undcrstands what Kcyncs rcally mcant. Shc docs, howcvcr,
show that thc thrcc cconomists namcd in hcr titlc agrcc morc on somc
ol thc lundamcntal issucs ol discquilibrium than thcy do on thc history
ol doctrincs (p. ).
Hutt dicrs lrom Clowcr and Lcijonhulvud morc in cmphasis than
on substancc. Hc puts lcss cmphasis than thcy do on rcasons why a consid
crablc dcgrcc ol pricc and wagc stickincss is undcrstandablc and rational.
Hc docs not rccognizc why, altcr a disturbancc, it naturally takcs timc to
achicvc a ncw cquilibrium lcvcl and coordinatcd pattcrn ol priccs bccausc
ol incomplctcncss and costlincss ol and dclays in obtaining uptodatc
knowlcdgc ol markct conditions and thc intcrdcpcndcncc yct scparatc
and scqucntial sctting and rcvision ol individual priccs and wagcs. (n
this lattcr point, scc Cagan .c and Ycagcr .6.)
Hutt notcs that Clowcr and Lcijonhulvud strcss thc impcrlcctions ol
thc inlormation and communication proccss as a causc ol thc hiatus that
moncy poscs bctwccn dcsircs to scll and dcsircs to buy.
8ut thc kind ol communication or inlormation rcquircd lor thc coor
dination ol thc cconomy takcs thc lorm ol markct prcssurcs, and thcsc
prcssurcs arc cxcrtcd through lossavoidancc, protsccking inccntivcs.
Faccd with such markct signals as shrinking or accumulating invcnto
rics, cntrcprcncurs rcact by changing thc ratcs ol liquidation ol dicrcnt
., Part : Economics
invcntorics via thc pricc changcs which thcy lorccast will ccct thc dcsircd
rcsults. (Hutt .,, p. .ca, cmphasis in original)
:~vxv: vvocvssvs :nw~v:vb
!n passagcs whcrc hc sccms about to rccognizc thc natural aspcct ol pricc
and wagc stickincss (lor cxamplc, .,, pp. c.), Hutt docs not lol
low through. Hc rcgrcts thc lcss than instantancous opcration ol markct
prcssurcs and rcturns to thc thcmc that wrong priccs in othcr cconomic
scctors mcrcly makc pricc cuts ncccssary lor markct clcaring in a par
ticular scctor (.,, pp. c., c). Hc notcs that il an cntrcprcncur
correctly cxpccts a dcclinc in dcmand lor his product to provc tcmporary,
thcn lctting its invcntory grow will turn out to havc bccn a wisc invcst
mcnt. !l hc provcs wrong, thcn hc will havc withhcld supplics, and his
misbchaviour has dcprcssivc cccts on othcr scctors. Markct proccsscs,
howcvcr, including thc natural sclcction ol cntrcprcncurs, will gcncrally
achicvc quick adjustmcnt ol priccs to markctclcaring lcvcls il only thcy
arc allowcd to work (pp. , ,). vcn il govcrnmcnt policy aimcd at
prcvcnting misbchaviour in thc pricing proccss, it admittcdly could not
succccd complctcly. Tcrc would always bc dclccts in thc dralting ol thc
rcquircd lcgislation, as wcll as crror in cnlorccmcnt and judicial intcrprc
tations (pp. .a). So saying, Hutt again blamcs impcrlcct policy rathcr
than natural conditions. ntrcprcncurial pcssimism or timidity in dcprcs
sions has always bccn a conscqucncc ol thc pricc mcchanism having bccn
prcvcntcd lrom lullling its coordinativc rolc (p. ). Notc thc word
prcvcntcd.
Hutt blamcs govcrnmcnt lor not supprcssing thc basic rcasonvil
lainywhy priccs and wagcs do not clcar markcts and assurc continuous
coordination. Hc pcrccivcs villainybut thc word is minc, not hison
thc part ol labour unions, busincss monopolists, and govcrnmcnt itscll.
\illainy includcs such things as union control ovcr wagcs, minimumwagc
laws, ovcrgcncrous uncmploymcnt compcnsation, and monopoly and col
lusion. Hutt rccognizcs that thc victims ol incorrcct pricing arc not ncccs
sarily thc villains. \illainous pricing ol particular lactors and outputs can
rcducc thc dcmands lor othcr outputs, rcndcring thcir unchangcd priccs
wrong and thcir produccrs idlc (lor cxamplc, Hutt .,, p. ). Howcvcr,
hc is inclincd to criticizc cvcn thcsc victims ol othcrs malpricing lor not
adapting to thc changcd situation by adjusting thcir own priccs promptly
and stccply cnough (.,, p. ).
Chapter zc: Hutt and Keynes .,
Troughout his many writings (lor cxamplc, .,) Hutt dcnounccs
union wagc scalcs and strikcs. vcn thc mcrc possibility ol strikcs dctcrs
productivc invcstmcnt and so thc growth ol rcal incomcs. vcn lor mc, no
grcat admircr ol unions, his rcpcatcd lulminations against thcm bccomc
downright boring.
Hutts book ol ., containing proposals lor postwar 8ritain in par
ticular, lurthcr cxpounds his diagnosis by displaying his passion lor rccon
structing thc world along idcalizcd compctitivc lincs. rastic antitrust
laws would prohibit strikcs, lockouts, and boycotts, contracts or conspir
acics to rcstrain output, tradc, or cxchangc or to takc part in collusivc
monopolics, pricc discrimination, amalgamations, mcrgcrs, and holding
companics, acquisition by a corporation ol sharcs or dcbcnturcs ol othcr
corporations or purchasc, as a going conccrn, ol thc asscts ol compcti
tors, and intcrlocking dircctoratcs. A Statc Trading 8oard would havc
thc right to compctc with privatc cntcrprisc, to cxpropriatc propcrty, to
imposc schcmcs lor coordination, synchronization, and standardization
upon groups ol indcpcndcnt rms, to dctcrminc hours and conditions ol
labour in ccrtain circumstanccs, to ccrtily quality, and to issuc ccascand
dcsist ordcrs. A Labour Sccurity 8oard might rcquirc young pcoplc to
acccpt spccicd training or apprcnticcship and might pcnalizc lailurc to
attcnd rcgularly and pcrlorm with duc diligcncc. A Rcsourccs Utilization
Commission would rcquirc Statc corporations and owncrs ol public util
itics to practisc marginalcost pricing, unlcss aggrcgatc rcccipts would bc
lcss than xcd cost plus avoidablc cost. Hutt gavc a dcnition ol marginal
cost and addcd: !n thc intcrprctation ol this dcnition rccoursc may bc
had to thc tcxtbooks ol cconomics (., quotation lrom p. 6a).
! doubt that Hutt would still, latc in his carccr, havc advocatcd such
drastic stcps toward making rcality conlorm to tcxtbook chaptcrs on purc
and pcrlcct compctition. !n thc intcrvcning ycars hc, likc so many ol thc
rcst ol us, prcsumably lcarncd much about thc intcrrclations bctwccn cco
nomic lrccdomand human lrccdomin gcncral, hc prcsumably bccamc dis
cnchantcd about turning to govcrnmcnt lor solutions to markct lailurcs.
8ut his book ol . rcmains symptomatic ol an oricntation that Hutt
apparcntly did hold throughout his carccra conccrn to tracc macrocco
nomic dicultics to impcdimcnts to thc idcal working ol markcts and
to scck rcmcdics through microcconomic rcconstructions. !n his book ol
., (pp. .c..ca) hc still suggcstcd that antitrust action, il not pcrvcrtcd
by dcmagogic votcsccking, would bc an appropriatc and important ingrc
dicnt ol policy lor lull cmploymcnt. PrcKcyncsian cconomists whom hc
.c Part : Economics
admircd bclicvcd that unlcss govcrnmcnt pcrlormcd its classical rolc there
.as an automatic tendency for groups acting in collusion to price their inputs
or outputs in such a .ay that a cumulati.e tendency for economies to run do.n
could be set in motion (.,, p. .ac, cmphasis in original).
Hutt and thc ClowcrLcijonhulvud school dicr, as wc havc sccn, in
thcir rclativc cmphascs on villainy and rcasonablc bchaviour in cxplain
ing wagc and pricc stickincss. (! do not want to suggcst, howcvcr, that
thc lattcr school strcsscs rigidity or cvcn stickincss as thc ultimatc sourcc
ol discoordination. Clowcr and Lcijonhulvud probc morc dccply into
thc intricatc and prolongcd groping ncccssary to cnlist scattcrcd knowl
cdgc and achicvc a ncw markctclcaring lcvcl and pattcrn ol priccs altcr
a major shock. n this distinction, scc, in particular, Lcijonhulvud ..,
pp. .....a.)
nu:: ox :oxvv
Anothcr point on which cmphascs dicr conccrns thc rolc ol moncy in cco
nomic discoordination. Clowcr in particular (lor cxamplc, .6,) cmpha
sizcs that goods do not cxchangc lor goods directly: moncy is thc mcdium
ol cxchangc, and il pcoplc havc diculty obtaining moncy by sclling thcir
own goods or scrviccs, that vcry lact kccps thcm lrom cxprcssing thcir
dcmands lor othcr pcoplcs goods and scrviccs.
Hutt is sccptical ol this notion ol moncy as a hiatus bctwccn sclling
and buying.
|V|hcn a pcrson buys, hc normally dcmands with moneys .orth, not
with moncy. Hc dcmands with moncy only whcn hc happcns to bc rcduc
ing his invcstmcnt in it (i.c., not concurrcntly rcplcnishing his moncy
holdings), for he can al.ays obtain money costlessly by reali.ing his inputs
or outputs (ser.ices or assets) as their moneys .orth. . . . [TJhe acquisition and
spending of money . . . is costless. !t lollows that moncy is as incidcntal (and
as important) as cash rcgistcrs and cashicrs in thc dcmanding and sup
plying proccss. (.,, pp. 6,6, cmphasis in original, cl. pp. ,6c)
!n this passagc Hutt sccms to bc supposing a unicd budgct constraint,
in contrast with thc rcalistic split constraint dcscribcd by Clowcr (.6,).
Hc also sccms to supposc that all goods and scrviccs arc cxtrcmcly liquid
or rcadily markctablc at thcir lull valucs. His downplaying ol thc rolc ol
moncy as mcdium ol cxchangc may bc associatcd with his dcning thc
quantity ol moncy vcry broadly so as to includc what hc calls thc purc
Chapter zc: Hutt and Keynes ..
moncy cquivalcnt ol ncarmoncys and nonmoncys (Hutt .,, pp. .,.,
.,, chap. ).
Tc possiblc lrustration ol transactions through lailurc ol communi
cations and markct signals docs not basically tracc to thc usc ol moncy.
Tc hiatus ariscs lrom thc rcmotcncss ol wagccarncr and wagccarncr,
ol cntrcprcncur and cntrcprcncur. Tcsc rcmotcncsscs arc incvitablc con
scqucnccs ol thc cxtrcmc division ol labour that thc pricing systcm and
moncy makc possiblc. xccpt in this scnsc, thc usc ol moncy has noth
ing whatcvcr to do with thc problcm. (Tcsc scntcnccs closcly paraphrasc
.,, pp. .)
Yct onc would cxpcct somconc who cxpounds thc trcmcndous scr
viccs ol moncy as cloqucntly as Hutt docs (lor cxamplc, .,, p. 6c) to
rccognizc thc corrcspondingly grcat scopc lor damagc il thc rcal quantity
ol moncy comcs to dcviatc scriously lrom thc total ol rcal cash balanccs
dcmandcd. nc would cxpcct that rccognition lrom thc author ol Tc
Yicld on Moncy Hcld (.6), an absolutcly lundamcntal contribution
to monctary thcory. (Hutt cxplains thc straightlorward scnscs in which
busincss cash balanccs arc productivc and consumcrs cash balanccs aord
utility. A brilliant cxposition and cxtcnsion by Sclgin, .,, makcs lurthcr
discussion hcrc unncccssary.)
Yct Hutt says hc docs not undcrstand why thc tastcs, markct pro
ccsscs, and so lorth that dctcrminc thc purchasing powcr ol thc moncy
unit should inducc incomc constraints in thc lorm ol thc withholding ol
supplics and hcncc ol dcmands, cxccpt in thc scnsc that, in thc prcscncc
ol downward cost and pricc rigiditics, dcation will aggravatc thc cumula
tivc withholding proccssjust as unanticipated ination will mitigatc or
rcvcrsc it (.,, p. 6a, cmphasis in original). Vhcthcr Hutt rcalizcs it or
not, thc cxccption hc makcs is a mammoth onc. Hc also appcars to rcc
ognizc thc damagc that an inappropriatc quantity ol moncy can do whcn
hc quotcs Lcijonhulvud, with apparcnt agrccmcnt, conccrning rccurrcnt
attacks ol ccntral bank pcrvcrsity (.,, p. ,, quoting Lcijonhulvud .6,
p. , whcrc, howcvcr, Lcijonhulvud capitalizcs thc initial lcttcrs ol Ccn
tral 8ank).
Yct Hutt shics away lrom rccognizing thc rolc ol moncy in busincss
cyclcs and lrom apprcciating thc monctarydiscquilibrium hypothcsis ol
avid Humc, Clark Varburton, Milton Fricdman, Karl 8runncr, Allan
Mcltzcr, and othcr monctarists. !n an obliquc rclcrcncc to thc monc
tary aspcct ol dcprcssion, Hutt did go so lar as to say that thc classical
orthodoxy ol thc .acs and .cs had warncd against thc dcvclopmcnt ol
.a Part : Economics
an inationary situation which, rcquiring subscqucnt dcationary rati
cation if contractual monetary obligations .ere to be honored, would cvcn
tually prccipitatc dcprcssion through prcdictablc rcsistanccs to thc ncccs
sary pricc adjustmcnts (Hutt .,, p. .., cmphasis in original). !n scvcral
placcs, lurthcrmorc, Hutt appcars to advocatc a policy ol accommodating
thc quantity ol moncy to thc dcmand to hold it at a stablc pricc lcvcl.
vcnso, hc backs away lromtracing macrocconomic disordcr to moncy.
Vhcn hc comcs as closc as hc cvcr docs to comparing monctary distur
banccs and pricc rigiditics as sourccs ol disruption, hc almost always puts
his cmphasis on thc rigiditics (lor cxamplc, .,, p. 6). Tc nonmon
ctary vicw ol dcprcssion, hc says, is truly thc cxplanation ol all dcprcs
sion. Vhcn dcation is thc initiating lactor (undcr downward cost or pricc
rigidity), thc cconomy still runs through thc cumulativc conscqucnccs ol
thc withdrawal ol supplics ol nonmoncy (.,, p. , n., cmphasis in
original).
||cprcssion is duc to thc chronic, continuous boosting ol costs in occu
pations and industrics whcrc thc unions tcnd to bc strongcstbccausc
dcmands lor thcir outputs happcn to bc most inclastic and consumcrs
thcrclorc most casily cxploitcd. !n thc abscncc ol ination it would havc
bccn pcrccivcd how thc withdrawal ol labour and output by ovcrpricing
in such activitics rcduccs thc sourcc ol dcmands lor thc outputs ol lcss
casily cxploitablc occupations and activitics. (.,, p. .., lootnotcs omit
tcd hcrc)
8ut onc might wcll cxpcct Hutt to cxplain why a chronic and con
tinuous problcm manilcsts itscll in only occasional dcprcssions, with
hcalthy growth and occasional booms intcrvcning. Latcr Hutt says that
ination, il unanticipatcd, can improvc pricc/cost ratios in many scctors
ol thc cconomy. 8ut this crudc rcmcdy attracts rcsourccs into unsustain
ablc kinds ol production and crcatcs such basic distortions in thc pric
ing mcchanism that .e must often blame the attempt to spend depression
into prosperity for aggra.ating prospecti.e and realised unemployment (.,,
pp. ...., cmphasis in original).
Hutt touchcs on ccrtain crucial qucstions about moncy without giv
ing sucicntly cxplicit answcrs. !n somc passagcs hc takcs such pains to
pcnctratc bchind thc vcil ol moncy that hc practically dcnics moncys rou
tinc but momcntously important lunction as thc mcdium ol cxchangc,
hc actually says that pcoplc arc buying goods and scrviccs with moncy
only whcn, untypically, thcy arc acting to rcducc thcir cash balanccs (.,,
Chapter zc: Hutt and Keynes .
pp. a, a). Vhcn ination appcars to bc stimulating a dcprcsscd ccon
omya phcnomcnon supposcdly bclovcd ol thc Kcyncsiansdocs thc
stimulus comc lrom thc monctary cxpansion as such, with priccs lagging
and thc quantity ol moncy and ow ol spcnding thus growing in rcal
tcrms, or lromthc pricc ination itscll, which may bc rcctilying wrong rcl
ativc priccs, cspccially by croding cxccssivcly high rcal wagc ratcs: ltcn
Hutt appcars to givc thc lattcr answcr, suggcsting that thc trick ol gctting
rcal wagcs down in a rclativcly politically lcasiblc way is thc csscncc ol
Kcyncsian cmploymcnt policy. !ntcrprctcrs disagrcc, but othcrs havc also
takcn Kcyncs to mcan just that. !t would bc ironic il Hutt and Kcyncs,
whcn agrccing, agrcc on an crroncous point.
!n a malcoordinatcd and dcprcsscd cconomy, docs thc troublc ncc
cssarily stcm lrom wrong relati.e priccs, such as cxccssivc rcal wagcs, or
might it stcm instcad mainly lrom priccs and wagcs that, although not
badly out ol linc with onc anothcr, arc generally too high (or concciv
ably too low) in rclation to thc nominal quantity ol moncy: !n somc pas
sagcs (Scptcmbcr ., p. aa, .,, pp. .,, aaa, and passim) Hutt
cmphasizcs unstable pricc rigiditics and pcoplcs postponcmcnt ol pur
chascs whilc waiting lor thc rigiditics to brcak down and priccs to lall,
sccming to imply that thc particular pricc lcvcl would not mattcr il its
permanent rigidity wcrc obviating thcsc cxpcctations and postponcmcnts.
!n othcr passagcs (.,, pp. ..6, ac,, and passim) hc sccms to advo
catc a policy ol cxibly accommodating thc nominal quantity ol moncy to
thc cxisting pricc lcvcl, as il hc wcrc indccd conccrncd about thc painlul
ncccssity ol othcrwisc adjusting thc pricc and wagc lcvcl to thc moncy
supply.
Hutt anticipatcd somc ol thc soundcst parts ol thc prcscntday doc
trinc ol rational cxpcctations. Hc cmphasizcs that whcn ination has
comc to bc gcncrally cxpcctcd and allowcd lor, it bccomcs purposclcss.
Uncmploymcnt bccomcs almost a normal accompanimcnt ol ination,
cvcn accclcrating ination (.,,, pp. ,, cl. p. aa). !n thcsc and othcr
passagcs, howcvcr, it is unclcar whcthcr hc sccs thc undcrlying moncy
supply cxpansion itscll or instcad sccs thc rcsulting pricc ination as what
may initially stimulatc or rccoordinatc an cconomy (although cvcntually
bccoming lutilc). Apparcntly hc mcans thc lattcr: pricc ination may
bc a wayan inlcrior, tcmporary, Kcyncsian wayol improving coor
dination by inating down cxccssivcly high rcal wagc ratcs. Hc docs not
lorthrightly grapplc with thc monctarist point that dcprcssion may occur
not so much bccausc relati.e priccs and wagcs arc wrong as bccausc thc
. Part : Economics
wholc wagc and pricc lcvcl is too high in rclation to thc nominal quan
tity ol moncy or, in othcr words, bccausc thc nominal moncy supply has
bccomc too small lor thc wagc and pricc lcvcl.
nu::s s:viv ov ~vcu:vx:
Rcadcrs must wish that Hutt had donc what hc did not do, namcly sys
tcmatically prcscnt thc doctrincs hc considcrcd rivals ol his own in thcir
strongcst vcrsions, criticizc thcm in adcquatc dctail, and show just how
thcy lail whcrc his succccds. Vc know Hutt dislikcd Kcyncsianism, it
would bc intcrcsting to know in somc dctail what hc thought about mon
ctarist rcasoning and cvidcncc.
Hutts lailurc to makc his position clcar on crucial issucs, togcthcr with
thc writing stylc that is largcly rcsponsiblc, brings to mind his own com
plaint (lor cxamplc, in .,, Prologuc) about how littlc scholarly dialoguc
his work had clicitcd, particularly lrom Kcyncsians. (Considcr, also, thc
harsh rcvicw ol Hutt ., by Hcrschcl Grossman, .,6, somconc who !
think would bc sympathctic to much ol Hutts mcssagc il it wcrc prcscntcd
clcarly.)
Hutts cxposition is a collcction ol discursivc and oltcn cryptic rcmarks.
Strcwn ovcr hundrcds ol pagcs (in .,, lor cxamplc), and in no rcadily
intclligiblc ordcr, wc nd bits ol positivc analysis, jabs at Kcyncsianism,
historical allusions, policy proposals, and autobiographical asidcs. Hutt
had a habit ol latching onto rcmarks by othcr writcrs as thcy wcrc appar
cntly cast up at random by his own rcading, cvcn il thosc writcrs wcrc not
lcading or typical authoritics or controvcrsialists on thc points at issuc,
and thcn using thcir rcmarks as pcgs onto which to string his own obscr
vations. Tis habit gavc his writing an unncccssarily polcmical tonc. (As
Pcjovich ., notcd, Hutt had a normativc bcnt and sccmcd not particu
larly conccrncd with nonnormativc analysis ol allocations gcncratcd by
altcrnativc institutional arrangcmcnts.)
Strcwn through Hutts writings arc cchocs ol longstanding obscs
sions, including, ol coursc, his obscssion with labour unions. Anothcr
conccrns 8ritains rcturn to thc gold standard in .a at thc prcwar par
ity, rcquiring intcrnal dcation il that parity wcrc to rcmain workablc.
Rcpcatcdly, though oltcn in cryptic languagc, Hutt ocrcd apologctics
lor that policy. Hc might cvcn havc bccn right, but thc way that thcsc
apologctics kcpt intruding in unlikcly placcs and with a moralizing tonc
is charactcristic ol his stylc.
Chapter zc: Hutt and Keynes .
Anothcr charactcristic is lcngthy brooding ovcr thc mcanings ol tcrms
and conccpts. Hutt oncc rccordcd his strong dislikc lor mcrc tcrminolog
ical innovation (Scptcmbcr ., p. a.), but this is a dislikc that hc man
agcd to ovcrcomc. Somc wag oncc said that hc wrotc in Huttitc. Hutt
ocrcd lcngthy and somctimcs obscurc dcnitions ol such conccpts as
markctclcaring priccs lor inputs (.,,, p. .c), compctition (.,,, p. .,
.,, pp. ..6), cxploitation (.,,, p. a. n.), moncy (.,,, p. a), and
somc ninc or tcn varictics ol idlcncss (throughout his .,,). Prcsumably
out ol avcrsion to thcorizing with aggrcgatcs and avcragcs, Hutt avoidcd
thc tcrmpricc lcvcl, saying scalc ol priccs instcad (lor cxamplc, Scptcm
bcr ., p. a.,, .,, p. a.).
Hutt uscd onc tcrm so much that !, anyway, bccamc accustomcd to it:
withhcld capacity. Tis tcrm suggcsts that pcoplc who, in ordinary lan
guagc, arc having a hard timc nding jobs or customcrs arc .ithholding
thcir capacity to work or producc by insisting on wagcs or priccs abovc
markctclcaring lcvcls. So doing, thcy arc withholding thcir dcmands lor
thc goods and scrviccs ol othcr pcoplc and thcrcby causing othcr priccs
and wagcs, il unchangcd, to bc cxccssivc. Tis tcrminological allusion to
villainy scrvcs to shunt asidc analysis ol thc naturc and rcasons lor pricc
and wagc stickincss, including ways that thc intcrdcpcndcncc ol wagcs
and priccs narrows thc rcasonablc options availablc to individual pricc
scttcrs and wagc ncgotiators. His tcrminology hclps Hutt to damn rcal
ity lor bcing rcal. Yct hc himscll bricy rccognizcd (lor cxamplc, .,,,
pp. .6 n., ac) that rcsistancc to wagc and pricc adjustmcnts can bc indi
vidually rational although collcctivcly irrational.
His tcrminology would pcrmit him, il prcsscd, to dclcnd propositions
that arc startling on thcir lacc.
Tc withholding ol capacity which is capablc ol providing currcntly valu
ablc scrviccs is always a casc ol rcstraint on lrccdom. (.,, p. ,. n.)
|T|hc labor ol all ablcbodicd pcrsons was dcmandcd throughout thc
dcprcssion ycars. It .as not supplied. (.,, p. .6)
|V|hat is usually callcd uncmploycd labor could bc morc rcalistically
callcd unsupplicd labor. (.,, p. ,)
!ndividuals activcly prospccting lor rcmuncrativc jobs arc cmploycd.
(italicizcd scction hcading in .,,, p. )
|!n thc| phrasc cxccss supply ol labor . . . thc word cxccss . . . could
morc appropriatcly bc dccicnt or insucicnt! (.,, p. 6)
.6 Part : Economics
|T|hc phrasc willingncss to dcmand . . . simply mcans willingncss to
supply! (.,, p. a,)
|V|hcn thcrc is a shortagc or rationing, wc usually say that dcmand
cxcccds supply, although what wc rcally mcan is that, at thc pricc askcd,
morc .ould bc dcmandcd il morc wcrc supplicd. Hcncc ! cannot con
ccivc ol any situation in which . . . thc valuc and amount dcmandcd in
any markct lails to cqual thc valuc and amount supplicd. . . . |P|coplc
who .ould be prcparcd to dcmand at thc pricc askcd il thcy could gct
thc goods arc prcvcntcd lrom dcmanding. (.,, pp. c.)
|C|onsumption is always thc extermination ol powcr to dcmand. Tc
lailurc ol thc Kcyncsians to undcrstand this simplc truth lics at thc root
ol what ! bclicvc to bc thc most outragcous intcllcctual crror ol this agc.
(.,, p. .)
Hutt oltcn covcrcd himscll against challcngc by qualilying apparcntly
cgrcgious propositions with cryptic phrascs that arc hardly undcrstandablc
unlcss thc rcadcr is alrcady lamiliar with his tcrminology and allusions. For
cxamplc,
!t is quitc wrong to assumc that unlavorablc prospccts can dctcr nct accu
mulations, othcrwisc than through thc discouragcmcnt ol saving prclcr
cncc, orindircctlythrough thc cncouragcmcnt ol thc withholding ol
capacity (although such prospccts ccrtainly do inucncc thc form takcn
by accumulation). (.,, p. )
Asimilar habit was tomcntiongovcrnmcnt policics not always straight
lorwardly but rathcr with rclcrcncc to thc rcsults that Hutt would cxpcct
thcm to havc. Tus, in an historical contcxt: not a singlc govcrnmcn
tal stcp toward multiplying thc wagcs ow was takcn (italicizcd in .,,
p. 6.), mcaning, approximatcly, that thc govcrnmcnt did not act against
thc unions.
:nv sviiixc ov ibv~s
8csidcs his tcrminology, tonc, and paradoxmongcring, othcr circum
stanccs hclp cxplain why Hutts work has rcccivcd lcss attcntion than
Kcyncss. Although thc General Teory was not Kcyncss bcstwrittcn
book, it docs contain ashcs ol clcvcr writing and appcaling ncw con
ccpts and tcrminology. Kcyncs prcscntcd his mcssagc as rcvolutionary,
ocring young or adaptablc cconomists thc opportunity to march at thc
Chapter zc: Hutt and Keynes .,
vanguard ol thc prolcssion. Kcyncss thcory had political appcal. !t camc
as a rationalization (whcthcr sound or unsound) ol policics that would
havc bccn bcnccial undcr thc cxccptional circumstanccs ol thc mid.cs.
Hutt, though, was rccommcnding microoricntcd policics that would
havc stcppcd on tocs and whosc dcsircd bcncts would not havc comc
quickly.
Hutt always maintaincd that hc was cxpounding old, orthodox doc
trinc, but, although alluding to dwin Cannan and thc London School
tradition, hc did not build on his prcdcccssors work in adcquatc dctail,
and hc ncglcctcd to lorgc links with prcKcyncsian monctarydiscquilib
rium thcory. So hc put himscll at a doublcbarrclcd disadvantagccon
lcssing that his mcssagc was basically old stu, whilc not clcarly show
ing how hc was cxtcnding it. Kcyncss thcory, in contrast, appcalcd to
acadcmic cconomists by containing conccpts and gimmicks ocring pos
sibilitics lor rcscarch and publication, lor class lccturcs and cxamination
qucstions. (n this mattcr ol thc intcrnal dynamic ol a cld ol study, scc
Colandcr .6.)
:nv vxbuvixc v~iuv ov nu::s :vss~cv
Although! do think that Hutt crcatcd unncccssary dicultics lor its acccp
tancc, ! do not mcan to disparagc his mcssagc itscll. Apparcnt macro disor
dcrs can indccd tracc partly to micro distortions, particularly in priccs and
wagcs. 8ccausc markct transactions arc voluntary and thc short sidc dctcr
mincs thc actual quantity tradcd in any markct, lrustration ol transactions
and so ol production can cumulatc in a quasimultiplicr proccss. own
ward cumulativcncss is particularly scvcrc il moncy and crcdit undcrgo an
induccd or sccondary dcation (although ! do wish that Hutt had bccn
morc cmphatic in rccognizing thc rolc ol moncy). Likc F.A. Hayck and
othcrs, Hutt was magniccntly right in his stricturcs against chronically
inationary policics as supposcd curcs ol uncmploymcnt.
8ccausc ol Hutts stylc and tonc, his writings arc unlikcly to pcrsuadc
rcadcrs who lack thc background and thc will ncccssary to undcrstand
his ccccntrically phrascd mcssagc. For two rcasons ! myscll havc bccn
turncd o by Hutts stylc lcss than most rcadcrs probably would bc. First,
whcn ! camc across Hutts work dccadcs ago, ! happcncd to bc prcdisposcd
in lavour ol thc sort ol mcssagc hc was trying to convcy. Sccond, ! was
privilcgcd in . to attcnd a twowcck conlcrcncc at which hc was onc
ol thc main spcakcrs. Latcr, whcn hc scrvcd as visiting prolcssor at thc
. Part : Economics
Univcrsity ol \irginia, wc wcrc collcagucs. His analytical mcssagc, his
humanitarian conccrn lor thosc sucring lrom rcstrictions on cconomic
opportunity, his intcllcctual lorcc and zcal, and his intcgrity camc across
bcttcr whcn hc had amplc opportunity to prcscnt his mcssagc in pcrson
than whcn hc ocrcd it in writing alonc.
Vhcthcr hc rcalizcd it or not, Hutt was prcaching to thc alrcady savcd.
oing so, howcvcr, is lar lrom pointlcss. Sympathctic rcadcrs can nd
much in his work to lortily thcir undcrstanding ol how thc rcal world
works and could bc madc to work bcttcr. Tcy can nd much to dccpcn
thcir insights into thc lallacics ol Kcyncsian doctrincs whosc lormcr dom
inancc has still not bccn cntircly cxpungcd. Tcachcrs ablc to givc sympa
thctic cxpositions can makc good usc ol Hutts work in thcir classcs. !t
may scrvc as thc locus ol lruitlul controvcrsy among sympathctic rcadcrs.
vvvvvvxcvs
8arro, Robcrt J., and Hcrschcl !. Grossman. A Gcncral iscquilibrium Modcl
ol !ncomc and mploymcnt. merican Economic Fe.ie. 6. (March .,.):
a.
. Money, Employment, and Ination. Ncw York: Cambridgc Univcrsity
Prcss, .,6.
Cagan, Philip. Rccctions on Rational xpcctations. Journal of Money, Credit,
and Banking .a, Pt. a (Novcmbcr .c): a6a.
Clowcr, Robcrt V. Tc Kcyncsian Countcrrcvolution: ATcorctical Appraisal.
!n Te Teory of Interest Fates, cditcd by F.H. Hahn and F.P.R. 8rcchling,
.c.a. London: Macmillan, .6.
. A Rcconsidcration ol thc Microloundations ol Monctary Tcory.
!estern Economic Journal 6 (cccmbcr .6,): ..
Colandcr, avid C. Tc volution ol Kcyncsian conomics. Unpublishcd
manuscript datcd . ctobcr .6. Prcparcd lor prcscntation at Glcndon
Collcgc, York Univcrsity, Conlcrcncc on Kcyncs and Public Policy altcr Filty
Ycars, .6.
Fricdman, Milton, and Anna J. Schwartz. Monetary History of the United States,
.6,.6c. Princcton, N.J.: Princcton Univcrsity Prcss, .6.
Glazicr, vclyn M. Teories of Disequilibrium: Clo.er and Leijonhuf.ud Compared
to Hutt. MA Tcsis, Univcrsity ol \irginia, .,c.
Chapter zc: Hutt and Keynes .
Grossman, Hcrschcl !. Vas Kcyncs a Kcyncsian: Journal of Economic Litera-
ture .c (.,a): a6c.
. Rcvicw ol Fehabilitation of Says La., by V.H. Hutt. Te Manchester
School of Economic and Social Studies ( Junc .,6): .6.,.
Hayck, F.A. Tiger by the Tail. San Francisco: Cato !nstitutc, .,.
Hutt, V.H. Economists and the Public. London: Jonathan Capc, .6.
. Plan for Feconstruction. Ncw York: xlord Univcrsity Prcss, ..
. Tc Naturc ol Moncy. South frican Journal of Economics ac (March
.aa): c6.
. Tc Notion ol thc \olumc ol Moncy. South frican Journal of Eco-
nomics ac, no. (Scptcmbcr .ab): a.a..
. Tc Notion ol Moncy ol Constant \aluc. Parts i and ii. South frican
Journal of Economics a. (Scptcmbcr and cccmbcr .): a.aa6 and ..
. Tc Signicancc ol Pricc Flcxibility. South frican Journal of Eco-
nomics aa (March .): c..
. Tc Yicld lrom Moncy Hcld. !n On Freedom and Free Enterprise,
cditcd by M. Scnnholz, .6a.6. Princcton, N.J.: . \an Nostrand, .6.
. KeynesianismFetrospect and Prospect. Chicago: Rcgncry, .6.
. Politically Impossible . . . ? London: !nstitutc ol conomic Aairs, .,..
. Te Strike-Treat System. Ncw Rochcllc, N.Y.: Arlington Housc, .,.
. Fehabilitation of Says La.. Athcns: hio Univcrsity Prcss, .,.
. Te Teory of Collecti.e Bargaining, z,cz,,. .c. London: !nstitutc ol
conomic Aairs, .,.
. Te Teory of Idle Fesources: Study in Denition. .. a cd. !ndianapo
lis: Libcrty Prcss, .,,.
. Te Keynesian Episode: Feassessment. !ndianapolis: Libcrty Prcss, .,.
Kcyncs, John M. Te General Teory of Employment, Interest and Money. Ncw
York: Harcourt 8racc, .6.
Lcijonhulvud, Axcl. On Keynesian Economics and the Economics of Keynes. Ncw
York: xlord Univcrsity Prcss, .6.
.c Part : Economics
. Information and Coordination. Ncw York: xlord Univcrsity Prcss, ...
Pcjovich, Svctozar. Rcvicw ol Economic Forces at !ork, by Armcn Alchian, and
Te Teory of Idle Fesources, by V.H. Hutt. Modern ge aa (Vintcr .,):
a.
Rcynolds, Morgan ., cd. !.H. Hutt: n Economist for the Long Fun. Chicago
and Vashington, .C.: Gatcway ditions, .6.
Sclgin, Gcorgc A. Tc Yicld on Moncy Hcld Rcvisitcd: Lcssons lor Today.
Market Process , no. . (Spring .,): .a.
Tuckcr, onald P. Macrocconomic Modcls and thc cmand lor Moncy undcr
Markct iscquilibrium. Journal of Money, Credit, and Banking (Fcbruary
.,.): ,.
Varburton, Clark. Depression, Ination, and Monetary Policy. 8altimorc: Johns
Hopkins Prcss, .66.
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Ycagcr, Lcland 8. Tc Kcyncsian ivcrsion. !estern Economic Journal .. ( Junc
.,): .c.6.
. Tc Signicancc ol Monctary iscquilibrium. Cato Journal 6 (Fall
.6): 6.
cn~v:vv ++
Tc !magc ol thc Gold
Standard

:nv coib s:~xb~vb vvo: :nv vivwvoix: ov

vvosvvc:ivv ~bnvvvx:s
8ills wcrc pcnding in thc parliamcnts ol Austria and Hungary in .a
to put thosc countrics on thc gold standard. !n Austria, cputy Anton
Mcngcr, a lawycr and brothcr ol thc cconomist Carl Mcngcr, was choscn
to sum up thc progoldstandard position at ccrtain stagcs ol thc dcbatcs.
Anton Mcngcr tricd to rclutc thc objcction ol thc critics that gold, likc
thc papcr guldcn, could bc unstablc in valucpcrhaps cvcn morc unstablc.
His cconomist brothcr, although also in lavor ol thc gold standard, rcc
ognizcd that it had somc undcniablc disadvantagcs, including thc insta
bility in thc valuc ol gold and cspccially its risc in valuc in rcccnt dccadcs.
Tc papcr guldcn, hc rccognizcd, had bccn satislactorily stablc in valuc lor
domcstic busincss (Mcngcr ./.6, p. .a).
.
8y thc valuc ol gold and
valuc ol thc guldcn, Carl Mcngcr, as wcll as thc actual critics ol thc gold
standard, clcarly mcant purchasing powcr.
Anton Mcngcr cvidcntly did not undcrstand this. Hc sucrcd not
mcrcly lrom a moncy illusion but lrom a poundstcrling illusion spcci
cally. Anyonc can scc how stablc gold has bccn, hc told critics, il thcy
would takc thc troublc to look at a statistical tablc ol its pricc on thc Lon
don markct lrom ., to ... Hc conccdcd that somc uctuations had
occurrcd.
o you know how largc thcsc wcrc: Tc grcatcst changc amountcd to
c.. pcr ccnt. Vhat a dicrcncc: !n onc ycar our moncy notcs havc

From a conlcrcncc talk printcd in Fetrospecti.e on the Classical Gold Standard,

z8:zz,z, cds. Michacl 8ordo and Anna Schwartz (Chicago: Univcrsity ol Chicago Prcss
lor National 8urcau ol conomic Rcscarch, .), 6.66.
.
Cl. Mcngcr ./.6, pp. .,, .6, aa.
..
.a Part : Economics
changcd in moncyvaluc by about tcn pcr ccnt, whilc gold, ovcr thc
coursc ol a pcriod ol .a to . ycars, has changcd only by c.. pcr ccnt.
Undcr such circumstanccs thcrc is no doubt at all that thcrc can bc no
qucstion at all ol comparing banknotcs with gold in rcgard to thc lunc
tion ol mcasurc ol valuc. (Austria, Parliamcnt, Chambcr ol cputics
.a, p. ,.a)
a
vidcntly, thcn, thc cconomic undcrstanding ol his brothcr Carl had
not automatically rubbcd o onto cputy Anton Mcngcr.
! thought ! might say somcthing tonight about thc imagc ol thc gold
standard in thc latc ninctccnth ccntury. !ll look at it lrom thc stand
point ol lcgislators, cconomists,

and pamphlctccrs in countrics that wcrc

contcmplating a movc onto gold, namcly, AustriaHungary and Russia.
Tcsc countrics had at papcr moncys, having bccn inatcd o ol thcir
traditional silvcr standards scvcral dccadcs carlicr by papcrmoncy issucs
to covcr thc cxpcnscs ol wars and rcvolutions.
~vcu:vx:s vvo ~xb cox
Automatic rcgulation ol thc moncy supply was onc ol thc advantagcs
most strongly argucd in Austria in lavor ol thc gold standard. !n coun
trics with a sound monctary systcm, Carl Mcngcr cxplaincd, moncy ows
out il commodity priccs risc and in il priccs lall apprcciably in rclation to
thcir normal lcvcl. !t was a dclcct ol Austrias isolatcd monctary systcm
that ows ol moncy and gold could not ll tcmporary gaps in thc bal
ancc ol paymcnts, so that balancc had to bc maintaincd cntircly in goods
and sccuritics. omcstic busincss sucrcd bccausc its changing nccds lor
moncy conlrontcd an inadcquatcly clastic papcrmoncy supply. Vc lack
thc mcchanically opcrating, rcgulating inucncc ol thc inow ol moncy
onto our markcts, lor this rcason, wc havc apathctic, inscnsitivc commod
ity markcts, priccs in Austria arc not calculatcd prcciscly, as in ngland or
Holland, wc havc apathctic markcts, which paralyzcs thc spirit ol cntcr
prisc (Mcngcr ./.6, p. a).

a
Tc quotation is lrom thc . July .a transcript. Mcngcr had prcviously uscd thc
samc argumcnt on a May, p. 6.a.

Tcsc includc somc ol thc cxpcrt witncsscs tcstilying bclorc commissions convokcd
in \icnna and 8udapcst in March .a and in St. Pctcrsburg in March/April .6. Scc
Austria, Vahrungsnquctc Commission .a, !mpcratorskoc \oljnoc .konomichcskoc
bshchcstvo .6.

Cl. Mcngcr ./.6, pp. .., aa6aa,.

Chapter zz: Te Image of the Gold Standard .
Carl Mcngcr rccognizcd that thc typical uropcan currcncy was not a
gold currcncy but a goldplatcd onc. !t had a corc ol papcr, surroundcd
by laycrs ol minor coins and silvcr and thcn with an outcr laycr ol gold
plating. Tis arrangcmcnt was good cnough lor him, providcd thc plat
ing was strong cnough to rcsist thc acid tcst ol nancial crisis. Vhat hc
wantcd was stablc cxchangc ratcs (p. a,).
!n Hungary, !stvn Tisza cxprcsscd similar idcas: A papcrmoncy
country cxpcricnccs no signicant inows and outows ol moncy. !n
goldstandard countrics, on thc othcr hand, thc sizc ol thc nccd lor gold is
dccisivc. Rich or populous countrics nccd morc mcdia ol cxchangc, poor
or lcss populous oncs nccd lcss.
Tc rclation bctwccn quantity and nccd must bc such that in both placcs
thcy arc cqual, and moncy cvcn gocs lromthc richcst country to thc poor
cst il thcrc is rclativcly grcatcr nccd lor it thcrc, lor thcn it can bc turncd
to bcttcr account thcrc, and thc clcmcnts ol thc balancc ol paymcnts will
ncccssarily changc as thc rclation bctwccn thc quantity ol and nccd lor
gold rcquircs. . . . Tc tcndcncy ol balanccs ol paymcnts will always bc
. . . to cqualizc thc rclation bctwccn dcmand and supply in all countrics
and givc all as much gold as thcy nccd in rclation to thc nccds ol othcrs.
(Tisza .c, pp. a)
!ts Austrian supportcrs saw thc gold standard lcss as a transmittcr ol
lorcign disturbanccs than as a mcans ol cushioning domcstic disturbanccs
by linkagc with thc prcsumably morc stablc world cconomy. Franz Pcrl
wrotc in ., that
in thc isolation in which our currcncy placcs us, wc arc lclt to our own
rcsourccs whcncvcr crcdit is shakcn, that intcrnational ow ol moncy
which stands hclplully at thc sidc ol othcr moncy markcts in timcs ol
nccd is lacking to us, our sccuritics, which only in rarc cascs havc a rcal
abodc abroad, rcturn to us at thc lcast sign ol mistrust, wc lack that
cquilibrating hclp. (.,, p. 6, citing Allrcd von Lindhcim)
cputy Anton Mcngcr also bclicvcd that busincss criscs wcrc vcry
considcrably intcnsicd by thc inability ol moncy to ow into and out
ol Austria, a monctary island. Tc valuc ol Austrian moncy rcstcd only
on a vcry dangcrous basis, its scarcity, lor a country should havc cnough
moncy and not too littlc (Austria, Parliamcnt, Chambcr ol cputics .a,
pp. ,.a,.).
. Part : Economics
Anothcr dcputy (im) pointcd out that thc valuc ol a papcr moncy
dcpcndcd on thc nccd lor moncy and on thc amount in circulation. Tc
lattcr could bc controllcd, but thc nccd lor moncy could hardly bc cal
culatcd. Tus, thc valuc ol papcr moncy is subjcct to continual changcs,
which dcpcnd on thc most various circumstanccs, oltcn on chancc, indccd
cvcn on spcculation (Austria, Parliamcnt, Chambcr ol cputics .a,
p. 6).
Tc cconomist Julius Landcsbcrgcr likcwisc saw it as a gravc dclcct
ol a systcm ol purcly duciary moncy that it could not work wcll unlcss
it wcrc continuously possiblc to asccrtain most rcliably thc nccd ol thc
wholc cconomy lor mcans ol circulation at all timcs and to rcgulatc thc
monctary circulation corrcspondingly. To this, howcvcr, thc rcsourccs ol
scicncc arc not adcquatc today (Landcsbcrgcr .a, p. 6).

Russian supportcrs ol gold also argucd that that standard madc a coun
trys moncy supply appropriatcly clastic. Undcr a papcr systcm, by con
trast, thc moncy supply supposcdly did not rcspond appropriatcly and
automatically to thc changing nccd lor mcans ol circulation, yct it was
impossiblc to calculatc and dclibcratcly mcct that nccd. !n a goldstandard
country, though, a dccicncy ol thc domcstic moncy supply would rcm
cdy itscll through a balanccolpaymcnts surplus and an inow ol gold,
and a supcrabundancc ol moncy would rcmcdy itscll through a dccit and
an outow. ach country would automatically comc to hold thc quantity
ol mctallic moncy appropriatc to its wcalth and transactions, without any
oncs having to try to cstimatc thc rcquircd quantity.
6
pponcnts ol thc gold standard somctimcs argucd that thc sacriccs
rcquircd to gct onto gold would provc to havc bccn in vain in casc Austria
Hungary should gct into anothcr war. Tc progold rcply was that thc
country should havc hard moncy in pcacctimc to savc thc possibility ol
papcrmoncy issucsthc statcs notc crcditlor wartimc. Vith thc
country having a dcprcciatcd papcr moncy cvcn in timc ol pcacc, said
Pcrl (.,, p. a), cvcry cconomist and patriot must shuddcr to think ol
what would happcn in timc ol war or lcar ol war.

Landcsbcrgcr thus sccmcd to imply that if thc supply ol a at moncy could bc rcg
ulatcd appropriatcly, cxchangcratc uctuations would not count dccisivcly against that
systcm. Somc pcoplc, hc notcd, cvcn considcrcd thc uctuations a dcsirablc insulator
against pricc dcation in gold countrics.
6
Tcsc argumcnts arc rcportcd in \lascnko .6, pp. 6, Raalovich .6, p. 6,
Trakhtcnbcrg .6a, pp. .,., and Financc Ministcr Vittcs bill to authorizc contracts in
gold currcncy, quotcd in Sacngcr .a,, p. .6.
Chapter zz: Te Image of the Gold Standard .
!n Russia, also, goldstandard opponcnts argucd that monctary rclorm
would not bc worth thc troublc, sincc a ncw war would only makc thc
papcr moncy irrcdccmablc again. Tc rcply was that irrcdccmablc papcr
moncy should bc abolishcd now so that ncw issucs could bc put into circu
lation il thc occasion arosc. Tc currcncy rclormcould bc a rcconstruction
ol war matcrial (SchultzcGavcrnitz ., p. 6a). Starting lrom thc gold
standard, thc govcrnmcnt would havc bcttcr wartimc nancial altcrnativcs
than il it startcd lrom irrcdccmability.
arly in .,, whcn thc worldmarkct pricc ol silvcr had sunk so low
that thc Austrian guldcn was again worth as much as its supposcd silvcr
contcnt, or cvcn slightly morc, thc coinagc ol silvcr on privatc account
thrcatcncd to inatc thc moncy supply and pricc lcvcl. Tc Austrian and
Hungarian govcrnmcnts rcspondcd by closing thcir mints to thc lrcc
coinagc ol silvcr. Tat action had bccn takcn in a lcgally vcry inlormal
way, howcvcr, lcaving thc possibility that thc silvcr standard would comc
alivc again. For somc ycars thc guldcn oatcd at a valuc abovc that ol its
supposcd silvcr contcnt.
8y .c, a dicrcnt aspcct ol thc loosc link rcmaining bctwccn thc
guldcn and silvcronc working through spcculation about domcstic rc
dcmption and coinagc policy and Amcrican silvcrpurchasc policycamc
to thc lorc, providing onc ol thc strongcst motivcs to rclorm. Tc Austrian
nancial prcss and Parliamcnt sccmcd prcoccupicd with thc progrcss ol
thc Shcrman Silvcr Purchasc 8ill in thc U.S. Congrcss, and unusual day
today jumps in thc pricc ol silvcr and thc guldcns cxchangc ratc wcrc
gcncrally attributcd to ncws lrom Vashington.
Financc Ministcr Stcinbach warncd Parliamcnt on . May .a that
lorccs supporting and opposing lrcc coinagc ol silvcr in thc Unitcd Statcs
wcrc almost cvcnly balanccd, powcrlul inucnccs on thc Austrian cur
rcncy could comc lrom that dircction. Te rate uctuations of the year z8,c,
which you all rcmcmbcr, gcntlcmcn, havc brought us a small foretaste ol
what would happcn il silvcr coinagc wcrc madc lrcc today in thc Unitcd
Statcs ol North Amcrica (Austria, Parliamcnt, Chambcr ol cputics
.a, p. c).
Anothcr aspcct ol lcgal untidincss was thc cxistcncc ol lour distinct
typcs or conccpts ol guldcn: (r) thc ordinary at guldcn (guldcn ol Aus
trian currcncy), in which currcncy and bank dcposits wcrc dcnominatcd
and in which most priccs and dcbts wcrc cxprcsscd, (a) thc silvcr guldcn,
in which somc bonds and prclcrrcd stocks wcrc still dcnominatcd and
which could again bccomc scparatcd lrom thc ordinary guldcn il silvcr
.6 Part : Economics
rosc sucicntly in markct valuc, () a gold guldcn worth twoanda
hall Frcnch lrancs, in which somc bonds and customs paymcnts wcrc
cxprcsscd, and (|) anothcr gold guldcn, worth ..a pcrccnt lcss, which had
somc slight application in govcrnmcnt accounting, it was thc gold cquiva
lcnt ol thc standard silvcr guldcn at thc ..: . bimctallic ratio ol thc Latin
Monctary Union. As Joscl Krcibig latcr obscrvcd, il thcrc was onc dras
tic prool ol thc ncccssity ol a rclorm, it was this pcculiar splitting ol thc
monctary unit (Krcibig ., pp. 6.6a).
cii:~:vs ov ovixiox
ominant Hungarianintcrcsts switchcdinlavor ol goldaround..c.
arlicr thcy had opposcd it out ol lcar that it mcant apprcciation ol thc
papcr guldcn to cquality with thc twoandahalllranc gold guldcn, ham
pcring agricultural cxports. 8ut as thc Hungarians camc to rcalizc that
thc guldcn would not bc pcggcd upward at that ratc and that thc gold
standard might mcan rcsistancc to lurthcr apprcciation, or cvcn a partial
rcvcrsal ol rcccnt apprcciation, thc scntimcnt ol thc countrys cxportand
importcompcting intcrcsts shiltcd.
,
!t sccms that thc cxpcrts, so considcrcd by thc stablishmcnt, wcrc
almost all in lavor ol thc gold standard. 8cing an cxpcrt (and so bcing
invitcd to tcstily bclorc thc commissions mcntioncd in lootnotc ) appar
cntly prcsupposcd, almost by dcnition, advocacy ol thc gold standard.
Nonc ol thc major Austrian political partics, as a party, opposcd thc gold
standard, although many individual dcputics did. vcn proponcnts ol
thc gold standard rccognizcd that a largc opposition cxistcdand that
opponcnts might possibly outnumbcr proponcntsbut outsidc thc most
inucntial circlcs. Tc masscs had supposcdly bccomc accustomcd to thc
cxisting currcncy situation and wcrc apathctic about rclorm. Among thc
articulatc, though, advocacy ol gold dominatcd. A propapcr pamphlc
tccr suggcstcd a vcrsion ol thc lablc ol thc cmpcrors clothcs: cvcn pcoplc
who did not undcrstand thc supposcd disadvantagcs ol papcr moncy and
thc supposcd advantagcs ol gold ncvcrthclcss joincd thc progold chorus
in ordcr not to sccm uncnlightcncd (Grubcr .a, pp. ....).
,
\icnna 8oard ol Tradc .,, p. , Kamitz ., pp. .,., ktionar, aa Junc .c,
rst supplcmcnt, dispatch lrom Praguc, Silin .., pp. , , , quotcd and para
phrascd at lcngth in Trakhtcnbcrg .6a, pp. a6a66. Tisza .c, csp. pp. , cxplaincd
thc incorrcctncss ol thc carlicr lcars and argucd that thc gold standard would scrvc Hun
garian intcrcsts.
Chapter zz: Te Image of the Gold Standard .,
vcn so, opposition consumcd most ol thc timc in thc parliamcn
tary dcbatcs. Tis was undcrstandablc: thc govcrnmcnts position took thc
lorm ol dcnitc bills, and only so much could bc said in thcir lavor with
out rcpctition, whilc opposition vicws wcrc aircd in grcat varicty. nly a
minority ol thc opponcnts lorthrightly lavorcd rctaining at papcr moncy.
Most ol thcm wantcd bimctallism, or thought that thc timc was not ripc
lor thc gold standard, or bclicvcd that action should await somc sort ol
intcrnational agrccmcnt, or wantcd a gold standard dicrcnt lrom what
thc govcrnmcnts bills would introducc, or cngagcd in nitpicking about
such issucs as thc cmpcrors titlcs on thc ncw gold coins. Tc only amcnd
mcnt adoptcd was onc cxpanding his titlcs lrom !mpcrator ct Rcx to a
long list including King ol 8ohcmia, King ol Gallicia, and cnding with
Apostolic King ol Hungary.
Somc pamphlctccrs did statc thc casc lor rctaining a at papcr moncy
with oating cxchangc ratcsa casc ccntcrcd around thc grcatcr impor
tancc ol domcstic than ol cxchangcratc stability and thc importancc ol
a mcasurc ol insulation lrom lorcign dcation and criscs. Joscl Ncupaucr
prcdictcd that a slow and stcady incrcasc in thc mcans ol circulation will
without doubt cncouragc thc spirit ol cntcrprisc, and all thc morc rcmain
without inucncc on thc pricc ol thc Austrian moncy as indccd thc popu
lation grows and thc wholc cconomy dcvclops. Hc proposcd that thc ncw
moncy ncccssary to accompany rcal cconomic growth bc put into circu
lation through purchasc ol sccuritics on thc 8oursc. Hc cvcn hazardcd a
gucss about thc propcr ratc ol annual incrcasc in thc moncy supply pcr
ccnt (Ncupaucr .a, p. a6 and passim).
ominant trcnds ol opinion wcrc apparcntly quitc dicrcnt in Rus
sia. Tc discussions ol thc !mpcrial Frcc conomic Socicty in St. Pctcrs
burg in March/April .6

scrvc as cvidcncc that advocacy ol thc gold

standard was not part ol thc convcntional wisdom among cconomists and
lcading thinkcrs. vcn advocatcs ol thc gold standard acknowlcdgcd that
apathy toward thc rclorm was quitc gcncral. SchulzcGavcrnitz rclcrrcd
to thosc discussions to justily his asscrtion that thc Statc carricd out thc
currcncy rclorm against public opinion, with lcw cxccptions, against thc
prcss, against thc tough rcsistancc ol thc public (SchulzcGavcrnitz .,
pp. 6.6a, ,c,.).

Austria, Vahrungsnquctc Commission .a, !mpcratorskoc \oljnoc .konomich

cskoc bshchcstvo .6.
. Part : Economics
Financc Ministcr Scrgci Vittc also tcsticd to thc climatc ol opinion.
As hc said, ncarly thc wholc ol thinking Russia was initially opposcd to
his rclorm. vcn hc, whilc ncw in occ, contcmplatcd abandoning his
prcdcccssors work ol moving toward thc gold standard.

Tc opposition to thc gold standard was so strong in Russia that in

ordcr to cnact it, thc Tsar had to bypass thc usual lcgislativc proccdurc,
which involvcd various committccs. Supporting his nancc ministcr, thc
Tsar cnactcd it picccmcal by autocratic dccrccs.
.c
xoxvcoxo:ic :o:ivvs
8clorc turning to thc noncconomic rcasons lor adoption ol thc gold stan
dard, particularly in Austria, ! want to cmphasizc that thc cconomic rca
sons did not includc poor pcrlormancc ol thc at papcr currcncy (scc
Ycagcr .6, pp. 6.). xchangcratc uctuations wcrc not cxtrcmc by
prcscntday standards, and thc papcr currcncy was not sucring pricc
ination. (!n lact, thc pricc trcnd had bccn downward sincc about .,.,
though lcss stccply downward than in thc goldstandard world.)
Yct cputy Anton Mcngcr complaincd. Hc said that importcrs and
cxportcrs wcrc ablc to pcrccivc scasonal tcndcncics in thc cxchangc
ratcvcry lccblc tcndcncics, so lar as thc gurcs showand prot lrom
thcm by shrcwdly timing thcir purchascs and salcs ol lorcign cxchangc.
Tis sounds likc stabilizing spcculation to ushardly grounds lor com
plaint. Yct Mcngcr implicd, without articulating his complaint cxplicitly,
that thc gains ol thc shrcwd tradcrs wcrc ncccssarily coming at thc cxpcnsc
ol thc country as a wholc (Austria, Parliamcnt, Chambcr ol cputics .a,
p. ,,). Tc gold standard would put a stop to that.
Apart lrom thc cconomics ol thc mattcr, thc uctuating cxchangc ratc
was widcly vicwcd as a symbol ol disordcr and backwardncss, whcrcas
bcing on thc gold standardthc most modern monctary systcmwas
thc mark ol a civilizcd country. \icnnas lcading ncwspapcr dcplorcd thc
monarchys conluscd monctary systcmwith silvcr as thc basic mctal,
with irrcdccmablc papcr notcs in circulation, and with thc guldcns valuc
cxposcd to thc vicissitudcs ol wild intcrnational spcculationwhilc all
civilizcd statcs havc long sincc assurcd thcmsclvcs ol a stablc mcasurc ol

Vittc .a., pp. 6c, cl. \on Lauc .6, Crisp .6,, p. a.., Migulin ..c,
pp. .c...
.c
Vittc .a., pp. , 6., \on Lauc .6, pp. ..., Migulin ..c, pp. aa6,
Trakhtcnbcrg .6a, p. a6,, Russia, Financc Ministry .ca, vol. a: pp. aaa.
Chapter zz: Te Image of the Gold Standard .
valuc, a moncy as stcady in valuc as possiblc (Neue Freie Presse, , Scptcm
bcr .c).
..
Considcrations ol prcstigc wcrc at work. !n thc Hungarian Currcncy
!nquiry ol .a, Koloman Szcll, a lormcr nancc ministcr and luturc primc
ministcr, dcclaimcd about thc stigma ol a papcr cconomy, unworthy ol
a civilizcd nation (quotcd in Grubcr .a, p. ..,). Tc Currcncy Com
mittcc ol thc Austrian Parliamcnt obscrvcd in .a that considcrations
ol statc |had| inucnccd thc dccision ol thc govcrnmcnt to procccd with
goldstandard lcgislation. Twcnty ycars bclorc, Austria had not bccn alonc
in using papcr moncy, sincc thcn thc Unitcd Statcs, !taly, and cvcn littlc
Rumania had gonc onto thc gold standard. Russia, thc only othcr major
powcr still with a papcr standard, was alrcady making prcparations lor
going onto gold. vcry ycar it dctracts morc lrom thc Statc prcstigc ol
Austria that it still bclongs to thc countrics with an unrcgulatcd currcncy
(Austria, Parliamcnt, Chambcr ol cputics .a, Beilage no. ., p. ).
cputy r. Forcggcr rcmindcd his collcagucs that thc scrapolpapcr
cconomy dcgradcd Austria cconomically to a sccondratc powcr. Vc
dcmonstratc that our mpirc docs not havc thc strcngth to introducc
among us, too, thc mcans ol paymcnt, hard moncy, that holds sway in thc
civilizcd world. Vc thcrcby inccssantly damagc our crcdit, our cconomic
cxibility and compctitivcncss. Lack ol lorcign condcncc cxtcndcd bc
yond thc cconomic sphcrc into
all othcr sidcs ol our intcrnational rclations, it lcsscns rcspcct lor us,
cstccm lor us, it lcsscns our powcr position. Vc must thcrclorc makc
all corts to bring thc strcngth ol our Monarchy into lull ccct again
by rcgulating our monctary systcm. . . . Vc cannot havc a scparatc, an
insular, currcncy continuc: il wc want to takc part in thc compctition ol
civilizcd nations, wc too must acccpt thc intcrnational mcans ol paymcnt,
and thc intcrnational mcasurc ol valuc is just nowadays gold. (Austria,
Parliamcnt, Chambcr ol cputics .a, pp. ,.a,.)
Tc scrap ol papcr to which r. Forcggcr alludcd was itscll a sourcc
ol dismay. Tc statc currcncy notcs (as distinguishcd lrom thc notcs ol thc
AustroHungarian 8ank) wcrc thought ol as an actual dcbt to bc paid o
sooncr or latcr. Tis vicw lound support not only in linkagc ol thc lcgally
pcrmissiblc quantitics ol statc notcs and trcasury bills (Salinenscheine)
..
arlicr (. Novcmbcr .) thc samc ncwspapcr had cxclaimcd, Vhat cnthusiasm it
would stir up il at last thc warmly longcdlor momcnt had arrivcd to raisc Austria onto
thc hcight ol thc civilizcd statcs!
acc Part : Economics
undcr a cciling on thcir combincd amount but also in thc inscription
on thc notcs thcmsclvcs, which acknowlcdgcd cach notc as a part ol
thc common oating dcbt ol thc AustroHungarian Monarchy (com
mon hcrc mcaning sharcd by thc two govcrnmcnts). Tc tcrm oat
ing dcbt sounds morc ominous in Gcrman than in nglishsch.ebende
Schuldconvcying thc imprcssion ol a hovcring guilt still to bc cxpiatcd.
nc ol thc purposcs ol thc monctary rclorm bills ol .a, thc Austrian
govcrnmcnt said, was to abolish thcsc statc notcs, which had bccn issucd
undcr thc compulsion ol shattcring political cvcnts (Austria, Parliamcnt,
Chambcr ol cputics, Beilage no. 6). Tc rclcrcncc was to monctary
ination during thc AustroPrussian Var ol .66. Tc ycarning to ban
ish an cvcrprcscnt rcmindcr ol thc humiliation ol Koniggratz was an old
onc. n . Novcmbcr . thc Neue Freie Presse said that rcdccming thc
oating dcbt was an old duty ol honor ol Austria. n . January .a
thc ncwspapcr lamcntcd thc dismal lcgacy ol rcvolution and wars, thc
irrcdccmablc notcs, thcsc hatclul stains on thc namc ol Austria. . . . Tc
papcr guldcn is . . . |a| sad monumcnt that has bccn crcctcd in our budgct
to rcmind us ol thc sucrings ol thc past.
vcn thc analytical Carl Mcngcr most dccidcdly rcjcctcd thc opin
ion ol thosc who dcny AustriaHungary thc right to rcshapc hcr currcncy
on thc pattcrn ol that ol thc civilizcd nations. !t should not bc intcrprctcd
as immodcsty il wc too wish to bc countcd among thc nations lcs plus
avanccs dans la civilisation, among thc nations that arc alrcady rcady lor
gold, and not among thc pcoplcs ol thc othcr currcncy arca, which should
contcnt thcmsclvcs with silvcr currcncy (Mcngcr ./.6, pp. .,a.,).
Among its advocatcs in Russia, thc gold standard had bccomc, in thc
midninctics, morc than cvcr a mattcr ol national rcspcctability and cco
nomic advantagc. . . . For Russia (as lor any civilizcd country at that timc)
it was a prcrcquisitc lor sound crcdit and cconomic progrcss in gcncral.
Abovc all it would cncouragc morc lorcign invcstmcnt in Russian indus
try (\on Lauc .6, p. .).
A.N. Gurjcv was onc ol thc cconomists who hcld such a vicw. For
him, rcstoration ol thc rublc to a mctallic basis had political and cultural
as wcll as cconomic signicancc:
Mcmbcrship in worldwidc civilization is unthinkablc without mcmbcr
ship in thc worldwidc monctary cconomy. . . . A country with an isolatcd
monctary cconomy cannot cntcr into stablc cultural intcrcoursc il it is
scparatcd lrom civilizcd pcoplcs by thc wholc complcx ol cconomic cvils
conncctcd with thc disordcr ol thc monctary systcm. (Gurjcv .6, p. .6)
Chapter zz: Te Image of the Gold Standard ac.
Finally, wc havc thc judgmcnt ol an cmincnt Austrian cconomist ol
a latcr gcncration. Modcrn cconomists will bc quitc unablc to undcr
stand, said Joscph Schumpctcr, why countrics such as AustriaHungary,
Russia, and !taly imposcd hardships on thcmsclvcs to adopt gold pari
tics lor thcir currcncics. No important cconomic intcrcsts clamorcd lor
that policy. Noncconomic considcrations wcrc dccisivc. Gold symbolizcd
sound practicc and honor and dcccncy. Pcrhaps this cxplanation raiscs
morc problcms than it solvcs. Tat it is truc is ccrtain (Schumpctcr .,
p. ,,c).
:nv svbuc:ivv ~vvv~i ov :nv coib s:~xb~vb
Now, in prcparation lor coming to a conclusion, ! want to rcturn to my
carlicr thcmcs. Tcsc thcmcs conccrn thc appcal or thc dcsirability ol thc
gold standard.
As wc know, somc promincnt cconomists and politicians nowadays
arc rccommcnding a rcturn to thc gold standardor thc adoption ol what
cvcr it is that thcy arc markcting undcr that labcl. My rcsponsc is not
that wc must not turn back thc clock. Tat hackncycd slogan bctrays a
provincialism about oncs own timc, a shallow mcliorism, a moral lutur
ism. Nor is my mcssagc that wc cant turn back thc clock. Rathcr, my
mcssagc is a rcmindcr ol .hat it is that wc would havc to turn back to. !t
is a rcmindcr ol thc cntirc situation in which thc gold standard ourishcd.
Morc cxactly, pcrhaps, thc goldstandard world is an idcalizcd past statc
ol aairs.
Tc lcw, vcry lcw, dccadcs during which thc intcrnational gold stand
ard ourishcd ocrcd almost uniqucly lavorablc conditions. Mint pars
among gold standard currcncics, instcad ol bcing arbitrarily choscn,
cxprcsscd an cquilibrium that had cvolvcd gradually bctwccn thcmsclvcs
and national pricc lcvcls. Mildly rising world priccs altcr .6 lacilitatcd
rclativc adjustmcnts ol priccs and wagcs, whilc thc uptrcnd did not last
long cnoughuntil war dcstroycd thc systcmto dissipatc its possiblc
bcncts by bccoming cmbodicd in cxpcctations. Rclativc calm in social
and political aairs and thc abscncc ol cxccssivcly ambitious govcrnmcnt
programs and cxccssivc taxation all lavorcd condcncc in monctary stabil
ity. Tc agc ol thc gold standard was an agc ol pcacc, rclativcly.
.a
.a
Tc Neue Freie Presse (\icnna) and ktionar (8crlin), both cvidcnt organs ol libcral
bourgcois thought, rcpcatcdly strcsscd that pcacc was good lor busincss.
aca Part : Economics
Hugh Rocko suggcstcd that thc tolcrably good pcrlormancc ol thc
gold standard bclorc Vorld Var ! hingcd on lavorablc conditions that
no longcr prcvail: a corps ol dcdicatcd gold prospcctors working in uncx
plorcd arcas, abscncc ol political intcrlcrcncc (a laissczlairc atmosphcrc),
paticncc with thc long and unccrtain lags in thc rcsponsc ol thc gold sup
ply to thc changing dcmand lor moncy.
8y and largc, pcoplc (in countrics that happcncd to bc on thc gold
standard, anyway) wcrc lrccr lrom govcrnmcnt control than in any agc
bclorc or sincclrccr to transact busincss, to makc invcstmcnts, to trans
lcr lunds, to travcl. Tcrc is a ccrtain charm in thc rcminisccnccs ol an
old Gcrman bankcr ol how, during his studcnt days at Hcidclbcrg, hc
and somc lricnds, onc ol whom had just comc into an inhcritancc, lclt on
thc impulsc ol thc momcnt lor a tour ol !taly, whcrc thc bankcr in thc
rst town thcy stoppcd at considcrcd it an honor to cash in gold coin
thc largc chcck writtcn by thc young strangcr. Tcrc is similar charm
in Julcs \crncs story ol Phincas Fogg, who lclt on short noticc lor his
cightyday tour ol thc world, paying his cxpcnscs lrom a carpctbag lull ol
8ank ol ngland notcs, acccptcd cvcrywhcrc. Tc civility and intcrnation
ality prcvalcnt during thc agc ol thc gold standard havc such charm lor
us nowadays that it sccms almost sacrilcgc to ask whcthcr thcsc bcncts
rcsultcd lrom thc gold standard or, instcad, cocxistcd with it by mcrc
coincidcncc.
Tc gold standard, in short, cvokcs thc good old days. Tis asso
ciation is wcll illustratcd by two quotations, thc rst lrom 8cnjamin M.
Andcrson, a lilclong champion ol gold, and thc sccond lrom John May
nard Kcyncs, his gcncrations lcading critic ol that standard.
Tosc who havc an adults rccollcction and an adults undcrstanding ol
thc world which prcccdcd thc rst Vorld Var look back upon it with
a grcat nostalgia. Tcrc was a scnsc ol sccurity thcn which has ncvcr
sincc cxistcd. Progrcss was gcncrally takcn lor grantcd. . . . Vc had had
a prolongcd pcriod in which dccadc altcr dccadc had sccn incrcasing
political lrccdom, thc progrcssivc sprcad ol dcmocratic institutions, thc
stcady lilting ol thc standard ol lilc lor thc masscs ol mcn. . . .
!n nancial mattcrs thc good laith ol govcrnmcnts was takcn lor
grantcd. . . . No country took pridc in dcbasing its currcncy as a clcvcr
nancial cxpcdicnt. (Andcrson ., pp. , 6)
Vhat an cxtraordinary cpisodc in thc cconomic progrcss ol man that agc
was which camc to an cnd in August, ..! . . . |A|ny man ol capacity or
Chapter zz: Te Image of the Gold Standard ac
charactcr at all cxcccding thc avcragc |could cscapc lrom thc working
class| into thc middlc and uppcr classcs, lor whom lilc ocrcd, at a
low cost and with thc lcast troublc, convcnicnccs, comlorts and amcni
tics bcyond thc compass ol thc richcst and most powcrlul monarchs ol
othcr agcs. Tc inhabitant ol London could ordcr by tclcphonc, sip
ping his morning tca in bcd, thc various products ol thc wholc carth,
in such quantity as hc might scc t, and rcasonably cxpcct thcir carly
dclivcry upon his doorstcp, hc could at thc samc momcnt and by thc
samc mcans advcnturc his wcalth in thc natural rcsourccs and ncw cntcr
priscs ol any quartcr ol thc world, and sharc, without cxcrtion or cvcn
troublc, in thcir prospcctivc lruits and advantagcs. . . . Hc could sccurc
lorthwith . . . chcap and comlortablc mcans ol transit to any country
or climatc without passport or othcr lormality, could dcspatch his scr
vant to thc ncighboring occ ol a bank lor such supply ol thc prccious
mctals as might sccm convcnicnt, and could thcn procccd abroad to
lorcign quartcrs, without knowlcdgc ol thcir rcligion, languagc, or cus
toms, bcaring coincd wcalth upon his pcrson, and would considcr him
scll grcatly aggricvcd and much surpriscd at thc lcast intcrlcrcncc. 8ut,
most important ol all, hc rcgardcd this statc ol aairs as normal, ccrtain,
and pcrmancnt, cxccpt in thc dircction ol lurthcr improvcmcnt, and any
dcviation lrom it as abcrrant, scandalous, and avoidablc. (Kcyncs .ac,
pp. .c.a)
Rcminisccnccs likc thcsc rcinlorcc my imprcssion that thc outbrcak
ol Vorld Var ! was a momcntous turning point and a grcat tragcdy in
thc history ol thc worlda tragcdy all thc morc poignant bccausc thc war
brokc out so accidcntally. Tc building in Sarajcvo ncar which thc assas
sin was standing whcn hc rcd thc latclul shots bcars a plaquc saying that
hcrc, on a Junc .., Gavrilo Princip carricd out an act cxprcssing rcsis
tancc to tyranny and thc will to lrccdom. Tc inscription says nothing
about thc initiation ol a chain ol cvcnts that may, cvcn yct, carry to thc
dcstruction ol Vcstcrn civilization. !t says nothing about thc start ol our
prcscnt agc ol wars, ol globally cxpansionist tyrannics, and ol thc pcrvcr
sion ol dcmocratic govcrnmcnt into an instrumcnt whcrcby cach intcrcst
group sccks to plundcr socicty in gcncral, to thc unintcndcd nct loss ol
practically all.
!l ! wcrc askcd lor my rccommcndation, thcrclorc, ! would not mcrcly
rccommcnd going back to thc gold standard. 8y itscll, apart lrom rcstora
tion ol its prcconditions, that would hardly bc a constructivc stcp. My
nostalgia is lor thc wholc prc.. climatc, not lor onc spccic lacct ol it.
! rccommcnd rcpcaling Vorld Var !, root and branch. !l only wc could!
ac Part : Economics
~::i:ubvs xvcvss~vv vov souxb :oxvv
Rcpcaling Vorld Var ! would havc to includc rcstoring ccrtain attitudcs
that sccm to havc bccn morc prcvalcnt in public aairs bclorc .. than
thcy arc now. Tosc attitudcs lavorcd limitations on thc scopc ol gov
crnmcnt activity and rcstraint on sccking spccial advantagc through thc
instrumcntality ol govcrnmcnt. 8roadly spcaking, thcsc wcrc libcral atti
tudcs in thc ninctccnthccntury scnsc. Tcsc attitudcs havc now bccn
undcrmincd in ways analyzcd, in part, by rtcga y Gassct in Te Fe.olt
of the Masses (.c).
Nowadays, wc havc tyranny in thc nondcmocratic countrics and, in
thc dcmocratic countrics, dcmocracy pcrvcrtcd in such a way that politi
cal dccisions arc madc out ol shortrun cxpcdicncy and without duc rcgard
lor longrun conscqucnccs. 8ut in thc goldstandard cra, as Lars Jonung
says, thc dcmocratic systcm had not bccn lully dcvclopcd. (Pctcr Lin
dcrt dctccts signs ol thc pcrvcrsion ol dcmocracy in thc Unitcd Kingdom,
howcvcr, cvcn bclorc Vorld Var !.)
Vithout a rcturn to libcral attitudcs and scllrcstraints, a rcstorcd gold
standard would not work wcll and would hardly cndurc. Altcr all, thc
gold standard is simply a particular sct ol rulcs lor policy rcgarding thc
monctary systcm, and thcsc rulcs arc no morc inhcrcntly scllcnlorcing
than any othcr sct ol monctary rulcs. Michclc Fratianni has bccn tclling
us ol thc rcadincss ol !talian politicians to throw out thc gold standard,
and Pctcr Lindcrt has notcd thc propcnsity ol thc gold standard and kcy
currcncy systcms to collapsc whcn shockcd. (vcn today, bclorc wc havc
gonc back to a supposcd gold standard, thcrc is plcnty ol rcason lor sus
pccting that what somc ol its supportcrs arc advocating is not a rcal but
a pscudo gold standard, to ccho a distinction madc by Milton Fricdman,
.6., pp. 66,.)
Maybc somc hopc is to bc lound in constitutional rcstraints on gov
crnmcnt taxing and spcnding, maybc in thc dcpoliticization ol moncy.
!t would bc outsidc my assignmcnt to discuss thcsc possibilitics tonight.
My purposc, rathcr, has bccn to sct our cxamination ol thc classical gold
standard into thc contcxt ol thc conditions and attitudcs that apparcntly
prcvailcd at thc timc.
Givcn thc rcquircd attitudcs and thc rclatcd rcstraints on govcrnmcnt,
thc gold standard is not thc only sct ol monctary arrangcmcnts that would
lunction tolcrably wcll. conomists can casily imaginc, and havc pro
poscd, monctary arrangcmcnts that would lunction bcttcr.
Chapter zz: Te Image of the Gold Standard ac
Tc rcquircd attitudcs wcrc illustratcd in Austria cvcn whilc thc coun
try was still on at papcr moncy. Tc govcrnmcnt and thc nancial prcss
rcpcatcdly agonizcd cvcn ovcr budgct dccits that would sccmdclightlully
small to us today. Although thc pricc lcvcl was gcncrally stcady or cvcn
trcnding mildly downward (cxccpt during wars and immcdiatcly altcr
ward), thc govcrnmcnt and thc prcss worricd about thc valuc ol moncy
as rccctcd in thc cxchangc ratc. (Nowadays, attcntion would morc suit
ably locus on a pricc indcx.) Tc Neue Freie Presse took cxchangc ratcs ol
.ac guldcns or highcr lor tcn pounds stcrling as a particularly ominous
warning.
! will concludc with thrcc quotations lrom that ncwspapcr.
London: .ac! A cannon shot cannot shock us morc than this gurc, and
it also lorms an urgcnt warning lor thc many nancc ministcrs ol thc
Monarchy to maintain modcration, to rctrcnch, to rcsumc thc policy ol
soundncss. . . . Vhcn thc cxchangc ratcs, this manomctcr ol crcdit, risc,
thcn it is bcttcr to rccl in thc sails a bit. !s it rcally our latc ctcrnally to
bcar thc mark ol shamc ol a disordcrcd currcncy: Vill thcrc ncvcr comc
a chanccllor ol thc trcasury who will havc thc will and also thc powcr to
rcstorc thc most important basis ol thc cconomy: (. ctobcr .)
Tc pricc ol lorcign bills is thc loudcst and gravcst accusation against
thc govcrnmcnt. . . . |Vhcn thc opposition partics| want to dcpict thc
sad condition ol thc statc with onc strokc, thcn thcy nccd only unlold
thc Cursblatt |sic| and say: Tings havc gonc prctty lar in Austria whcn
onc lranc cquals hall ol our guldcn on thc world markct. . . . what thc
ghosts wcrc lor poor Macbcth, thc lorcign cxchangcs arc lor |Financc
Ministcr| unajcwski, indccd, wc arc convinccd that hc oltcn wakcs
up at night, tcrricd, and suddcnly pcrccivcs a gurc bclorc him that
mockingly hisscs at him: London .a6.c! (a6 April .)
To introducc my nal quotation, ! should cxplain that thc Austrian
policc lrom timc to timc conscatcd issucs ol publications containing arti
clcs considcrcd too critical ol thc govcrnmcnt. Tc Neue Freie Presse occa
sionally carricd a noticc on its lront pagc saying that its prcccding issuc had
bccn conscatcd. (To compcnsatc its subscribcrs, thc ncwspapcr would
cithcr rcprint thc conscatcd issuc without thc ocnding matcrial or clsc
makc thc ncxt issuc cspccially largc.) !n onc ol its cditorials dcnounc
ing thc conscations, thc papcr complaincd about discrimination, as wcll:
Unlikc itscll, thc ocial Coursblatt ol thc \icnna 8oursc had ne.er bccn
conscatcd. Yct its latcst issuc quotcd London cxchangc at .ac.. And
il wc wcrc to writc our ngcrs sorc, wc could not portray thc situation
ac6 Part : Economics
morc prcciscly. Conscatc thc Cursblatt |sic|, Mr. Attorncy Gcncral (a6
Fcbruary .a).
vvvvvvxcvs
Andcrson, 8cnjamin M. Economics and the Public !elfare. Ncw York: . \an
Nostrand, ..
Austria. Parliamcnt. Chambcr ol cputics. Stenographisches Protokoll, xi' scs
sion, .a.
. Vahrungsnquctc Commission. Stenographische Protokolle uber die
.om 8. bis z,. Mar. abgehaltenen Sit.ungen. \icnna: K. k. Hol und Staats
druckcrci, .a.
Crisp, lga. Russia, .6c... !n Banking in the Early Stages of Industriali.a-
tion, cditcd by Rondo Camcron ct al. Ncw York: xlord Univcrsity Prcss,
.6,.
Fricdman, Milton. Rcal and Pscudo Gold Standards. Journal of La. and Eco-
nomics (ctobcr .6.): 66,.
Grubcr, Robcrt. Nationales oder internationales Geld? Die Quintessen. der !ah-
rungsfrage. \icnna: Lcsk und Schwidcrnoch, .a.
Gurjcv, Alcksandr Nikolacvich. Feforma Dene.hnago Obrashchenija. St. Pctcrs
burg: Kirshbaum, .6.
!mpcratorskoc \oljnoc .konomichcskoc bshchcstvo. Feforma dene.hnago
obrashchenija. Rcprintcd lromthc socictys Trudy . St. Pctcrsburg: cmakov,
.6.
Kamitz, Rcinhard. ic ostcrrcichischc Gcld und Vahrungspolitik von .
bis .. !n Hundert Jahre osterreichischer !irtschaftsent.icklung, z8,8z,,8,
cditcd by Hans Maycr. \icnna: Springcr, ..
Kcyncs, John Maynard. Te Economic Consequences of the Peace. Ncw York: Har
court 8racc & Vorld, .ac.
Krcibig, Joscl Clcmcns. Unser !ahrungs- und Mun..esen .ahrend der let.ten
funf.ig Jahre. \icnna, ..
Landcsbcrgcr, Julius. Uber die Goldpramien-Politik der Zettelbanken. \icnna:
Manz, .a.
Chapter zz: Te Image of the Gold Standard ac,
Mcngcr, Carl. Collected !orks of Carl Menger. \ol. , Schriften uber Geldtheorie und
!ahrungspolitik. .. London: London School ol conomics and Political
Scicncc, .6.
Migulin, P.P. Fusskij gosudarst.ennyj kredit, z,o,z8,,. \ols. a. Kharkov: Pc
chatnoc clo, ..c.
Ncupaucr, Joscl Rittcr von. Die Schaden und Gefahren der !alutaregulirung fur die
Staatsnan.en, die !olks.irthschaft und die Kriegsbereitschaft. \icnna: Lcsk
und Schwidcrnoch, .a.
rtcga y Gassct, Jos. La Febelin de las Masas. Madrid: Rcvista dc ccidcntc,
.c.
Pcrl, Franz. Zur Frage der !alutaregulirung in Oesterreich-Ungarn. Zurich:
\crlagsMagazin, .,.
Raalovich, Arthur. Histoirc du roublccrdit. Journal de la Societe de Statistique
de Paris , (ctobcr .6): 6.
Russia. Financc Ministry. Ministerst.o nanso., z8c:z,c:. St. Pctcrsburg: .ks
pcditsija Zagotovlcnija Gosudarstvcnnykh 8umag, .ca.
Sacngcr, Max. Die !ittesche !ahrungsreform. \icnna and Lcipzig: cutickc,
.a,.
SchulzcGavcrnitz, Gcrhard von. !olks.irtschaftliche Studien aus Fussland. Lcip
zig: unckcr & Humblot, ..
Schumpctcr, Joscph. History of Economic nalysis. Ncw York: xlord Univcrsity
Prcss, ..
Silin, N. .stro-.engerskij bank. Moscow, ...
Sowcll, Tomas. Kno.ledge and Decisions. Ncw York: 8asic 8ooks, .c.
Tisza, !stvn. \alutnk rcndczsrol. Budapesti S.emle 6a, no. .6c (.c).
Trakhtcnbcrg, !osil Adoljlovich. Dene.hnoe Obrashchenie i Kredit pri Kapitali.me.
Moscow: !zdatcljstvo Akadcmii Nauk SSSR, .6a.
\icnna 8oard ol Tradc (Handcls und Gcwcrbckammcr in Vicn). Bericht uber
den Handel, die Industrie und die !erkehrs.erhaltnisse in Nieder-Oesterreich
.ahrend des Jahres z88o. \icnna, .,.
\lascnko, \asilij vtikhicvich. Teorii deneg . Fossii, Konets -dooktjabrskij
period .. Kicv: !zdatcljstvo Kicvskogo Univcrsitcta, .6.
ac Part : Economics
\on Lauc, Tcodorc H. Sergei !itte and the Industriali.ation of Fussia. Ncw
York: Columbia Univcrsity Prcss, .6.
Vickscll, Knut. Interest and Prices. .. Translatcd by R.F. Kahn. Ncw York:
Augustus M. Kcllcy, .6.
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Abraham Yarmolinsky. Gardcn City: oublcday Pagc, .a..
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ol Chicago Prcss, .6.
cn~v:vv +:
Land, Moncy, and Capital
Formation

w~i:ixc :nvoucn i~xbowxvvsniv

+
Vhat scrvicc, il any, do landowncrs pcrlorm lor thc rcnts thcy collcct:
Land, narrowly intcrprctcd as shccr spacc and thc associatcd purc gilts ol
naturc, is just there, availablc to rcndcr scrviccs rcgardlcss ol owncrship
and ol owncrs work. Partly with such a thought in mind, Hcnry Gcorgc
proposcd taxing away most purc land rcnt. vcn somc lcrvcnt dclcndcrs
ol privatc owncrship ol land and collcction ol rcnt givc incomplctc and
thus lccblc accounts ol scrvicc pcrlormcd. Tc landowncr, according to
Murray Rothbard,
nds, brings into usc, and thcn allocatcs, land sitcs to thc most valuc
productivc biddcrs. . . . |!|t is not just thc physical good that is bcing sold,
but a wholc bundlc ol scrviccs along with itamong which is thc scrvicc
ol translcrring owncrship lrom scllcr to buycr, and doing so ccicntly.
Ground land docs not simply cxist, it must bc ser.ed to thc uscr. . . .
Tc landowncr carns thc highcst ground rcnts by allocating land sitcs
to thcir most valucproductivc uscs, i.c., to thosc uscs most dcsircd by
consumcrs. . . .
Tc vicw that bringing sitcs into usc and dcciding upon thcir location
|sic| is not rcally productivc is a vcstigc lromthc old classical vicwthat a
scrvicc which docs not tangibly crcatc somcthing physical is not rcally
productivc. Actually, this lunction is just as productivc as any othcr, and
a particularly vital lunction it is. To hampcr and dcstroy this lunction
would wrcck thc markct cconomy. (Rothbard .6a, vol. ii: pp. ..,
attachcd cndnotcs on vol. ii: pp. ac, arc omittcd hcrc.)

From Economic Policy in an Orderly Frame.ork: Liber micorum for Gerrit Meijer,
cds. J.G. 8ackhaus ct al. (Munstcr: Lit \crlag, acc), 6.
.
An omittcd introduction contains complimcntary rcmarks about Gcrrit Mcijcr, thc
honorcc ol thc Fcstschrilt.
ac
a.c Part : Economics
Tis is Rothbards main cxplanation ol what thc landowncr docs. !t is
truc that clscwhcrc (vol. ii: pp. c, c) hc bricy likcns rcntal rcturns on
land valucs to intcrcst, but hc docs not dcvclop this comparison and appar
cntly cithcr docs not scc its lull signicancc or considcrs its signicancc
too obvious to nccd spclling out.
A lullcr account rccognizcs that landowncrs, likc owncrs ol capital
goods, stocks, and bonds, arc pcrlorming thc scrvicc ol .aiting, as Gus
tav Casscl (.c/.6) callcd it, insightlully intcrprcting it as an indcpcn
dcnt lactor ol production. !nstcad ol sclling thcir asscts and spcnding thc
procccds on consumption or othcr currcnt purposcs and instcad ol ncvcr
accumulating savings in thcsc lorms in thc rst placc, thc owncrs arc tying
up wcalth ovcr timc and arc waiting lor thc luturc incomcs and maturity
or salc valucs that thcir asscts will yicld. So doing, thcy lrcc rcsourccs
othcrwisc allocatcd to consumption lor construction and maintcnancc ol
machincs, buildings, and othcr capital goods (and lor lormation ol human
capital), thcy thcrcby contributc to productivity and cconomic growth.
Landowncrs arc pcrlorming csscntially thc samc scrvicc as rccipicnts ol
intcrcst in thc strict scnsc ol thc tcrm.
Arbitragc ol various kinds tcnds to prcss annual nct rcnts, cxprcsscd
as pcrccntagcs ol land valucs, and intcrcst ratcs on loans toward cqual
ity (subjcct to standard qualications about dicrcnccs in risk, maturity,
liquidity, and so lorth).
a
Tc unilorm ratc toward which thcsc tcndcncics
prcss may bc sccn as thc rcward or pricc ol waiting in gcncral, waiting pcr
lormcd in various ways by dclaying consumption, tying up oncs savings
in claims or asscts, and so lrccing rcsourccs lor capital lormation.
8ut just how docs waiting through acquiring and holding land opcr
atc: Supposc that pcoplc bccomc morc thrilty and dcvotc thcir thrilt to
buying land. Tcir purchascs tcnd to raisc land priccs and rcducc pcrccnt
agc yiclds on land and, through arbitragc, to raisc assct priccs and rcducc
pcrccntagc yiclds gcncrally, including thc intcrcst ratc. Tc dcclinc in tar
gct yiclds cncouragcs busincss rms to invcst thc lrccd rcsourccs in rcal
capital lormation, and thc risc in rcal invcstmcnt contributcs to thc gcn
cral dcclinc in ratcs ol rcturn. Tc incrcascd invcstmcnt cmbodics thc
incrcascd thrilt.
Convcrscly, a dcclinc in thrilt rcstrains rcal invcstmcnt. !l landowncrs,
bccoming lcss thrilty, dccidc to scll thcir holdings and spcnd thc procccds
a
8ut thcsc dicrcnt ratcs ol yicld arc not idcntical just bccausc thcy tcnd to bc cqual in
cquilibrium. xplaining this cquality is part ol thc cconomists job, which is only impcdcd
by making rcnt rcturns conccptually idcntical to thc intcrcst ratc narrowly dcncd.
Chapter z:: Land, Money, and Capital Formation a..
on consumption, nct rcnts cxprcsscd as pcrccntagcs ol thc dcprcsscd land
valucs would risc. Arbitragc would communicatc this risc in yiclds to thc
intcrcst ratc in thc morc spccic scnsc. !nvcstmcnt in timcconsuming
production proccsscs would sucr, as is alrcady obvious lrom thc rcduccd
lrccing ol rcsourccs lor such invcstmcnts.
Vaiting, thcn, is thc social lunction (along with othcrs mcntioncd
by Rothbard) lor which thc landowncr is rcwardcd. Saying so mcrcly
notcs a parallcl with thc rcccipt ol intcrcst, it is not mcant to justify thc
privatc owncrship ol land and rcccipt ol land rcnt. Mauricc Allais has cvcn
cxprcsscd somc worrics (cxamincd bclow) about privatc landowncrship
and rcnt collcction.
ix:vvx~:iox~i c~vi:~i :ovv:vx:s :nvoucn
ixvvs::vx: ix i~xb
Anothcr way in which placcmcnt ol savings in land can acct thc intcr
cst ratc and rcal capital lormation is instructivc. Forcigncrs purchasc ol
land in our country docs so. Tc transaction, countcd as capital inow,
contributcs toward a balanccolpaymcnts surplus on capital account and
dccit on currcnt account. uring a pcriod ol adjustmcnt, imports ol
goods and scrviccs cxcccd cxports: our pcoplc gain thc additional rcal
rcsourccs cmbodicd in thc nct imports. Tc lorcigncrs pcrlorm waiting
lor our country by surrcndcring thcsc rcsourccs currcntly and waiting lor
thc yiclds on thcir ncwly purchascd land. Furthcrmorc, thc lorcign pur
chasc tcnds to bid up land priccs, slightly rcducing pcrccntagc yiclds and,
through arbitragc, thc gcncral intcrcst ratc as wcll. !n this way, capital
inow through lorcign purchascs ol land promotcs domcstic capital lor
mation much thc samc as would capital inow through purchasc ol sccu
ritics. Tis cxamplc rcinlorccs thc analysis ol domcstic saving dcvotcd to
buying land.
vossiniv bivvvsiox ov :nv wiiiixcxvss :o w~i:
nc distinctionbctwccnland and manmadc capital goods holds indcgrcc
il not in csscncc. Tc supply ol land givcn by naturc in xcd quantitics is
highly priccinclastic, whilc quantitics ol most capital goods can rcspond
to pricc. !n somc circumstanccs, thcn, thc dcsirc to accumulatc wcalth
in thc lorm ol land (wcalth, not mcrc acrcagc) can bc mct through mcrc
growthinthc markct valuc ol a xcdamount, whilc accumulationol wcalth
a.a Part : Economics
as capital goods ordinarily prcsupposcs an incrcasc at lcast partly in physi
cal quantity. Mauricc Allais nds this distinction important (.,, vol. ii:
chap. ix and passim, passagcs on this and rclatcd topics rcvicwcd bclow
arc widcly scattcrcd in his two volumcs).
Pcoplcs ovcrall willingncss to wait, if it wcrc somchowprcdctcrmincd,
would promotc capital lormation all thc morc il pcoplc did not havc thc
option ol waiting through owncrship ol land in particular. Accumulation
ol wcalth in bidup land valucs partially gratics thc ovcrall willingncss to
wait, lcaving lcss ol that willingncss lor satislaction in ways that ultimatcly
rcsult in capital lormation.
Allaiss point scrvcs a dccpcr undcrstanding ol capital and intcrcst,
but no policy conclusions immcdiatcly lollow. !t conccrns ho. thc tastc
lor waiting is graticd. !t docs not contradict rccognition that waiting pcr
lormcd through landowncrship makcs thc intcrcst ratc lowcr and capital
construction and maintcnancc grcatcr than thcsc would bc il thc waiting
so pcrlormcd did not occur at all, not cvcn through owncrship ol wcalth
in othcr lorms.
!t docs sccm plausiblc that waiting is morc attractivc and thcrclorc
morc abundant ovcrall withthan without thc landowncrship option. Allais
sccms to takc thc ovcrall supply ol waiting tacitly lor grantcd, howcvcr,
and to supposc that il thrilt could not nd an outlct in landowncrship, it
would all scck an outlct in owncrship ol capital goods, cithcr dircctly or
through sccuritics, lurthcr lowcring thc intcrcst ratc and promoting rcal
capital lormation.
Tc opportunity to accumulatc wcalth as privatcly owncd land cuts
two ways. n thc onc hand, it broadcns thc opportunitics opcn to savcrs,
thcrcby improving thc ovcrall attractivcncss ol waiting and so prcsum
ably incrcasing its total pcrlormancc (assuming, anyway, a normal rathcr
than backbcnding rcsponsc to its rcwards). n thc othcr hand, thc land
owncrship option divcrts somc lraction ol total waiting away lrom capi
tal lormation into accumulation ol privatc wcalth in thc socially rathcr
ctitious lorm ol bidup land valucs. Tc inclasticity ol lands supply
is rclcvant: strcngthcncd dcmand incrcascs its quantity much lcss than
its markct valuc (and not mcrcly nominal pricc but valuc rclativc to
othcr things). !t is not obvious whcthcr thc absolutc volumc ol wait
ing dcvotcd to capital lormation is largcr or smallcr than it would bc il
thc growth ol land valucs did not accruc to privatc owncrs. Allais cvi
dcntly bclicvcs that it is smallcr, which is why hc wants to rcstrain that
accrual.
Chapter z:: Land, Money, and Capital Formation a.
A loosc analogy holds hcrc with crcation and dcstruction ol tradc as
analyzcd by thc thcory ol customs unions. A union opcns somc tradc
among mcmbcr countrics that tradc barricrs had lormcrly blockcd, but
it also divcrts to within thc union somc tradc lormcrly carricd on with
thc outsidc world. !n thc abscncc ol spccic lacts, onc cannot concludc
which dominatcsthc bcncts lrom tradc crcation or thc damagc lrom
tradc divcrsion. !n thc prcscnt contcxt, similarly, it is not obvious which
ccct ol privatc landowncrship prcvailsthc cncouragcmcnt ol total wait
ing or thc divcrsion ol somc waiting into accumulation ol socially ctitious
wcalth.
Tis rcmark about cncouragcmcnt and divcrsion nccds to bc sharp
cncd. Rcal rcsourccs cannot bc divcrtcd into accumulation ol ctitious
wcalth, what can bc divcrtcd, rathcr, is thc .illingness to postponc con
sumption and accumulatc and hold wcalth. !t is thus incxact in this con
tcxt to worry ovcr any divcrsion ol saving apart and distinct lrom its
dccrcasc. Allaiss worry must mcan that thc propcnsity to savc or wait
is graticd and soppcd up by accumulation ol wcalth that, though gcn
uinc lrom thc privatc point ol vicw, is ctitious lrom thc point ol vicw ol
socicty as a wholc. Tis ctitious wcalthvalucs crcatcd by compctition
to own land that would physically cxist anywaymakcs thc cconomywidc
propcnsity to savc slightcr (as ! intcrprct his vicw) than it would othcrwisc
bc. (Tc conccpts ol supply or divcrsion ol waiting and thc possiblc wastc
ol willingncss to supply it spcak lurthcr, by thc way, in lavor ol thc vicw
ol waiting as a lactor ol production.)
mphasizing thc divcrgcncc ol vicwpoints lurthcr clarics Allaiss
point. 8y owning land, thc individual is translcrring consumption lrom
thc prcscnt to thc luturc lor himscll but not lor socicty cxccptand thc
cxccption is importantinsolar as substitution and arbitragc promotc
capitalgoods accumulation and thc likc bccausc ol waiting as such rathcr
than bccausc ol waiting pcrlormcd through landowncrship in particular.
Trough landowncrship, waiting can bc donc lrom thc privatc point ol
vicw that is not waiting lrom thc social point ol vicw. (Vaiting pcrlormcd
through landowncrship and othcrwisc not pcrlormcd at all, howcvcr, docs
promotc capitalgoods construction through substitution and arbitragc,
so that thc damagc donc through divcrsion ol waiting into landowncrship
is partially and conccivably cvcn morc than lully osct.)
A reductio ad absurdum hclps convcy Allaiss point. !l saving and rcal
capital lormation wcrc to bring thc marginal productivity ol invcstmcnt
and thc intcrcst ratc cxtrcmcly low, capitalizing land rcnts at that ratc
a. Part : Economics
would makc land valucs cxtrcmcly high. As landcd wcalth grcw lrom thc
privatc point ol vicw, it would dctcr saving through a positivc ccct on thc
propcnsity to consumc. Tus thc tcntativcly supposcd grcat saving, capital
accumulation, and rcduction ol thc marginal productivity ol invcstmcnt
and thc intcrcst ratc would not go to such an cxtrcmc in thc rst placc. An
incrcasc in wcalth lrom thc privatc though not lrom thc social point ol
vicw docs tcnd to chcck saving and rcal capital lormation. Tat particular
chcck would bc abscnt il savcrs wcrc dcnicd thc opportunity to acquirc
land.
cn~xcvs ix :~s:vs ov voiicivs
Somc cxamplcs ol changc may rcinlorcc thc analysis. Supposc that pcoplc
bccomc morc thrilty and that thcy initially dircct thcir incrcascd propcn
sity to wait to landowncrship. Land riscs in pricc, making morc monc
tary wcalth availablc to bc accumulatcd as land. From thc social point ol
vicw, howcvcr, this incrcasc in opportunitics lor waiting is spurious. Tc
incrcascd propcnsity to wait will go partly into holding an unaugmcntcd
physical amount ol land at highcr priccs rathcr than prcdominantly into
holding an incrcascd amount ol capital goods.
Supposc that although thc ovcrall dcgrcc ol thrilt has not changcd,
wcalthowncrs prclcrcnccs about thc kind ol wcalth thcy hold docs
shilttoward land and away lrom capital goods and sccuritics issucd to
nancc thcm. Tc bidup lcvcl ol land priccs incrcascs thc amount ol
landcd wcalth lrom thc privatc point ol vicwthis is a mattcr ol arith
mcticbut not lrom thc social point ol vicw.

Tis socially ctitious

wcalth hclps satisly its owncrs dcsirc lor accumulatcd savings and thus
compctcs with satislying that dcsirc through nancing thc construction ol
ncw rcal wcalth with rcsourccs divcrtcd lrom currcnt consumption. Tis
is not to say that thc ctitious landcd wcalth rcduccs thc willingncss to
savc or wait as dcscribcd by a schcdulc or lunction. !nstcad, landcd wcalth
lrom thc privatc point ol vicw lorms part ol thc wcalth argumcnt in thc
saving lunction. Tc morc wcalth pcoplc alrcady hold, thc wcakcr is thcir
inccntivc to accumulatc still morc. Tc ccct in qucstion is thc socallcd
wcalth or Pigou or rcalbalancc ccct (an ccct rcvicwcd bclow in conncc
tion with how thc cxistcncc ol money also accts thc intcrcst ratc, saving,
and rcal capital lormation).

Asscts lrom which dcmand has shiltcd away prcsumably dcclinc in pricc, but thcy
are ol kinds associatcd with capital lormation.
Chapter z:: Land, Money, and Capital Formation a.
Supposc a changc in policy. A ncw tax (or, almost cquivalcntly, somc
sort ol ncwsocial stigma) makcs landowncrship lcss attractivc than bclorc.
Tc old ratc ol rcturn on land is inadcquatc. Landowncrs try to scll thcir
holdings and shilt into sccuritics until, at its rcduccd pricc, land bcars
a pcrccntagc ratc ol rcturn sucicntly highcr than thc ratc on bonds to
compcnsatc lor thc ncw disadvantagcs ol owning it. Ncithcr land itscll
nor its scrviccs havc bccomc any morc or lcss abundant than bclorc, and
nothing obvious works unambiguously to raisc or rcducc thc priccs ol its
scrviccs. Still, thc dcvclopmcnt that madc pcoplc want to scll land and buy
bonds dcprcsscs thc bond intcrcst ratc and promotcs rcal capital lorma
tion. Vith thcir priccs rcduccd, thc unchangcd physical quantitics ol land
absorb lcss ol thc ovcrall propcnsity to wait or savc, assumcd to rcmain
unchangcd.
Tc lollowing qucstion might sccm to discrcdit Allaiss analysis. !l
thc ovcrall propcnsity to savc or wait has not incrcascd, whcrc do thc
additional rcsourccs lor capitalgoods construction comc lrom: How do
additional rcsourccs gct rclcascd lrom providing currcnt consumption: To
answcr, wc must distinguish bctwccn thc dcgrcc ol thrilt, in othcr words,
thc propcnsity to savc or wait, cxprcssiblc as a lunction ol scvcral vari
ablcs, and thc actual volumc ol saving or waiting pcrlormcd. (Comparc
thc distinction bctwccn thc schcdulc ol dcmand lor somcthing and thc
amount dcmandcd or thc distinction bctwccn thc Kcyncsian consump
tion lunction and thc actual volumc ol consumption.) Tc answcr is that
thc rcduccd attractivcncss ol land as an outlct lor thc propcnsity to savc
accts thc dircction ol that propcnsity at thc margin in such a way lcwcr
rcsourccs do indccd go into currcnt consumption and morc into capital
lormation.
Two ways ol analyzing thc rcsult ol thc ncw tax or stigma attachcd
to landowncrship might sccm to contradict cach othcr. n thc onc hand,
pcnalizing waiting in a particular lormwould prcsumably hclp makc aggrc
gatc waiting lcss attractivc, scarccr, and costlicr. n thc othcr hand, thc
tax or stigma would rcducc thc landwcalth dctcrrcnt to saving and so pro
motc satislying thc propcnsity to savc through nancing thc construction
ol rcal wcalth.
Tc dicrcncc in possiblc conclusions traccs to dicrcnccs in tacit
assumptions. nc strand ol analysis assumcs that thc pcnalty on waiting
pcrlormcd through owning land dctcrs waiting ovcrall. !t assumcs rcla
tivcly slight substitutability among lorms ol waiting: not all thc waiting
displaccd lrom onc particular lorm, land, switchcs to othcrs, and thc total
a.6 Part : Economics
volumc gocs down. Anothcr strand, Allaiss, tacitly assumcs high substi
tutability: thc propcnsity to savc will bc satiscd in somc lorm or othcr,
and il satislying it in a socially ctitious way is madc lcss attractivc, morc
will bc satiscd through rcal capital lormation.
Tis sccond strand ol analysis tacitly supposcs that land simply cxists.
!l it can bc crcatcd and dcstroycd, thcn thc argumcnt is strongcr lor
trcating it likc any othcr capital good. !l land docs not, in lact, go on
yiclding a strcam ol scrviccs that rcmains unimpaircd lorcvcr dcspitc thc
conditions ol owncrship, thcn thc signals and inccntivcs transmittcd by
thc pricc systcm can usclully guidc thc cxploitation and conscrvation ol
dcplctablc rcsourccs, whcthcr or not thcy arc straightlorwardly rcplacc
ablc. Rcstricting privatc owncrship ol rcsourccs and ol incomcs lromthcm
would impair thcsc signals and inccntivcs. Anthony Scott (.) dcvcl
ops this point at lcngth. Hc lurthcr argucs, among othcr things, that
nothing is sacrcd about conscrving dcplctablc rcsourccs in thcir original,
naturcgivcn lorm, manmadc capital goods can oltcn scnsibly rcplacc
thcm. 8ccausc invcstmcnts in rcsourcc conscrvation and in manmadc
capital goods arc csscntially similar, maintaining grcatcr stocks ol natu
ral rcsourccs mcans having lcss manmadc capital goodsgivcn thc total
volumc ol invcstablc saving.
Nonc ol thc abovc canccls what was said ncar thc start ol this papcr
about how pcoplcs willingncss to acquirc and hold land rathcr than spcnd
thc procccds ol its salc on currcnt consumption docs tcnd to hold down
thc intcrcst ratc and promotc capital lormation. Nor docs anything canccl
thc rcscrvation, largcly attributablc to Allais, that, gi.en the propensity to
postpone current consumption, conccivcd ol as a lunction ol incomc and
wcalth, thc opportunity to accumulatc privatc wcalth in thc lorm ol land,
as comparcd with its abscncc, docs tcnd to absorb thc propcnsity to wait
in such a way as to impcdc capital lormation.
Allais is not thc only cconomist to mcntion land (as wcll as moncy, scc
a latcr scction) in an analysis ol unproductivc divcrsion ol thc willingncss
to savc, so docs Maxwcll J. Fry (., p. .,). Tc total markct valuc ol
wcalth, including thc valuc ol land and collcctiblcs, appcars with positivc
sign as an argumcnt in thc cconomys consumption lunction and with a
ncgativc sign in its saving lunction. thcr things cqual, thc largcr this
wcalth tcrm is, thc largcr is thc volumc ol consumption out ol a givcn
rcal incomc and thc smallcr thc volumc ol rcsourccs rclcascd by saving lor
rcal invcstmcnt. Tc morc pcoplc satisly thcir dcsirc to hold savings by
holding wcalth ol a privatcly gcnuinc but socially spurious kind, such as
Chapter z:: Land, Money, and Capital Formation a.,
thc bidup valuc ol collcctiblcs and land, thc lcss thcy satisly thcir dcsircs
lor savings by holding capital goods (or sccuritics issucd to nancc capital
goods).
si:ii~v wovvivs ~nou: coiivc:inivs
As just suggcstcd, a similar worry applics to collcctiblcsld Mastcrs,
antiqucs, rarc coins andstamps, andsimilarly durablc andnonrcproduciblc
asscts. !l a changc in tastcs or circumstanccs strcngthcns thc dcmand lor
thcm (pcrhaps as hcdgcs against ongoing ination), thc intcnsicd bid
ding raiscs thcir priccs. Tcir incrcascd valucnot mcrcly nominal valuc
but valuc rclativc to othcr goods and scrviccsis an incrcasc in wcalth
lor individual holdcrs, but it corrcsponds to no physical incrcasc in wcalth
lrom thc social point ol vicw. Ncvcrthclcss, this socially ctitious wcalth
tcnds to satisly and absorb thc propcnsity to accumulatc savings. Tis ld
Mastcrs wcalth ccct makcs thc volumc ol saving smallcr than it would
othcrwisc bc, rclcasing lcwcr rcsourccs lor capitalgoods construction. !n
contrast, a strcngthcncd dcsirc to savc and accumulatc wcalth in bonds
tcnds to lowcr thc intcrcst ratc and promotc rcal capital lormation, thc
incrcasc in nancial asscts (and liabilitics ol thc bondissucrs) is matchcd
by an incrcascd quantity ol rcal asscts.
Tis parablc ol thc ld Mastcrs is an analytical dcvicc and not a hint at
a policy proposal. !t rcminds us, though, ol onc ol thc costs ol scvcrc ina
tion: disruption ol nancial markcts and divcrsion ol pcoplcs propcnsity
to savc away lrom nancing thc construction ol rcal capital cquipmcnt.
. . . ~xb ~nou: :oxvv
Allais applics his argumcnt about thc sidctracking ol thrilt not only to
land but also to moncy. l coursc, thc vcry cxistcncc ol moncy inucnccs
thc rcal lundamcntals, thc contrast with a bartcr cconomy is sharp. 8ut a
Pigou or wcalth or rcalbalancc ccct (Patinkin .6, .,/.a) can havc
thc rcgrcttcd conscqucnccs. Moncy, and cspccially a risc in thc purchas
ing powcr ol a givcn nominal moncy supply, may constitutc wcalth or
an incrcasc in wcalth lrom thc privatc il not thc social point ol vicw and
so may incrcasc thc ovcrall propcnsity to consumc and rcducc thc ovcrall
propcnsity to savc.
Tc rcalbalancc ccct is probably most lamiliar in rclutation ol Kcy
ncsian worrics about too great a propcnsity to savc, which in turn arc
a. Part : Economics
probably morc lamiliar than Allaiss quitc dicrcnt worry. Tc ccct ol
monctary wcalth on thc propcnsity to savc can in principlc solvc any sup
poscd problcmol uncmploymcnt and idlc productivc capacity duc to ovcr
saving and dccicncy ol ccctivc dcmand. !n thc abscncc ol any othcr
solution, pricc and wagc dcation would cvcntually makc thc rcal valuc
ol thc nominal moncy supply adcquatc to support a lullcmploymcnt vol
umc ol ccctivc dcmand. (For lamiliar rcasons, ol coursc, this automatic
solution is not thc casicst or bcst onc.)
Morc important in thc prcscnt contcxt, thc rcalbalancc ccct illumi
natcs Allaiss worry. Saving and rcal capital lormation may bc curtailcd
not just lrom a dcationary incrcasc in thc rcal valuc ol a givcn nominal
moncy supply but cvcn lrom thc availability ol moncy as an altcrnativc to
holding capital goods and stocks and bonds. ( Jamcs Tobins vcrsion ol thc
argumcnt, .6, is bcttcr known than Allaiss.)
Tc rcason lor this worry about moncy is similar to thc rcason lor
worry about land. !l pcoplc can postponc consumption by holding moncy
or land or ld Mastcrs as wcll as by holding manmadc capital goods
or sccuritics that nancc thcm, thcn part ol thcir propcnsity to savc or
wait is divcrtcd lrom channcling rcsourccs into capitalgoods construc
tion. Moncy is wcalth lrom thc point ol vicw ol thc individual owncr,
and holding it contributcs to satiating his ovcrall propcnsity to savc or
wait, but it is not wcalth in thc samc way and to thc samc cxtcnt lor thc
cconomy at largc.
Tc phrasc in thc samc way and to thc samc cxtcnt is a hcdgc. vcn
lrom thc social point ol vicw, moncy is not mcrc ctitious wcalth. !t clim
inatcs thc lrustrations and costs ol bartcr. !t lacilitatcs nancial intcrmc
diation and capital lormation. !t rcndcrs scrviccs to its holdcrs. A largcr
cash balancc pcrmits lcss attcntion to synchronizing paymcnt inows and
outows and lcss usc ol labor and matcrials in managing thc holdcrs cash
position. Vhat rcndcrs thcsc scrviccs is rcal and not mcrcly nominal cash
balanccs. Rcal moncy is pcculiar in that its quantity is dctcrmincd on thc
dcmand sidc. Tcrc is no way ol simply supplying morc rcal moncy to an
cconomy unlcss holdcrs arc somchow induccd to dcmand morc ol it (as
thcy would bc induccd whcn nominal moncy cxpansion hclps rcstorc a
dcprcsscd cconomy to lull cmploymcnt). (An cxccption is rathcr trivial:
monctary ination can incrcasc thc rcal moncy stock tcmporarily until
priccs havc caught up.) Tc justmcntioncd hcdgc applics to land as wcll
as to moncy. Land is socially usclul, ol coursc, as arc ld Mastcrs. 8ut
thcy havc a socially ctitious wcalth aspcct also.
Chapter z:: Land, Money, and Capital Formation a.
Supposing a ccrtain typc ol changc ol tastcs hclps us undcrstand this
divcrgcncc bctwccnprivatc andsocial vicwpoints. Althoughpcoplc rcmain
as willing as bclorc to postponc consumption by holding asscts, thcy dcsirc
to holdmorc ol thcir wcalthas moncy andlcss inothcr lorms. Tc rcsulting
initial cxccss dcmand lor cash balanccs (and dccicnt dcmand lor goods
and scrviccs) tcnds to dcatc priccs and wagcs. Tc corrcsponding risc in
thc rcal valuc ol thc unchangcd total nominal moncy supply is an incrcasc
in rcal wcalth lor individual holdcrs, but it is lcss lully so lrom thc social
point ol vicw. Yct this incrcasc in privatc rcal monctary gocs toward satisly
ing pcoplcs willingncss to postponc consumption and accumulatc wcalth,
it makcs thc propcnsity to consumc highcr and thc propcnsity to savc lowcr
than thcy would othcrwisc bc. Fcwcr rcal rcsourccs arc rclcascd lrom pro
viding currcnt consumptionand madc availablc lor capitalgoods construc
tion. Tc morc ol this quasictitious wcalth pcoplc hold, thc lcss rcal
wcalth (including capital goods) thcy want to accumulatc. !n short, thc
availability ol wcalth in thc lorm ol cash balanccs divcrts somc ol pcoplcs
propcnsity to wait away lrom thc accumulation and construction ol rcal
capital goods.
Allais accordingly rcgrcts thc opportunity opcn to savcrs to accumu
latc thcir savings partly in thc lormol moncy. Tc problcmwould bc worsc
whcn pricclcvcl dcation was actually rcwarding thc holding ol moncy
rathcr than physical asscts (or sccuritics nancing thcm). Growth in thc
rcal valuc ol moncy would bc maintaining ccctivc dcmand lor currcnt
output by satiating an incrcascd dcmand lor rcal cash balanccs, that is, by
stimulating consumption and partially ncutralizing thc publics propcnsity
to savc.
Allaiss proposcd rcmcdy providcs lurthcr insight into his rcasoning.
Hc suggcstcd stampcd moncy (as Silvio Gcscll, ., did but lor a dicr
cnt purposc). Tc tax thus imposcd on cash balanccs would prod pcoplc
to accumulatc wcalth in othcr lorms, such as capital goods or sccuritics.
Almost cquivalcntly, a policy ol chronic mild pricc ination would dis
couragc moncyholding and channcl propcnsitics to savc and accumulatc
into socially morc productivc dircctions. Allais cvcn suggcstcd splitting
apart thc unit ol account and mcdium ol cxchangc. Tc lranc, thc unit
ol account, would bc dcncd so as to havc a stablc valuc. Tc circul,
or mcdium ol cxchangc, would continuously dcprcciatc against thc sta
blc lranc, discouraging holdings ol circuldcnominatcd banknotcs and
dcposits. Usc ol thc circul as unit ol account would bc atly lorbiddcn
(.,, vol. ii: pp. , and passim).
aac Part : Economics
Allais locuscd on what hc considcrcd bcnccial allocation cccts ol
mild ination. Vhat amounts to a tax on rcal cash balanccs motivatcs pco
plc to allocatc a gi.en volumc ol saving lcss toward thcm and morc toward
rcal capital lormation. Tc inationary crosion ol wcalth hcld as cash bal
anccs lurthcr promotcs saving insolar as pcoplc try to rccoup this lost
wcalth (Mundcll .6, .,., chap. a). n thc othcr hand, thc loss ol rcal
balancc scrviccs would itscll tcnd to hampcr cconomic activity (cl. Short
.,).
As lor whcthcr thc willingncss to wait is uscd productivcly or is di
vcrtcd, sccuritics rcscmblc or rcprcscnt capital goods and contrast with
moncy. Ultimatcly, sccuritics can bc bought only il thcy arc issucd, and, by
and largc, thcy arc issucd morc to nancc rcal invcstmcnt than to nancc
consumption. !l cithcr Allaiss tax or ongoing pricclcvcl ination prods
pcoplc away lrom moncy balanccs and into sccuritics, nancing capital
construction bccomcs chcapcr and morc attractivc lor companics. Tc
rcsulting largcr stock ol capital goods, whilc tcnding to raisc thc productiv
ity ol complcmcntary lactors ol production, tcnds to rcducc thosc goods
own marginal productivity and thc marginal productivity ol invcstmcnt,
in linc with thc dcprcsscd intcrcst ratc.
cspitc but not contrary to Allaiss analysis, an incrcasc in ovcrall
thriltincss, cvcn il initially dircctcd toward acquiring largcr rcal moncy
balanccs, docs tcnd to promotc capital lormation, although lcss so than
in thc abscncc ol thc ccct that worricd Allais. on Patinkins appara
tus ol CC

88

LL curvcs (.6, chaps. ixxi) is usclul in showing how.

Although his apparatus, unsupplcmcntcd, docs not distinguish bctwccn
consumcr goods and capital goods, it docs yicld conclusions about changcs
in thc intcrcst ratc (and pricc lcvcl) that in turn suggcst cccts on capi
talgoods construction. A shilt ol prclcrcnccs away lrom goodslrom
currcnt consumption, spccicallytoward holding moncy tcnds to lowcr
thc ratc ol intcrcst and thus promotc capital construction, although morc
slightly than il thc shilt had bccn in lavor ol bonds. (A shilt ol prcl
crcnccs away lrom moncy holdings and in lavor ol bonds would also
tcnd to lowcr thc ratc ol intcrcst and promotc capital construction, as
Patinkins apparatus also illustratcs, in agrccmcnt with Allaiss analysis.)
vcn whcn oricntcd toward moncy, thc willingncss to postponc consump
tion and accumulatc wcalth lavors capital lormation, though in a lcsscr
dcgrcc than whcn oricntcd to capital goods dircctly or to sccuritics lor
nancing thcm. !n a scnsc, moncy itscll can bc a vchiclc ol nancial intcr
mcdiation, a mcans ol convcying command ovcr rcsourccs lrom savcrs to
Chapter z:: Land, Money, and Capital Formation aa.
rcal invcstors (a rolc ol moncy cxplaincd in McKinnon .,, Shaw .,,
and Ycagcr .,). Tis possibility hingcs on thc naturc ol thc particular
monctary systcm.
Allaiss objcction to nontaxcd and noninationary moncy is bcst intcr
prctcd, thcn, not as dcnying moncys nancialintcrmcdiary lunction but
as cmphasizing that ccrtain typcs ol moncy pcrlorm that lunction impcr
lcctly. Allais himscll rccognizcd that crcating ncw moncy in ways that
tcndcd to lavor rcal invcstmcnt, as through bankcrcdit cxpansion lor that
purposc, could morc or lcss ncutralizc thc anticapitallormation ccct
that hc worricd about (.,, vol. i: chap. viii, csp. pp. c). Tc vcry
issuc ol ncw moncy to mcct a strcngthcncd dcmand lor moncy (instcad
ol lctting pricc dcation incrcasc thc rcal valuc ol thc cxisting nominal
supply) could hclp convcy to rcal invcstors thc command ovcr rcsourccs
rclcascd by savcrs acquiring thc ncw moncy.
Tis ccct is a mild vcrsion ol lorccd saving (cl. Hansson .a),
although thc tcrm may bc incxact in thc mild and noninationary casc
considcrcd hcrc. !n thc prototypical casc, ncw moncy loancd to invcstors
cnablcs thcm to bid rcsourccs away lrom othcr pcoplc, who arc lorccd
to consumc lcss as ination shrinks thc purchasing powcrs ol thcir
incomcs, moncy holdings, and othcr nominal claims. !n thc prcscnt
mild casc, ncw moncy appcars mcrcly in amounts that mcct a growing
dcmand at thc cxisting pricc lcvcl (lor cxamplc, a growing dcmand lor
rcal moncy balanccs associatcd with cconomic growth). Tc manncr in
which additional rcal and nominal moncy comcs into circulation morc
or lcss corrccts lor thc consumptionpromoting divcrgcncc bctwccn thc
privatc and social vicws ol moncy as wcalth. An incrcascd willingncss
to wait, cvcn by way ol holding moncy, docs thcn promotc capital con
struction.
Tis rcsult can arisc lrom thc mcrc existence and not just thc expansion
ol moncy that is matchcd on thc assct sidcs ol its issucrs balancc shccts
by loans to rcal invcstors. As ncw invcstmcntrclatcd loans rcplacc old
oncs bcing paid o, cvcn with thcir total amount unchangcd, thc moncy
matching thcm continucs scrving as a vchiclc ol intcrmcdiation. Tc con
tinuing opportunity to hold savings in that lorm promotcs rathcr than
dctcrs waiting dcvotcd to maintcnancc or rcplaccmcnt ol capital goods.
Likc othcr instrumcnts ol intcrmcdiation, moncy hclps hold down thc
sprcad bctwccn thc ccctivc intcrcst ratcs (nominal ratcs plus and minus
pccuniary and nonpccuniary advantagcs and costs) that lcndcrs rcccivc
and that borrowcrs pay.
aaa Part : Economics
Tc altcrnativc mcthod ol accommodating a strcngthcncd dcmand
lor rcal moncy balanccs in a growth contcxt works through pricclcvcl
dcation. Allaiss worry docs apply to that mcthod. !t applics most straight
lorwardly to moncy bascd on a commodity, likc gold, whosc production
uscs up rcal rcsourccs, to govcrnmcnt at moncy ol xcd nominal quantity,
and to bank moncy lully backcd by such gold or such at moncy. !t also
applics to moncy crcatcd to nancc consumption (including govcrnmcnt
budgct dccits).
!n short, Allaiss worry about thc proconsumption/antisaving inu
cncc ol wcalth hcld in rcal moncy balanccs is not rclutcd by a dicrcnt con
sidcration pulling in thc oppositc dircction. Allais himscll rccognizcd it:
cxistcncc and growth ol thc dcmand lor moncy providc opportunitics lor
thc noninationary crcation ol ncw moncy to nancc invcstmcnt projccts.
!t is not clcar that thc ccct that conccrncd Allais is quantitativcly
important. Rclativc to thc volumcs ol saving and invcstmcnt and nancial
intcrmcdiation routincly accomplishcd anyway, only prcsumably small vol
umcs might bc lrustratcd by abscncc ol suitablc growth ol thc nominal
moncy and ol Allaiss mcasurcs to dctcr moncyholding. Still, that ccct
was worth dcscribing bccausc ol its parallcl with thc similar and suppos
cdly worrisomc ccct ol land.
~ bvvvc:ivv :vivscovic v~cui:v-
As is cvidcnt lrom his argumcnts summarizcd abovc, Allais, along with
somc othcr cconomists, thinks that thc markctdctcrmincd ovcrall ratc
ol saving and capital lormation is too low. An cxccssivc markct ratc ol
intcrcst rcccts and implcmcnts an inadcquatc dcgrcc ol conccrn lor thc
luturc. A pcrsons choiccs bctwccn consumption today and consumption
tcn or twcnty ycars latcr arc madc by thc prcscnt pcrson only. Tc luturc
pcrson, who might wcll prclcr a morc luturcoricntcd allocation, has no
say in thc mattcr. Tc statc knows bcttcr and might lcgitimatcly imposc
lorccd saving through taxation (.,, vol. i: pp. aac n., aa.aa, vol. ii:
pp. a, similar thoughts arc scattcrcd widcly through both volumcs,
on individuals tclcscopic laculty bcing dclcctivc or pcrvcrtcd, com
parc Pigou .a/.c, pp. aa6, and Scott ., chap. , A Social Ratc ol
Timc Prclcrcncc). n all this, rcmcmbcr that Allais was writing back in
.,, bclorc thc accumulation ol subscqucnt cxpcricncc with govcrnmcnt
cconomic and budgctary policics and bclorc thc dcvclopmcnt ol public
choicc thcory.
Chapter z:: Land, Money, and Capital Formation aa
coxciusiox
Privatc owncrship ol land has a social lunction. !n lrccing rcsourccs lrom
scrving currcnt consumption whilc waiting lor lands pcriodic rcnts and
luturc sclling pricc, thc owncr is supplying a productivc scrvicc. !t is csscn
tially thc samc as thc waiting lor which lcndcrs rcccivc intcrcst. n thc
othcr hand, thc volumcs ol this scrvicc and ol thc rcsulting rcal capital
lormation would bc still grcatcr il privatc and social vicwpoints ol landcd
wcalth did not divcrgc and il thc Pigou or wcalth ccct did not dctcr sav
ing. Quitc similar rcmarks apply to somc othcr vchiclcs ol waiting, notably
collcctiblcs and moncy.
Tc cntirc lorcgoing discussion scrvcs an analytical purposc only and
is not mcant, by itscll, cithcr to justily or to condcmn thc privatc collcction
ol land rcnts. !t docs not claim that thc cccts dcscribcd arc quantitativcly
important and dctcctablc amidst all thc constantly occurring changcs in
cconomic conditions. For this and othcr rcasons, thc discussion docs not
rccommcnd any particular policy. Policy proposals arc mcntioncd to hclp
clarily thc analysis that undcrpins thcm.
vvvvvvxcvs
Allais, Mauricc. conomie et Intert. a vols. Paris: !mprimcric Nationalc, .,.
Casscl, Gustav. Te Nature and Necessity of Interest. .c. Ncw York: Augustus M.
Kcllcy, .6.
Fry, Maxwcll J. Money, Interest, and Banking in Economic De.elopment. 8altimorc:
Johns Hopkins Univcrsity Prcss, ..
Gcscll, Silvio. Te Natural Economic Order. San Antonio, Tcx.: Frcc conomy
Publishing, ..
Hansson, 8jorn. Forccd Saving. !n Te Ne. Palgra.e Dictionary of Money .
Finance, cditcd by Pctcr Ncwman, Murray Milgatc, and John atwcll, vol. a:
.c.a. Ncw York: Stockton Prcss, .a.
McKinnon, Ronald !. Money and Capital in Economic De.elopment. Vashington,
.C.: 8rookings !nstitution, .,.
Mundcll, Robcrt. !nation and Rcal !ntcrcst. Journal of Political Economy ,.
( Junc .6): aca.
. Monetary Teory. Pacic Palisadcs, Calil.: Goodycar, .,..
aa Part : Economics
Patinkin, on. Money, Interest, and Prices. a cd. Ncw York: Harpcr & Row,
.6.
. Rcal 8alanccs. .,. !n Te Ne. Palgra.e Dictionary of Money .
Finance, cditcd by Pctcr Ncwman, Murray Milgatc, and John atwcll, vol. :
aa. Ncw York: Stockton Prcss, .a.
Pigou, A.C. Te Economics of !elfare. .a. ' cd. London: Macmillan, .c.
Rothbard, Murray N. Man, Economy, and State. a vols. Princcton, N.J.: . \an
Nostrand, .6a.
Scott, Anthony. Natural Fesources: Te Economics of Conser.ation. Toronto: Uni
vcrsity ol Toronto Prcss, ..
Shaw, dward S. Financial Deepening in Economic De.elopment. Ncw York:
xlord Univcrsity Prcss, .,.
Short, ugcnic udding. A Ncw Look at Rcal Moncy 8alanccs as a \ariablc in
thc Production Function. Journal of Money, Credit, and Banking .. (August
.,): a6.
Tobin, Jamcs. Moncy and conomic Growth. Econometrica (ctobcr .6):
6,.6.
Ycagcr, Lcland 8. !njcction ccts and Monctary !ntcrmcdiation. !n Te Flut-
tering !eil , cditcd by Gcorgc Sclgin. !ndianapolis: Libcrty Fund, .,.
cn~v:vv +
Tacit Prcachmcnts arc
thc Vorst Kind

vvv~cnixc ~xb coux:vv:v:noboiocv

Somc ycars ago ! gavc a talk on Tc Cursc ol Mcthodology. Tat unlor
tunatc titlc appcarcd to dcny that mcthodology comcs in good varictics
as wcll as bad. Still, good mcthodology is mostly countcrmcthodology,
which strivcs to lrcc working cconomists lrom mcthodological prcssurcs.
Tc worst prcachmcnts, which wcrc and rcmain my main targct, arc
thc pcrvasivc, tacit, dimly idcnticd kind. Countcrmcthodology can drag
thcm into thc opcn, cxposing thcm to inspcction and, whcn appropriatc,
to ridiculc. As il to ward o this cxposurc, howcvcr, thc practitioncrs ol
tacit mcthodology appcar to taboo cxplicit mcthodtalk.
.
! ocr this and othcr rcmarks about thc statc ol acadcmic cconomics
not as condcnt asscrtions but as conjccturcs and as possiblc cxplanations
ol what wc do obscrvc. Vc havc an opportunity to conlcss our suspicions
and to comparc and chcck thcm out. ! quotc and paraphrasc scholars
whosc writings documcnt my points or who sharc my pcrccptions and
! also usc lootnotcs all morc cxtcnsivcly than prcccpts ol good writing
stylc might othcrwisc rccommcnd. !nvoking rcspcctablc company itscll
provcs nothing, but it assuagcs my uncasincss.
!n part, admittcdly, !ll bc cxprcssing pcrsonal piquc. vcn somc cxpc
ricnccs with cxplicit mcthodologizing prod mc. Tcy includc all too many
Austrian scminars at two or thrcc univcrsitics in which discussion rou
tincly dcgcncratcd lromthc substantivc to thc mcthodological. ! havc sccn
disscrtationwritcrs (at thc Univcrsity ol \irginia) badgcrcd about what
thcir modcls might bc or what hypothcscs thcy wcrc tcsting (and havc

From Journal of Economic Methodology a, no. . ( Junc .): ..

.
|M|cthodtalk is asscrtcd to bc taboo in cconomics, whcn in lact it is surpasscd in
its ubiquity only by discussion ol othcr pcoplcs salarics (Mirowski .a, p. a6).
aa
aa6 Part : Economics
cxpcricnccd somc badgcring myscll ). ! havc hcard all too much praisc ol
mcthodological articlcs that did not risc abovc pointlcss prolundity.
a
Somc cconomists, thcn, though a minority, arc lascinatcd with mcth
odology. Vhy: Could thcy bc dclightcd with thcir own brcadth ol lcarn
ing, as in cpistcmology and thc philosophy ol scicncc: Could thcy bclicvc
that such prolundity and wisdom must havc grcat signicancc, somchow,
lor thcir own cld: Pcrhaps it hclps makc a splash to proposc import
ing into cconomics, cvcn without rclcrcncc to any gcnuinc qucstions or
problcms, idcas and tcchniqucs liltcd lrom othcr clds. xamplcs includc
notions ol Ncwtonian and 8crgsonian timc, conccpts ol hcrmcncutics,
psychological notions, and mathcmatical tcchniqucs lrom cnginccring.
Far bc it lrom mc to taboo such borrowings, but thc tcst should bc
not whcthcr thcy conlcr a supposcd cachct on thc borrowcrs but whcthcr
thcy lurthcr gcnuinc invcstigations. Nor do ! want to lccturc mcthodolo
gists against thc plcasurc ol wallowing in thcir lavoritc prolunditicsnot
unlcss thcy cxpcct othcr pcoplc admiringly to join in.
Mcthodologists gct a handlc on othcr pcoplc as tcachcrs, disscrtation
supcrvisors, journal cditors and rclcrccs, conlcrcncc organizcrs, partici
pants in tcnurc and promotion dccisions, writcrs ol lcttcrs ol rccommcn
dation, and mcmbcrs ol lcllowship and rcscarch committccs. Pcoplc in
such rolcs almost ncccssarily issuc advicc or apply rcquircmcnts. Tosc
pcoplc may dcscrvc somc advicc in turn, cvcn though it may sound likc
mcthodology itscll.
onald McCloskcy (., csp. pp. aa6) distinguishcs thrcc lcvcls
ol mcthodology. Tc bottom lcvcl, unobjcctionablc and ncccssary, con
sists ol tcaching nuts and bolts likc how to construct an dgcworth box,
run a rcgrcssion, and punctuatc a scntcncc. Tc top lcvcl, Sprachcthik,
also unobjcctionablc, calls lor constructivc dialoguc. Scholars should try to
communicatc clcarly and avoid shouting and othcr tricks ol intimidation.
n thc middlc lcvcl wc nd pronounccmcnts about mathcmatics,
cconomctrics, modcling, cmpiricism, armchair thcorizing, mcthodologi
cal individualism, usc ol aggrcgatcs and avcragcs, usc ol qucstionnaircs,
cxpcrimcntation, and so on. Mcthodologists discuss whcthcr thc sup
poscd mcthods ol thc natural scicnccs bclong in cconomics, whcthcr
a
Paul Samuclson was avowcdly joking, but probably only halljoking, whcn hc
rcportcd a ncgativc corrclation bctwccn thc lruitlulncss ol scicntic disciplincs and thcir
propcnsity to cngagc in mcthodological discussion. . . . |S|olt scicnccs spcnd timc in talk
ing about mcthod bccausc Satan nds tasks lor idlc hands to do. Naturc docs abhor a
vacuum, and hot air lls up morc spacc than cold (.6, in Caldwcll ., p. .).
Chapter z: Tacit Preachments are the !orst Kind aa,
cconomics is morc likc physics or biology, whcthcr notions lrom anthro
pology and litcrary criticism and othcr disciplincs should bc importcd,
and what should bc rcgardcd as thc Lakatosian hard corc ol cconomics.
Such middlclcvcl mcthodologizing is prcsumptuous and ocious.

Anyonc who has rclcrccd lor journals knows that hitching onto
lads, routinc originality, unncccssary polcmics, prctcntiousncss, tcdium,
and bad writing abound. Mcthodology will hardly rcmcdy thcsc dclccts
bccausc, lor onc thing, no singlc bcst mcthod is availablc. Tc acadcmic
division ol labor lcavcs no prcsumption that all rcscarchcrs should tacklc
thc samc problcms in thc samc way.

Tc mcthodologist undcrtakcs to sccondgucss thc scicntic community, hc

claims prcscicncc, prctcnds to know how to achicvc knowlcdgc bclorc thc knowlcdgc
to bc achicvcd is in placc, insists on an articially narrowcd rangc ol argumcnt, and
lay|s| down lcgislation lor scicncc on thc basis ol cpistcmological convictions hcld with a
vchcmcncc invcrscly proportional to thc amount ol cvidcncc that thcy work (McCloskcy
., pp. ac, 6, , .).
Tc particular cxamplcs ol cxhortation and taboo mcntioncd in thc tcxt arc morc minc
than McCloskcys.

K. Klappholz and J. Agassi dcplorc thc illusion that thcrc can cxist in any sci
cncc mcthodological rulcs thc mcrc adoption ol which will hastcn its progrcss and warn
against thc bclicl that, il only cconomists adoptcd this or that mcthodological rulc, thc
road ahcad would at lcast bc clcarcd (and possibly thc trac would movc briskly along
it). Tcy will hccd only thc gcncral cxhortation to bc critical and always rcady to subjcct
oncs hypothcscs to critical scrutiny. Additional rulcs to rcinlorcc this gcncral maxim arc
likcly to bc lutilc and possibly harmlul (., pp. 6c, ,).
Tc physicist P.V. 8ridgman likcd to say that
thcrc is no scicntic mcthod as such, but that thc most vital lcaturc ol thc scicntists
proccdurc has bccn mcrcly to do his utmost with his mind, no holds barrcd. Tis
mcans in particular that no spccial privilcgcs arc accordcd to authority or to tradi
tion, that pcrsonal prcjudiccs and prcdilcctions arc carclully guardcd against, that
onc makcs continucd chcck to assurc oncscll that onc is not making mistakcs, and
that any linc ol inquiry will bc lollowcd that appcars at all promising. . . . Tc socallcd
scicntic mcthod is mcrcly a spccial casc ol thc mcthod ol intclligcncc, and any appar
cntly uniquc charactcristics arc to bc cxplaincd by thc naturc ol thc subjcct mattcr
rathcr than ascribcd to thc naturc ol thc mcthod itscll. (8ridgman ., p. )
! think that thc objcctivcs ol all scicntists havc this in commonthat thcy arc all
trying to gct thc corrcct answcr to thc particular problcm in hand. . . . Vhat appcars
to |thc working scicntist| as thc csscncc ol thc situation is that hc is not consciously
lollowing any prcscribcd coursc ol action, but lccls complctc lrccdom to utilizc any
mcthod or dcvicc whatcvcr which in thc particular situation bclorc him sccms likcly
to yicld thc corrcct answcr. !n his attack on his spccic problcm hc sucrs no inhi
bitions ol prcccdcnt or authority, but is complctcly lrcc to adopt any coursc that his
ingcnuity is capablc ol suggcsting to him. No onc standing on thc outsidc can prcdict
aa Part : Economics
Vhcthcr thc natural and social scicnccs arc lundamcntally similar or
lundamcntally dicrcnt is a pointlcss conccrn. Vhat docs lundamcntal
mcan: All scicnccs scck propositions ol gcncrality and dcpth (8aucr .),
scck unilormity amidst supcrcial divcrsity, and try to cxplain initially
puzzling phcnomcna as cxamplcs ol lamiliar or potcntially lamiliar gcn
cralizations, so that curiosity rcsts (cvoking Machlups aha!). Succcss in
prcdiction strcngthcns thc scicntists hunch that hc has lound thc corrcct
cxplanation ol somc phcnomcnon. All scicnccs prcsumably involvc what
Karl Poppcr callcd conjccturcs and rclutations. All prcsumably prcsup
posc similar idcals ol scicntic intcgrity and ol opcnncss to critical cxami
nation. n thc othcr hand, any two scicnccs dicr in thcir spccic subjcct
mattcrs and so in what kinds ol cmpirical obscrvation cntcr into arousing
curiosity, inspiring conjccturcs, and silting hypothcscs. Human purposivc
ncss and lrcc choicc play a rolc in thc social scicnccs that thcy cannot play
in thc natural scicnccs. Vhcthcr this makcs thc two clds lundamcntally
dicrcnt is a mcrc scmantic qucstion.
:~ci: :v:noboiocv ~: wovx
Hcrc arc somc signs ol poorly articulatcd mcthodological thinking:
Routinc qucstions such as: Vhat hypothcsis arc you tcsting: How
could it bc lalsicd: Vhat is your modcl:
what thc individual scicntist will do or what mcthod hc will lollow . . . thcrc arc as
many scicntic mcthods as thcrc arc individual scicntists. (pp. a)
Qucstioning thc assumption ol onc or a lcw bcst mcthods, Fritz Machlup idcntics thc
harmlul
attitudc ol snubbing, disparaging, cxcommunicating, and prohibiting thc working
habits ol othcrs and ol prcaching a mcthodology that implics that thcy arc inlcrior
in scicntic workmanship. |Machlups lootnotc bclow.|
Good scicntic mcthod must not proscribc any tcchniquc ol inquiry dccmcd usclul
by an honcst and cxpcricnccd scholar. Tc aggrcssivcncss and rcstrictivcncss ol thc
various mcthodological bclicls which social scicntists havc dcvclopcdin subcon
scious attcmpts to compcnsatc lor thcir lcclings ol inlcriority visavis thc allcgcd
truc scicntistarc dcplorablc. Attcmpts to cstablish a monopoly lor onc mcthod,
to usc moral suasion and public dclamation to cxcludc othcrs, producc harmlul
rcstraints ol rcscarch and analysis, scriously rctarding thcir progrcss.
|Footnotc:| . . . ! havc not said anything against thc working habits ol othcrs and
havc not qucstioncd anybodys scicntic workmanship. ! havc dcalt with thcir claims
ol cxclusivc posscssion ol thc onc and only scicntic mcthod. (Machlup .6/.,,
p. in chap. .)
Chapter z: Tacit Preachments are the !orst Kind aa
Tc prcstigc ol lalsiability, with misconccptions about it bcing rcin
lorccd by thc slogan against tcsting a thcory by its assumptions to thc
dcgrcc that downright lalsc propositions sharc in its supposcd prcstigc.
(Awarning is valid, howcvcr, against ostcnsibly cmpirical propositions
so constructcd as to cnjoy builtin immunity to any advcrsc cvidcncc.)
Tc prcstigc ol thc polar cxtrcmcs ol abstract, highpowcr thcorizing
and cmpirical work, with what counts as cmpirical bcing practically
conncd to statistics.
Tc associatcd idca that lamiliar, dcpcndablc lacts arc by that vcry
tokcn unimportant.
Knccjcrk insistcncc on ccrtain stylcs ol argumcntation and particu
larly on rigor (about which !ll havc morc to say).
Tc prcstigc ol working on thc lronticr.
xamplcs abound ol mcthodological prcconccptions practically lorc
ordaining conclusions or shiclding shaky argumcnt or dubious assump
tions lrom scrutiny. Tcy includc (in my opinion) thc Austrian thcory ol
thc busincss cyclc, thc purctimcprclcrcncc thcory ol intcrcst, London
School skcpticism ol costoricntcd busincss rcgulation and indccd ol any
objcctivc contcnt in thc vcry conccpt ol cost, thc rationalcxpcctations
schools insistcncc on cquilibrium modcling, Milton Fricdmans Marshal
lian dcmand curvc, and widcsprcad mindlcss rccitation ol Fricdmans slo
gan about not tcsting a thcory by its assumptions.
!n macrocconomics, thc shilt ol lashion lrom monctarism to its ncw
classical vcrsion and thcn on to rcal busincss cyclcs appcars to cxhibit a
mcthodological basis (as wcll as somc lactors discusscd latcr). avid Lai
dlcr (.c) and Karl 8runncr (.) havc diagnoscd as much, mcntioning
an impaticncc with discquilibrium analysis and a shilt ol prioritics away
lrom cmpirical cvidcncc toward supposcd rst principlcs, microlounda
tions, and rigor.
vx~:vivs vvo: :nv xvw ci~ssic~i :~cvovcoxo:ics
Tc ncw classical macrocconomics, or rationalcxpcctations/cquilibrium
always school, providcs cxamplcs. (Citations and lullcr discussion appcar
in my .6, pp. 6.) Tc Lucas supply lunction (Lucas .,) dcals
with cyclical uctuations in aggrcgatc output on thc basis ol thc mcthod
ological prcconccption that scllcrs arc rcsponding to priccs only, rathcr
ac Part : Economics
than also to how rcadily thcy arc nding customcrs. Notions ol purc com
pctition lurk bclowthc surlacc: thc scllcr can scll all hc dcsircs at thc going
pricc.
Tcorists in this camp sccm to bclicvc that monctary cxpansion, lor
cxamplc, and uncxpcctcd monctary cxpansion in particular, can havc an
impact on rcal variablcs only through pricc changcsuncxpcctcd and
misintcrprctcd changcsand not dircctly, as by giving scllcrs morc cus
tomcrs. Tc rival monctarydiscquilibrium thcory can intcrprct rccovcry
lrom dcprcssion in a morc straightlorward way than is availablc to a thc
orist unwilling to rccognizc discquilibrium in thc rst placc.
Tc idca sccms to bc aloot in ccrtain circlcs (or was lor a whilc) that
cquilibrium modcling is thc thingthc tcchnically advanccd thingto
bc doing in macrocconomics. Robcrt Lucas and admircrs (Lucas .c,
pp. 6,, ,c, Villcs .c, pp. c, a) rccommcndcd thcir brand ol cquilib
riumcconomics lor cmploying tcchnical advanccs in modcling that simply
wcrc unavailablc a lcw ycars carlicr.
Lucas and Sargcnt (.,, p. ) appcarcd to congratulatc thcmsclvcs
on thc dramatic dcvclopmcnt that thc vcry mcaning ol thc tcrm cqui
librium had undcrgonc. Sargcnt (intcrvicwcd in Klamcr ., pp. 6,6)
cxprcsscd satislaction with lancicr notions ol cquilibrium, much morc
complicatcd notions ol markctclcaring, and lancy ncw kinds ol cquilib
rium modcls. Vcll, to rccommcnd dcstabilizing thc mcaning ol words,
subvcrting communication, is thc kind ol mcthodologizing that nccds to
bc draggcd into thc opcn and inspcctcd.
Suggcsting thc inucncc ol shccr commitmcnt to a chcrishcd thcorct
ical tradition, Hcrschcl Grossman (., p. ac) wrotc:
Tc position that strict application ol ncoclassical maximization postu
latcs is rclcvant to macrocconomic dcvclopmcnts only in thc longrun
may sccm rcasonablc lrom an cmpirical standpoint, but it puts ncoclas
sical cconomics in a dclcnsivc position. !t suggcsts thc possibility ol a
gcncral inability ol ncoclassical cconomics to account lor shortrun cco
nomic phcnomcna.
Yct dcspitc thc apparcnt implication hcrc, discquilibriumis not incom
patiblc with individuals corts to maximizc.
Tc idca sccms to bc in circulation that an cconomist who talks about
discquilibrium is rcally talking not about markct lailurc but about his own
lailurc as a modclbuildcr. !t is mcthodologically unlashionablc to spcak
ol priccs and quantitics that arc not at thcir cquilibriumvalucs but arc only
Chapter z: Tacit Preachments are the !orst Kind a.
tcnding toward thcm at spccds spccicd only in ad hoc ways. !n this con
ncction, Lucas (.c) scorns modcls containing lrcc paramctcrs. bscrv
ing and rcasoning about discquilibriumproccsscs in a straightlorward and
thcrclorc rclativcly nonmathcmatical manncr can bc stigmatizcd as casual
and loosc, so thcy cscapc duc attcntion.
quilibriumalways thcorists prcsumably know as wcll as anyonc clsc
that atomistic compctition is and must bc thc cxccption rathcr than thc
rulc in thc rcal world, that scllcrs arc typically not sclling as much ol thcir
output or labor as thcy would likc to scll at prcvailing priccs, that most
priccs and wagcs arc not dctcrmincd impcrsonally but arc consciously
dccidcd upon (cvcn though dccidcd with an cyc on supply and dcmand),
and that thcsc and othcr circumstanccs causc or rcvcal pricc stickincss. 8ut
thc thcorists do not know thcsc lacts ocially, not in a mcthodologically
rcputablc way.
Tcy arc inclincd to rccitc thc slogan that (in thc paraphrasc ol Villcs
.c, p. .) thcorics cannot bc judgcd by thc rcalismol thcir assumptions,
a slogan rcasonablc cnough in ccrtain contcxts and undcr ccrtain intcr
prctations, yct much abuscd. Actually, it is ncccssary to distinguish at
lcast bctwccn simplilying assumptions that abstract lrom unimportant
dctails and assumptions on which thc conclusions crucially dcpcnd. (Alan
Musgravc, .., makcs cnlightcning distinctions bctwccn ncgligibility,
domain, and hcuristic assumptions.)
Vhat assumptions arc acccptablc simplications and what oncs arc
crucial to thc conclusions dcpcnds on thc qucstion at hand. |A|n ccolo
gist conccrncd about pollution may trcat thc 8lack Sca as a closcd body
ol watcr, thc Straits ol Marmara bcing sucicntly narrow lor that. 8ut
somconc considcring how to ship goods lrom London to dcssa should
not (Maycr ., p. ). !n invcstigating thc longrun cccts on rclativc
priccs and quantitics ol a spccicd changc in wants, rcsourccs, tcchnol
ogy, or taxcs, it is convcnicnt to assumc that compctition is purc and that
markcts clcar. Tings arc dicrcnt in macrocconomics, whosc vcry subjcct
mattcr is thc lapscs that do somctimcs occur lrom a high dcgrcc ol coor
dination ol radically dcccntralizcd dccisions and activitics. Vhcn onc is
invcstigating how and why scparatc but intcrdcpcndcnt markcts lall short
ol working to pcrlcction, it is latuous to insist that thcy arc always in cqui
librium anyway. Morc gcncrally, it is latuous to work with assumptions
that rulc out thc qucstions to bc laccd. (!t is important, by thc way, as
Karl Poppcr taught, to havc a qucstion or problcm to work on, not a mcrc
topic, 8artlcy .c, p. ..)
aa Part : Economics
Robcrt Clowcr and Paul Krugman arc among thc minority ol ccono
mists who havc spokcn out cmphatically against thc mcthodologydrivcn
cxccsscs ol thc cquilibriumalways approach. |T|hc approachcs ol thc
Kcyncsians, monctarists, and ncwclassical cconomists to monctary thcory
and macrocconomics will gct us cxactly nowhcrc, Clowcr writcs, bccausc
cach is loundcd, onc way or anothcr, on thc convcntional but cmpiri
cally lallacious assumption that thc coordination ol cconomic activitics
is costlcss. Vhilc cstablishcd valuc thcory has indisputablc mcrits, lor
somc purposcs, such as thc lruitlul analysis ol ongoing proccsscs ol mon
ctary cxchangc, modcls ol a vcry dicrcnt kind may bc rcquircd (.,
Altcrword, p. a,a).
Tc Lucas Projcct, as Paul Krugman calls it, tricd to build busincss
cyclc thcory on maximizing microloundations. . . . Tc ramshacklc, ad hoc
intcllcctual structurcs ol thc .cs and .6cs wcrc ruthlcssly clcarcd away,
making room lor thc crcction ol a ncw structurc to bc bascd on sccurc
microloundations. Unlortunatcly, that structurc ncvcr got built (Krug
man ., pp. ..6). Tc Lucas Projcct dcstroy|cd| thc old rcgimc but
lailcd to crcatc a workablc ncw macrocconomics. . . . Tc truc bclicvcrs in
cquilibrium busincss cyclcs shiltcd to rcalbusincsscyclc thcory (p. .6).
|R|ationalcxpcctations macrocconomics . . . collapscd in thc lacc ol its
own intcrnal contradictions, lcaving macrocconomics in a tcrriblc statc
(p. .).
!n Krugmans vicw, thc cort to cxplain away thc apparcnt rcal cccts
ol nominal shocks is silly, cvcn il onc rcstricts oncscll to domcstic cvidcncc.
ncc onc conlronts intcrnational cvidcncc, howcvcr, it bccomcs an act ol
almost pathological dcnial (., p. .,). Krugman mcntions tight corrc
lation bctwccn nominal and rcal cxchangc ratcs (p. .6). Finding intcrna
tional macrocconomics in a painlul dilcmma, Krugman alludcs to lads
and tacit mcthodologizing: to writc a macrocconomic modcl with sticky
priccs is prolcssionally dangcrous, but to writc onc without such rigiditics
is cmpirically ridiculous (p. .,).

!ts casy to bc cynical about thc motivations ol thc pcoplc who writc thcsc papcrs.
You dont progrcss as an cconomics prolcssor by solving thc rcal problcms ol thc rcal ccon
omy, at lcast not in any dircct way. !nstcad, you progrcss by convincing your collcagucs
that you arc clcvcr. !n an idcal world you would dcmonstratc your clcvcrncss by dcvcl
oping blindingly original idcas or producing dcnitivc cvidcncc about how thc cconomy
actually works. 8ut most ol us cant do that, at lcast not consistcntly. So prolcssors look
lor morc surcrc approachcs. And thus thc most popular cconomic thcorics among thc
prolcssors tcnd to bc thosc that bcst allow lor ingcnious claboration without lundamcntal
Chapter z: Tacit Preachments are the !orst Kind a
:nv:vs ix gu~si:~ci: vvv~cnixc: vicov
nc broad mcssagc ol Tomas Maycrs book ol . is that acadcmic cco
nomics is drivcn not only by cconomic rcality but also by lcaturcs ol thc
gamc itscll. conomists attuncd to thc acadcmic gamc lrcqucntly act as
though thc strcngth ol thcir wholc argumcnt is cqual to thc strcngth ol its
strongcst link (., p. x). (Tis strongcstlink analogy rccurs rcpcatcdly
and appropriatcly, as on pp. ,6, c, .a,.c. ! myscll havc long uscd it,
lor it is an obvious onc.) nc lorm ol thc bias toward cxccssivc lormaliza
tion is to lavish tcndcr loving carc on thosc stcps ol thc argumcnt that
arc rigorous, whilc paying littlc attcntion to thc othcr stcps (p. 66). A
rclatcd strand ol tacit mcthodology is rcductionismthc insistcncc that
all macrocconomics bc rcduccd to microcconomics (pp. c,, comparc
thc insistcncc that psychology bc rcduccd to chcmistry and ultimatcly to
physics).
Rigor is oltcn takcn as scllcvidcntly crucial to rcspcctablc cconom
ics. At a dcpartmcnt mccting ycars ago, discussion ol a proposcd coursc
in portlolio managcmcnt did not conccrn what ol substancc thc stu
dcnts might lcarn, or how its subjcct mattcr might rclatc to thc body ol
innovationways to show that you arc smart by putting old winc in ncw bottlcs, usually
with lancicr mathcmatical labcls (Krugman ., p. ).
|T|hc tcchnicality and diculty ol Lucass |busincsscyclc| thcory . . . was, in thc world
ol acadcmic cconomics, an assct rathcr than a liability. !t is cynical but truc to say that
in thc acadcmic world thc thcorics that arc most likcly to attract a dcvotcd lollowing
arc thosc that bcst allow a clcvcr but not vcry original young man to dcmonstratc his
clcvcrncss. Tis has bccn truc ol dcconstructionist litcrary thcory, it has cqually bccn truc
ol cquilibrium busincss cyclc thcory. !t turncd out that Lucass initial thcory naturally lcd
to thc application ol a wholc ncw sct ol mathcmatical and statistical tcchniqucs. A rst
sct ol Lucas disciplcs madc acadcmic rcputations dcvcloping thcsc tcchniqucs, latcr wavcs
ol studcnts invcstcd largc amounts ol timc and cort lcarning thcm, and wcrc loath to
considcr thc possibility that thc vicw ol thc cconomy to which thcir spccializcd training
was appropriatc might bc wrong. !ndccd, Lucas himscll has in thc cnd sccmcd morc
intcrcstcd in his tcchniqucs than in what hc docs with thcm (Krugman ., p. a).
!n Krugmans vicw, political bias also hclpcd makc rationalcxpcctations macrocconom
ics attractivc (., pp. a).
Maycr also tcstics to tacit mcthodology at work: Ncw classicals cxplain busincss
cyclcs as mostly duc to supply shocks bccausc a dcmandsidc cxplanation is inconsistcnt
with thcir choscn Valrasian markct clcaring paradigm (., p. ..6).
Mirowski (.a, pp. a.a,) and McCloskcy (.a, p. a66) tcll thc story ol thc sup
prcssion ol an invitcd conlcrcncc papcr by Lawrcncc Summcrs (an cmincnt cconomist,
ccrtainly, associatcd with Ncw Kcyncsianism) bccausc ol lrankncss about mcthodology
similar to that ol Krugman and Maycr. Summcrs had cntitlcd his papcr Tc Scicntic
!llusion in Macrocconomics (publishcd clscwhcrc in ..).
a Part : Economics
cconomic thcory or to othcr courscs in thc curriculum, or whcthcr it might
duplicatc cxisting courscs. No, thc ovcrriding conccrn was with whcthcr
thc prospcctivc instructor would tcach thc coursc with duc rigor, mcan
ing, in thc contcxt, tcach it as an application ol advanccd mathcmatics.
Rigor docs havc its propcr placc. !n mathcmatics or lormal logicand
thcsc ol coursc can cntcr into an cconomists workonc docs not want
lapscs lrom duc rigor, onc docs not tolcratc cithcr mistakcs or stcps in thc
argumcnt whcrc crudc appcal to intuition substitutcs lor logical cntail
mcnt.
Yct cvcn in mathcmatics, cxccssivc or prcmaturc insistcncc on rigor
can impcdc progrcss (Lakatos .,6). avis and Hcrsh idcntily a myth
ol totally rigorous and lormalizcd mathcmatics (.6, scction on Mathc
matics and Rhctoric, pp. ,,). No onc knows cxactly what constitutcs
a mathcmatical prool. All prools lall short ol complctc lormal logic and
so ol commanding absolutc condcncc. A mathcmatical prool writtcn in
complctc logical dctail would bc unrcadablc and incomprchcnsiblc. Pro
lcsscdly rigorous prools usually havc holcs that arc covcrcd ovcr by intu
ition (p. 6, an cxamplc lollows). Prool simply mcans prool in cnough
dctail to convincc thc intcndcd audicncc. Tc compctcnt mathcmatician
knows whcrc his audicncc should locus thcir skcpticism. Tcrc hc will
supply sucicnt dctail, abbrcviating thc rcst. Most mathcmatical articlcs,
avis and Hcrsh add, do not gct closc scrutiny lrom cithcr rclcrccs or
journal rcadcrs.
Garrctt Hardin idcntics such a thing as mathcmatical machismo
(.6, p. ). Arrogant numcracy can do harm. Lord Kclvin said, |V|hcn
you cannot mcasurc it in numbcrs, your knowlcdgc is ol a mcagrc and
unsatislactory kind (quotcd in Hardin .6, p. ). Yct Kclvin radically
undcrcstimatcd thc agc ol thc carth, prcdictcd that man would ncvcr y in
cralt hcavicr than air, and prcdictcd that any mctal coolcd almost to abso
lutc zcro would bccomc an clcctric insulator (p. c). Many contributions
to scicncc, as by arwin, Pastcur, Kckul, Harvcy, \irchow, Pavlov, and
Shcrrington, havc bccn much morc qualitativc than quantitativc (p. .).
vcn morc so than mathcmatical prools, knowlcdgc ol thc rcal world
simply cannot bc totally rigorous, induction is not dcduction.
!n Karl 8runncrs vicw, thc ncwclassical and Minncsota school
ol macrocconomics, with its insistcncc on bcginning lrom thc supposcd
bcginning, commits what hc callcd thc Cartcsian lallacy.
Tc Cartcsian tradition insistcd that all statcmcnts bc dcrivcd lrom
a small sct ol rst principlcs. Cogito crgo sum and cvcrything clsc
Chapter z: Tacit Preachments are the !orst Kind a
lollows. . . . Anything not dcrivcd lrom rst principlcs docs not count
as knowlcdgc. You arc not allowcd to talk about moncy il you havc not
dcrivcd lrom rst principlcs a spccication ol all thc itcms which arc
moncy. Tis mcthodological position is quitc untcnablc and conicts with
thc rcality ol our cognitivc progrcss ovcr history. Scicncc rarcly progrcsscs
by working down lrom rst principlcs, it progrcsscs and cxpands thc
othcr way. Vc bcgin with cmpirical rcgularitics and go backward to morc
and morc complicatcd hypothcscs and thcorics. Adhcrcncc to thc Cartc
sian principlc would condcmn scicncc to stagnation. Tcrc arc, morcovcr,
as Karl Poppcr propcrly cmphasizcd, no rst principlcs. (Karl 8runncr
intcrvicwcd in Klamcr ., p. ., comparc 8runncr ., pp. aaaa,.)
Tc Cartcsian lallacy appcars linkcd with what V.V. 8artlcy !!!
(.) callcd justicationism. An oltcn unrccognizcd trait running
through thc history ol philosophy, justicationism is thc cxpcctation that
all propositions bc justicd (dcmonstratcd, provcd, warrantcd) by appcal
to somc authority, whcthcr rcason in thc stylc ol cscartcs, cmpirical
obscrvation, divinc rcvclation, or somc othcr dcnitivc sourcc. 8ut no
intcrcsting propositions can bc justicd in such a way. Tc dcmand lor
justication is a piccc ol ancicnt mcthodology carricd lorward uncriti
cally into modcrn discussion (., p. aa. in particular). 8artlcy rcjccts
justicationism in lavor ol thc Poppcrian proccss ol conjccturcs and rclu
tations. Scicntists invcnt laws and thcorics and dcvisc ways ol winnowing
out wrong oncs. !t is rcasonablc to acccpt, tcntativcly, laws and thcorics
not yct rcjcctcd on logical or cmpirical grounds and not yct displaccd
by morc attractivc altcrnativcs. Acccpting thcm in that way is not thc
samc, howcvcr, as holding thcm to havc bccn justicd or provcd, lor pos
itivc justication is downright impossiblc. Vc cannot criticizc all ol our
bclicls all at thc samc timc. Criticism ol particular propositions or thco
rics must cmploy othcrsnotably, standard logictakcn as valid lor thc
purposc at hand. 8ut nonc ol thcsc is cxcmpt lrom criticism in all con
tcxts. Although wc cannot criticizc cvcrything at oncc, nothing is prop
crly immunc against any criticism in all circumstanccs and contcxts. (Scc
thc many pagcs on justication and justicationism citcd in thc indcx to
8artlcy ..)
~xo:nvv :nv:v: :obvis
Ycars ago a graduatcstudcnt adviscc rcportcd to mc thc cxpcctations ol
anothcr ol his advisors: hc must build his disscrtation around a modcl.
a6 Part : Economics
Vhy: thc studcnt askcd. ! dont know, was thc rcportcd rcply, youvc
just got to havc a modcl. Tc othcr advisor rcportcdly wcnt on to say that
il thc studcnt cxpcctcd to gct his disscrtation past ccrtain mcmbcrs ol thc
dcpartmcnt, hc would havc to do work ol thc kind thcy cxpcctcd.
Such scrmonizing scldomappcars in print and lully articulatcd, which
is why it can bc so insidious. Although inucntial, it cscapcs critical cxam
ination. ! wish cconomists would drag it into thc opcn by rccounting thcir
cxpcricnccs with it. (Maycr makcs a good bcginning in his ., chap. ,
cntitlcd Modcl or ic.)
nc littlc cpisodc involvcd mc dircctly. uring thc discussion pcriod
at a conlcrcncc, ! rcmarkcd that a particular monctary rclorm would clim
inatc thc contagion ol bank runs, and ! bricy cxplaincd why. uring thc
lurthcr discussion, and at grcatcr lcngth during thc cocc brcak, anothcr
conlcrcc objcctcd that il ! and my coauthor cxpcctcd anyonc to undcrstand
what wc wcrc saying, wc would havc to arguc in thc contcxt ol a modcl
ol bank runs, complctc with spccication ol .cc pcrsons, , commoditics
(or whatcvcr thc numbcrs might bc), and so lorth. !l ! had thought last on
my lcct, ! would havc prcsscd thc qucstion Vhy:. ! would havc askcd
my intcrlocutor to makc his mcthodological scrmon cxplicit and support
it with rcasons. Unlortunatcly, thc convcrsation wandcrcd o.
Months latcr, in convcrsation with onald McCloskcy, ! wondcrcd
about thc claims ol somc cconomists not to undcrstand argumcnts prc
scntcd outsidc ol lormal modcls. McCloskcy conjccturcd that thcy mcan
what thcy say: somc ol thcm arc so wrappcd up in thcir own modcls
and lavoritc symbols that thcy actually cannot undcrstand argumcnts prc
scntcd in an uncxpcctcd languagc, nglish.
Pctcr N. !rcland (.) providcs anothcr cxamplc ol what bothcrs mc.
Altcr making scnsiblc rcmarks about rclations bctwccn moncy and cco
nomic growth, hc gocs on to givc his argumcnt supposcd rigor with mathc
matics andnumcrical simulations. Hc claboratcs a modcl ol a largc numbcr
ol idcntical, innitcly livcd houscholds posscssing pcrlcct lorcsight. ach
consists ol a workcr and a shoppcr. Production lunctions havc spccic spc
cial propcrtics. Pcrlcct compctition prcvails. Acashinadvancc constraint
applics to purchascs madc without thc assistancc ol a nancial intcrmcdi
ary. Yct il thcsc and othcr spccial assumptions spcllcd out in grcat dctail
(about transactions costs and so lorth) arc not ncccssary lor thc conclusions
rcachcd, what is thc point ol making thcm: And il thcy are ncccssary, is it
not a grcat lapsc lrom thc trumpctcd rigor to convcy thc imprcssion that
thc conclusions rcachcd apply to thc mcssy rcal world anyway:
Chapter z: Tacit Preachments are the !orst Kind a,
!n thc samc journal issuc, Stcvc Villiamson and Randall Vright
(.) cxplain how moncy, bcsidcs providing its lamiliar scrviccs, cuts
down thc inlormation rcquircmcnts ol cxchangc, giving transactors a bct
tcr chancc than thcy would havc undcr bartcr to wind up with highquality
goods. Tc authors modcl assumcs away thc noninlormational dicultics
ol bartcr, lcaving no rolc lor moncy in thc abscncc ol privatc inlorma
tion. Timc is discrctc and gocs on lorcvcr. Tc population is a contin
uum ol immortal agcnts who can producc both good and bad commodi
tics at positivc and zcro utility cost, rcspcctivcly. Consumption ol moncy,
ol a bad commodity, or ol oncs own output yiclds zcro utility, whilc
consumption ol somconc clscs good output docs yicld utility. ctailcd
assumptions about proportions ol good and bad commoditics, probabili
tics ol cncountcrs, and so lorth crcatc thc opportunity lor numcrous cqua
tions and graphs adding nothing to thc ccntral mcssagc, as lar as ! can
scc, cxccpt spurious rigor. Tc authors givc no rcason lor supposing that
what is rigorously truc ol thcir concoctcd world is cqually truc ol thc rcal
world.
Robcrt Frank has donc much insightlul writing at thc intcrscction ol
cconomics, psychology, and cthics. His articlc ol .,, howcvcr, providcs
an cxamplc ol thc mcrcly dccorativc usc ol mathcmatical codc, as distin
guishcd lrom bona dc manipulation rcquiring symbols. nc lootnotc
(.,, p. ) cvcn promiscs a morc rcadcrlricndly vcrsion ol his modcl
in a thcnlorthcoming book. Vcll, why wasnt hc lricndly to his currcnt
rcadcrs: 8nassys articlc ol ., which ! admirc lor its actual substancc, is
similarly discourtcous in its usc ol symbols. 8nassy actually distinguishcs
bctwccn ccrtain conccpts by whcthcr thc idcntical doublcsubscriptcd lct
tcrs rcprcscnting thcm arc toppcd by a macron or by an only slightly wavy
tildc, this is a subtlcty likcly to cscapc a rcadcr not wiclding a magnilying
glass. ! suspcct that hc, likc Frank, !rcland, and Villiamson and Vright,
was bowing to tacit mcthodological prcssurcs.
As Maycrs strongcstlink (or mostrigorouslink) principlc suggcsts,
a display ol tcchniquc can plastcr ovcr much. Robcrt Solow was stay
ing within thc bounds ol pcrmissiblc cxaggcration whcn hc wrotc (.,
p. c) that a modcrn cconomist, droppcd with his computcr lrom a timc
machinc into any old timc and placc, will soon
havc maximizcd a lamiliarlooking prcscntvaluc intcgral, madc a lcw
lamiliar loglincar approximations, andrunthc obligatory lamiliar rcgrcs
sion. Tc lamiliar coccicnts will bc poorly dctcrmincd, but about onc
twcnticth ol thcm will bc signicant at thc pcrccnt lcvcl, and thc othcr
a Part : Economics
ninctccn do not havc to bc publishcd. Vith a littlc judicious sclcction
hcrc and thcrc, it will turn out that your data arc just barcly consis
tcnt with your thcsis adviscrs hypothcsis . . . , modulo an inlormation
asymmctry, any old inlormation asymmctry, dont worry, youll think ol
onc.
Valtcr uckcn (., Pt. ii, csp. pp. .a.) criticizcd two rathcr
oppositc trcnds in thcory. ltcn thc qucstion is askcd how things would
go in an a priori modcl built with littlc rclcrcncc to rcality. Tc vcry lram
ing ol thc qucstion cxcludcs rcality. n thc othcr hand, uckcn continucs,
analysis may work with crudc, swccping conccpts likc capitalism, lais
scz lairc, or socialism. 8ut both a priori modcls and imprccisc blankct
conccpts can bc ol littlc hclp in invcstigating rcality.
Jamcs Tobin (.c, p. 6) commcnts on ovcrlappinggcncrations mod
cls ol moncy. Long bclorc, cconomists had alrcady pointcd out how a
common mcdium ol paymcnt lacilitatcs multilatcral tradc, whcrcas bartcr
would rcstrict transactions.
Tc insight tclls us why thc social institution ol moncy has bccn ob
scrvcd throughout history cvcn in primitivc socictics. An insight is not a
modcl, and it docs not satisly thc traincd scholarly conscicnccs ol modcrn
thcorists who rcquirc that all valucs bc rootcd, cxplicitly and mathcmati
cally, in thc markct valuations ol maximizing agcnts. 8ut ! must say in all
irrcvcrcnt candor that as yct ! do not lccl signicantly bcttcr cnlightcncd
than by thc traditional insight.
Lct mc quotc two physicists. Picrrc uhcm (., csp. chap. iv) docs
not dcny thc usclulncss ol modcls. Hc rccommcnds intcllcctual libcral
ism. iscovcry is not subjcct to any xcd rulc. . . . Tc bcst mcans ol
promoting thc dcvclopmcnt ol scicncc is to pcrmit cach lorm ol intcl
lcct to dcvclop itscll by lollowing its own laws and rcalizing lully its typc
(., pp. ). uhcm qucstions thc claim that providing a mcchan
ical or algcbraic modcl lor cach ol thc chaptcrs ol physics satiscs all
thc lcgitimatc wishcs ol undcrstanding (p. .cc). Pcrhaps thc most lruitlul
proccdurc in physics has bccn thc scarch lor analogics bctwccn distinct
catcgorics ol phcnomcna, but wc should not conlusc it with modcling
(pp. ,). Tc usc ol mcchanical modcls has not brought to thc progrcss
ol physics that rich contribution boastcd lor it. !ts contribution sccms
quitc mcagcr whcn wc comparc it with thc opulcnt conqucsts ol abstract
thcorics. Tc distinguishcd physicists who havc rccommcndcd thc usc ol
modcls havc uscd it |that mcthod| lar lcss as a mcans ol discovcry than as
a mcthod ol cxposition (p. ).
Chapter z: Tacit Preachments are the !orst Kind a
Ronald Gicrc (., csp. chap. , Modcls and Tcorics) dcscribcs
modcls as stylizations or idcalizations about which propositions hold morc
rigorously truc than thcy cvcr could about thcir possiblc countcrparts in
rcality (cl. Hausman .a, pp. ,a, a,). F=ma and othcr gcncral laws
ol mcchanics arc not rcally cmpirical claims but morc likc gcncral schcmas
that nccd to bc llcd in (Gicrc ., p. ,6). !l thc laws ol motion, such
as thc law ol thc pcndulum, wcrc to givc a litcrally truc and cxact dcscrip
tion ol cvcn thc simplcst ol physical phcnomcna, thcy would havc to bc
incrcdibly morc complcx than any that could cvcr bc writtcn down. Tc
nonunilormity ol gravity ncar thc carths surlacc, thc gravitational lorcc ol
thc moon, nonlincaritics in air rcsistancc, and so lorth would all havc to bc
takcn into account. !dcalization and approximation arc ol thc csscncc ol
cmpirical scicncc (pp. ,6,). Hookcs lawstatcs that thc lorcc cxcrtcd by
a spring is proportional to thc amount it is strctchcd, thc constant ol pro
portionality bcing intcrprctcd as a mcasurc ol thc stincss ol thc spring
(p. 6). Such a statcmcnt prcsupposcs ccrtain idcalizations, such as that
thc spring is without mass and subjcct to no lrictional lorccs, that thc
lorccdisplaccmcnt is lincar, that thc attachcd mass is subjcct to no lric
tional lorccs, and that thc wall is rigid, so thc wall rccoil duc to motion ol
thc mass may bc ncglcctcd (Gicrc, pp. 6,c). !n mcchanics, Tc cqua
tions truly dcscribc thc modcl bccausc thc modcl is dcncd as somcthing
that cxactly satiscs thc cquations (p. ,). (Tc physicist Hcnri Poincar
rcpcatcdly insistcd on similar points about thc rolc ol stylizations and con
vcntions in scicncc, scc Ycagcr ., csp. pp. .6..6a, and Poincars writ
ings citcd thcrc.)
Unlikc a modcl, a thcorctical hypothcsis is . . . a statcmcnt asscrting somc
sort ol rclationship bctwccn a modcl and a dcsignatcd rcal systcm (or
class ol rcal systcms). . . . Tc gcncral lorm ol a thcorctical hypothcsis is
thus: Suchandsuch idcntiablc rcal systcm is similar to a dcsignatcd
modcl in indicatcd rcspccts and dcgrccs. (Gicrc ., pp. c.)
Lucas and Sargcnt (.,, p. a) say in ccct that anyonc uttcring any
proposition ol cconomics must, whcthcr hc rcalizcs it or not, bc working
with somc sort ol modcl in mind. !t may bc vaguc or clcar, poor or good,
but il thc cconomist docs not sct lorth his modcl cxplicitly, hc is just hiding
it lrom prolcssional scrutiny and criticism.
!s it truc, though, that onc is ncccssarily working with a modcl: !l thc
tcrm modcl is strctchcd to covcr any piccc ol rcasoning, thcn it sccms
a mcrc cquivocation to insist altcr all on a modcl in a narrowcr scnsc. !l
ac Part : Economics
modcl mcans a complctc sct ol cquations spccic cnough to bc rcady lor
cconomctric cstimation, thc answcr is prctty clcarly that thc thcorist is
not ncccssarily working with onc. Hc may not want to rcstrict himscll to
any spccic modcl bccausc hc bclicvcs that suitablc oncs dicr widcly in
thcir dctails across timcs and placcs. Considcr a modcl ol our solar systcm.
For somc purposcs wc arc intcrcstcd in thc systcms spccic, historically
accidcntal, lcaturcs, and lor such purposcs, a dctailcd modcl is ncccssary.
8ut lor othcr purposcs wc want to cmphasizc propositions ol widcr appli
cation, such as thosc ol gravity, and thcn it would bc pointlcss to bc ticd
down to a modcl ol a particular solar systcm.
Similarly in cconomics, propositions ol thc sort wc hopc to dcvclop
may not pcrtain to an cconomic systcm ol onc spccic structurc, and thcn
a spccic modcl may bc mcrc cluttcr. As Ludwig von Miscs oncc rcmarkcd
(orally) about an cconomctric invcstigation ol thc watcrmclon markct,
nonc ol thc lundamcntal propositions ol cconomics dcpcnds on thc cxis
tcncc ol such a commodity as watcrmclons. Nor, onc might add, docs any
dcpcnd on thc cxistcncc ol such a country as thc Unitcd Statcs ol Amcrica.
!n many contcxts, by thc samc tokcn, wc arc conccrncd with propo
sitions applicablc widcly cnough not to stand or lall on thc cxistcncc ol
railroads or labor unions or ncgotiablc ccrticatcs ol dcposit. Vhat sort
ol modcl it may bc lcgitimatc to insist on, il on any at all, thus dcpcnds
on thc purposc at hand, including thc conccivcd scopc ol thc propositions
undcr invcstigation.
Tc invcstigator might rccognizc that hc cannot producc a mathc
matical or cconomctric modcl with spccic dctails yct widc applicability.
Hc might bc conccrncd, instcad, with thc charactcristics that any plausi
bly rclcvant modcl would havcil onc insists on spcaking ol modcls. Hc
might bc sccking 8aucrs propositions ol gcncrality and dcpth. xam
plcs in cconomics includc thc principlc ol diminishing marginal rcturns,
thc law ol dcmand, and thc quantity thcory ol moncy. Tcy cntcr into thc
construction ol widcly dicrcnt spccic modcls. Tc invcstigator might
lcgitimatcly bc morc conccrncd with such propositions thcmsclvcs than
with onc or anothcr ol thcir particular cmbodimcnts. 8clorc onc can
scnsibly construct a modcl, onc must havc somc idca ol what obscrvcd
or conjccturcd or cvcn mcrcly postulatcd lcaturcs ol rcality onc is trying
to cmbody in it. nc nccds to know what rclations ol intcrdcpcndcncc
or causc and ccct onc is trying to cxhibit. !n that scnsc, propositions
(and thc conccpts thcy cmploy) arc logically prior to modcls. (Kosko
., pp. .6, .6, .,,, makcs scnsiblc rcmarks about modcls and about
Chapter z: Tacit Preachments are the !orst Kind a.
thc lrcqucnt usclulncss ol modcllrcc cstimation or approximation and
modcl lrccdom.)
Far bc it lrom mc to taboo modcling, which can bc a way ol stimu
lating, organizing, and prcscnting oncs thoughts.
6
A burst ol insistcncc
on modcling may cvcn bc justicd il it is provokcd by somconcs argu
mcnt that is too vaguc, is phrascd in idiosyncratic languagc, or rcsts on
unstatcd assumptions. !l so, challcnging thc thcorist to put his argumcnt
into graphs or cquations may lorcc him to makc his assumptions and rca
soning cxplicit. Morc gcncrally, translating an argumcnt lrom onc stylc
into anothcr may scrvc as a chcck on oncs rcasoning and improvc com
munication. (Tomas Hobbcs madc a notcworthy casc lor thc transla
tion tcst in .6./.6, chaps. and 6.) Vhilc translation can indccd
bc bcnccial, thc logical priority ol propositions ovcr modcls cmbodying
thcm casts doubt on insistcncc on modcling as thc only lcgitimatc way
to dcvclop and communicatc propositions. Vhat warrant, thcn, docs a
critic havc lor accusing an invcstigator ol doing somcthing disrcputably
crypticnamcly, working with a modcl whilc protccting it lrom inspcc
tionwhcn hc may not bc working at thc modcling stagc at all:
vcoxo:v:vic vvibvxcv
Tc rcccnt voguc ol rcalbusincsscyclc modcls has produccd cconomct
ric studics purportcdly discrcditing thc morc traditional locus on moncy
as a sourcc ol busincss uctuations. conomctric studics cnjoy thc rcc
ommcndations ol cxplicit and tacit mcthodology both. Tcy cnjoy thc
rcputation ol coming to grips with rcality by highpowcrcd tcchniqucs,
in contrast with commonplacc and mostly qualitativc obscrvations ol thc
rolc ol moncy ovcr thc ccnturics and throughout thc world and also in
contrast with qucstions about thc naturc ol thc barricrs in thc channcls
through which moncy plausibly would acct output.
6
Joncs and Ncwman .a is a good cxamplc. Tc authors arguc that tcchnologi
cal progrcss incrcascs potcntial output but may rcducc currcnt output by making cur
rcnt knowlcdgc obsolctc and disrupting currcnt adaptations. Tcy adopt thc mctaphor
ol goods conccalcd in holcs in thc ground in dcnitc amounts cach pcriod. Progrcss
incrcascs thc amounts ol goods availablc but rcshucs thcir locations, making knowlcdgc
gaincd lrom past scarchcs obsolctc. A mathcmatical lormulation ol this mctaphor, with
paramctcrs cxprcssing thc probability ol tcchnological shocks and thcir cccts on pro
ductivity, docs illuminatc qucstions ol wcllarc and its distribution and ol possiblc policy
tradcos.
aa Part : Economics
An articlc by Hanscn and Prcscott (.) providcs a partial cxccption
to thc obscrvation that rcalbusincsscyclc thcorists do not idcntily thc
rcal shocks that thcir thcory prcsupposcs. Ultimatcly, though, thc partial
naturc ol that cxccption supports thc obscrvation. Vithout cxplicitly say
ing so, Hanscn and Prcscott convcy thc imprcssion that thcy arc answcring
ycs to thc qucstion poscd by thcir titlc, id Tcchnology Shocks Causc
thc .c.. Rcccssion:, thus invoking that cpisodc in support ol thcir
thcory. !n thcir concluding paragraph (p. a6) thcy say: l coursc, il
tcchnology shocks continuc to bc abovc avcragc, thc Unitcd Statcs will
cxpcricncc a boom, il thc shocks in thc coming ycar arc bclow avcragc,
wc can cxpcct a rcccssion. arlicr (c.g., p. a), thcy say that thcir modcl
cconomy had a rcccssion roughly matching that ol thc actual cconomy in
timing, magnitudc, and duration.
Hanscn and Prcscotts mcthod was to construct a modcl cconomy,
modicd lromthc standard rcalbusincsscyclc modcl and calibratcd with
gurcs lrom thc rcal world. Tcy calculatc supposcd productivity or tcch
nology paramctcrs lrom cmploymcnt data and othcr macrocconomic
gurcs. Tcy nd that uctuations ol thc modcl and actual cconomics
match cach othcr lairly wcll, cxccpt lor strongcr and morc rapid rcac
tions to productivity shocks and lastcr rccovcry lrom thc rcccssion in thc
modcl than in thc rcal world. (Robcrt Clowcrs major objcction to thc
ncw classical cconomics, comcs to mind: it cquatcs thcorctical progrcss
with improvcd cconomctric pcrlormancc ol thcorctical modcls rathcr than
with cnhanccd undcrstanding ol thc way in which dcccntralizcd cconomic
systcms work. ., p. a,a.)
Lacking spacc to dcscribc thcir proccdurcs in dctail, Hanscn and
Prcscott ncvcrthclcss convcy thc imprcssion that sophisticatcd tcchniquc
wcnt into rcaching thcir rcsults, as il that vcry lact rccommcnds thcm.
cspitc cntitling onc scction Vhat Arc Tcsc Tcchnology Shocks:
(pp. acaa), thc authors do not actually namc thc supposcd causcs
ol rcccssion. At most thcy hint that antipollution rcgulations may havc
bccn involvcd. Tis stylc ol cxpositionconvcying imprcssions rathcr
than mustcring cxplicit cvidcncc and argumcntrcquircs commcnt that
! ncvcrthclcss rclrain lrom providing hcrc, cxccpt to point out an
cxamplc ol tacit chccrlcadcrs lor rigor arguing in quitc a nonrigorous
way.
Philip Cagan rcvicws studics that managc to avoid dctccting thc inu
cncc ol monctary changcs on output (., lollowcd by commcnts by
Robcrt Raschc and othcrs). Cagan criticizcs thc rcgrcssion tcchniqucs
Chapter z: Tacit Preachments are the !orst Kind a
commonly cmploycd, Grangcrcausality tcsts, and particularly vcctor
autorcgrcssion studics, lor thc way thcy handlc corrclations among thc
indcpcndcnt variablcs, bccausc ol proccssing ol thc data (prcwhitcn
ing, trcnd rcmoval, and othcr purications ol timcscrics data in ways
that throw away somc ol thc association that may cxist), and bccausc
thcsc mcthods arc tcsting lor spccic (c.g., lincar or loglincar) rclations
and rigid rclations among thc variablcs, whcrcas moncy cxcrts its cccts
with long and variablc lags. Tc ltcring tcchniqucs cmploycd rcmovc
much ol thc cyclical movcmcnts in moncy, and monctary inucnccs arc
maskcd by innovations in intcrcst ratcs, in turn rcccting monctary pol
icy. (Michacl 8ordo, cditor ol thc volumc, adds that obscrvation.) Tc
\AR tcchniquc lor dcaling with spurious corrclation climinatcs impor
tant monctary changcs. 8y rcmoving all scrial and cross corrclations lrom
cconomic scrics, \AR in ccct rcmovcs all but shortrun blips in moncy,
losing thc inucncc ol rclativcly sustaincd monctary changcs that do tcnd
to acct busincss activity.
Cagan also criticizcs thc trcatmcnt ol moncys cndogcncity. (Monc
tarists know that conncctions bctwccn monctary changcs and busincss
activity can run and cvidcntly havc run in both dircctions.) !l thc Fcdcral
Rcscrvc could ovcrridc thc cndogcncity ol moncy and thcrcby makc out
put bchavc dicrcntly than it bchavcs in lact, thcn moncy docs count.
Tcrc is a dicrcncc bctwccn bcing cndogcnous with no indcpcndcnt
ccct and a mutual dcpcndcncc which policy can acct. Tosc who dcny
monctary cccts on output may bc awarc ol this point but continuc to
ncglcct it. vcn il moncy had bccn in somc scnsc complctcly cndogcnous
in .a., thc Fcdcral Rcscrvc could havc ovcrriddcn that cndogcncity
and savcd thc cconomy lrom dcvastation.
! can only raisc, not answcr, a lcw lurthcr qucstions about supposcd
cconomctric cvidcncc. !s it rcally inlormativc to run corrclations with
timcscrics gurcs takcn not only lrom pcriods ol cyclical or abnormal
changc in output, moncy, priccs, and so lorth but also lrom pcriods ol
stcadincss or rclativcly stcady growth (or rclativcly undisturbcd moncy
supplyanddcmand rclations), as il all thcsc gurcs, takcn indiscrim
inatcly, constitutcd obscrvations on a singlc univcrsc: !n othcr words,
can onc rcally cxaminc and comparc thc cccts ol monctary and non
monctary disturbanccs by jumbling togcthcr numbcrs lrom pcriods both
cxpcricncing and not cxpcricncing such disturbanccs: Tc issuc is not
rcally what calculatcd paramctcrs dcscribc illdcncd avcragcovcrtimc
rclations among various macrocconomic variablcs. Tc issuc, instcad, is
a Part : Economics
thc how thc phcnomcna ol rcccssion and rccovcry may bc causally rclatcd
to contcmporancous and carlicr cvcnts.
,
!l onc would rathcr not nd or scc somcthinglikc monctary distur
banccs and thcir conscqucnccsways arc availablc. Tc story comcs to
mind ol Admiral Nclson putting his tclcscopc to his blind cyc at thc bat
tlc ol Copcnhagcn.
Morc lundamcntally, what rcason is thcrc to supposc that a dcnitc
structurc ol thc cconomy, dcscribablc by dcnitc lunctions and dcnitc
coccicnts, cxists in thc rst placc as an objcct amcnablc to cconomctric
invcstigation: Furthcrmorc, cvcn il a mathcmatically lormulatcd systcm
wcrc dctcrministic, with known and xcd paramctcrs, thc simplcst kinds
ol nonlincarity could rcndcr cvcn its qualitativc bchavior altcr scvcral or
many rounds cxtrcmcly scnsitivc to paramctcr sizcs and initial condi
tions. Still lurthcr, thc rcal systcm bcing modclcd, instcad ol bcing iso
latcd, is cxposcd to innumcrablc pcrturbations (including noncconomic
oncs) that in principlc rcquirc bcing takcn into account. !n such a systcm,
numcrical prcdiction is impossiblc (cxccpt, pcrhaps, lor shortrun cxtrap
olation), thc bcst that can bc donc is qualitativc prcdiction, or rccognition
ol pattcrns. Similar rcmarks apply to attcmpts to charactcrizc thc pro
ccsscs supposcdly at work in rcal cconomicswhcthcr or not thcy havc
unit roots, and so lorth.
Tcsc arc among thc lcssons lor cconomics ol thc rcccntly popular
mathcmatical thcory ol chaos or catastrophc. (Scc kcland ., who
brings .N. Lorcnzs buttcry ccct and Hcnri Poincars rcscrvations
about quantitativc modcling into thc story.) ! do not want to bc misundcr
stood, howcvcr, as issuing mcthodological taboos ol my own. conomct
ric rcscarch into rcccnt or carlicr cconomic history can indccd bc inlorma
tivc, and its tcchniqucs arc worth cultivating lor applications outsidc as
wcll as within cconomics. ! mcrcly want to qucstion insistcncc on thcm
as both obligatory and dccisivc across practically thc wholc broad rangc
ol cconomics. spccially whcrc human action is thc subjcct mattcr, much
can bc said lor obscrvations dcscribcd and rcasoning conductcd largcly in
,
Villiam Poolc (., pp. 6c6a) makcs a rclatcd point: an optimal policy should
abolish any obscrvablc rclation bctwccn moncy growth and GP growth. Hc ocrs an
analogy about trying to dctcrminc thc rclation bctwccn a cars spccd and its gasolinc con
sumption by muddling togcthcr obscrvations madc at momcnts whcn thc car was going
uphill, going downhill, and procccding on lcvcl ground, cvcn though thc drivcr was trying
to hold thc cars spccd stcady throughout.
Chapter z: Tacit Preachments are the !orst Kind a
thc tcrms that pcoplc thcmsclvcs usc whcn thcy pcrccivc and think about
and copc with rcality.
vvibvxcv ov o:nvv xixbs
Chccrlcadcrs lor rigor tacitly imply that only numbcrs constitutc rcally
rcspcctablc cvidcncc. vcrything clsc is anccdotc, and, in thc cconomists
quip, a historian is onc who bclicvcs that thc plural ol anccdotc is data
(8rcnnan and Lomasky ., p. c). Yct 8rcnnan and Lomasky, undc
tcrrcd, dcny
that thc world is dcscribablc cxhaustivcly by numbcrs or that broad brush
dcscriptions ol thc political landscapc havc nothing ol rclcvancc to con
tributc to thc collcction ol cvidcncc. . . . Anccdotc docs . . . havc a rolc to
play, and a good lccl lor thc wholc story is a crucial prcrcquisitc lor propcr
cmpirical judgmcnt. . . . Morc than tting thc lacts is rcquircd ol a thc
ory, it must also gcnuincly cxplain, in thc scnsc ol rcndcring intclligiblc,
thc lacts it ts. (., pp. c., comparc Higgs .,, pp. .a)
Tc history ol scicncc shows, with Copcrnicus and arwin as cxam
plcs, that thcory can play a powcrlul rolc in organizing undcrstanding
cvcn bclorc it can providc quantitativc prcdictions. Te !ealth of Nations
contains littlc quantitativc dctail but had grcat impact as a way ol sccing
how things t togcthcr qualitativcly. Quantitativc prcdiction, though a
rcasonablc goal lor scicncc, is not thc tcst ol a ncw thcory (Margolis .a,
pp. .c..).
!l an cconomist is not willing to analyzc nonquantitativc cvidcncc
such as cxccutivc ordcrs, statutcs, court dccisions, and rcgulatory dircc
tivcs, writcs Robcrt Higgs (.,, p. a), thcn pcrhaps hc should abandon
his prctcnsions in this cld ol study. . . . Tc kcys lost clscwhcrc will ncvcr
bc lound undcr thc lamp post, not cvcn with thc aid ol thc most powcrlul
oodlights. Tc spcctaclc ol cconomists bringing thcir awcsomc math
cmatical and statistical tcchniqucs to bcar on thc analysis ol irrclcvant
or mislcading data can only disgust thosc lor whom thc dcsirc to undcr
stand rcality takcs prcccdcncc ovcr thc dcsirc to imprcss thcir collcagucs
with analytical pyrotcchnics.

Higgs lurthcr rcminds us that pcoplc do not act mcrcly out ol scllintcrcst in thc
narrowscnsc ol homo oeconomicus. Somctimcs thcy act lromloyalty to a chcrishcd idcology
and lor thc satislaction ol sharcd mcmbcrship in a sct ol noblc, rightmindcd pcrsons (.,,
pp. a).
a6 Part : Economics
Robin Vinks collcctcd scvcral historical cssays undcr a suggcstivc
titlc, Te Historian as Detecti.e (.6). Likc a dctcctivc trying to solvc
a murdcr casc, a good rcscarchcr ol historical qucstions docs not lct
mcthodological prcjudicc or intimidation

narrow thc rangc ol kinds ol

clucs hc is willing to silt. Hc is willing to undcrtakc cpisodcbycpisodc
analysis, or any othcr kind that appcars promising. conomists, wc may
hopc, will bccomc cqually opcnmindcd cvcn about novcl cvidcncc and
argumcnt.
co:vv:ixc nvvo:nvsvs
Tc disparagcrs ol moncyoricntcd macrocconomics takc lcwpains to link
up thcir thcorics with carlicr thcorics and thc lacts that thcy appcarcd to
account lor. (Yct in thc natural scicnccs this is standard practicc. Kcplcrs
astronomy accountcd lor thc obscrvations that thc Ptolcmaic thcory had
alrcady accommodatcd. instcins rclativistic mcchanics assimilatcs Ncw
tonian mcchanics as giving an cxccllcnt account ol a spccial casc, which
happcns to bc thc world ol ordinary human obscrvation.) !nstcad, thc
disparagcrs ol moncy continuc tinkcring with thcir rcal modcls, cali
brating thcm, ingcniously striving lor vcrisimilitudc.
So doing, thcy disrcgard or out thc mcthod ol multiplc compct
ing hypothcscs. Actually, this is not a spccic mcthod or tcchniquc, nor
is it a tissuc ol mcthodological cxhortations and taboos, rathcr, it is a
broad approach or attitudc toward rcscarch. Tc biophysicist John R. Platt
(.6), cchoing and rcinlorcing thc gcologist T.C. Chambcrlin (.,/n.d.),
pcrsuasivcly argucs lor dcvcloping rival hypothcscs and sccking ways to
rulc cach onc out, sccing which onc or morc, il any, stand up to thc chal
lcngcs ol thc bcst cvidcncc obtainablc.
Tc contrasting approach or attitudc is simply to scck argumcnts and
cvidcncc in dclcnsc ol oncs own lavoritc hypothcsis. |!|n numcrous arcas
that wc call scicncc, Platt obscrvcs (p. a), wc havc comc to likc our
habitual ways, and our studics that can bc continucd indcnitcly. Vc
mcasurc, wc dcnc, wc computc, wc analyzc, but wc do not cxcludc.
And this is not thc way to usc our minds most ccctivcly or to makc
thc lastcst progrcss in solving scicntic qucstions. A rcscarchcr with a
parcntal acction lor his own lavoritc thcory, Chambcrlin had alrcady

n argumcnt lrom intimidation, scc passagcs lrom Ayn Rands works rcprintcd in
8inswangcr .6, pp. a.
Chapter z: Tacit Preachments are the !orst Kind a,
obscrvcd (.,/n.d., p. c), scarchcs cspccially lor phcnomcna that sup
port it. Unwittingly hc prcsscs thc thcory and thc lacts to t cach othcr.
Chambcrlin in ccct advocatcd substituting discussion lor dcbatc.
Tc two arc dicrcnt in spirit. Tc dcbatcr sccks thc dccision ol thc
judgcs lor his alrcady adoptcd conclusion, a discussant scarchcs lor truth
(F.A. Harpcr in a publishcrs notc to thc rcprint ol Chambcrlins articlc).
Tc conict and cxclusion ol altcrnativcs that is ncccssary to sharp induc
tivc inlcrcncc has bccn all too oltcn a conict bctwccn mcn, cach with
his singlc Ruling Tcory. 8ut whcncvcr cach man bcgins to havc mul
tiplc working hypothcscs, it bccomcs purcly a conict bctwccn idcas. !t
bccomcs much casicr thcn lor cach ol us to aimcvcry day at conclusivc dis
proolsat strong inlcrcnccwithout cithcr rcluctancc or combativcncss.
Rcscarchcrs bccomc cxcitcd at sccing howthc dctcctivc story will turn out
(Platt .6, p. c).
.c
Tc lorcgoing vicws rcquirc qualication. Not cvcry rcscarchcr nccd
bc tcsting scvcral hypothcscs. ivision ol labor can bc lruitlul. Somc
rcscarchcrs may lcgitimatcly work to givc onc particular hypothcsis its
bcst possiblc shot. !t may bc instructivc lor thcmsclvcs and othcrs to scc
what pcrsistcncc and ingcnuity can do toward salvaging cvcn a hypoth
csis that docs indccd sccm prcpostcrous on its lacc. Furthcrmorc, somc
may ourish in a sctting and inccntivc structurc ol rivalry not mcrcly
.c
Platt insightlully warns ol thc rcscarchcr who is mcthodoricntcd rathcr than prob
lcmoricntcd.
|A|nyonc who asks thc qucstion about scicntic ccctivcncss will also concludc that
much ol thc mathcmaticizing in physics and chcmistry today is irrclcvant il not
mislcading. . . .
Tc grcat valuc ol mathcmatical lormulation is that whcn an cxpcrimcnt agrccs with
a calculation to vc dccimal placcs, a grcat many altcrnativc hypothcscs arc prctty wcll
cxcludcd. . . . 8ut whcn thc t is only to two dccimal placcs, or onc, it may bc a trap
lor thc unwary, it may bc no bcttcr than any rulcolthumb cxtrapolation, and somc
othcr kind ol qualitativc cxclusion might bc morc rigorous lor tcsting thc assumptions
and morc important to scicntic undcrstanding than thc quantitativc t. . . .
Mcasurcmcnts and cquations arc supposcd to sharpcn thinking, but, in my obscr
vation, thcy morc oltcn tcnd to makc thc thinking noncausal and luzzy. Tcy tcnd
to bccomc thc objcct ol scicntic manipulation instcad ol auxiliary tcsts ol crucial
inlcrcnccs.
Manypcrhaps mostol thc grcat issucs ol scicncc arc qualitativc, not quantita
tivc, cvcn in physics and chcmistry. quations and mcasurcmcnts arc usclul whcn
and only whcn thcy arc rclatcd to prool, but prool or disprool comcs rst and is in
lact strongcst whcn it is absolutcly convincing without any quantitativc mcasurcmcnt.
(.6, pp. .a)
a Part : Economics
among idcas but among pcrsons. icrcnccs not mcrcly ol abilitics, train
ing, and intcrcsts but cvcn ol tcmpcramcnts may bc put to good usc. 8ut
to thc cxtcnt that somc cconomists do work ingcniously at protccting thcir
lavoritc thcorics, thc task lalls all thc morc to othcrs to pcrlorm thc ncc
cssary conlrontations.
Not only rcalbusincsscyclc thcorists but monctarists must lacc thc
objcctions voiccd by Chambcrlin and Platt. Still, monctarism is not irrcl
utablc in thc disrcputablc scnsc ol cnjoying builtin protcction against any
advcrsc cvidcncc. bscrvations arc rcadily conccivablc that would indccd
rclutc it. !l thcsc arc mcrcly conccivablc, not actual, and il thcy would
run countcr to manilcst lacts about thc rolc ol moncy in thc cvcryday
activitics ol individuals and busincss rms, wcll, a thcory is scarccly at
lault lor rccognizing thosc lacts.
Tc mcthod ol compcting multiplc hypothcscs scarccly rcquircs that
no qucstion cvcr bc scttlcd, not cvcn tcntativcly, and that multiplc hypothc
scs always rcmain in activc contcntion on all topics. !t would bc no scan
dal il a strong conscnsus cvcntually dcvclopcd on thc monctary (or non
monctary) naturc ol busincss cyclcs. Vhat would bc a scicntic scandal
would bc to grant ccrtain qucstions pcrpctual immunity to cvcr bcing
rcopcncd, no mattcr what ncw cvidcncc and lincs ol rcasoning might bc
dcvclopcd.
v~ii~cv:oxcvvixc
Countcrmcthodology, which ! distinguish lavorably lrom mcthodology,
docs not mcan that anything gocs. !t in no way cxcmpts any argumcnt
or supposcd cvidcncc lrom critical inspcction. Critics should point out
spccic dclccts, howcvcr,slips in logic and crrors ol lactrathcr than
just snccr broadly at thc usc ol somc mcthods but not othcrs.
cspitc onald McCloskcys lack ol cnthusiasm lor what hc calls
lallacymongcring (., pp. ), it can bc usclul to idcntily and
classily spccic typcs ol unsatislactory argumcnt. McCloskcy is cmphat
ically in lavor ol scholarly dialoguc, convcrsation, or rhctoric. Vcll, dia
loguc consists largcly ol critical cxamination ol argumcnts and cvidcncc
and supposcd inlcrcnccs, and bcing acquaintcd with and alcrt to lrcqucnt
typcs ol lallacy can hclp in this cxamination. McCloskcy himscll warns
against somc particular typcs, such as conlusion bctwccn statistical sig
nicancc and substantivc signicancc ol coccicnts in ttcd cquations
(.6, also .a, p. a6,). !dcntilying and catcgorizing lallacics is not at all
Chapter z: Tacit Preachments are the !orst Kind a
thc samc thing as issuing mcthodological injunctions and taboos. Rathcr,
it rcscmblcs thc bottomlcvcl, nutsandbolts mcthodology acccptablc to
McCloskcy.
Now, what arc somc typcs ol lallacyand, to broadcn our targct, typcs
ol irrclcvancclound in cconomic discoursc:
Standard lallacics that tcxtbooks warn against, such as thc lallacy ol
composition (and rcvcrsc lallacics ol composition).
Tc Ricardian \icc (so callcd by Schumpctcr ., pp. 66, ..,.): thc
habit ol cstablishing simplc rclations bctwccn aggrcgatcs that thcn
acquirc a spurious halo ol causal importancc, whcrcas all thc rcally
important (and, unlortunatcly, complicatcd) things arc bcing bundlcd
away in or bchind thcsc aggrcgatcs, in othcr words, thc habit ol pil
ing a hcavy load ol practical conclusions upon a tcnuous groundwork,
which was uncqual to it yct sccmcd in its simplicity not only attractivc
but also convincing.
Austrianstylc disquisitions on thc loundations ol human knowl
cdgc and conduct and thc likc, an irrclcvancy charactcristic ol Frank
Knights writings, according to LcRoy and Singcll (.,, p. ca).
Similarly, nonsubstantivc brooding ovcr thc mcanings ol conccpts, as
ovcr thc csscncc ol cntrcprcncurship.
Assuming constancy ol magnitudcs that simply cannot rcmain con
stant in thc lacc ol changcs in othcr magnitudcs considcrcd (8uchanan
.).
Failurc to distinguish bctwccn individual and ovcrall points ol vicw
or, rclatcdly, lailurc to makc, whcn rclcvant, Patinkins distinction
bctwccn individual cxpcrimcnts and markct cxpcrimcnts (.6, chap. .
and appcndix).
Failurcs to distinguish whcn ncccssary bctwccn actual and dcsircd
changcs in holdings ol moncy, bctwccn an cxccss dcmand lor or sup
ply ol homc moncy on thc lorcigncxchangc markct and an cxccss
dcmand lor or supply ol domcstic cash balanccs, and bctwccn dcmand
lor asscts dcnominatcd in a particular currcncy and thc dcmand lor
holdings ol that currcncy as a mcdium ol cxchangc.
Tc rcalbills lallacy, which kccps turning up in ncw disguiscs.
ac Part : Economics
Tacitly supposing that lack ol tight shortrun corrclation bctwccn
changcs in ccrtain magnitudcs discrcdits thc broad rclation that stan
dard thcory indicatcs bctwccn thcir lcvcls. (Nowadays thc tcchniquc
ol cointcgration is cultivatcd as a mcans ol ovcrcoming this lallacy.)
Mcrc cloqucncc that crowds out quantitativc considcrations. Hardin
duly condcmns dccisions dominatcd by shccr cloqucncc, whcrcas thc
numcratc outlook shows a conccrn lor how big, how important, phc
nomcna and cccts arc (.6, csp. pp. a).
~::i:ubvs ~xb vvvssuvvs
Fritz Machlup (.6/.,, chap. .) listcd scvcral signs ol an inlcri
ority complcx ol thc social scicnccs, including 8chaviorism, pcra
tionism, Mctromania, Prcdictionism, xpcrimcntomania, and Mathc
matosis. Prcssurc to rcscmblc thc physical scicnccs docs sccm to bc a kind
ol tacit mcthodologizing.
Anothcr, apparcntly, is attuncmcnt to lads.
!n scicncc, as cvcrywhcrc clsc, thcrc arc lcw truc crcators, pcoplc ablc
to lcavc thc bcatcn track and to comc up with ncw idcas. !t is vcry tcmpt
ing to dccm a problcm intcrcsting bccausc hall thc pcoplc you know arc
working on it. 8ut truly dccp and dicult problcms promisc no casy
rcturns, and do not attract pcoplc cagcr to publish. Poincar makcs a dis
tinction bctwccn problcms that naturc scts up and problcms that onc scts
up (kcland ., p. a).
Vhat onc might call lronticrsmanship is a rclatcd attitudc. Conjcc
turably it tcnds to crowd out duc attcntion to history, both ol subjcct
mattcr and ol rcscarch and doctrinc in oncs cld. !n macrocconomics,
oldcr and morc straightlorward doctrincs, whatcvcr thcir mcrits, wcrc,
wcll, rcmotc lrom thc lronticr. thcr clds appcarcd morc suitablc lor
thc acadcmic gamc. n thc supposcd lronticr, busincsscyclc rcscarchcrs,
whcthcr bclonging to thc ncwclassical or thc rcal school, tcnd to ncglcct
historical cpisodcs hclping to support (or to discrcdit) thc monctarist
cxplanation ol cyclcs. Tcy also ncglcct or slight thc lact that compctcnt
obscrvcrs in widcly divcrsc timcs and placcs saw rcason to bc pcrsuadcd
ol thc monctary naturc ol cyclcs. Yct this widcsprcad pcrccption surcly
counts lor somcthing, cspccially sincc it docs not stand alonc but complc
mcnts a varicty ol othcr cvidcncc.
Also at work in contcmporary macrocconomics is an attitudc that !
do not want to labcl, it can cxhibit itscll. Rclcrring to Ncw Kcyncsian
Chapter z: Tacit Preachments are the !orst Kind a.
cconomics in particular (which, bcing mislabclcd, has closc though inadc
quatcly apprcciatcd anitics with monctarism), Robcrt G. King mcntions
macrocconomists working on thc banks ol thc Charlcs Rivcr, whosc
product hc disparagcs in contrast with that ol macrocconomists at thc
univcrsitics whcrc thc cuttingcdgc rcscarch has bccn donc ovcr thc past
dccadc. Tc lattcr consists ol dynamic gcncral cquilibriummicrocconomic
modcls ol macrocconomic phcnomcna. !t is what most graduatc studcnts
arc now lcarning and what most undcrgraduatcs will soon lcarn. !n two
dccadcs or lcss, it will bc hard to nd a macrocconomist whosc rst rcac
tions to policy problcms will not bc conditioncd by sustaincd cxposurc to
|it| (King .c, p. .6a). !n a latcr articlc, King rcproachcs Ncw Kcync
sians lor attcmpts at markcting a vcrsion ol macrocconomics rcscmbling
a Ford Pinto. Tc dangcr is that macrocconomists and policymakcrs will
pay too much attcntion to thc ncw Kcyncsian advcrtising, and assumc
lor too long that thc old product is a sound onc (King ., concluding
scntcncc).
~c~bv:ic ixcvx:ivvs ~xb c~:vs
Tc statc ol acadcmic cconomics is lar lrom wholly bad, progrcss docs
occur. Critics, though, scc grounds lor complaint. An articlc choscn at
random out ol any cconomics journal, Jamcs 8uchanan nds, is unlikcly
to havc a social productivity grcatcr than zcro. Most modcrn cconomists
arc simply doing what othcr cconomists arc doing whilc living o a lorm
ol dolc that will simply not stand critical scrutiny (.,, pp. c.). Morc
rcccntly a young acadcmic supcrstar has said much thc samc:
!n Amcricas acadcmic systcm, prolcssors ol cconomics gct tcnurc and
build rcputations that givc thcmothcr acadcmic pcrks by publishing, and
so thcy publish immcnsc amountsthousands ol papcrs cach ycar, in
scorcs ol obscurc journals. Most ol thosc papcrs arcnt worth rcading, and
many ol thcm arc prctty much impossiblc to rcad in any casc, bccausc
thcy arc loadcd with dcnsc mathcmatics and dcnscr jargon. (Krugman
., p. )
Acadcmic programs almost cvcrywhcrc, 8uchanan continucs, arc
controllcd by rcntrccipicnts who simply try to apc thc mainstrcam work
ol thcir pccrs in thc disciplinc (8uchanan ./., p. .c). Mainstrcam
cconomists ol thc .cs, though wrong on much, wcrc intcrcstcd in idcas,
8uchanan says, and wcrc not lrauds or conscious parasitcs. Sincc thcn
cconomics has bccomc
aa Part : Economics
a scicncc without ultimatc purposc or mcaning. !t has allowcd itscll to
bccomc captivc ol thc tcchnical tools that it cmploys without kccping
track ol just what it is that thc tools arc to bc uscd lor. !n a vcry rcal
scnsc thc cconomists ol thc .cs arc illitcratc in basic principlcs ol thcir
own disciplinc. . . . Tcir intcrcst lics in thc purcly intcllcctual propcrtics
ol thc modcls with which thcy work, and thcy sccm to gct thcir kicks
lrom thc discovcry ol prools ol propositions rclcvant only to thcir own
lantasy lands. (./., pp. .a6.a,)
Mauricc Allais, a mathcmatical cconomist who won thc Nobcl Prizc
two ycars altcr 8uchanan did, sharcs his skcpticism. For almost lortyvc
ycars, Allais said in ., cconomic litcraturc has lcaturcd complctcly
articial mathcmatical modcls dctachcd lrom rcality. Allais rccommcnds
mathcmatics to cconomists not lor its own sakc but as a mcans ol cxplor
ing and analyzing concrctc rcality. Vhcn ncithcr a thcory nor its impli
cations can bc conlrontcd with thc rcal world, that thcory is dcvoid ol
any scicntic intcrcst.
!n a broadcr contcxt, Garrctt Hardin (.6, pp. .,.,6) obscrvcs an
inlormation glut. A substantial and growing proportion ol thc scicn
tic litcraturc is purc jam |in thc scnsc ol trac jam|, thc conscqucncc
ol cgotistic scicntists putting out multiplc, rcpctitivc publications in an
cort to bc noticcd. . . . Progrcss is impcdcd. Socicty sucrs. Rclcrring to
thc cxamination systcm lor thc Mandarins ol impcrial China, Michacl
Valzcr (., p. ..) notcs that cxamincrs incrcasingly strcsscd mcmo
rization, philology, and calligraphy, and candidatcs paid morc attcntion
to old cxamination qucstions than to thc mcaning ol thc old books. Vhat
was tcstcd, incrcasingly, was thc ability to takc a tcst. !n todays aca
dcmic world, similarly, what gcts rcwardcd sccms to bc thc ability to gct
rcwardcd.
Vithout charging spccic individuals with misconduct or rcprchcnsi
blc motivcs, wc may rcmind oursclvcs about gamcsmanship. ccasion
ally thc writcr ol an articlc will try to buttcr up prospcctivc rclcrccs
or othcrwisc cngagc in politicking to gct it publishcd.
..
Vhat is morc
..
8art Kosko may bc cxaggcrating but not practicing shccr invcntion:
Carccr scicncc, likc carccr politics, dcpcnds as much on carccr mancuvcring, postur
ing, and politics as it dcpcnds on rcscarch and thc pursuit ol truth. Fcw know that
whcn thcy start thc gamc ol scicncc. 8ut thcy lcarn it soon cnough. (., p. c)
Politics lics bchind litcraturc citations and omissions, acadcmic promotions, gov
crnmcnt appointmcnts, contract and grant awards, conlcrcncc addrcsscs and con
lcrcncc committccmcmbcr choiccs, cditorialboard sclcction lor journals and book
Chapter z: Tacit Preachments are the !orst Kind a
rclcvant to our topic, writcrs somctimcs put on a display ol crudition,
using tcchniqucs morc advanccd than arc hclplul,
.a
othcrwisc parading
supposcd rigor, making lorays into othcr acadcmic disciplincs, or citing
scarccly rclcvant but imprcssivcly obscurc sourccs. Somc ol this gamcs
manship is no doubt tolcrablc: cvcn scrious rcscarchcrs arc cntitlcd to a
littlc lun. !t docs littlc damagc whcn it is cvidcnt lor what it is. !t is lcss tol
crablc, howcvcr, whcn it warps thc writcrs approach to thc subjcct mattcr
and his or his rcadcrs undcrstanding.
Tis situation traccs partly to thc inccntivc structurc in acadcmc. Vc
obscrvc somcthing rcminisccnt ol thc rolc ol succcss indicators in thc
Sovict command cconomy. Mccting thc targct, satislying thc critcria,
bccomcs thc objcctivc, crowding out attcntion to thc wants ol thc cus
tomcrs orin thc prcscnt contcxtthc advanccmcnt ol knowlcdgc, thc
plcasurc ol thc qucst, and thc cnlightcnmcnt ol rcadcrs and studcnts. Tc
blamc lalls partly on administrators dcsiring casytoadministcr critcria
lor tcnurc and promotion. As ! havc obscrvcd on committccs and othcr
wisc, somc cvaluators locus not on thc actual mcrits ol scholarly work but
on thc supposcd prcstigc ol thc journals whcrc it appcarcd, a considcration
rclatcd in turn to attuncmcnt to lads and lashions. Tc sccondhandism
duly condcmncd by Ayn Rand ridcs high (scc thc passagcs lromhcr works
rcprintcd in 8inswangcr .6, pp. .).
scrics, rcvicwcr sclcction lor tcchnical papcrs and contract proposals and univcrsity
accrcditation status, and most ol all, whcrc thc political currcnts lunncl into a lascr
likc bcam, in thc pccrrcvicw proccss ol tcchnical journal articlcs. (p. a)
8artlcys .c book is a sustaincd cxprcssion ol doubt about thc inccntivcs at work in
acadcmc. !t cxplorcs thc intrinsically unlathomablc charactcr ol knowlcdgc, shows to what
a limitcd cxtcnt it can bc owncd and controllcd, and argucs that univcrsitics arc not orga
nizcd so as rcadily to advancc knowlcdgc (8artlcy nds thcm oltcn working against its
growth). Chaptcrs on Tc Curious Casc ol Karl Poppcr and on thc supposcd thrcat
that Poppcrs philosophy poscs to intcllcctual lashions providc a casc study ol thc books
contcntions.
Hausman .a, p. a6a, also mcntions pcrvcrsc inccntivcs at work in acadcmic cco
nomics.
.a
Not rclcrring to acadcmic cconomics in particular, Mark C. Hcnric (.,, p. )
notcs that an ability to arguc any sidc ol any qucstion dcmonstratcs thc importancc ol
tcchniquc, but tcchniquc alonc docs not providc thc studcnt any insight into which vicwis
truc. Quitc thc oppositc, it cncouragcs virtuosity ol argumcntation lor what is lalsc, sincc
to arguc lalschood pcrsuasivcly morc lully dcmonstratcs command ol tcchniquc than to
arguc lor what is truc.
! also suspcct somc inchoatc notion that il lalsiability is a good charactcristic ol a
thcory, downright lalsity is cvcn bcttcr.
a Part : Economics
Somcthing may wcll bc said lor schools, which can cncouragc a
rcscarchcr with thc prospcct ol a sympathctic audicncc. 8ut a school inu
cntial cnough to dominatc what arc considcrcd to bc succcss indicators can
havc a banclul inucncc, inhibiting indcpcndcnt thought.
:nv :~vxv: ~x~iocv
Somctimcs sccondhandcrs try to justily thcir stancc by invoking thc lrcc
markct in goods and scrviccs. ncc, whcn thc board ol dircctors ol thc
Southcrn conomic Association was discussing whcthcr to nominatc a
particular cconomist lor somc position or othcr, a mcmbcr whom!ll idcn
tily only as TS said in ccct: !t docsnt mattcr what wc hcrc think ol his
work, lct thc markct dccidc. TS wcnt on to namc thc journals that had
printcd thc candidatcs work. At lcast two things wcrc wrong with this
appcal to thc markct. First, thc ultimatc consumcr, thc rcadcr ol aca
dcmic journalsor, morc cxactly, thc subscribcrhas an inucncc morc
attcnuatcd and morc subjcct to manipulation by othcrs than thc inucncc
ol thc consumcr ol ordinary consumcr goods and scrviccs. ditors and
rclcrccs havc rcason and scopc lor hccding lads and cliquish and pcrsonal
considcrations. Tcy arc not risking thcir own moncy. Subscribcrs lacc tic
in salcs (which includc association mcmbcrships and thc supposcd prcs
tigc ol subscribing) and havc rcason, anyway, to lcarn about lads, whcthcr
thcy likc thcm or not. !t is hardcr in thc supposcd acadcmic markct than
in thc rcal markct lor customcrs to know whcthcr thcy got what thcy
paid lor.
Sccond, sincc whcn was thc markct, cvcn thc actual busincss markct,
supposcd to bc thc arbitcr ol cxccllcncc in litcraturc, art, music, scicncc,
or scholarship: Sincc whcn docs it dccidc truth and bcauty: Tc casc lor
thc lrcc markct is somcthing quitc othcr than that it constitutcs thc vcry
critcrion ol what should bc admircd, and it ill scrvcs thc causc ol a lrcc
socicty to misrcprcscnt thc casc lor thc markct.
Finally, TSs positionis thc vcry prototypc ol thc sccondhandismdiag
noscd by Ayn Rand. Misbchavior in thc markctplacc lor idcas is worsc
than in thc markctplacc ol goods, suggcsts V.V. 8artlcy !!!, bccausc lcw
pcnaltics against ocndcrs arc rcadily cnlorccablc, whilc whistlcblowcrs
arc scvcrcly punishcd (.c, chaps. 6 and ,, thc analogy bctwccn thc aca
dcmic and busincss markcts is lurthcr disscctcd in Mirowsky .a, pp. a,
a,, and Maycr ., pp. .c., ).
Chapter z: Tacit Preachments are the !orst Kind a
ci~vi:v vvvsus onscuv~x:is:
vcrcoming tacit mcthodological prcachmcnts rcquircs, lor onc thing,
cultivating clarity. An articlc by Max astman (.a/.c) is worth cit
ing il only lor its insightlul titlc, Tc Cult ol Unintclligibility. Tat labcl
ts not only astmans spccic targct, modcrnist poctry, but much aca
dcmic activity. Yct contcmpt lor convcying a clcar mcssagc violatcs thc
spirit ol scicncc, which is nothing but a pcrsistcnt and organizcd cort to
talk scnsc (astman .a/.c, p. 66). 8artlcy lound thc obscurantism
ol ccrtain cntrcnchcd idcologics occurring in two main lorms, inappropri
atc mathcmatical lormalism and lack ol clarity in spccch and prcscntation
(.c, pp. .a.). As Karl Poppcr taught, prctcntiousncss is immoral (8art
lcy .c, p. .). Poppcr would always try to dislodgc his convcrsational
partncrs lromany habits or tricks that prcscrvc thcir ability to imprcss and
dominatc, and to maintain thc prctcncc ol knowlcdgc thcy do not posscss
(8artlcy .c, p. a6).
Authors ol books on grammar and writing stylc do not hcsitatc to
warn thcir rcadcrs about spccic crrors and stylistic inlclicitics. !n that con
ncction, wc do wcll to rcmcmbcr McCloskcys top lcvcl ol mcthodology,
thc cthics ol scholarly discoursc. Scicntists arc supposcd to bc cngagcd
in an intcrpcrsonal cndcavor, which includcs, as McCloskcy says, con
vcrsation.
Vcll, thcn, communicatc. o not pcrvcrt communication into parad
ing how much you know ol mathcmatics or thc philosophy ol scicncc or
whatcvcr. !nstcad ol striving to imprcss your rcadcr, bc politc to him. dit,
rcwritc. Rccognizc that thc lorm in which your idcas originally occurrcd
to you may not bc thc most ccctivc way to put thcm across. o not sup
posc that cmploying symbols automatically conlcrs a papal dispcnsation
lrom obligations incumbcnt on any writcr.
Tc ocnscs ! havc in mind includc writing in codc, with symbols
rcplacing words, using symbols dcncd only haphazardly, omitting mcan
inglul labcls lrom diagrams, and using cryptic cxprcssions with variablc
mcanings (such as rcal cxchangc ratc or apprcciation ol thc cxchangc
ratc). Pcrhaps your rcadcr can brcak your codc, pcrhaps hc should bc ablc
to gurc out your argumcnt cvcn in its original, uncditcd lorm. 8ut why
should hc havc to bothcr: Hc lccls morc comlortablc with occasional rcas
suranccs that you and hc arc on thc samc wavclcngth. Altcr all, you might
bc making a mistakc. ! rccall placcs whcrc thc writcr uscd a slightly dicr
cnt symbol in a diagram than in thc tcxt, such as a lowcrcasc instcad
a6 Part : Economics
ol uppcrcasc lcttcr or a curvcd lcttcr l instcad ol a straight onc. id
thc writcr intcnd a distinction, and il so, what was it, or was hc sim
ply bcing carclcss: Such timcconsuming puzzlcs could bc avoidcd il thc
writcr dcigncd to writc clcarly in thc rst placc, pcrhaps cvcn labcling his
diagrams in nglish.
Tc ccntral lact ol cconomics is scarcity. Your rcadcrs timc is scarcc,
as wcll as thcir capacity lor attcntion and cort. 8csidcs guring your
mcssagc out, thcy havc othcr things to do. Many topics within and outsidc
ol cconomics bcsidcs your currcnt mcssagc arc worth thcir attcntion, and
your own. (As VilhclmRopkc uscd to say, cconomics is a subjcct in which
undcrstanding a part prcsupposcs undcrstanding thc wholc, and indccd
morc. An cconomist who is only an cconomist cannot cvcn bc a good
cconomist.)
Rcmcmbcr that thc principlc ol diminishing marginal rcturns applics
widcly, cvcn to timc and cort spcnt on a particular activity or topic. vcn
lor rcadcrs who can lollow an analysis, unncccssary lormalist dccorations
oltcn consumc timc that might havc had othcr and bcttcr uscs (Maycr
., p. ,). Tc principlc ol portlolio divcrsication applics not only to
invcstmcnt asscts but also to knowlcdgc ol topics within and outsidc ol
cconomics.
ncouragingly, thc mathcmatician Paul Halmos similarly cxhorts his
collcagucs. Tcy should writc corrcct and clcar nglish, kccping Fowlcr,
Rogct, and Vcbstcr at hand. A writcr who works cight hours to savc vc
minutcs lor cach ol .ccc rcadcrs savcs ovcr cighty manhours. Halmos
warns that thc symbolism ol lormal logic, though somctimcs indispcns
ablc, is a cumbcrsomc way ol transmitting idcas. Nobody thinks in sym
bols. Coding by thc author and dccoding by thc rcadcr wastc thc timc ol
both and obstruct undcrstanding. Tc bcst notation is no notation, Hal
mos adviscs. Try to writc a mathcmatical cxposition as you would spcak
it. Prctcnd that you arc cxplaining thc subjcct to a lricnd on a long walk
in thc woods, with no papcr availablc, lall back on symbolism only whcn
it is rcally ncccssary (Halmos .,/.., p. c). Avoid distracting your
rcadcr with irrclcvant labcls (lor cxamplc, rclcrring to thc lunction f
whcn you will not bc using thc labcl f again). Vhcn convcnicntly possi
blc, avoid coining ncw tcchnical tcrms. Takc carc about thc appcarancc
ol thc printcd pagc. Solid prosc will havc a lorbidding, scrmony aspcct, a
pagc lull ol symbols . . . will havc a lrightcning, complicatcd aspcct (p. ).
!t may bc that clarity docs not pay. (!t costs timc, but cditors and rclcr
ccs havc an opportunity to imposc disciplinc on authors in thc intcrcst ol
Chapter z: Tacit Preachments are the !orst Kind a,
thc widcr scholarly community.) Putting hcavy dcmands on your rcadcr
may advcrtisc your own lcarning. !t may intimidatc himinto not qucstion
ing your argumcnt. (Maycr ., p. ,, suggcsts that lormalist trappings
may hclp protcct a papcr lrom criticism by making critical commcnt on
it costly in timc and cort.) You may makc your mcssagc appcar lrcshcr
and morc important than it rcally is by practicing product dicrcntiation,
as opposcd to taking carc to rclatc your mcssagc to thc cxisting litcraturc,
cxploiting similaritics, parallcls, analogics, and contrasts. Pcrhaps rccon
ditcncss and obscurity rcally do bamboozlc cditors and rcadcrs, and pcr
haps unintclligibility masqucrading as prolundity may somctimcs ward
o idcntication ol what is no morc than poor stylc. !l so, a moral aspcct
cntcrs into writing. (Cl. McCloskcy .6, writing in a slightly dicrcnt
contcxt.) !l so, lurthcrmorc, qucstions again arisc about thc inccntivc struc
turc prcvailing in acadcmia.
At thc vcry lcast, gct your grammar, word usagc, spclling, and punc
tuation right. (Nobody is inlalliblc, ccrtainly not !, but at lcast onc should
work at thcsc things.) Vhy do cconomists tolcratc so much slovcnlincss
in thcsc rcspccts: Tcy do not tolcratc its countcrpart in thc mathcmatical
strands ol cconomicsnot, that is, whcn thcy noticc it (and ! havc somc
storics to tcll about this qualication). !l rigor is prizcd, why shouldnt it
bc prizcd in thc cutanddricd aspccts ol writing:
!l lor somc rcason you cannot gct your grammar and so lorth right,
thcn hirc somconc to rcpair your writing bclorc you ship it o to a journal
and pcrhaps cvcn bclorc you inict it on collcagucs. 8cyond gctting thc
mcchanics right, strivc lor a rcadablc stylc. Vhcn you ship your manu
script o to a publishcr, havc it in a lorm in which you would bc glad to
scc it in print. ont count on somconc clsc to improvc it.
Tcsc cxhortations bcar on what to do about a national crisis (pcr
mit mc to cxaggcratc as Andy Rooncy docs on thc tubc). Not cvcn Val
tcr 8lock, who wrotc a wholc book (.,6) trying to portray thc pimp,
thc drug pushcr, thc littcrbug, and othcr unsavory typcs as hcrocsnot
cvcn hc attcmptcd any dclcnsc ol thc itchyngcrcd copycditor. Tat
would havc bccn just too prcpostcrous. ! wondcr whcthcr obscuritics, jar
gon, and symbols may not somctimcs hclp protcct authors lrom tampcr
ing: copycditors may shy away lrom trying to improvc on manuscripts
that thcy cannot cvcn undcrstand. Mcrc palpablc sloppincss, on thc
othcr hand, ags thc copycditors on. nc ol my bittcrcst complaints
against writcrs who think it bcncath thcm to bothcr with thcir gram
mar, spclling, punctuation, and stylc is that thcy crcatc cxtcrnalitics: thcy
a Part : Economics
inict thc cursc ol copycditing cvcn onto writcrs morc carclul than thcm
sclvcs.
!dcally, thc author himscll should bc known to bcar rcsponsibility
lor what appcars in print. !l thc writing is cxccssivcly bad, thc publishcr
should simply rcjcct it. As things now stand, howcvcr, sloppy writcrs
providc an cxcusc ol sorts lor not straightlorwardly solving thc copycd
itor problcm.
coxciusiox
! hopc wc arc giving cach othcr, and pcrhaps our studcnts and rcadcrs,
somc moral support, somc backbonc, so that wc can carry on our work in
thc ways that wc oursclvcs think bcst suitcd lor lcarning how thc world
actually opcratcs. ! hopc wc can carry on dcspitc lads, lashions, pcrvcrsc
succcss indicators, and prcachmcnts about rigor. ! hopc wc will havc
thc couragc to unmask and, whcn appropriatc, to dcly mcthodological
prcachmcnts ol thc worst kind, thc tacit oncs.
vvvvvvxcvs
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cn~v:vv +
Tautologics in conomics and
thc Natural Scicnccs

:nv :ovic ~xb ~ bisci~i:vv

Quibblcs ovcr Valrass Law tracc, in my cxpcricncc,
.
to lailurc to rccog
nizc that thc Law is tautologically truc. To lorcstall misundcrstanding
ol this and othcr picccs ol cconomic thcory, it is worth rccognizing that
usclul tautologics arc lairly numcrous.
Tis papcr issucs no mcthodological cxhortations or taboos. !t docs
not urgc armchair thcory ovcr cmpirical rcscarch. !nstcad, it looks at a
lcaturc sharcd by scvcral spccic cxamplcs ol succcsslul thcorizing. Just
as scicntists try to cxplain puzzling phcnomcna by rcvcaling unilormitics
hiddcn bcncath supcrcial divcrsitics, so wc may bcttcr undcrstand thc
naturc and lorcc ol argumcnt on a particular topic by rccognizing how it
rcscmblcs (whcn it docs) argumcnts on cvcn quitc dicrcnt topics. luci
dating onc stylc or strand or componcnt ol argumcnt is not thc samc as
insisting on it as thc only propcr mcthod ol rcscarch or cxposition.
Tautologics arc analytic or logically ncccssary propositions. Tcy arc
valid thanks to covcring all possibilitics (Tc world is cithcr round or
not round) or thanks to intcrlocking dcnitions. A ncgation ol a tautol
ogy is scllcontradictory. (Considcr dcnying !l implics B, thcn notB
implics not.) Most ol thc tautologics mcntioncd bclow hingc on thc
lormulation and intcrlocking ol tcrms and conccpts, whosc mcanings and
intcrrclations thcy illuminatc.
Analytic propositions can givc us ncwknowlcdgc (or aid us in its pur
suit). Tcy call attcntion to linguistic usagc, ol which wc might othcrwisc

From Eastern Economic Journal ac (Spring .): .,.6.

.
! am particularly thinking ol troublc in making rcadcrs undcrstand Alan Rabins and
my papcr on Monctary Aspccts ol Valrass Law and thc StockFlow Problcm, subsc
qucntly publishcd in .,.
a6
a6 Part : Economics
not bc conscious, and thcy rcvcal unsuspcctcd implications in our asscr
tions andbclicls (Aycr .6/.6, p. ). Logic andmathcmatics, although
apodictically ccrtain, can somctimcs yicld surprising rcsults. Analytic
propositions hclp onc chcck that thc lactual propositions bcing brought
to bcar on somc problcm arc mutually consistcnt (pp. 6, c.). Tautolo
gics can bc usclul in applying thc translation tcst (illustratcd latcr) and
in cxposing crror (lor nothing contradicting a logically ncccssary proposi
tion can bc corrcct). Tautologics can bc usclul in locusing attcntion and
organizing discussion.
Tc cxamplcs rcvicwcd bclow illustratc John Harsanyis point (.,6,
p. 6) that social scicntists cncountcr not only lormal or logical prob
lcms and cmpirical problcms but also conccptualphilosophical problcms.
Larry Laudan (.,,, chap. a) calls it an cnormous mistakc . . . to imaginc
that scicntic progrcss and rationality consist cntircly in solving cmpirical
problcms. Grappling with conccptual problcms has bccn at least as impor-
tant in thc dcvclopmcnt ol scicncc as cmpirical problcm solving (p. ).
nc ol thc most important ways scicncc progrcsscs is thc cxplication ol
conccptions (Villiam Vhcwcll, quotcd in Laudan .,,, p. c).
A thcory runs into conccptual problcms whcn it is intcrnally inconsis
tcnt or vaguc or whcn it conicts with anothcr thcory or doctrinc bclicvcd
to bc wcll loundcd (Laudan .,,, csp. pp. ). Ptolcmys astronomy
managcd to avoid most ol thc cmpirical anomalics ol carlicr Grcck astron
omy, but at thc pricc ol generating enormous conceptual problems with its
cpicyclcs, ccccntrics, and cquants. !ts hypothcsis that ccrtain plancts movc
around cmpty points in spacc, that plancts do not always movc at constant
spccd, and thc likc wcrc in agrant contradiction with thc thcn acccptcd
physical and cosmological thcorics (Laudan .,,, pp. .a). Mcthodolog
ical norms, in Laudans vicw, havc bccn pcrhaps thc singlc major sourcc
lor most ol thc controvcrsics in thc history ol scicncc, and lor thc gcncra
tion ol many ol thc most acutc conccptual problcms with which scicntists
havc had to copc (p. , italics omittcd). |!|t is usually casicr to cxplain
away an anomalous cxpcrimcntal rcsult than to dismiss out ol hand a con
ccptual problcm (p. 6, italics omittcd).
Rclcrring in particular to discussions ol absolutc and rclational thco
rics ol spacc and timc, gcncral rclativity, and thc intcrprctation ol thc cld
cquations, V.H. NcwtonSmith (.., p. ) statcs, Vhat is at stakc in
this dcbatc is largcly conccptual. Tcorics must bc asscsscd in tcrms ol
thcir powcr to avoid conccptual dicultics and not just in tcrms ol thcir
powcr to prcdict novcl lacts and cxplain known lacts.
Chapter z,: Tautologies in Economics and the Natural Sciences a6
rnst Mayr (.a, p. a) rcjccts sccing scicncc mcrcly as an accumu
lation ol lacts. !n biology, most major progrcss was madc by thc intro
duction ol ncw conccpts, or thc improvcmcnt ol cxisting conccpts. ur
undcrstanding ol thc world is achicvcd morc ccctivcly by conccptual
improvcmcnts than by thc discovcry ol ncw lacts, cvcn though thc two
arc not mutually cxclusivc.
A.A. Zinovcv cmphasizcs howsuitably choscn dcnitions, tcrms, and
symbols rcndcr scicntic discussion morc intuitivcly obvious, compact,
and convcnicnt. !n thcir abscncc, thc rccord ol knowlcdgc and opcrating
with it bccomc practically impossiblc. Tc scarch lor thc most convcnicnt
lorms ol abbrcviation rcprcscnts onc ol thc most important tasks in thc
construction ol scicntic languagc in gcncral (., pp. ..).
Vhat ultimatcly counts in an cmpirical scicncc, says anicl Haus
man (.a, p. a) is idcntilying rcgularitics in thc world. 8ut scicncc
docs not procccd by spotting corrclations among wcllknown obscrvablc
propcrtics ol things. Tc construction ol ncw conccpts, ol ncw ways ol
classilying and dcscribing phcnomcna is an cqually crucial part ol scicncc.
Such conccptual work has bccn promincnt in cconomics.
bvvxi:ioxs ~xb v:vivics: w~iv~ss i~w ~xb
:nv vgu~:iox ov vxcn~xcv
Two notablc tautologics in cconomics illustratc ccrtain rclations bctwccn
dcnitional truths and cmpirical rcality. Valrass Law illuminatcs intcrrc
lations among supplics ol and dcmands lor goods, scrviccs, sccuritics, and
moncy and among thcir supply/dcmand imbalanccs. Tc Lawcmphasizcs
that no onc thing or group ol things can bc in cxccss supply or cxccss
dcmand by itscll. !t thcrcby hclps locus attcntion on thc rolc in macrocco
nomic disordcr ol a distinctivcly lunctioning objcct ol cxchangcmoncy.
Similarly, it cmphasizcs that no changc in tastcs or tcchnology can acct
thc supply or dcmand ol a singlc thing alonc, at lcast two things must bc
involvcd.
!n onc lormulation, Valrass Law statcs that il a gcncralcquilibrium
cquation systcm spccics cquality bctwccn quantitics supplicd and dc
mandcd ol all goods in thc cconomy but onc, thcn an cquation lor thc
onc rcmaining good would bc otiosc. !nstcad ol bcing mathcmatically
indcpcndcnt, it would mcrcly duplicatc inlormation alrcady containcd in
thc othcr cquations. Supplydcmand cquilibrium lor all goods but onc
alrcady implics cquilibrium lor whatcvcr thc rcmaining good may bc.
a66 Part : Economics
Asccond lormulation, which straightlorwardly implics thc rst, holds
in discquilibrium as wcll as in cquilibrium: thc total valuc ol all goods sup
plicd cquals thc total valuc ol all goods dcmandcd. (Tc tcrm goods is
inclusivc hcrc, covcring not only commoditics but also labor and othcr scr
viccs, sccuritics, and moncy.) Quantitics arc valucd at thc priccs at which
cxchangcs arc accomplishcd or attcmptcd, as thc casc may bc. Vith cxccss
supplics countcd as ncgativc cxccss dcmands, thc sum ol thc valucs ol all
cxccss dcmands is idcntically zcro. (xccss dcmand and cxccss supply
rclcr hcrc to markct discquilibrium and lrustration ol attcmptcd transac
tions. Somconc acting to incrcasc his holdings ol somc good is not said to
havc an cxccss dcmand lor itnot il hc mccts no lrustration on thc mar
kct.) (Langc .a, Patinkin .6, pp. ,, aa, aa6a, and passim, Patinkin
.,, 8aumol .6, pp. ca.)
Valrass Lawis an idcntity, . . . littlc morc than an accounting rclation
ship (8aumol .6, p. .). Vhcrc it docs not hold, pcoplc must, by dc
nition, bc planning to cxchangc goods which arc not cqual in valucan
odd asscrtion lor any monctary cconomy (8aumol .6c, p. c). Tc Law
holds bccausc budgct constraints opcratc and markct transactions arc two
sidcd. Anyonc trying to acquirc somcthing is by that vcry tokcn ocring
somcthing in cxchangc ol cqual valuc at thc pricc contcmplatcd. Anyonc
trying to scll somcthing is dcmanding somcthing ol cqual valuc in rcturn.
An attcmptcd but lrustratcd transaction, likc a succcsslul onc, involvcs
two goods and not just onc. ach lrustratcd transaction lcavcs two cxccss
dcmand valucs, cqual in sizc but oppositc in algcbraic sign.
Yct complications arisc, and Valrass Law has itscll somctimcs bccn
callcd into qucstion. !n addrcssing lringc doubts, it is ncccssary to clarily
somc ol thc vcry conccpts that cntcr into thc Law. !n particular, onc must
distinguish bctwccn notional and ccctivc supplics and dcmands and
bctwccn stock and ow conccptions ol quantitics. Tis papcrs purposc
docs not rcquirc rchcarsing thcsc tcchnicalitics (although commcnts about
thc balancc ol paymcnts in a latcr scction will bc suggcstivc). !ts purposc,
instcad, is simply to citc Valrass Lawas onc cxamplc ol a usclul tautology.
Anothcr lamiliar cxamplc is thc cquation ol cxchangc M!=PQ. !ntcr
prctcd as a tautology, thc cquation is ncccssarily truc bccausc ol how its
tcrms arc dcncd. !t providcs two dicrcnt but rcconcilablc ways ol look
ing at nominal incomc (gross domcstic product or somc such magnitudc).
!ts lclt sidc intcrprcts incomc as thc product ol thc quantity ol moncy
and its incomc vclocity ol circulation, its right sidc, as output in physi
cal units valucd at thc avcragc pricc ol a unit. (All lour tcrms must bc
Chapter z,: Tautologies in Economics and the Natural Sciences a6,
dcncd in morc carclul dctail, ol coursc, than would scrvc our purposc
hcrc.) Tc cquation locuscs attcntion on qucstions ol how changcs in
nominal incomc arc split bctwccn pricc and output changcs and on thc
conlrontation bctwccn thc actual quantity ol moncy and thc dcmand lor
holdings ol moncy. Tc lattcr is what vclocity rclatcs to, and saying so
rcminds us ol how to makc a transition lrom thc tautological cquation to
thc condition lor cquilibrium bctwccn moncys supply and dcmand.
Tc cquation ol cxchangc cntcrs into cxamplcs ol what ! call thc trans
lation tcst.
a
How plausiblc docs thc thcory ol an inationary wagcpricc
spiral unluclcd by monctary cxpansion look whcn its implications about
Q and ! arc drawn out: How wcll docs thc Kcyncsian thcory ol thc dctcr
minants ol aggrcgatc spcnding, conccptualizcd with thc aid ol its tautol
ogy that nominal incomc = consumption + invcstmcnt + govcrnmcnt
spcnding + cxports imports, translatc into tcrms ol M!=PQ: Con
vcrscly, how wcll docs thc monctarist lormulation translatc into thc Kcy
ncsian lormulation: Trying to translatc a proposition lromonc conccptual
lramcwork into anothcr can somctimcs suggcst ncw insights or cxposc
conccalcd crror.
Supposc somconc maintains that thc cquation ol cxchangc is lalsc
not just trivial, not just lacking in applications, but lalsc. Hc thcrcby shows
that hc docs not undcrstand what thc cquation mcans and how its tcrms
arc dcncd in intcrlocking ways. His position would bc likc that ol somc
onc claiming to havc mct an unusual pcrson, a marricd bachclor, or a
marricd man who, although not marricd to any particular woman, is ncv
crthclcss marricd.
Tc cquation ol cxchangc also illustratcs thc point that whcthcr a par
ticular tautology is usclul in illuminating rcality hingcs on lacts ol rcality.
(Comparc thc discussion ol Poincars convcntionalism bclow.) \alidity
and usclulncss, lalsity and usclcssncss, arc not thc samc things. A propo
sition lacking cmpirical application is not lalsc mcrcly lor that rcason.
Vc can rcadily imaginc a chairs vcrsion ol thc cquation ol cxchangc.
!n C!
c
=PQ, P and Q would bc thc samc as bclorc, C would bc thc num
bcr ol chairs in cxistcncc in thc country on avcragc during a ycar, and !
c
would bc thc vclocity ol chairs, mcaning thc ratio ol nominal incomc
to thc numbcr ol chairs. Tanks to intcrlocking dcnitions, C!
c
=PQ is
just as lormally valid as M!=PQ, but bccausc ol lacts about how moncy
a
Tomas Hobbcs (.6./.6, chaps. and 6) suggcstcd that onc might tcst whcthcr
a piccc ol abstract philosophizing mcans anything by sccing how rcadily it could bc trans
latcd lrom thc original languagc into anothcr.
a6 Part : Economics
lunctions that arc not also truc ol chairs, thc moncy vcrsion ol thc cqua
tion has a usclulncss that thc chairs vcrsion lacks. (nc might quibblc
ovcr cxactly what counts as a chair, just as ovcr what counts as moncy, but
such quibblcs would bc rclativcly pcriphcral to thc logic and usclulncss ol
cithcr cquation.)
As this cxamplc illustratcs, thc tautological validity andcmpirical appli
cability ol a proposition arc not thc samc thing. 8cing a tautology ordinar
ily bars a proposition lrom bcing an cxact dcscription ol rcality, although
it may bc a stylization. Tc tautologics mcntioncd so lar arc tools, guidcs,
rcmindcrs, illuminators, organizing dcviccs that may provc usclul in com
ing to grips with rcality.
coxvvx:ioxs ix scivxcv
Tc mathcmatician and physicist Hcnri Poincar cmphasizcd thc rolc ol
convcntions in scicncc (Coplcston ., chap. ix, pp. a,.a,, antzig
., csp. pp. a, 66, Poincar .a, .). Hc did not maintain, ol
coursc, that all scicntic propositions arc truc by mcrc stipulation, agrcc
mcnt, habit, or custom. Hc warncd ol too sharp a dichotomy bctwccn
convcntion and cmpirical lact. Hc criticizcd his disciplc douard Lc Roy
lor maintaining that scicncc consists only ol convcntions and owcs its
apparcnt ccrtitudc to this lact (Poincar ., chap. x, csp. p. ..a). To sug
gcst that thc scicntist actually creates scicntic lact itscll is going much
too lar toward nominalism. Scicntic laws arc not articial crcations. Vc
havc no rcason to rcgard thcm as accidcntal, though it is impossiblc to
provc thcy arc not (p. .).
Poincars position, rathcr, is that convcntions lruitlully styli.e rcality
(although ! am not awarc ol his using that particular word). ltcn thc sci
cntist sharpcns up rough or vaguc conccpts, catcgorics, and principlcs. Hc
rcachcs propositions that arc truc by convcntion or dcnition and so arc
not opcn to lalsication. 8ut ncithcr arc thcy arbitrary. Tcy havc provcd
convcnicnt lor dcaling with rcality, just as a dccimal coinagc is morc con
vcnicnt (though not trucr) than a nondccimal coinagc. Tc propcrtics ol
rcality cntcr into dctcrmining whcthcr a particular dcnition or convcn
tion is usclul in dcaling with it.
!n mathcmatical physics, what was originally an cmpirical gcncraliza
tion may bc so intcrprctcd as to bccomc a disguiscd dcnition, not opcn
to lalsication (Coplcston ., chap. ix, p. a,). Vhcn an cxpcrimcn
tal law has rcccivcd sucicnt conrmation, Poincar says, wc may cithcr
Chapter z,: Tautologies in Economics and the Natural Sciences a6
(r) lcavc it opcn to inccssant rcvision, cnding in dcmonstration that it is
only approximatc or (a) clcvatc it into a principle by adopting convcntions
that makc it ccrtainly truc. A crystallizcd principlc is no longcr subjcct
to thc tcst ol cxpcrimcnt. !t is not truc or lalsc, it is convcnicnt (.,
pp. .a.a). Procccding that way has oltcn bccn advantagcous, but il all
thc laws had bccn translormcd into principlcs nothing would bc lclt ol
scicncc (p. .a).
Actual bodics bccomc slightly dclormcd whcn movcd, cxpand whcn
warmcd, and so lorth. Yct it would bc hopclcssly complicatcd lor cvcry
statcmcnt about thc motion ol a body to allowlor its bcnding and dilation.
(Comparc trying to lormulatc Valrass Law and thc principlcs ol balancc
olpaymcnts accounting toallowcvcnlor misundcrstanding whcthcr a par
ticular propcrty translcr was a salc or a gilt.) For convcnicncc, wc invcnt
rigid bodics and idcalizcd typcs ol motion (Poincar ., pp. .a.a6). Tc
propositions ol mcchanics rclcr to thcsc idcalizations, which arc ncvcrthc
lcss usclul bccausc thcy arc somchowclosc cnough to rcality.

Tcy arc con

vcnicnt, but convcnicnccnot only lor you or mc but lor all ol us and our
dcsccndantshas an objcctivc aspcct (p. .c).
Poincar instructivcly comparcs scicncc toa library. xpcrimcntal phys
ics buys thc books. Mathcmatical physicsthc tautological aspcctdraws
up thc cataloguc, making thc library much morc usclul to rcadcrs. !t also
rcvcals gaps inthc collcctionandso hclps thc librarianusc his limitcdlunds
judiciously (.a, pp. ..).
Tc laws ol scicncc, thcn, arc lar lrom mere convcntions. Tcy rclatc
to a rcality cxisting indcpcndcntly ol how human bcings dcscribc it. How
cvcr, convcntions do cntcr into stating its laws. Somc provc morc convc
nicnt than thcir altcrnativcs, and this dicrcncc hingcs on thc naturc ol
rcality. Again, comparc thc chairs vcrsion with thc moncy vcrsion ol
thc cquation ol cxchangc.
Tc world ol classical mcchanics is an imaginary, sharpcncd world
dcscribablc by inlallibly truc propositions that ncvcrthclcss aid in undcr
standing thc rcal world. Tis imaginary world is a modcl. Modclbuilding
involvcs usc ol convcntional or tautological propositions.

For similar rcmarks about astronomical systcms, spacc, timc, and thc mcasurcmcnt
ol timc, scc Poincar ., pp. a,a, c, 6, 6, .c.., .a, pp. c., and antzig .,
pp. a, 66. n thc kinctic thcory ol gascs, scc Poincar ., p. .., .a, p. .,, and
Campbcll .,, pp. .a6... For a gcncral distinction bctwccn cmpirical and abstract
objccts and proccsscs, scc Zinovcv ., pp. ,, .,c.,., and passim).

n rclations bctwccn modcls, thcorics, and rcality in cconomics and on thc catcgory
mistakc ol trying to tcst modcls, scc Hausman .a, pp. ,6,, a, a,, and passim.
a,c Part : Economics
vuv:nvv :~u:oiocivs ix :nv x~:uv~i scivxcvs
Mathcmatics is probably thc standard cxamplc ol a body ol usclul tautol
ogics.

(Conant ., p. .c, calls mathcmatics a vast tautology, lor Aycr

.6/.6, p. ., thc truths ol logic and mathcmatics arc analytic propo
sitions or tautologics, and J.S. Mill was wrong in supposing that a situa
tion ovcrthrowing any ol thcm could arisc.) Althoughor bccauscthc
propositions ol gcomctry and trigonomctry arc tautologically truc, thcy
arc indispcnsablc in survcying.
6
Tc conccpt ol zcro radically simplics
arithmctic and accounting.
!nthc natural scicnccs, classical (Ncwtonian) mcchanics pcrhaps comcs
closcst to sharing thc tautological charactcr ol mathcmatics. Tc lormula
lorcc = mass accclcration pcrtains to rcality, to bc surc, but it also
rcprcscnts thc intcrlocking ol dcnitions. |T|hc lormula which connccts
static lorcc and accclcration . . . is a tautology (antzig ., p. .c). !l
onc wishcs, onc may say mass is dcncd in this manncr, providcd onc
alrcady knows what lorcc is. nc might prclcr to assumc that mass is
thc known quantity and dcnc lorcc by this cquation. Vhat is sccn hcrc
. . . is thc cstablishing ol rclations bctwccn various conccpts in ordcr to
dcnc tcrms. Vhich comcs rst and which comcs latcr is oltcn a mattcr
ol choicc (Tcllcr .c, p. ).
,
Tc samc lormula f =ma illustratcs thc tautological clcmcnt in dcn
ing units ol mcasurcmcnt, whosc importancc in scicncc is undcniablc. !n
thc mctcrkilogramsccond systcm, lorcc is mcasurcd in ncwtons, onc
ncwton bcing thc lorcc rcquircd to givc a mass ol onc kilogram an acccl
cration ol onc mctcr pcr sccond pcr sccond. (Tc unit ol work or cncrgy,
thc joulc, is a lorcc ol onc ncwton opcrating ovcr a distancc ol onc mctcr,
Tc usclulncss ol modclbuilding in somc cascs and lor somc purposcs hardly justics
insistcncc on it as thc only acccptablc mcthod, it hardly justics badgcring rcscarchcrs
with routinc crics ol Vhat is your modcl: and How can your modcl bc tcstcd:

Somctimcs tautologics look dcccptivcly likc brutc lacts ol rcality. !t sccms a brutc lact
that might quitc conccivably havc turncd out othcrwisc that cxactly . primc numbcrs
occur in thc rangc ol .cc to .ccc. Yct this spccic count lollows rigorously lrom thc vcry
conccpts ol numbcr and primc numbcr.
6
Although cxpcricncc playcd an indispcnsablc rolc in its gcncsis, gcomctry is not an
cxpcrimcntal scicncc. ||xpcricncc docs not tcll us which gcomctry is truc, it tclls us
which is thc most con.enient (Poincar, Space and Geometry, quotcd without pagc numbcr
in antzig ., p. a).
,
Poincar .a, chap. vi, csp. pp. ,.c6, makcs similar but morc dctailcd rcmarks
on thc mcanings and intcrrclations ol lorcc, mass, and accclcration. Comparc Mcycrson
.a./.., csp. pp. c, on thc dcductivc naturc ol rational mcchanics.
Chapter z,: Tautologies in Economics and the Natural Sciences a,.
and .c joulcs =onc 8ritish thcrmal unit, a unit ol somc notoricty in U.S.
taxpolicy discussions ol carly ..)
lcctrical idcntitics arc broadly similar in charactcr to thc mcchanical
idcntitics. Tc dcnitional intcrrclations among such units as joulc, watt,
volt, ampcrc, coulomb, and ncwton again illustratc tautologics at work.
Gustav Robcrt Kirchhos laws lor dircctcurrcnt circuits arc rcmi
nisccnt ol Valrass Law. Tcy guidc thc lormulation ol cquations to bc
solvcd lor thc currcnts and voltagcs in parts ol complicatcd circuits (Nau
., pp. , a, ,a,, a., c).

Tc currcnt law statcs that thc sum

ol thc currcnts dircctcd toward a nodc cquals thc sum ol currcnts dircctcd
away lrom thc nodc, with algcbraic sign givcn propcr attcntion, thc sum
ol all thc currcnts dircctcd toward a nodc is zcro. According to thc voltagc
law, thc potcntial dicrcncc bctwccn two points in a circuit is thc algc
braic sum ol thc potcntial dicrcnccs (scalar quantitics) across cach ol thc
clcmcnts traccd bctwccn thc points, thc sum ol all thc voltagcs around
any closcd loop is thus zcro (Nau ., pp. c). Nau rcmarks (pp. ,
.) that thc voltagc law holds |b|y dcnition and that |b|ookkccping
will bc lacilitatcd by ccrtain convcntions ol notation.
8iology tclls us that organisms posscssingtraits conducivc tosurvival in
thcir cnvironmcnts tcnd to survivc and rcproducc, othcrs do not. Tis prin
ciplc ol natural sclcction, though practically a tautology, yiclds insights.
Classilying organisms into spccics, gcncra, and highcr ordcrs scrvcs
gathcring and asscssing cvidcncc bcaring on hcrcdity and cvolution. !dcal
conccptualizations (ncvcr lully achicvcd) would makc it tautologically truc
ol a particular organism that, on thc basis ol its charactcristics, it lalls
into prcdcncd classcs. vcr sincc arwin, taxonomists havc rccognizcd
that morc than mcrc rcscmblanccrathcr, propinquity ol dcsccntis
involvcd in classication. arwin warncd against conlusing similaritics
duc to common dcsccnt with spurious similaritics duc to convcrgcnt cvolu
tion undcr cnvironmcntal circumstanccs (Mayr .a, pp. a.ca.a). Contro
vcrsics havc ariscn among taxonomists ol various phcnctic schools, which
rclrain lrom taking cvidcncc lrom dcsccnt into considcration, and adhcr
cnts ol cladistics, which docs try to considcr dcsccnt, and by a virtually
automatic mcthod that would lorcc carclul analysis and propcr wcighting
ol all charactcrs. 8oth groups ol taxonomists strivc to climinatc subjcc
tivity and arbitrarincss lrom classications (Mayr .a, pp. aca). Tc

! am indcbtcd to Rogcr Garrison lor calling my attcntion to Kirchhos laws and lor
this rclcrcncc.
a,a Part : Economics
rclcvant point is that biologists havc lound it worthwhilc to invcstigatc
and arguc ovcr thc most cxpcdicnt mcthod ol lraming classications, con
ccpts, and tautologics.
Suitablc classications arc important in linguistics also. xamplcs in
cludc thc structural classication ol languagcs as agglutinating, isolating,
and inccting, in thcir classication by lamilics or dcsccnt, and in thc clas
sication ol consonants as aspiratcd or unaspiratcd, voiccd or unvoiccd.
!t is tautologically truc that in nglish thc sound ol g is thc voiccd and
unaspiratcd countcrpart ol k, which is unvoiccd and aspiratcd. Tc vcry
mcaning ol phoncmc implics that in any particular languagc, two (sim
ilar) sounds cithcr do or do not constitutc thc samc phoncmc, thcrc can
bc no inbctwccn dcgrcc ol rcscmblancc in this rcspcct.
Many morc cxamplcs ol tautology and truth by convcntion appcar
availablc in natural scicncc. Tc scvcral conscrvation laws,

thc principlc ol
lcast action, and thc timcminimizing path ol light (Glcick .a, pp. 6.,
66) arc worth attcntion. So is thc invcrscsquarc lcaturc common to Ncw
tonian gravitation, Coulombs lawol clcctrostatic attraction and rcpulsion,
thc intcnsity ol sound (subjcct to intcrlcrcnccs), and thc intcnsity ol light
and othcr clcctromagnctic radiation. Tis propcrty accords with cmpiri
cal obscrvation, but onc wondcrs whcthcr it may not havc a mathcmatical
aspcct making it morc than a brutc lact. Tc arca ol a sphcrc is timcs
thc squarc ol its radius, suggcsting that thc intcnsity ol anything cmanat
ing lroma ccntral point is dilutcd ovcr a largcr arca thc grcatcr thc distancc
lrom that point, and dilutcd in such a way that thc intcnsity is invcrscly
proportional to that squarcd distancc. Tcllcr .c, pp. a, spcaks in
this conncction ol thc thinning out ol lincs ol gravitational lorcc.) Tc
lormula lor thc arca ol a sphcrc implics that thc total cncrgy crossing
any sphcrc surrounding a point sourcc is indcpcndcnt ol thc radius. Tus,
thc invcrscsquarc law lor thc intcnsity ol radiation at a distancc r lrom a
point sourcc is in accord with thc law ol conscrvation ol cncrgythc total
cncrgy ol a wavc rcmains thc samc cvcn though thc wavc is sprcad ovcr a
grcatcr arca (itchburn .., p. ).
vuv:nvv :~u:oiocivs ix vcoxo:ics
Mathcmatical tautologics arc lamiliar in microcconomics. Maximiza
tions ol prot, utility, and wcllarc cntail cqualization ol various marginal

Comparc Richard Fcynmans vicw ol thc conscrvation laws as skctchcd in Glcick

.a, p. 6..
Chapter z,: Tautologies in Economics and the Natural Sciences a,
magnitudcs. cscriptions ol longrun cquilibrium undcr pcrlcct compc
tition arc tautological yct illuminating. !n macrocconomics, working out
intcrlocking dcnitions ol various quantiablc national incomc and prod
uct conccpts has bccn dccmcd worthy ol thc Nobcl prizc.
Tc moncymultiplicr lormula ol moncyandbanking tcxtbooks,
which involvcs various rcscrvc and currcncy/dcposit ratios, is tautologi
cally truc whcn thc ratios in it arc intcrprctcd as actual ratios. Vhcn its
ratios arc rcintcrprctcd as dcsircd oncs and thc lormula itscll rcintcrprctcd
as an cquilibrium condition, thc discussion ccntcring around it bccomcs a
thcory rathcr than a tautology. (Comparc thc transition, mcntioncd car
licr, bctwccn thc tautological cquation ol cxchangc and thc condition ol
monctary cquilibrium.)
Tc govcrnmcnt budgct constraint points out thc logical, not mcrcly
cmpirical, ncccssity that govcrnmcnt spcnding bc covcrcd by thc aggrc
gatc ol tax and similar rcvcnucs, borrowing, and moncy issuc. Any propo
sition or proposal contradicting this tautology is immcdiatcly discrcditcd.
Shccr arithmctic, il hccdcd, should bring somc disciplinc into political dis
cussion. !l a politician proposcs to incrcasc govcrnmcnt spcnding, rcducc
taxcs, and rcducc thc budgct dccit, hc is coming awlully closc to imply
ing thc issuc ol moncy, to bc countcd as a kind ol rcvcnuc, unlcss hc
can givc a plausiblc Lacrcsquc cxplanation ol how rcduccd tax ratcs will
ncvcrthclcss incrcasc tax rcvcnucs. Prcsidcnt 8ushs .a campaign pro
posal lor lctting taxpaycrs dcsignatc .c pcrccnt ol thcir paymcnts to go
lor rcducing thc national dcbtdcbt, not dccitcamc awlully closc, in
its contcxt, to implying thc issuc ol ncw moncy.
Paul Samuclson rcports that thc mathcmatician Stanislaw Ulam
uscd to tcasc mc by saying, Namc mc onc proposition in all ol thc social
scicnccs which is both truc and nontrivial. Tis was a tcst that ! always
lailcd. 8ut now, somc thirty ycars latcr, on thc staircasc so to spcak, an
appropriatc answcr occurs to mc: Tc Ricardian thcory ol comparativc
advantagc, thc dcmonstration that tradc is mutually protablc cvcn whcn
onc country is absolutcly morcor lcssproductivc in tcrms ol cvcry
commodity. Tat it is logically truc nccd not bc argucd bclorc a mathc
matician, that it is not trivial is attcstcd by thc thousands ol important
and intclligcnt mcn who havc ncvcr bccn ablc to grasp thc doctrinc lor
thcmsclvcs or to bclicvc it altcr it was cxplaincd to thcm. (.6/.,a,
p. 6)
Signicantly, Samuclson calls thc proposition logically truc, in othcr
words, a tautology. Tc principlc ol comparativc advantagc is bcst sccn,
a, Part : Economics
in my concurring vicw, not as a substantivc cmpirical proposition but as
a piccc ol rcasoning usclul in cxposing a common lallacy.
.c
Tat lallacy
rcjccts thc possibility ol mutually bcnccial tradc bctwccn two countrics
onc ol which is morc ccicnt or cnjoys grcatcr productivity or lowcr rcal
cost than thc othcr across thc cntirc rangc ol potcntially tradablc goods.
!nstcad ol quibbling about thc mcaning or possibility ol such comparisons,
thc principlc ol comparativc advantagc concocts, lor thc sakc ol argumcnt,
an cxtrcmc casc in which thc postulatcd dicrcncc is uncquivocal. !t gocs
on to show that cvcn thcn, in thc casc supposcdly most cmbarrassing lor
lrcc tradc, gains lrom tradc arc availablc to both partics. !t providcs an
cvcnil/cvcnthcn argumcnt.
n~i~xcvovv~v:vx:s coxcvv:s ~xb ~x~ivsis
Furthcr cxamplcs in intcrnational cconomics arc instructivc cnough to
mcrit a scparatc scction. Tc conccpts ol balanccolpaymcnts account
ing, as ol ordinary accounting, arc tautologics. Just as thc two sidcs ol a
rms balancc shcct havc idcntical totals, thanks to carclully lormulatcd
intcrlocking conccpts, thc samc is truc ol thc crcdit or plus and dcbit or
minus sidcs ol a countrys balanccolpaymcnts statcmcnt lor a dcnitc
timc pcriod. Tis cquality ol thc two totals prcsupposcs complctc and
accuratc inlormation on all aspccts ol all rclcvant transactions. !n practicc,
inadcquacy ol inlormation plagucs prcscntation ol an actual statcmcnt.
Conccptual dicultics (conccrning, lor cxamplc, thc unccrtain classica
tion ol transactors as rcsidcnts or nonrcsidcnts, thc ambiguous dating ol
somc transactions, and thc handling ol smugglcd goods) rcquirc adopting
somcwhat arbitrary convcntions.
Quibblcs can thus arisc. Tc balanccolpaymcnts conccpt, likc othcr
accounting convcntions, thc cquation ol cxchangc, and Valrass Law, may
bc dclcndcd against quibblcs by cxpounding thc naturc and rationalc ol
analytical tautologics. An analogy comcs to mind with what Stcphan
Korncr calls morc or lcss ncarcmpirical, but still noncmpirical math
cmatics (.66, chap. vii, csp. pp. , .c6.c,). !n rcality, boundarics
bctwccn various classcs may bc luzzy, and a proposition about a partic
ular cntity bcing a mcmbcr or nonmcmbcr ol a particular class may bc
.c
Vhilc onc might scnsibly do cmpirical rcscarch rclatcd to comparativc advantagc
in somc way or anothcr, it would bc a catcgory mistakc to cmbark on testing thc prin
ciplc ol comparativc advantagc, just as on tcsting thc Hcckschcrhlin thcorcm or thc
Rybczynski thcorcm or thc cquation ol cxchangc.
Chapter z,: Tautologies in Economics and the Natural Sciences a,
ncutral rathcr than truc or lalsc. Still, wc may trcat incxact prcdi
catcs and classcs as il thcy wcrc cxact, so rcplacing ncutral propositions by
nonncutral oncs. Vc can cxhibit arithmctical conccpts that arc naturally
and lrcqucntly idcnticdthough ncvcr idcnticalwith cmpirical oncs.
iscussion ol thcsc complcxcs is not cmpirical, it amounts at bcst to a
ncarcmpirical arithmctic.
..
!n balanccolpaymcnts accounting, wc idc
alizc and sharpcn thc conccpts involvcd, arriving at propositions that arc
logical rathcr than brutc cmpirical truths.
No onc, to my knowlcdgc, dcnics that thcsc ncarcmpirical catcgo
rics and propositions arc usclul in analyzing cmpirical rcality. !n particu
lar, il transactions arc classicd into scparatc accounts ol thc balancc ol
paymcnts (say currcnt account, privatc capital account, and ocial scttlc
mcnts account), thcn thc principlc ol compcnsating balanccs comcs into
play: imbalancc in onc dircction in onc or morc ol thc accounts must bc
matchcd by oppositc imbalancc in onc or morc ol thc rcmaining accounts.
(Comparc Valrass Law: cxccss dcmand or supply ol onc thing must bc
matchcd by oppositc imbalancc ol onc or morc othcr things.) !l a country
is running a dccit on currcnt account, thc balanccolpaymcnts tautol
ogy undcrscorcs thc qucstion ol how that dccit is bcing nanccd. An
cnlightcning truism is somctimcs lorgottcn: no dccit can arisc or pcrsist
unlcss it gcts nanccd somchow or othcr. !t is similarly cnlightcning to
rccognizc a countrys balancc ol paymcnts as thc aggrcgatc ol thc individ
ual balanccs ol paymcnts ol thc pcrsons, rms, govcrnmcnt agcncics, and
othcr organizations composing thc national cconomy.
Tc ccntral lormula ol cach ol thc thrcc lcading approachcs to ba
lanccolpaymcnts analysisthc clasticitics, absorption, and monctary
approachcsis valid bccausc ol intcrlocking dcnitions ol thc tcrms it
contains. Tc qucstion ol how thcsc thrcc approachcs intcrrclatc points
to thc application ol Nicls 8ohrs principlc ol complcmcntarity (Tcllcr
.c, pp. , .c.c6, ..c) bcyond its original rangc, as 8ohr himscll
had lorcsccn. Hc rccommcndcd trcating thc wavc and particlc thcorics ol
light as complcmcntary: physicists could lcgitimatcly cmploy cach thcory
whcrc it sccmcd to work, cvcn il thcy did not (yct) know how to rcconcilc
thosc sccmingly contradictory thcorics. !n balanccolpaymcnts analysis,
similarly, cconomists may lcgitimatcly draw whatcvcr insights thcy can
..
Korncr maintains that |d|cductivc abstraction, thc cutting out ol irrclcvancics, . . .
thc climination ol incxactncss, thc drawing ol sharp dcmarcationlincs through indcnitc
conccptual bordcrs (.66, p. .6,) arc applicd, lor cxamplc, in thc various systcms ol gcom
ctry (p. ..a) and in classical mcchanics (p. .).
a,6 Part : Economics
lrom cach ol thc thrcc approachcs, il ncccssary lcaving thcir possiblc rcc
onciliation until latcr.
Tc absorption approach rclatcs a countrys intcrnational surplus (or
dccit) on currcnt account to its cxccss (or shortlall) ol national produc
tion in rclation to national absorption, thc lattcr bcing output absorbcd
in consumption, invcstmcnt, and govcrnmcnt activity. quivalcntly, it
rclatcs thc countrys currcntaccount surplus (or dccit) to thc cxccss (or
shortlall) ol national saving in rclation to national invcstmcnt, a govcrn
mcnt surplus or dccit counting as part ol or as a dcduction lrom national
saving.
Tc monctary approach rclatcs a countrys ovcrall intcrnational sur
plus or dccit (roughly, its balancc on thc ocialscttlcmcnts conccpt) to
changcs in thc aggrcgatc balancc shcct ol its monctary institutions. !ts
ccntral lormula, likc thc absorptionapproach lormula, hingcs on intcr
locking dcnitions ol its tcrms. Vhcthcr thc approach is usclul in practicc
dcpcnds largcly on whcthcr monctary and nonmonctary accounts can bc
distinguishcd clcarly cnough. nc must avoid rcading causal signicancc
into mcrc tautological truths. !t is a mistakc, in particular, to supposc
that growth ol a countrys moncy supply ncccssarily rcprcscnts intentional
buildups ol cash balanccs.
Tc clasticitics approach ccntcrs around an algcbraic cxprcssion whosc
sign supposcdly indicatcs whcthcr currcncy dcvaluation improvcs or
worscns thc countrys balancc ol paymcnts. Tis stability lormula lca
turcs tcrms lor dcmand and supply clasticitics ol imports and cxports. Tc
mathcmatics ol its dcrivation makcs thc lormula tautologically valid, prc
supposing in it spccial though oltcn tacit dcnitions ol thc clasticitics
(involving in what rcspccts thcy arc mutatis mutandis rathcr than ceteris
paribus clasticitics). Vhcthcr or not thc approach is usclul lor analysis ol
thc rcal world dcpcnds largcly on whcthcr thc conccptions ol clasticity
ncccssary to makc thc lormula corrcct arc ncar cnough to or too lar lrom
ordinary conccptions ol pricc clasticity.
Sidncy S. Alcxandcr (.a, .) criticizcd thc clasticitics analysis ol
cxchangcratc adjustmcnt as mcrc implicit thcorizing. Tc lormula lor
normal rcsponsc ol thc balancc ol paymcnts dcrivcs purcly lrom manip
ulation ol dcnitions and has no opcrational contcnt, hc said, unlcss thc
import and cxport dcmand and supply lunctions whosc clasticitics cntcr
into it arc indcpcndcntly spccicd. Tosc lunctions can hardly bc spccicd
so that thcir clasticitics arc partial clasticitics, indicating how scnsi
tivcly thc quantitics rcspond to thcir own priccs whcn incomcs and othcr
Chapter z,: Tautologies in Economics and the Natural Sciences a,,
priccs rcmain unchangcd, lor cxchangcratc adjustmcnt simply cannot
lcavc thcsc othcr things unchangcd. Altcrnativcly, thc clasticitics might bc
intcrprctcd as total, indicating howthc quantitics rcspond whcn not only
thcir own priccs but also cvcrything clsc changc as in lact thcy will changc
in dircct or indircct rcsponsc to thc cxchangcratc adjustmcnt. Tc stabil
ity lormula thcn bccomcs tautologically corrcct but cmpty. No onc could
know thc sizcs ol its total clasticitics without already having a complctc
analysis ol how domcstic and lorcign cconomics rcspond to thc cxchangc
ratc. Carricd to its ultimatc dcgrcc, thc totalclasticitics approach would
asscrtcmptilythat what happcns dcpcnds on thc clasticity ol thc coun
trys balancc ol paymcnts with rcspcct to thc cxchangc ratc (Pcarcc .,c,
passim).
8ut thc lutility ol an approach carricd to its ultimatc docs not imply
lutility carricd judiciously part way. Tc analyst sccks somc compromisc
bctwccn mcaninglul but unmanagcablc rcalism and dctail at onc cxtrcmc
and apparcnt simplicity but cmptincss at thc othcr cxtrcmc. !n balanccol
paymcnts analysis, such a compromisc may wcll involvc ignoring or strip
ping away complications conccrning thc cxact spccication ol thc clastici
tics. An admittcdly tautological lormula docs ncvcrthclcss provc usclul in
contcmplating what conditions would contributc and what oncs would
impair normal rcsponsc ol thc balancc ol paymcnts to thc cxchangc
ratc.
.a
coxciusiox
Tc cxamplcs prcscntcd hcrc hclp onc rccognizc a particular stylc or ingrc
dicnt ol argumcnt and bcttcr undcrstand its application in particular con
tcxts lrom its pcrhaps morc lamiliar usc in othcrs. Tis rccognition should
hclp a writcr lorcstall or answcr illcgitimatc objcctions, such as cmpirical
quibblcs raiscd against tautologically truc propositions likc Valrass Law
and thc cquation ol cxchangc. Conccpts may lcgitimatcly bc lormulatcd
so that ccrtain propositions about rclations among thcm arc not mcrcly
truc but ncccssarily truc. Many propositions ol scicncc arc truc as a mattcr
ol convcntion, yct convcntions arc not arbitrary. Vhcthcr a convcntion is
usclul and convcnicnt hingcs on whcthcr and how it makcs contact with
rcality.
.a
Still othcr cxamplcs ol tautology in cconomics may bc lound. Jamcs R. Viblc
(.a.) givcs an insightlul il uncnthusiastic rcvicw ol tautological strands in thc
macrocconomic litcraturc ol rational cxpcctations.
a, Part : Economics
vvvvvvxcvs
Alcxandcr, Sidncy S. ccts ol a cvaluation on a Tradc 8alancc. IMF Sta
Papers, (April .a): a6a,.
. ccts ol a cvaluation: A Simplicd Synthcsis ol lasticitics and
Absorption Approachcs. merican Economic Fe.ie. (March .): aaa.
Aycr, Allrcd J. Tc Priori. .6. !n Necessary Truth, cditcd by L.V. Sumncr
and J. Voods, a,. Ncw York: Random Housc, .6.
8aumol, Villiam J. Monctary and \aluc Tcory: Commcnt. Fe.ie. of Eco-
nomic Studies (ctobcr .6c): a..
. Economic Teory and Operations nalysis. a cd. nglcwood Clis, N.J.:
Prcnticc Hall, .6.
Campbcll, Norman R. Foundations of Science. ... Rcprintcd Ncw York: ovcr,
.,.
Conant, Jamcs 8. Modern Science and Modern Man. Gardcn City: oublcday
Anchor 8ooks, ..
Coplcston, Frcdcrick. History of Philosophy. \ols. , to . Ncw York: oublcday,
!magc 8ook, ..
antzig, Tobias. Henri Poincare. Ncw York: Scribncrs, ..
itchburn, R.V. Light. !n Encyclopedia Britannica, vol. .c: a. Chicago:
ncyclopacdia 8ritannica, ...
Glcick, Jamcs. Genius: Te Life and Science of Fichard Feynman. Ncw York: Pan
thcon, .a.
Harsanyi, John C. Essays on Ethics, Social Beha.ior, and Scientic Explanation.
ordrccht and 8oston: Rcidcl, .,6.
Hausman, anicl M. Te Inexact and Separate Science of Economics. Cambridgc,
U.K., and Ncw York: Cambridgc Univcrsity Prcss, .a.
Hobbcs, Tomas. Le.iathan. .6.. Harmondsworth and 8altimorc: Pcnguin,
.6.
Korncr, Stcphan. Experience and Teory. Ncw York: Humanitics Prcss, .66.
Langc, skar. Says Law: A Rcstatcmcnt and Criticism. !n Studies in Mathe-
matical Economics and Econometrics, cditcd by . Langc ct al., 6. Chica
go: Univcrsity ol Chicago Prcss, .a.
Chapter z,: Tautologies in Economics and the Natural Sciences a,
Laudan, Larry. Progress and Its Problems. 8crkclcy and Los Angclcs: Univcrsity
ol Calilornia Prcss, .,,.
Mayr, rnst. Te Gro.th of Biological Tought. Cambridgc, Mass.: 8clknap Prcss
ol Harvard Univcrsity Prcss, .a.
Mcycrson, milc. Explanation in the Sciences. .a.. Translatcd by MaryAlicc
Sipc and avid A. Sipc. ordrccht and 8oston: Kluwcr, ...
Nau, Robcrt H. Basic Electrical Engineering. Ncw York: Ronald Prcss, ..
NcwtonSmith, V.H. Te Fationality of Science. 8oston and London: Rout
lcdgc &Kcgan Paul, ...
Patinkin, on. Money, Interest, and Prices. a cd. Ncw York: Harpcr &Row,
.6.
. Valrass Law. !n Te Ne. Palgra.e, vol. : 66. Ncw York: Stock
ton Prcss, .,.
Pcarcc, !.F. International Trade. Ncw York: Norton, .,c.
Poincar, Hcnri. Science and Hypothesis. Translatcd by V.J.G. NcwYork: ovcr,
.a.
. Te !alue of Science. Translatcd by G.8. Halstcd. Ncw York: ovcr, ..
Samuclson, Paul A. Tc Vay ol an conomist. .6. Prcsidcntial Addrcss ol
thc !ntcrnational conomic Association. Rcprintcd in Te Collected Scientic
Papers of Paul . Samuelson, vol. : 6,6. Cambridgc, Mass.: M!T Prcss,
.,a.
Tcllcr, dward. Te Pursuit of Simplicity. Malibu: Pcppcrdinc Univcrsity Prcss,
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Viblc, Jamcs R. Tc Rational xpcctations Tautologics. Journal of Post Keyne-
sian Economics (Vintcr .a/.): .ac,.
Ycagcr, Lcland 8., and Alan Rabin. Monctary Aspccts ol Valrass Law and thc
StockFlow Problcm. tlantic Economic Journal a (March .,): .6.
Zinovcv, A.A. Logical Physics. Translatcd by .A. Gcrmogcnova. ditcd by
R.S. Cohcn. ordrccht and 8oston: . Rcidcl Publishing Company, ..
v~v: ii
Politics and
Philosophy
cn~v:vv +
Frcc Vill and thics

~ vvvsis:vx: oib issuv

Tc vcry topic ol cthics rcquircs dipping into mctaphysics. Although !
cannot scttlc an old issuc, ! must rccognizc it. Arc individuals actions
and cvcn thcir dccisions, dcsircs, and charactcrs lully dctcrmincd by cir
cumstanccs ultimatcly outsidc thcir own control: !l that wcrc trucil
pcoplc lack lrcc will and truc choiccthcn pcrsonal rcsponsibility would
lack mcaning. Praisc and blamc, rcward and punishmcnt, would havc no
application, and cthics as a cld ol study would lack any gcnuinc subjcct
mattcr.
Tis position, right or wrong, sccms to havc bccn thc position ol
!mmanucl Kant. Troughout his Ground.ork (.,/.6), Kant acknowl
cdgcs an antinomy bctwccn lrccdom ol thc will and thc prcvalcncc ol
causal laws ol naturc. Hc maintains, howcvcr, that lrccdom ol thc will
is a ncccssary prcsupposition ol morality. Hc suggcsts that thc antinomy
might somchow bc rcsolvcd through his distinction bctwccn thc intclligi
blc and scnsiblc worlds (noumcnal and phcnomcnal worlds, in his tcch
nical tcrminology). xpcricncc, ltcrcd through thc Kantian catcgorics
ol pcrccption and undcrstanding, imposcs thc idca ol tight causality, but
unknowablc charactcristics ol thc noumcnal world ol things in thcmsclvcs
might makc lrccdom ol thc human will gcnuinc. Conlcsscdly, all this is
quitc mystcrious to mc.
Tc tcrms lrcc will (or lrcc choicc) and dctcrminism havc no
agrccd prccisc mcanings, so ! cannot bcgin by dcning thcm. xploring
what thcsc tcrms and conccpts might mcan and how thcy intcrrclatc is a
main task ol this appcndix.
Vc must, howcvcr, avoid csscntialism. As criticizcd by Karl Poppcr
(c.g., ., pp. ), csscntialism mcans locusing on onc or morc picccs

Appcndix to Chaptcr a, pp. c and cndnotcs, in my Ethics as Social Science (Chcl

tcnham, U.K., and Northampton, Mass.: lgar, acc.).
a
a Part : Politics and Philosophy
ol tcrminology, supposing that cach onc labcls a dcnitc aspcct ol rcality,
brooding ovcr thcsc aspccts or conccpts to grasp thc csscncc ol cach, and
pcrhaps brooding lurthcr ovcr whcthcr thc rcalitics corrcsponding to two
or morc conccpts could cxist togcthcr.
.
Trying to gain knowlcdgc in this
way procccds backward. Pcrcciving unilormitics and divcrsitics in thc rcal
world bclongs ahcad ol brooding ovcr words to labcl thcm. Conccivably,
traditional lormulations ol thc wholc supposcd issuc ol lrcc will vcrsus
dctcrminism will provc misconccivcd.
scniicx ox :nv issuv
My admiration lor two cthicists in particular, Moritz Schlick and Hcnry
Hazlitt, prcdisposcd mc toward thcir solutions, yct in thc cnd ! nd thcm
incomplctc or othcrwisc unsatislying. Schlick rcgardcd thc supposcd issuc
as a mcrc pscudoproblcm: dctcrminismand lrcc will rcconcilc (.c/.6.,
chap. vii). Causality can opcratc whilc lcaving individuals somc lrccdom
not only ovcr what acts thcy pcrlormbut also ovcr what choiccs thcy makc.
Tc oppositc ol lrccdomis compulsion, and dctcrmination docs not mcan
compulsion. !n thc words ol R.. Hobart, whosc vicws arc discusscd
bclow, compulsion implics causation but causation docs not ncccssarily
imply compulsion.
a
Schlick idcntics a conlusion bctwccn dcscriptivc and prcscriptivc
laws. Scicntic laws describe how thc world works, thcy do not prescribe
cvcnts, thcy do not rcscmblc totally cnlorccd lcgislation making cvcnts
unlold as thcy do. Kcplcrs Laws dcscribc how thc plancts rcvolvc around
thc sun, thcy arc not prcscriptions compclling thcm to rcvolvc as thcy do.
Tc law ol dcmand dcscribcs how buycrs rcspond to altcrnativc lcvcls ol
an itcms pricc (apart lromothcr ovcrriding inucnccs), it docs not compcl
buycrs to bchavc in thc way it dcscribcs.
.
Valtcr uckcn (.c, pp. c., ac) ccctivcly blasts such csscntialism or con
ccptual rcalism in cconomics.
a
Just what is compulsion: How may wc distinguish acts donc undcr compulsion lrom
lrcc acts lor which a pcrson is rcsponsiblc: !n a scnsc, as Gcrald workin (.,c/.)
notcs, a pcrson docs his cvcry act bccausc hc prclcrs it to any altcrnativc opcn to him
undcr thc circumstanccscvcn submitting to a highwayman. workin distinguishcs,
thcn, bctwccn two sorts ol dcsircs or rcasons lor action. A lrcc act is onc motivatcd by a
rcason that thc agcnt nds acccptablc. A pcrson acts undcr compulsion whcn rcsponding
to a rcason that hc docs not want to havc.
Although workin may bc on thc right track, his distinction is incxact. nc may
undcrgo an opcration, lrcc lrom compulsion, whilc wishing that thc rcason lor thc opcr
ation did not cxist.
Chapter z: Free !ill and Ethics a
Tcsc distinctions hclp cxplain, thcn, how a pcrson could conccivably
bc choosing and acting lrcc lrom compulsion cvcn whcn his choiccs and
actions arc causally dctcrmincd and in principlc prcdictablc. Tc oppositc,
prcsumably, would bc choiccs madc and actions takcn by shccr chancc or
basclcss capricc. Choiccs and actions nccd not bc stochastic or capricious
to bc propcrly callcd lrcc.
!l thcir choiccs and actions wcrc totally unlrcc, pcoplc could not prop
crly bc hcld answcrablc lor thcm. Vc do not blamc a pcrson lor ring
a shot il somconc strongcr lorccd thc gun into his hand and pullcd his
ngcr against thc triggcr. Vc do not hold somconc guilty ol a crimc il hc
was gcnuincly insanc and lackcd any control ovcr his dccision and action.
!t would bc pointlcss to hold thc man whosc hand was lorcibly manip
ulatcd or thc insanc pcrson accountablc lor an action not truly his own.
Ncithcr is rcsponsiblc bccausc ncithcr cnjoycd lrccdom ol choicc and will
ovcr his act. (Clcarcut cxamplcs likc thcsc should not, howcvcr, invitc
multiplying cxcuscs to rclicvc pcrsons ol rcsponsibility lor thcir actions.)
Rcsponsibility prcsupposcs a point lor applying a motivc, such as
dcsirc to avoid blamc or punishmcnt or to win praisc or rcward. Frcqucntly
it makcs cmincnt scnsc to apply motivcs to pcoplc and hold thcm rcspon
siblc lor thcir choiccs and actions. Tis could not bc truc il no grounds
cxistcd lor attributing lrccdom to pcoplc. Hcncc thcrc are grounds lor
bclicl in lrccdom in somc scnsc associatcd with rcsponsibility.
Morc cxactly, pcrhaps, thc wholc lrccwill /dctcrminism controvcrsy
is a chimcrical basis lor qucstioning ordinary cthical conccpts. Schlicks
argumcnt comcs across to mc as ! havc summarizcd it.
C.A. Campbcll (../.66) nds Schlicks distinction bctwccn dcscrip
tivc and prcscriptivc laws irrclcvant. Tc usual rcason lor thinking that
moral lrccdomprcsupposcs somc brcach in causal continuity is not a bclicl
that causal laws compcl in thc way lcgislation compcls but instcad is thc
bclicl that an unbrokcn causal chain lcavcs no onc ablc to choosc and act
othcr than as hc docs.
Moral rcsponsibility is not thc samc, says Campbcll, as scopc lor scnsi
bly applying motivcs. ogs can bc traincd with punishmcnts and rcwards,
yct wc do not hold dogs morally rcsponsiblc lor what thcy do. Vc can
judgc dcad mcn morally rcsponsiblc lor particular actions without bcing
ablc to acct thosc past actions. Pcrhaps wc might rcintcrprct Schlick as
mcaning that a pcrson is morally rcsponsiblc whcn his motivc could in
principle bc acctcd by rcward or punishmcnt, whcthcr or not thc judgcs
or obscrvcrs arc in a position to apply it. 8ut this modication would
a6 Part : Politics and Philosophy
changc Schlicks thcory, which links thc wholc mcaning and importancc
ol moral rcsponsibility to our potcntial control ol luturc conduct in thc
intcrcsts ol socicty (Campbcll ../.66, p. ..).
Schlick idcntics Vho is morally blamcworthy: with Vho is to
bc punishcd:paradoxically, givcn his vicw ol punishmcnt as a purcly
cducativc mcasurc, without rctributivc contcnt. Vc oltcn think it propcr
to punish a pcrson, in Schlicks cducativc scnsc, cvcn without hold
ing him morally blamcworthy (Campbcll ../.66, p. ..6). Vc punish
thc dog. Vc punish dcmonstrators who may bc obstructing trac lrom
motivcs that cvcn wc, thc judgcs, may think noblc.
!ll try to rcphrasc or intcrprct Campbclls objcction. Schlick sccs in
strumcntal, cducativc, valuc in applying rcwards and punishmcnts, which
hc idcntics with holding pcoplc morally rcsponsiblc. Vc could hardly
do so unlcss wc attributcd somc lrccdom to pcoplc. 8ut is this a valid
linking ol idcas: Pcrhaps rcwards and punishmcnts and thcir gcncrally
good conscqucnccs arc just particular cvcnts in thc unbrokcn causal chain.
Mctaphysical lrccdom cannot bc cstablishcd by pointing to thc apparcnt
or gcnuinc good conscqucnccs ol rcward and punishmcnt.
Campbcll suspccts that Schlick and many othcr philosophcrs cannot
rccognizc contracausal lrccdom as prcrcquisitc to moral rcsponsibility bc
causc, whilc dcnying that lrccdom, thcy do acccpt thc commonscnsc bclicl
in moral rcsponsibility (Campbcll ../.66, p. ..,).
His own purposc, Campbcll concludcs (p. .), has bccn not actually
to dclcnd lrcc will but rathcr to show that thc problcm as traditionally
poscd is a rcal, and not a pscudo, problcm.
n~zii::s vvcoxciii~:iox
Hcnry Hazlitt (.6/.,a, chap. a,) trics to rcconcilc lrcc will and rcspon
sibility with dctcrminism, intcrprctcd as omniprcscnt causc and ccct. Hc
agrccs that cvcrything that happcns is a ncccssary outcomc ol a prcccd
ing statc ol things (p. a6). Likc Schlick, howcvcr, hc strcsscs that causa
tion is not compulsion. Abscncc, not prcscncc, ol causation is what would
cxcmpt pcoplc lrommoral rcsponsibility. !t is prcciscly bccausc wc do not
dccidc or act without causc that cthical judgmcnts scrvc a purposc. . . . Tc
knowlcdgc that wc will bc hcld rcsponsiblc lor our acts by othcrs, or cvcn
that wc will bc rcsponsiblc in our own cycs lor thc conscqucnccs ol our
acts, must inucncc thosc acts, and must tcnd to inucncc thcm in thc
dircction ol moral opinion (p. a,).
Chapter z: Free !ill and Ethics a,
Hazlitt warns against conlusing dctcrminism with matcrialism, intcr
prctcd as thc dogma that all causation, cvcn in human aairs, opcratcs
ultimatcly through physical and chcmical proccsscs alonc. Hc cspccially
warns against conlusing dctcrminism with latalism, which hc intcrprcts
as thc dogma that cvcnts will unlold as thcy arc bound to do, rcgardlcss
ol how pcoplc try to promotc or prcvcnt thcm. Fatalism in this pcculiar
scnsc is obviously lalsc. Human dccisions, choiccs, wishcs, rccction, and
will clcarly do inucncc thc coursc ol cvcnts. !l, contrary to lact, thcy did
not do so, or il thcy opcratcd only stochastically, outsidc ol causal chains,
thcn notions ol rcsponsibility and cthics would havc no application.
Hazlitt acccpts univcrsal causation, thcn, but distinguishcs sharply
bctwccn its supposcd opcration solcly in matcrial ways and its opcration
in ways lcaving scopc lor human dccision and will. 8ut can this distinction
carry all thc wcight Hazlitt placcs on it:
:wo vuv:nvv ~::v:v:s ~: vvcoxciii~:iox
Michacl Slotc (.c) cxplains how making and implcmcnting cthical
judgmcnts could bc scnsiblc e.en if dctcrminism prcvailcd, a qucstion
hc docs not tacklc. Hcrc ! intcrprct Slotcs argumcnt togcthcr with a com
mcntary by Pctcr van !nwagcn (.c) and lorgo trying to paraphrasc cach
scparatcly.
Vc may labcl a pcrson or a dog and ccrtain actions as vicious and
guard against and punish thcm. Yct wc may rccognizc that thc pcrsons
or dogs disposition and actions tracc to unlortunatc gcncs or mcntal ill
ncss or prcvious maltrcatmcnt, which attcnuatcs or dispcls moral culpa
bility. Vc arc not ncccssarily inconsistcnt in both rccognizing thc disposi
tions and actions as dctcrmincd yct judging and punishing thcmas vicious.
ur judging and punishing can thcmsclvcs bc links in thc chain ol dctcr
ministic causation and may makc thc dispositions and actions lcss vicious
than thcy would othcrwisc bc.
Similarly, wc tcnd to judgc actual murdcr morc wrong than a lailcd
attcmpt, wc rcvilc and punish an actual murdcrcr morc scvcrcly than an
attcmptcd murdcrcr. 8oth culprits may havc had thc samc intcntions, and
only shccr luck may havc lrustratcd onc attcmpt. Still it may makc scnsc to
condcmn and punish thc succcsslul murdcrcr morc scvcrcly. Howa pcrson
is judgcd and punishcd may thus rcasonably dcpcnd on morc than what hc
lrccly willcd. Scvcral considcrations may warrant distinguishing bctwccn
actual and attcmptcd murdcr. vil intcntions may bc hardcr to provc in
a Part : Politics and Philosophy
a lailcd attcmpt. Tc gradation in punishmcnts may hclp cmphasizc thc
publics solcmn condcmnation ol murdcr, and in subtlc psychological ways
it may causc morc murdcr attcmpts to lail than othcrwisc would.
An analogy ol sorts holds bctwccn thcsc considcrations and F.A. Ha
ycks argumcnt (.6c, chap. 6) about mcrit vcrsus valuc in dctcrmining a
pcrsons incomc. vcn though thc markct valuc ol a pcrsons corts proba
bly docs not corrcspond closcly to his moral mcrit, powcrlul rcasons arguc
lor allowing markct supply and dcmand to cstablish his incomc anyway.
Such rcmuncration may usclully guidc individuals on how to usc thcir
spccial talcnts and knowlcdgc, and it may motivatc appropriatc kinds
and dcgrccs ol riskbcaring. Abovc all, pcrhaps, altcrnativc institutions
intcndcd to attunc rcmuncrations to moral mcrit appcar vcry unattractivc
upon closc analysis. Again, a pcrsons lrcc will and intcntions should not
bc thc only lactors govcrning how othcr pcoplc trcat him.
Admittcdly, lullcdgcd dctcrminism still poscs cmbarrassmcnt lor
conscqucntialist considcrations likc thcsc. !l wc rccognizc that our mak
ing and implcmcnting cthical judgmcnts and adopting this or that sct
ol institutions arc thcmsclvcs lully causcd and arc mcrc links in a tight
causal chain, wc run into awkward paradoxcs. Tcsc pcrtain to thc wholc
lrccwill /dctcrminism issuc itscll, howcvcr, rathcr than to cthical issucs
in particular.
bv:vv:ixis: ~s v~:~iis:
ctcrminism in its most cxtrcmc vcrsion (commonly attributcd to Picrrc
Simon dc Laplacc) is latalism cvcn morc comprchcnsivc than thc varicty
rcjcctcd by Hazlitt. !t rccognizcs human will and dccision as clcmcnts in
onc grand chain ol univcrsal causation. vcrything that is happcning or
has happcncd or will happcn has bccn latcd lrom thc bcginning ol timc
to happcn cxactly as it docs or did or will. Causation opcratcs tightly in
cvcry dctail. vcn all ol a pcrsons thoughts as hc dclibcratcs whcthcr to
acccpt a ncw job or brcak o a lovc aair, and cvcn all othcr pcrsons rcac
tions to his dccision, wcrc latcd to bc cxactly as thcy turn out. vcn all
philosophical controvcrsics ovcr thc lrccwill issuc itscll takc an cxactly
prcdctcrmincd coursc. Far lrom dcnying that idcas and choiccs havc con
scqucnccs, cxtrcmc dctcrminism maintains that cvcn thcsc arc links in thc
grcat causal chain.
Laplacc rcgards thc prcscnt statc ol thc univcrsc as thc ccct ol its
antcrior statc and thc causc ol its ncxt statc. !ncluctablc ncccssity rulcs.
Chapter z: Free !ill and Ethics a
Nothing would bc unccrtain lor a sucicntly vast intclligcncc, thc luturc
and thc past alikc would bc prcscnt to its cycs. A truc act ol lrcc will is
impossiblc. Vithout a dctcrminativc motivc, not cvcn thc ncarcst thing
to a lrcc will could originatc cvcn actions considcrcd indicrcnt. Tc con
trary opinion is an illusion ol thc mind (Mcycrson .a./.., pp. 66,
citing Laplaccs Teorie analytique des probabilites). (8oylc ct al. .,6, pp. ,,
6, givc apt quotations lrom Laplacc, lurthcr discussion ol Laplaccan
dctcrminism occurs in Poppcr .a, pp. xxxxi, .a.a, and passim, and
GcorgcscuRocgcn .,., p. .,c and passim.)
Clarcncc arrow uscd to dclcnd his clicnts with such an argumcnt.
Tc accuscd criminal is a mcrc link in thc chain. vcn his charactcr and his
ability or inability to rcshapc it tracc ultimatcly to causcs outsidc himscll,
and hc is thcrclorc not rcsponsiblc and not propcrly punishablc lor his
crimcs (Hospcrs .6./.66, p. .).
Can anyonc rcally bclicvc in such tight univcrsal causation: !l only
Quccn \ictoria had bccn a man, thc Salic Law would not havc scpa
ratcd thc hithcrto linkcd crowns ol Grcat 8ritain and Hanovcr upon
hcrhisacccssion in .,, and thc subscqucnt history ol Gcrmany,
uropc, and thc world would probably havc unloldcd much dicrcntly
lrom how it actually did. (Rccction on thc cvcnts ol .66, .,c.,., ..,
and .., hclps cxplain why.) Much dcpcndcd, thcn, on which particular
spcrm happcncd to lcrtilizc hcr mothcrs ovum at \ictorias conccption in
...

Yct this micro cvcnt and all its momcntous conscqucnccs wcrc bound
to occur cxactly as thcy did. Tus must strict dctcrminism maintain.
No onc, to my knowlcdgc, cspouscs this position consistcntly. !t is just
too prcpostcrousthough ! may bc mistakcn in saying so.
ixcvv~sixc co:vivxi:v
nc rcason lor calling lull dctcrminism prcpostcrous is that thc world
sccms to bc gctting morc complicatcd ovcr timc. !t is hard to imaginc
how thc lcss complicatcd past might contain all thc inlormation ncccssary

Tis particular cxamplc is my own, to thc bcst ol my rccollcction, yct it is in thc

spirit ol cssays collcctcd in Squirc ... Tcrc, lor cxamplc, Vinston Churchill spcculatcs
on what would havc happcncd il Lcc had not |sic| won thc battlc ol Gcttysburg, Hilairc
8clloc on what would havc happcncd il thc cart that in lact blockcd Louis X\!s cscapc at
\arcnncs in Junc .,. had gottcn stuck bclorc rcaching thc crucial placc, and mil Ludwig
on what would havc happcncd il Gcrman mpcror Frcdcrick !!! had livcd to rcign until
.. and not just lor his actual days in ..
Such cxamplcs mcsh niccly with currcntly popular thcorics ol chaos or complcxity.
ac Part : Politics and Philosophy
to spccily thc morc complicatcd prcscnt and luturc in complctc dctail.
Such complctc spccication would constitutc at lcast an cqual dcgrcc ol
complcxity already prcvailing.
Tc world is gctting morc complicatcd by any ordinary standard ol
judgmcnt. Morc pcoplc arc living than in thc past, with all thcir individ
ual charactcristics and thoughts and actions. Tc numbcr and intricacy ol
thc works ol man arc incrcasing, including thc tcxts ol all thc books and
articlcs cvcr writtcn. Tc statc ol thc world at any instant includcs all thc
inlormation and all thc misprints in all thcsc documcnts, and cvcn thc
slightcst dctails ol all thc yspccks and cocc stains in individual copics.
Aairs on carth intcract with aairs throughout thc univcrsc. Mcn or
manmadc instrumcnts havc disturbcd thc surlaccs ol thc moon and Mars,
and rockcts havc cscapcd our solar systcm. clipscs, comcts, planctary
movcmcnts, and supcrnovas havc acctcd human activitics dircctly and
through popular, rcligious, and scicntic bclicls.
!l a latcr statc is lully dctcrmincd by an carlicr statc, thcn that carlicr
statc must contain aspccts or propcrtics or pattcrns or whatcvcrwhosc
totality ! am calling inlormationspccilying that latcr statc in complctc
dctail. And il thc world is gcncrally gctting morc complicatcd ovcr timc,
thcn morc inlormation is rcquircd to spccily a latcr statc than an carlicr
statc. !t is hard to imaginc how all thc dctailcd inlormation ncccssary to
spccily thc morc complicatcd latcr statc alrcady cxistcd in thc simplcr car
licr statc. !t is hard to bclicvc that cvcn thc tinicst lraction ol a sccond altcr
thc 8ig 8ang, thc univcrsc alrcady containcd dctailcd codcd inlormation
about cvcrything that would cvcr happcn thcrcaltcr, including thc cxact
conguration ol cvcry wisp ol cloud ! obscrvcd during my last airplanc trip
and including thc cxact timcs at which and prcssurcs with which ! would
strikc cach kcy during my currcnt scssion at my computcr kcyboard. Full
dctcrminism sccms still morc incrcdiblc bccausc it involvcs cach statcs
spccilying not only onc subscqucnt statc but also all thc innitcly many
intcrvcning statcs (innitcly many il timc is continuous).
Tcsc points tcll against complctc causal dctcrmination.

!ts bcinghard
to conccivc ol docs not, howcvcr, constitutc disprool. Pcrhaps incrcasing

Considcrations rcscmbling thcsc appcar in Pcircc ., sclcction , an articlc ! had

rcad and thcn lorgottcn many ycars bclorc rst dralting this appcndix.
My appcal to incrcasing complcxity and inlormation contcnt may admittcdly appcar to
run aloul ol thc sccond lawol thcrmodynamics, thc cntropy law, and ! may bc quitc wrong.
n thc othcr hand, that law in its ccntral contcxt pcrtains to cncrgy and its dcgradation,
and its rationalc is pcrhaps most clcarly sct lorth with rclcrcncc to thc statistical propcrtics
ol crowds ol nonliving molcculcs. Tc law may not lully carry ovcr to thc prcscnt contcxt.
Chapter z: Free !ill and Ethics a.
ovcrall complcxity is a mcrc illusion. Pcrhaps grcatcr complcxity in somc
dimcnsionsin thc products ol thc human mind and in thc dctails ol
yspccks on publishcd pagcsis osct somchow by rcduccd complcxity
in othcr dimcnsions. !l so, what might thcy bc: Pcrhaps grcatcr complcx
ity on our carth, which, likc our wholc solar systcm, is an opcn systcm,
is osct somchow by rcduccd complcxity clscwhcrc in thc univcrsc. vcn
so, wouldnt thc point still hold that incrcasing complcxity on our carth
implics incomplctc prcdictability ol human aairs: 8y what mcchanism,
il any, could any osctting rcduccd complcxity clscwhcrc savc thc com
plctc prcdictability ol human aairs, il only in principlc: 8ut pcrhaps !
am wrong about my notion ol inlormation rcquircd lor complctc causal
spccication.
Spcaking ol total causal dctcrmination, wc may wcll pausc to ask just
what causc and causality mcan. Trying to lramc objcctionlrcc dcni
tions is a sobcring challcngc. Tis vcry diculty throws somc slight cxtra
cmbarrassmcnt onto doctrincs ol a grcat unbrokcn causal chain.
!n arguing lor indctcrminacy or opcnncss in thc univcrsc, Karl
Poppcr distinguishcs among thrcc worlds.

Vorld . contains physical

objcctsrocks, trccs, structurcs, living crcaturcs, and physical clds ol
lorcc. Vorld a is thc psychological world ol lcars and hopcs, ol disposi
tions to act, and ol subjcctivc cxpcricnccs ol all kinds. Vorld contains
products ol thc human mindart works, cthical valucs, social institutions,
thc intcllcctual contcnts ol books (books as physical objccts bclong to
Vorld .), scicntic problcms, thcorics, including mistakcn thcorics, and
solvcd and unsolvcd puzzlcs. spccially charactcristic ol Vorld is human
knowlcdgc put into words.
Autonomous objccts cxist cvcn in Vorld . Human bcings originally
conccivcd ol thc primc numbcrs and conjccturcd about thcir propcrtics,
but thc primcs and thcir propcrtics havc takcn on an objcctivc cxistcncc.
!t is a barc lact, but a logical truth rathcr than a contingcnt cmpirical lact,
nc dicrcncc lrom thc contcxt ol inanimatc proccsscs is that in thc cvolution ol inlor
mation, as in biological cvolution, sclcction may accomplish a kind ol inncr dircctcdncss.
!t may bc that on our carth and pcrhaps cvcn in thc univcrsc as a wholc, ncithcr kind ol
cvolution violatcs thc sccond law.

Scc, lor cxamplc, Poppcr ., sclcctions and a., .a, scction , and his .,a lcc
turc, rcprintcd .a. arlicr (.c, rcprintcd ., pp. ,, and .c, rcprintcd .,
pp. cc), Charlcs S. Pcircc had distinguishcd among thrcc Univcrscs ol xpcricncc.
Poppcrs Vorld and Pcirccs rst univcrsc corrcspond lairly wcll, as do Poppcrs Vorld
. and Pcirccs sccond univcrsc, but thc rcmaining world and univcrsc corrcspond looscly
at bcst.
aa Part : Politics and Philosophy
that . primc numbcrs, no morc and no lcwcr, cxist in thc rangc ol .cc to
.ccc. uclid alrcady provcd thc innitudc ol primc numbcrs: no largcst
onc cxists. 8ut is thcrc a largcst pair ol t.in primcs (likc ., and ., a.
and a, .. and .): No onc, thc last ! hcard, has actually provcd cithcr
a ycs or a no answcr. Tc problcm objcctivcly cxists as a challcngc to
human intclligcncc.
Tc autonomous objccts ol Vorld intcract with Vorld . through
thc human pcrccptions, lcclings, dispositions, and dccisions ol Vorld a.
Tc challcngcs ol purc mathcmatics lcad to rcsults that nd applications
in computcr hardwarc and soltwarc, which in turn lunction in changing
thc physical world. Somc challcngcs ol hcr cld lcad a mathcmatician
to rcsults that cnhancc hcr rcputation and win hcr an appointmcnt at a
prcstigious univcrsity, whcrc shc has a housca physical objcctbuilt in
accordancc with hcr tastcs and incrcascd incomc.
Vorld is intrinsically opcn or cmcrgcnt, says Poppcr (.,a/.a,
p. ), any thcory holding scicntic and artistic crcation ultimatcly cxplain
ablc by physics and chcmistry sccms absurd to him. Morcovcr, intcrrcla
tions among thc thrcc Vorlds rcndcr thc wholc univcrsc partly opcn and
cmcrgcnt.
! am not surc that Poppcr would agrcc, but his conccpt ol Vorld in
particular, thc world ol things likc scicntic thcorics, docs hclp undcrlinc
how prcpostcrous it is to supposc that cach latcr statc ol aairs is totally
spccicd by carlicr statcs. Scicntic progrcss docs occur. Ncw knowlcdgc,
by its vcry mcaning, was not availablc in advancc, thc notion ol somc
thing bcing known bclorc it is known is scllcontradictory. !s it plausiblc,
thcn, to maintain that all thc mathcmatical and physical knowlcdgc not
yct achicvcd but that will bc achicvcd in thc ncxt hundrcd ycars somchow
alrcady cxists in latcnt lorm, alrcady somchowcodcd into thc currcnt statc
ol thc univcrsc, along with thc datc and othcr dctails ol thc discovcry ol
cach bit ol that luturc knowlcdgc: (Many ol thc associatcd challcngcs
alrcady cxist as problcms bclonging to Poppcrs Vorld , but this is not
thc samc as thc prccxistcncc ol solutions both to unsolvcd problcms and
to problcms not yct cvcn lormulatcd.)
cn~xcv
Gcrd Gigcrcnzcr and coauthors (./., csp. pp. 6, a,6a) rcvicw
apparcnt and supposcd implications ol probability thcory and statistics
lor lrcc will vcrsus dctcrminism. Tcsc disciplincs havc bccn succcsslully
Chapter z: Free !ill and Ethics a
applicd on thc assumption that somc shccr random proccsscs do opcratc
in thc world, which is somc cvidcncc, il wcak, that dctcrminism in naturc
is incomplctc. Scicntists and philosophcrs such as Jamcs Clcrk Maxwcll
and Charlcs Pcircc havc bclicvcd that airtight causality docs not opcratc
in cvcry littlc dctail ol thc univcrsc, that somc clcmcnt ol randomncss
rcmains, and that lrcc will might occupy this gap somchow. And such gaps
might not bc conncd to thc subatomic lcvcl that quantum thcory dcals
with. (Hcrc ! inscrt thc obligatory allusion to Hciscnbcrgs indctcrminacy
principlc conccrning subatomic randomncss.) Maxwcll and Pcircc (.,,,
rcprintcd ., p. , articlcs ol .., rcprintcd ., pp. , .) pointcd to
thc statistical or probabilistic aspcct ol thc kinctic thcory ol gascs, which
cnvisagcs thc constitucnt molcculcs moving at dicrcnt randomly dctcr
mincd vclocitics and changing vclocitics as thcy collidc with onc anothcr
and with thc sidcs ol thc containcr. Pcircc also notcd thc random naturc
ol thc biological mutations on which natural sclcction opcratcs.
Karl Poppcr also argucd lor thc gcnuincncss ol chancc cvcnts cvcn
abovc thc subatomic lcvcl or cvcn thc molccular lcvcl. Vhat cxplains thc
statistical stability ol thc hcads and tails produccd by a pcnnytossing
machinc: r considcr Allrcd Lands conccption ol dropping ivory balls
onto thc ccntcr ol a suitably positioncd stccl bladc, vcry ncarly hall ol
thc balls lalling on cach sidc. For a dctcrminist, barrcd by his doctrinc
lrom appcaling to randomncss and rcduccd to imagining thc mutual can
ccllation ol many small causcs, thc lawlikc statistical proccss must rcmain
ultimatcly irrcduciblc and incxplicablc (Poppcr .a, pp. 6.c).
Quantumlcvcl and othcr smallscalc indctcrminacics gain rclcvancc
lrom thc lact that micro dicrcnccs can havc macro conscqucnccs. rwin
Schrodingcr gavc thc hypothctical cxamplc ol a cat whosc survival or
dcath in an cxpcrimcnt dcpcnds on an apparatus dctccting particlcs cmit
tcd randomly and inlrcqucntly in thc dccay ol a radioactivc clcmcnt. Tc
larrcaching conscqucnccs ol Quccn \ictorias scx, alrcady mcntioncd,
providc anothcr cxamplc. Tis microtomacro principlc is lurthcr illu
minatcd by thc mathcmatics ol chaos, cvcn though thc (hypothctical) sys
tcms uscd in cxpounding chaos thcory arc lully dctcrministic.
An clcmcnt ol shccr chancc in thc univcrsc appcars to opcratc, thcn,
along with thc causality that is also cvidcnt. Admittcdly, thc pcrvasivc
appearance ol chancc or randomncss docs not rigorously rulc out com
plctc Laplaccan causality. (Laplacc himscll madc contributions to proba
bility thcory.) My statistics prolcssor at Columbia Univcrsity around .,
Frcdcrick C. Mills, avoidcd spcaking ol chancc, pcriod, hc always uscd
a Part : Politics and Philosophy
somc such cxprcssion as thc complcx ol unknown causcs callcd chancc.
Pcrhaps hc had good rcason lor spcaking so carclully. (!n his . book,
p. 6, hc lists thrcc assumptions undcrlying thc dcrivation ol thc normal
curvc ol crror: (r) Tc causal lorccs accting individual cvcnts arc numcr
ous, and ol approximatcly cqual wcight. (a) Tc causal lorccs accting
individual cvcnts arc indcpcndcnt ol onc anothcr. () Tc opcration ol
thc causal lorccs is such that dcviations abovc thc mcan ol thc combincd
rcsults arc balanccd as to magnitudc and numbcr by dcviations bclow
thc mcan.)
Anothcr rcscrvation about shccr chancc or randomncss rcquircs mcn
tion. Chancc poscs no lcss diculty lor commonscnsc notions ol human
lrccdom and rcsponsibility than tight causality would. To thc cxtcnt that
a pcrsons actions, dccisions, dclibcrations, inclinations, lcclings, cxpcri
cnccs, capabilitics, and charactcr traits occur by shccr chancc, thcy arc no
morc mcaninglully his own, and hc is no morc truly rcsponsiblc lor thcm,
than would bc truc il thcy all traccd lully to cxtcrnal causcs. Actions and
thoughts govcrncd by shccr chancc arc no morc compatiblc with human
dignity and rcsponsibility, as ordinarily conccivcd, than thcir bcing dom
inatcd by cxtcrnal causcs. ignity and rcsponsibility, il gcnuinc, prcsup
posc somcthing bcyond chancc linking cvcnts, thcy prcsupposc a causal
link in which thc individual plays somc indcpcndcnt part.
Vhilc clcmcnts ol shccr chancc in thc world do not imply lrccdom ol
thc will, thc prcscncc ol random phcnomcna at thc quantum lcvcl docs
takc thc sting out ol thc argumcnt that man cannot will lrccly bccausc thc
matcrial world is govcrncd by dctcrminism. Clcarly, a complctcly dctcr
ministic world and a man with an absolutcly lrcc will arc incompatiblc
conditions (GcorgcscuRocgcn .,., p. .,,, in part citing H. Margcnau,
Hcrmann Vcyl, and A.S. ddington). (!ll add that not mcrcly an abso
lutcly but cvcn a partially lrcc will is incompatiblc with complctc dctcr
minism.) Tc point so lar is not that indications ol shccr chancc in thc
world cstablish thc casc lor lrcc will but only that thcy dclusc onc partic
ular kind ol argumcnt against it.
Causality as opposcd to chancc is rcquircd lor any prcdictability in
human bchavior. Yct prcdictability docs not rob human bcings ol thc dig
nity usually associatcd with lrcc will and rcsponsibility. !l anything, thc
contrary is truc. Supposc that a lricnd ol yours had an opportunity to stcal
s.c,ccc whilc cscaping suspicion. !n lact thc moncy rcmains unstolcn.
Vhich would your lricnd rathcr hcar lromyou: ! was surc that you would
not stcal thc moncy or ! didnt havc a cluc whcthcr or not you would stcal
Chapter z: Free !ill and Ethics a
it: Vould your lricnd bc insultcd by your thinking that his bchavior is
prcdictablc: (Comparc Hobart ./., p. .).
Far lrom bcing vitiatcd by clcmcnts ol stablc rclationsol causality
among cvcnts and circumstanccs, including charactcr traits and actions,
thc vcry conccpts ol lrcc choicc and rcsponsibility prcsupposc such clc
mcnts. ltcn thcsc clcmcnts makc condcnt prcdictions possiblc, all with
out undcrcutting notions ol lrcc choicc and rcsponsibility.
Shccr chancc, in short, not only docs not cstablish thc casc lor human
lrccdomand rcsponsibility but cvcn poscs dicultics ol its own. !ts rolc in
my argumcnt is dicrcnt and slightcr: it undcrmincs onc particular argu
mcnt against lrccdom ol thc will.
ncc chancc has shakcn thc notion ol total causal dctcrmination, thc
path rcmains opcn lor considcring whcthcr somcthing bcsidcs chancc
might also contributc to thc cvidcnt opcnncss or indctcrminacy ol thc
univcrsc. vcryday cvidcncc, considcrcd ncxt, tcstics to somc sort ol lrcc
will. Tat cvidcncc can bc qucstioncd, but thc qucstions rcly prcciscly on
thc dctcrminist doctrinc that is itscll opcn to qucstion.
:nv vxvvvivxcv ov vvvv wiii
vcryoncs cxpcricncc suggcsts that pcoplcs dccisions, talk, writings, and
thoughts do inucncc thc coursc ol cvcnts. Tc thoroughgoing dctcrmin
ist or latalist would not dcny this pcrsonal cxpcricncc, but hc would qucs
tion its signicancc. ur dccisions and thoughts, inucntial though thcy
arc, arc mcrc links in unbrokcn causal chains. ach dccision, uttcrancc,
and thought is causcd by othcr cvcnts and circumstanccs, including phys
ical conditions, thc prcvious thoughts and uttcranccs ol oncscll and othcr
pcoplc, and oncs own and othcr pcoplcs charactcr traits, gcnctic makcups,
and currcnt and past cnvironmcntsaccording to thc dctcrminist. ach
ol thcsc causal links traccs to contcmporancous and carlicr linksand so
on, prcsumably, back to thc 8ig 8ang.
A hardcncd habitual criminal could havc avoidcd committing cach ol
his crimcs if hc had willcd not to commit it. 8ut could hc havc so willcd:
Vcll, ycs, if his charactcr had bccn dicrcnt. Furthcrmorc, it would havc
bccn dicrcnt if his carlicr actions and dccisions and circumstanccs had
bccn dicrcnt. 8ut could thcy havc bccn dicrcnt: Tcsc carlicr charactcr
inucncing cvcnts and circumstanccs, pcrhaps cspccially including his
childhood cnvironmcnt and his gcnctic makcup, wcrc thcmsclvcs links
in an unbrokcn causal chain.
a6 Part : Politics and Philosophy
Tc complctc dctcrminist is unimprcsscd, thcn, by thc obscrvation
that thc criminal could contingcntly havc avoidcd committing his crimcs.
Far lrom proving his rcsponsibility lor thcm, that obscrvation is an unin
lormativc truism. !t mcrcly says that if thc links in a causal chain had bccn
dicrcnt lrom what thcy actually wcrc and had bccn latcd to bc, thcn thc
outcomc ol thc chain would havc bccn dicrcnt lrom what it in lact was.
cspitc thcsc asscrtions ol thc (imaginary) latalist, wc all havc pcr
sonal cxpcricncc with making dccisions oursel.es. Vc dccidc, truc cnough,
largcly in thc light ol cxtcrnal circumstanccs. ltcn thcsc includc thc
cxpcctcd rcactions ol othcr pcoplc. 8ut it is wc oursclvcs who wcigh thc
considcrations pulling onc way and anothcr. Vc knowlromour own cxpc
ricncc with dccisions, lurthcrmorc, and lrom what obscrvation suggcsts
about thc dccisions ol othcr pcoplc, that pcoplc do rcspond to prospccts
ol rcward and punishmcnt, approval and disapproval. (Surcly cconomists
undcrstand about inccntivcs.) Holding pcoplc rcsponsiblc docs acct thcir
bchavior.
Alatalist couldacccpt this conclusionwithout abandoninghis doctrinc.
Hc could agrcc that il jurics, judgcs, and lcgislaturcs gcncrally acccptcd thc
Clarcncc arrow dclcnsc, crimc would bc morc rampant than it is in lact,
and thc world a morc miscrablc placc. Socicty is lortunatc, hc could agrcc,
that jurics, judgcs, and lcgislaturcs, usually ignoring Clarcncc arrow, as
thcy arc latcd to ignorc him, do hold criminals rcsponsiblc and do punish
thcm. Vc arc lortunatc, in othcr words, that his dctcrminist thcory is not
gcncrally acccptcd and implcmcntcd. Yct thc latalist could maintain that
his thcory is corrcct, that hc is latcd to propound it cxactly as hc docs, and
thatprobably lortunatclyyou and ! and most ol thc rcst ol us arc ncv
crthclcss latcd to rcjcct it.
How would thc thcory ol strict dctcrminism intcrprct acadcmic dis
putcs ovcr that thcory itscll : Takcn litcrally, it would rcgard cach movc
in thc disputccach convcrsation, lccturc, journal articlc, criticism ol an
articlc, rcply to thc criticism, and cvcry slight dctail in cach ol thcscas
simply a particular link in thc grcat causal chain. Tc dctcrminist philoso
phcr would agrcc that his latcst papcr on thc topic was latcd in cvcry slight
cst dctail to say what it docs say, latcd not only by what hc had hcard and
rcad on thc topic but by his gcncs and childhood cxpcricnccs and innu
mcrablc othcr circumstanccs. All rcactions to his papcr arc similarly latcd.
Yct this considcration docs not ncccssarily lcad him to abandon thc wholc
issuc and turn to somc othcr branch ol philosophy or somc othcr linc ol
work. Hc could stick to thc issuc, rccognizing that hc is latcd to do so and
Chapter z: Free !ill and Ethics a,
that his work on it, and othcrs rcactions to it, arc latcd to turn out cxactly
as thcy do.
Tis dctcrminist position, thcn, may not bc downright inconsistcnt
with itscll, not downright scllrcluting. Rathcr, it is practically incrcdiblc.
:nv svivvvvvvvx:i~i vvoniv: ov bv:vv:ixis:
Joscph M. 8oylc, Jr., Gcrmain Griscz, and lal Tollclscn (.,6) cxposc
thc scllcontradictory position ol onc who rationally arms lull dctcr
minism or, as thcy say, dcnics that anyonc has any lrcc choicc. (To ratio
nally arm a proposition gocs bcyond mcrcly mcntioning it or considcr
ing it possiblc, it mcans holding that it is truc or at lcast morc rcasonably
acccptablc than its contradictory.) A philosophcr who argucs that pcrsons
intcrcstcd in thc issuc ought rationally to acccpt thc nolrccchoicc posi
tion must bclicvc that although thcy arc not compcllcd to acccpt it, thcy
can rationally acccpt it (ought implics can), thcy havc somc lrccdom ol
choicc in thc mattcr. Yct thc dctcrminist proposition bcing urgcd dcnics
that thc pcrsons addrcsscd havc any lrccdom. ithcr thc dctcrminist is
thus contradicting himscll or clsc is pointlcssly urging pcoplc to do what
by his own doctrinc thcy cannot domakc thc lrcc choicc ol rationally
acccpting that doctrinc.
8oylc and his coauthors do in ccct rccognizc thc possibility, mcn
tioncd in thc prcccding scction, that dctcrminism is truc and that partici
pants in controvcrsy ovcr it vcrsus lrcc choicc arc bchaving likc lully pro
grammcd robots whosc cvcry slightcst vcrbal movc in thc gamc is a lully
dctcrmincd rathcr than rationally choscn action. To arm|thc dctcrmin
ist| position in this way, howcvcr, is to withdraw lrom thc philosophical
controvcrsy (p. .6).
6
:nv ivvvvu:~niii:v ov bv:vv:ixis:
8csidcs bcing practically incrcdiblc and bcsidcs putting its proponcnts
in thc position ol cithcr contradicting thcmsclvcs or avowing thcmsclvcs
to bc mcrc robots rathcr than rational controvcrsialists, dctcrminism is
irrclutablc or unlalsiablcin thc bad scnsc. !t has a builtin immunity
to any advcrsc cvidcncc, its claim to say anything dcnitc about how
6
Tc argumcnt ol 8oylc ct al. is cxtrcmcly complcx, dctailcd, and rcpctitious, contains
many crossrclcrcnccs and othcr obstaclcs to comprchcnsion, and docs, altcr all, occupy an
cntirc book, so ! cannot guarantcc that my summary is cntircly laithlul to thcir argumcnt.
a Part : Politics and Philosophy
thc world actually works is a sham. No pcrccptions ol pcrsons that thcy
arc morc than mcrc cogs in tightly working machincry, that thcy havc
somc scopc lor making dccisions not totally prcdctcrmincd by thcir gcnctic
makcups and past cxpcricnccs, count lor anything, lor thcsc vcry pcr
ccptions havc thcmsclvcs bccn prcdctcrmincd. Similarly, no numbcr ol
cpisodcs in which uncxpcctcd, astonishing, or unprcdictablc dccisions ol
particular pcrsons brought major conscqucnccs count lor anything. Appar
cnt cxamplcs ol lormidablc cxcrtions ol will count lor nothing. Tc thc
ory itscll rulcs such cpisodcs out as cvidcncc on thc grounds that thc citcd
dccisions and cxcrtions, as wcll as thcir bcing uncxpcctcd, astonishing, or
apparcntly unprcdictablc, arc thcmsclvcs mcrc links in thc univcrsal causal
chain. xamplcs in which a pcrson sccms to havc changcd his vcry char
actcr by cort ol will would not lazc thc dctcrminist. Hc would maintain
that thc pcrsons cxcrtion ol will, and with what dcgrcc ol succcss, wcrc
thcmsclvcs prcdctcrmincd. ctcrminism docs not dcny that praisc and
blamc, rcward and punishmcnt, can bc ccacious in inucncing bchav
ior, it simply maintains that thcsc in turn arc prcdctcrmincd.
Vhat advcrsc cvidcncc ol any sort is cvcn conccivablc, thcn, lrom
which thc thcory docs not protcct itscll in advancc: A thcory that can
accommodatc absolutcly any cvidcncc docs not spccily any gcnuinc rcstric
tions on how thc rcal world actually works, its ostcnsiblc cmpirical char
actcr is a sham.
Furthcrmorc, thc thcory docs not carry any actual implications lor
how to livc oncs own lilc or lor public policy. Should individuals culti
vatc a scnsc ol control ovcr thcir own dccisions and actions or, at thc othcr
cxtrcmc, cultivatc a latalistic outlook: Somc psychologists may ocr thc
onc linc ol advicc and othcrs thc oppositc linc, but in any casc, cach is
mcrcly ocring thc advicc hc is latcd to ocr. A dctcrminist philosophcr
is not ncccssarily bound to advisc thc latalistic outlook, lor hc may rccog
nizc thc bcncts ol lcclings ol autonomy and rcsponsibility and himscll
lccl, lurthcrmorc, that hc is latcd not to undcrcut such lcclings and thc
bcncts owing lrom thcm. ach ordinary individual, similarly, is rccciv
ing thc advicc hc is latcd to rcccivc and will rcspond to it, along with othcr
inucnccs, as hc is latcd to rcspond.
Should criminals bc hcld morc rcsponsiblc lor thcir actions and morc
liablc to punishmcnt than thcy currcntly arc or, on othcr hand, should thc
Clarcncc arrow dclcnsc bc givcn grcatcr hccd: Tc rst policy shilt may
rcducc crimc and makc lor a hcalthicr socicty on that account, although
it would bc unlair to criminals who arc, on thc dctcrminist thcory, mcrc
Chapter z: Free !ill and Ethics a
unlortunatc links in a causal chain. (!ncidcntally, docsnt dctcrminism
undcrminc cvcn thc conccpt ol unlairncss:) !n cithcr casc, policymakcrs
will hcar thc argumcnts thcy arc latcd to hcar and rcspond as thcy arc
latcd to do.
!n short, thc dctcrminist thcory not only has builtin immunity to
advcrsc cvidcncc but also lacks implications about how to apply it in prac
ticc. !t is cmpty. !ndividuals, by and largc, cannot bring thcmsclvcs to
rcgard it as mcaninglul and to conduct thcir own livcs and public policy
in accordancc with it.
! am saying not that lull dctcrminism is wrong but that it is an cmpty,
mcaninglcss doctrinc. Tis conclusion is not, ! bclicvc, onc ol thc airy
dismissals ol philosophical issucs that uscd to charactcrizc a crudc logical
positivism.
vx:vv:v vosi:ioxs ~xb v~v:i~i bv:vv:ixis:
! havc tricd to show that total latalistic dctcrminism is cmpty, pcrhaps
cvcn absurd. Vc might now try to locus on thc oppositc cxtrcmc position,
cxccpt that complctc lrcc will and absolutc indctcrminism arc downright
inconccivablc. No conccivablc scll is lrcc ol a biological naturc and ol thc
inucnccs imposcd by an cxtcrnal world. Still, lct us scc how lar wc can
gct in imagining a scll whosc will is essentially lrcc.
A scll whosc charactcr had bccn dctcrmincd not by hcrcdity and cnvi
ronmcnt but only intcrnally would bc thc product ol a corc scll, a minia
turc scll within thc scll, as R.. Hobart says (./.). 8ut how could
that corc scll bc lrcc lromcxtcrnal inucnccs: nly by its charactcr having
bccn dctcrmincd by a lurthcr intcrnal miniaturc scll, and so on in prcpos
tcrous innitc rcgrcss. To causc his original scll a man must havc cxistcd
bclorc his original scll. !s thcrc somcthing humiliating to him in thc lact
that hc is not a contradiction in tcrms: (Hobart ./., p. c).
!n somc rcspccts, ol coursc, a pcrsons carlicr scll docs partially shapc
his latcr scll: his carlicr dccisions and actions acct his capacity lor and
inclinations toward latcr cxpcricnccs, dccisions, and actions. 8ut il a pcr
son docs improvc his qualitics, what could mcrit praisc but thc ingrcdicnt
ol aspiration and rcsolution in him that madc his cort possiblc (Hobart
./., p. c): Vhat could mcrit praisc cxccpt lcaturcs ol an alrcady
cxisting charactcr that could not havc bccn lully its own crcation: nc
praiscworthy charactcr trait is thc capacity to rcspond suitably to praisc,
blamc, and thc conccpt ol rcsponsibility.
cc Part : Politics and Philosophy
Any consistcntly conccivablc scll must to at lcast somc cxtcnt, thcn
and cxpcricncc suggcsts a largc cxtcntbc thc product ol cxtcrnal lorccs.
Vhat implications lollow conccrning thc lrccdom, autonomy, dignity,
and rcsponsibility ol thc individual: Hobart laccs thc qucstion: How can
anyonc bc praiscd or blamcd il hcrcdity and circumstancc havc ultimatcly
givcn him his qualitics: ocs thc lact that a pcrson did not crcatc himscll
bar rccognizing his charactcr lor what it is: !linconccivablysomconc
had somchow madc his own original charactcr, and a nc onc, and il
wc praiscd him lor it, wc would bc ascribing a still carlicr charactcr to
him. Praisc or blamc lor dccisions or actions rclcrs to what kind ol pcrson
took thcm, thcrc is nothing clsc lor praisc or blamc to rclcr to (Hobart
./., p. c).
A pcrsons charactcr at a particular timc is what it is. !t inclincs him to
thc kinds ol intcntions and dccisions and actions that it docs inclinc him
toward, so it mcaninglully cxposcs him to admiration or rcprchcnsion,
praisc or blamc. Tis is truc rcgardlcss ol just how his charactcr camc to
bc what it is. Arcprchcnsiblc charactcr rcmains rcprchcnsiblc cvcn though
it can bc cxplaincd, or cxplaincd away, as thc product ol advcrsc hcrcdity
and cnvironmcnt. Tc notion ol charactcr bcing admirablc or rcprchcn
siblc only to thc cxtcnt that it is intcrnally dctcrmincd, lrcc ol cxtcrnal
inucnccs, is a scllcontradictory notion.
An analogy ol sorts holds with a pcrsons wants and tastcs. J.K. Gal
braith (., csp. chap. xi) madc much ol what hc callcd thc dcpcn
dcncc ccct: many ol an individuals wants in modcrn socicty arc not
wants that hc would cxpcricncc spontancously il lclt to himscll. !nstcad,
his wants arc crcatcd by thc proccss ol satislying thcm. Tc consump
tion pattcrns ol othcr mcmbcrs ol socicty, and notoriously advcrtising,
crcatc wants. Vants that arc articial in this scnsc cannot bc urgcnt or
important, so thc implication runs (and, in Galbraiths vicw, incomcs
that might ncvcrthclcss bc spcnt on mccting thcm may propcrly bc
taxcd hcavily to nancc rcally important scrviccs ol thc kinds supplicd by
govcrnmcnt).
F.A. Hayck (.6./.6,) calls this argumcnt a non sequitur. Supposc
that pcoplc would indccd lccl no nccd lor somcthing il it wcrc not pro
duccd. !l that lact did provc thc thing ol small valuc, thcn thc highcst
products ol human cndcavor, including thc arts, litcraturc, and thc mar
vcls ol high tcchnology, would bc ol small valuc. Standards ol hygicnc and
thc dcmand lor products with which to mcct thcm, instcad ol arising spon
tancously within cach scparatc individual, arc likcwisc social products.
Chapter z: Free !ill and Ethics c.
Morc gcncrally, thc individual himscll is thc product ol social lorccs,
opcrating largcly through languagc, which conditions his thoughts, val
ucs, and activitics. Rccognizing thc individual as a social product in no
way dcnics that happincss and miscry, succcss and lrustration, arc cxpc
ricnccd by individuals, thcrc is no such thing as collcctivc happincss dis
tinct lrom and transccnding thc happincss ol individuals. Rccognizing
how socicty shapcs its mcmbcrs in no way imposcs collcctivist or commu
nitarian rathcr than individualist thinking and policics.
Tc analogy, in bricl, amounts to this: A pcrsons tastcs arc what thcy
arc and thcir gratication or lrustration causcs him plcasurc or unhappi
ncss, cvcn though his tastcs arc thcmsclvcs largcly thc product ol cxtcrnal
inucnccs. Similarly, a pcrsons charactcr is what it is and docs cxposc
him to admiration and praisc or rcprobation and blamc, cvcn though
his charactcr, likc his tastcs, is itscll largcly thc product ol cxtcrnal inu
cnccs.
Praisc and rcward, blamc and punishmcnt, arc appropriatc to thc cx
tcnt that thcy arc capablc in principlc ol inucncing actions, dccisions,
and charactcr traits, inappropriatc othcrwiscso Moritz Schlick pcrsua
sivcly argucs. Having grown up in ghctto povcrty is no valid cxcusc lor
robbcry, mayhcm, or murdcr, on thc othcr hand, it is pointlcss to blamc
a pcrson lor actions imposcd by congcnital dclormity or actual insanity.
Rcward and punishmcnt, praisc and blamc, all implicitly acknowlcdgc a
partial dctcrminism opcrating in human aairs. (Somctimcs, howcvcr, a
distinction holds bctwccn punishmcnt and blamc, as in thc casc ol thc
unruly dog. !ndividual or collcctivc sclldclcnsc against criminally insanc
pcrsons, as against mad dogs, is not thc samc as assigning moral culpa
bility. Punishmcnt in such a casc, likc quarantinc ol a discasccarricr, is
not punishmcnt in thc lullcst scnsc.)
Praisc or blamc, rcward or punishmcnt, is appropriatc lor an act com
mittcd lrccly, cvcn and cspccially lor onc committcd in accordancc with
thc agcnts moral charactcr. !ts appropriatcncss docs not hingc on thc
agcnts charactcr bcing totally uncauscd, whatcvcr that might mcan. Praisc
or blamc would bc inappropriatc il it would havc no ccct on acts ol thc
typc in qucstion and no ccct on propcnsitics to commit thcm.
Partial dctcrminism, which rcsponsibility prcsupposcs, is lundamcn
tally dicrcnt both lrom lull dctcrminism and lrom complctc (pcrhaps
stochastic) indctcrminism. !t rccognizcs that causality docs opcratc in
human aairs, as in thc rcst ol thc univcrsc. !t rccognizcs that how an
individual will dccidc whcn lacing a particular choicc may bc hcavily or
ca Part : Politics and Philosophy
dccisivcly inucnccd by his gcnctic makcup and by his past cxpcricnccs.
Tcsc inucnccs includc thc argumcnts hc has hcard and thc thoughts
that havc bccn arouscd in his mind, including thc conccpt ol rcsponsibility
and prospccts ol praisc and blamc. Partial dctcrminism docs not maintain,
howcvcr, that absolutcly cvcrything is lully prcdctcrmincd in thc minutcst
dctail. !t allows somc scopc lor chancc and possibly, also, somc scopc lor
thc autonomy (or whatcvcr it might bc callcd) that doctrincs ol lrcc will
alludc to.
Unlikc lull dctcrminism, thc doctrinc ol only partial dctcrminism, rcc
ognizing scopc lor somc sort ol lrcc will, docs not cnjoy builtin immu
nity to advcrsc cvidcncc and is not dcvoid ol practical implications. !l
pcoplc ncvcr cxpcricnccd lcclings ol autonomy in making dccisionsil
thcy ncvcr cxpcricnccd situations in which thcy lclt that thcy pcrsonally
wcrc wcighing conicting considcrations and thcmsclvcs making dcci
sions, lrcc ol total outsidc compulsion and constraint, and il, on thc con
trary, thcy always pcrccivcd thcmsclvcs undcr idcntiablc tight compul
sions and constraintsthcn thc doctrinc ol lrcc will would laltcr. r
il pcoplc somctimcs did cxpcricncc lcclings ol autonomy but could bc
shown in cach casc that thc lcclings wcrc illusory and shown in dctail just
how thcir supposcd lrcc choiccs wcrc in lact cxtcrnally prcdctcrmincd in
lull, again thc lrccwill doctrinc would bc undcrmincd. Most obviously,
thc doctrinc would bc discrcditcd il pcoplc wcrc always kccnly awarc ol
bcing mcrc links in a causal chain and il thcy rccognizcd in dctail just
what causcs wcrc opcrating on thcm, including rccognizing just how vari
ous lacts and argumcnts camc to thcir attcntion and what wcight cach ol
thcsc commandcd.
iscrcditing cvidcncc ol this sort is conccivablc, and thc lrccwill doc
trinc itscll docs not rulc out its signicancc. Tat vcry lact shows that thc
doctrinc is not cmpty. Tc abscncc ol such discrcditing cvidcncc suggcsts,
lurthcrmorc, that thc doctrinc may bc corrcct. 8ut it docs not, ol coursc,
provc that it is right, no doctrinc about cmpirical rcality can cvcr bc provcd
absolutcly.
coxciusiox
iscussing lrcc will vcrsus dctcrminism was ncccssary bccausc many phi
losophcrs considcr thc issuc gcnuinc and important, intcrtwining with thc
qucstion ol moral rcsponsibility and so with cthics in gcncral. Tc latal
ist doctrinc ol an unbrokcn chain ol tight causal dctcrmination opcrating
Chapter z: Free !ill and Ethics c
lrom thc bcginning ol timc, ol apparcntly cvcr morc complcx statcs ol
thc world having bccn lully spccicd in advancc by thc apparcntly lcss
complcx carlicr statcsthat doctrinc is practically incrcdiblc. Tc idca ol
somc kind ol shccr chancc almost imposcs itscll. Chancc cntcrs cthical dis
cussion not bccausc it itscll providcs scopc lor rcsponsiblc human choicc
but bccausc it undcrmincs thc claims ol lull, latalistic dctcrminism. ncc
dctcrminism is shakcn, thc idca ol somc sort ol lrcc will, opcrating along
sidc ol both causation and chancc, gains a possiblc loothold. vcryday
pcrsonal cxpcricncc supports somc such idca.
nc qucstion, howcvcr, rcmains dangling: Cana pcrsons will bc shapcd
in any manncr othcr than by chancc and by cxtcrnal inucnccs such as
hcrcdity, cnvironmcnt, and cxpcricnccs (including cxposurc to idcas con
ccrning rcsponsibility, praisc, and blamc): !s rccction in oncs own mind
such an othcr manncr: No, or not uncquivocally, lor although amplc
cxpcricncc tcstics to its rcality, that rccction is itscll conditioncd by
cxtcrnal inucnccs, including thc actions and idcas ol othcr pcoplc. Yct
somc such othcr manncr ol dctcrmination sccms to bc what thc chccr
lcadcrs lor lrcc will arc postulating.
nc approach to a solutionto rcconciling lrcc will with thc sort
ol dctcrminism that scicncc dcals inappcals to thc notion ol cmcrgcnt
propcrtics. Spccic combinations, arrangcmcnts or intcractions ol com
poncnts can givc risc to totally ncw attributcs. Tc wholc is morc than thc
sum ol its parts. iamond and charcoal posscss propcrtics quitc dicrcnt
lrom thosc ol thcir componcnt carbon atoms. A drum madc lrom at
planks can roll. An cssay has mcaning not containcd in thc individual ink
dots on thc printcd pagc. Laws ol grammar arc quitc dicrcnt lrom but
not incompatiblc with laws ol physics. Similarly, somchow, thc human
mind is ablc to makc choiccs not dctcrmincd solcly by cxtcrnal or gcnct
ically xcd lactors, thc mind is scllprogrammingit modics its own
proccsscs (\oss ./.6).
! admittcdly cannot lorm a satislactorily dcnitc conccption ol what
suggcstions likc that may bc gctting at. ! claim, thcn, not to havc scttlcd
thc lrccwill issuc but to havc kcpt alivc thc possibility that il it is not
mcrcly a pscudoproblcm altcr all, it anyway is not a problcm subvcrsivc
ol cthics. Tc dctcrminist thcsis appcars mcaninglcss in thc scnsc ol car
rying builtin immunity to any conccivablc advcrsc cvidcncc. Sincc no
obscrvations about thc world could conccivably clash with it, thc thcsis
docs not rcally say anything about thc world and about whcthcr any lrcc
will opcratcs in it.
c Part : Politics and Philosophy
Vhilc thc lrccwill /dctcrminism issuc thus danglcs unscttlcd, wc all
nd oursclvcs scizcd with incradicablc imprcssions (or illusions) that wc
cnjoy somc lrccdom ol action and choicc and cvcn ol will. Vhcn wc writc
as scholars, wc simply cannot bclicvc that our cvcry word is prcciscly prc
dctcrmincd and will draw prcciscly prcdctcrmincd rcactions lrom our lcl
low scholars.
Somctimcs wc nd two or morc strands ol thcory applicablc to ccr
tain phcnomcna without our bcing ablcyct, anywayto rcconcilc thosc
strands, which may cvcn appcar inconsistcnt. An cxamplc conccrns thc
apparcnt dual naturc (wavc and particlc naturcs) ol light and ol clcctrons.
Tc principlc ol complcmcntarity, introduccd to physics by Nicls 8ohr,
condoncs applying cach strand ol thcory whcrc it docs good scrvicc whilc
still hoping to rcconcilc thc dicrcnt strands, pcrhaps by modilying onc
or all (Tcllcr .c, pp. , .c.c6, ..c). conomists lormcrly did
not know, and somc would say still do not know, how lully to rcconcilc
thrcc strands ol balanccolpaymcnts analysis, thc clasticitics, absorption,
and monctary approachcs. !t makcs scnsc anyway to apply cach approach
whcrc it docs good scrvicc whilc still sccking a lullcr rcconciliation among
thcm.
Similarly, in analyzing thc worlds ol naturc and human aairs, wc
nd it rcasonablc to bclicvc in tight causality or in causality looscncd by
an clcmcnt ol shccr chancc. Vc also nd rcasonor at lcast thc prcssurc
ol compclling pcrsonal cxpcricnccto bclicvc in a looscning by somc clc
mcnt ol lrcc will. Tc corrcsponding strands ol thcory arc complcmcntary.
Sincc wc cannot rcally bclicvc that cthics is a cld dcprivcd ol subjcct mat
tcr, lct us continuc invcstigating it.
,
Lct us condcmn, though, thc tactic ol ocring mcrc chccrlcading lor
lrcc will in thc guisc ol argumcnt. (Frcc will is good, thosc who doubt it
arc scoundrcls, and wc arc on thc sidc ol thc good.) As avid Humc said,
this qucstion should bc dccidcd by lair argumcnts bclorc philosophcrs,
|rathcr| than by dcclamations bclorc thc pcoplc (.,.,c/.6., 8k. ii,
Pt. iii, last paragraph ol Scc. ii).
,
dward N. Lorcnz (., pp. ..6c) rcminds us that wc should bclicvc cvcn in
an uncomlortablc truth rathcr than in an appcaling lalschood. Tat prcmisc rccommcnds
bclicving in lrcc will. !l it is a rcality, our choicc is corrcct. !l it is not, wc still shall not
havc madc an incorrcct choicc, sincc, lacking lrcc will, wc shall not havc madc any choicc
at all.
Chapter z: Free !ill and Ethics c
vvvvvvxcvs
8oylc, Joscph M., Jr., Gcrmain Griscz, and lal Tollclscn. Free Choice: Self-
Feferential rgument. Notrc amc, !nd.: Univcrsity ol Notrc amc Prcss,
.,6.
Campbcll, C.A. !s Frccwill a PscudoProblcm: ... !n Free !ill and Deter-
minism, cditcd by 8crnard 8crolsky, ..a.. NcwYork: Harpcr &Row, .66.
workin, Gcrald. Acting Frccly. .,c. !n Feason at !ork: Introductory Feadings
in Philosophy, cditcd by Stcvcn M. Cahn, Patricia Kitchcr, and Gcorgc Shcr,
caa. Ncw York: Harcourt 8racc Jovanovich, ..
uckcn, Valtcr. Te Foundations of Economics. Translatcd by T.V. Hutchison.
London: Hodgc, .c.
Galbraith, John Kcnncth. Te uent Society. 8oston: Houghton Miin, ..
GcorgcscuRocgcn, Nicholas. Te Entropy La. and the Economic Process. Cam
bridgc, Mass.: Harvard Univcrsity Prcss, .,..
Gigcrcnzcr, Gcrd, Zcno Swijtink, Tcodorc Portcr, Lorrainc aston, John
8catty, and Lorcnz Krugcr. Te Empire of Chance. .. Cambridgc and Ncw
York: Cambridgc Univcrsity Prcss, ..
Hayck, F.A. Tc Non Scquitur ol thc cpcndcncc cct. .6.. !n Studies
in Philosophy, Politics and Economics. Chicago: Univcrsity ol Chicago Prcss,
.6,.
. Te Constitution of Liberty. Chicago: Univcrsity ol Chicago Prcss, .6c.
Hazlitt, Hcnry. Te Foundations of Morality. .6. Los Angclcs: Nash, .,a.
Hobart, R.. Frcc Vill as !nvolving ctcrmination and !nconccivablc Vithout
!t. .. !n Feason at !ork: Introductory Feadings in Philosophy, cditcd by
Stcvcn M. Cahn, Patricia Kitchcr, and Gcorgc Shcr, c. Ncw York:
Harcourt 8racc Jovanovich, ..
Hospcrs, John. Vhat Mcans this Frccdom: .6.. !n Free !ill and Determinism,
cditcd by 8crnard 8crolski, a6. Ncw York: Harpcr & Row, .66.
Humc, avid. Treatise of Human Nature. .,.,c. Gardcn City: oublcday
olphin, .6..
Kant, !mmanucl. Ground.ork of the Metaphysic of Morals. .,. Translatcd by
H.J. Paton. Ncw York: Harpcr Torchbooks, .6.
c6 Part : Politics and Philosophy
Lorcnz, dward N. Te Essence of Chaos. Scattlc: Univcrsity ol Vashington Prcss,
..
Mcycrson, milc. Explanation in the Sciences. .a.. Translatcd by MaryAlicc
Sipc and avid A. Sipc. ordrccht and 8oston: Kluwcr, ...
Mills, Frcdcrick C. Statistical Methods pplied to Economics and Business. Rcv. cd.
Ncw York: Holt, ..
Pcircc, Charlcs S. !alues in a Uni.erse of Chance. .,,. ditcd by Philip P. Vicncr.
Gardcn City: oublcday Anchor 8ooks, ..
. Tc Scicntic Attitudc and Fallibilism. ... !n Philosophical !ritings
of Peirce, cditcd by Justus 8uchlcr, a. Ncw York: ovcr, ..
Poppcr, Karl. !ndctcrminism!s Not nough. Lccturc at thc Mont Plcrin Soci
cty mccting in Munich, Scptcmbcr .,a. Printcd in Te Open Uni.erse, c6.
Totowa, N.J.: Rowan and Littlccld, .a.
. Unended Quest. Rcv. cd. La Sallc, !ll.: pcn Court, .a.
. Popper Selections. ditcd by avid Millcr. Princcton, N.J.: Princcton
Univcrsity Prcss, ..
Schlick, Moritz. Problems of Ethics. .c. Translatcd by avid Rynin, .. Ncw
York: ovcr, .6..
Slotc, Michacl. thics without Frcc Vill. Social Teory and Practice .6 (Fall
.c): 6.
Squirc, John Collings, cd. If, or History Fe.ritten. Ncw York: \iking, ...
Tcllcr, dward. Te Pursuit of Simplicity. Malibu: Pcppcrdinc Univcrsity Prcss,
.c.
van !nwagcn, Pctcr. Rcsponsc to Slotc. Social Teory and Practice .6 (Fall .c):
.
\oss, Pctcr. Frccwill and ctcrminism. .. Rcviscd .6. http://mol.
redbarn.org/objectivism/writing/PeterVoss/FreeWillAndDeterminism.
html.
cn~v:vv +6
lcmcntos dcl conomia
Politic

Lc cconomia politic jacc al intcrscction dcl scicncia cconomic, thcoria

politic, c philosophia. !o conduccva un scminario in istc campo durantc
multc annos al Univcrsitatc dc \irginia c postca al Univcrsitatc Auburn.
Lc studcntcs c io rcvidcva lc conccption libcrtari dcl govcrnamcnto c con
ccptioncs plus collcctivista. Ma non prcoccupa vos: mi proposito hodic
non cs rccrutar vos a mi propric puncto dc vista politic. Como altcrc par
latorcs c como io ipsc a prcvic rcunioncs dcl UM!, io volc illustrar lc intcr
lingua parlatc c un vocabulario anquc tcchnic in discutcr un largc varictatc
dc thcmas.
vvovosi:ioxvs vosi:ivv v xov:~:ivv
Mi studcntcs c io comcnciava pcr cxplorar lc rolo dc judicios dc valor
in rccommcndar c dccidcr politicas public (como rcgulationcs cconomic
c impostos). n dcbc distingucr intcr judicios dc valor, anquc appcllatc
propositioncs normativc, c propositioncs positivc, quc cs obscrvationcs dc
lactos o inlcrcntias dc logica. xcmplos dc propositioncs dc lactos c logica
cs illos dcl strictc thcoria cconomic. Lc philosopho c cconomista avid
Humc (Scotia, .,...,,6) insistcva supcr istc distinction, postca appcllatc
lc Furca dc Humc: on non potc dcrivar un conclusion supcr quc cs bon o
rccommcndabilc, o lc contrario, solo pcr lc lactos c lc logica. 8rcvcmcntc,
on non potc dcrivar un debe dc un es. Pcr cxcmplo, solo ab lc lacto mcdical
quc il es pcriculosc pro lc sanitatc dcl inlantc si un lcmina gravidc bibc
alcohol, on non potc arrivar at judicio quc un lcmina gravidc debe abstincr
sc dcl alcohol. Pro un tal conclusion, on bcsonia non solo lc lactos mcdical

Tis introduction to political cconomy and thc Public Choicc school was a talk at
thc !ntcrlingua conlcrcncc, Praguc, , August ., publishcd as a pamphlct by Union
Mundial pro !ntcrlingua, 8ilthovcn, Ncthcrlands, ..
c,
c Part : Politics and Philosophy
ma anquc lc judicio normativc quc lc sanitatc dc inlantcs cs dcsirabilc, c
mcsmo plus dcsirabilc quc lc placcrcs momcntari dc lor matrcs in bibcr
alcohol. Un altcrc cxcmplo: solo dcl proposition lactual c dc logica quc
un ccrtc politica cconomic conduccrca al miscria dc pcrsonas in gcncral
c quc un politica altcrnativc conduccrca al lclicitatc gcncral, on non potc
judicar lc primc politica mal c lc sccundc bon, on bcsonia anquc un judicio
normativc contra lc miscria c pro lc lclicitatc.
Como istc cxcmplos suggcrc, on potc discutcr judicios rclativcmcntc
spcciccomo pro c contra politicas spccicpcr invocar c lactos c logica
c altcrc c plus prolundc judicios dc valor. n potc condcmnar lc mcntir,
lc dclraudar, c lc lurar pcr dcmonstrar quc tal conductos tcndc a subvcrtcr
lc lclicitatc gcncral, juncte con un judicio in lavor dcl lclicitatc. Lc judicio
in lavor dcl lclicitatc cs pro lc plus dc pcrsonas, probablcmcntc, un judicio
dc valor fundamental , como on dicc. Pcr lc dcnition dc un judicio lun
damcntal, on non potc argucr in su lavor, on cs al n dc argumcntation,
on dcbc appcllar al obscrvation o intuition dircctc. Ma como istc cxcmplo
anquc suggcrc, disputas supcr judicios lundamcntal dc valor cs rar. Quasi
ncmo dubitarca quc lc miscria cs mal c lc lclicitatc cs bon, ma quasi ncmo
pcnsarca a demonstrar lo, un tal dcmonstration cxigcrca un appcllo a un
judicio ancora plus lundamcntal, lc qual on potc a pcna imaginar.
Nos non ha lc tcmporc hic pro approlundar nos in istc distinctioncs
intcr lactos, logica, c valorcs c intcr valorcs rclativcmcntc spccic c valo
rcs lundamcntal. !o potc solo sublincar quc istc thcmas philosophic cs
importantc in idcnticar lc lontcs cxactc dc disaccordo in disputas supcr
politicas govcrnamcntal como in lc vita pcrsonal.
iv v:nic~
Judicios dc bon c mal cs matcrias dc cthica, c lc cthica cs a basc dcl conccp
tos dc philosophia politic c lc dcrcctos dcl hominc. !n plus, lc lundamcnto
dc cthica potc a pcna csscr altcrc quc utilitari. Lc critcrio quasiultimatc
dc actioncs, rcgulas, tractos dc charactcr, ctc. cs lc coopcration social, o
como alicunos dicc, lc socictatc civil. !llo cs un socictatc bcn lunctionantc
in lc qual lc individuos potc vivcr insimul in pacc, bcncciantc mutual
mcntc dc lor intcractioncs c lor commcrcio. Lc analysc dcl coopcration
social cs lc grandc campo commun intcr lc cthica c lc scicntia social. Actio
ncs, rcgulas, c tractos dc charactcr sc judica bon o mal sccundo quc illos
tcndc a appoiar o subvcrtcr lc coopcration social. !o appclla isto lc cri
tcrio quasiultimatc proquc illo cs solmcntc un mcdio, bcn quc lc mcdio
Chapter zo: Elementos del Economia Politic c
indispcnsabilc, al dcsidcratumnal, quc cs lc lclicitatc human (in un scnso
convcnibilcmcntc cxtcnditc dcl parola lclicitatc).
coovvv~:iox v vvcivvoci:~:v
!n mi scminarios nos discutcva lc pcrspicacias dc avid Humc, F.A. Ha
yck, Robcrt Alcxrod, avid Gauthicr, Lorcn Lomasky, c altcrcs supcr lc
possibilc cvolution spontancc dcl coopcration intcr homincs. Axclrod
cmplcava torncos c simulationcs pcr computator pro cxplorar lc joco rcpc
titc dcl dilcmma dcl prisioncros. (n lo appclla assi ab un ccrtc cxcmplo
standard dcl joco.) !n un singulc scssion o rcprisa dcl joco, sin rcguardo
a cvcntual rcpctitioncs, lc action plus avantagiosc c strictcmcntc rational
pro cata un dcl duo jocatorcs cs ccrcar cxploitar lc altcrc (non coopcrar),
sin rcguardo a su action. !nlortunatcmcntc, quando ambcs agc assi, ratio
nalmcntc in lc scnsc strictc, lc rcsultato cs mal pro ambcs. Quando, al
contrario, cata un agc coopcrativcmcntc, lc rcsultato cs assatis bon pro
ambcs Ma, como jam stipulatc, quando cata uno dccidc su stratcgia scpa
ratcmcntc, su action strictcmcntc rational cs ccrcar cxploitar lc altcrc, altc
rcmcntc, on sc trova lc victima. Alora, lc problcma cs: quc inccntivo ha
cata jocator prcndcr un pcrspcctiva plus largc c non pcrscqucr su propric
strictc avantagc immcdiatc:
Lc solution apparc in un joco rcpctitc in multc rcprisas. Cata jocator
apprcndc quc su actioncs transmittc signalcs al altcrc. !n lc cxpcrimcntos
dc Axclrod, lc stratcgia plus succcssosc cs rcndcr lc par (anglcsc: titlor
tat). !sto volc diccr: on comcncia jocar coopcrativcmcntc, ma si lc oppo
ncntc agc cxploitcvcmcntc, on rctalia in lc rcprisa scqucntc. Si lc oppo
ncntc rccomcncia jocar coopcrativcmcntc, on lo lacc anquc. Lc principio
succcssosc cs coopcrar, ma non lassar sc dupar: jocar rcciprocamcntc.
!stc stratcgia sc distinguc dcl principio christian dc vcrtcr lc altcrc gcna.
!llc conducta christian potc scmblar conlortabilc in lc singulc caso, c on
potc illudcr sc quc illo cs mcsmo nobilc c philanthropic. Al contrario,
tal vcrtimcnto dcl altcrc gcna lacilita lc via pro lc prcdatorcs, illo tcndc a
trahcr lc prcdation non solo a sc ipsc ma anquc a altcrc pcrsonas innoccntc.
unquc, illo cs antisocial. n dcbc non prcmiar ma punir c discoragiar
lc aspirantc prcdatorcs. Lc stratcgia vcrmcntc social pro lc longc tcrmino
cs lc rcciprocitatc: rcspondcr al coopcration c bcncvolcntia con lc mcsmo,
ma punir lc prcdation.
bvicmcntc, lc joco dcl dilcmma dcl prisioncros c lc cxpcrimcntos
dc Axclrod cs un mctaphora pro lc sociatatc. Mcsmo si cata individuo
.c Part : Politics and Philosophy
proscquc solo su propric intcrcssc, un rcguardo pro lc longc tcrmino c pro
lc rcactioncs dc altcrc pcrsonas potc induccr lc a agcr rcciprocamcntc. Lc
coopcration potc cvolvcr spontancamcntc.
Lc mctaphora dc Axclrod c altcrc rcccrcatorcs in su tradition cs un mcr
prolation dc ccrtc aspcctos dcl socictatc, c on dcbc cvitar misintcrprcta
tion dcl conccpto rcciprocitatc. Rcciprocar non volc diccr insistcr supcr
un strictc cxcambio dc bcnccios rccipitc c bcnccios lornatc, toto mcsu
ratc in moncta. Lc rcciprocitatc in socictatc cs lc bon voluntatc a tractar
altcrc pcrsonas con un ccrtc bcncvolcntia gcncralisatc c cxpcctar un similc
tractamcnto ab lc altcrcs, ma non lc voluntatc a tolcrar lc maltractamcnto,
quc invitarca lc prcdation non solo contra sc ipsc ma anquc contra altcrc
pcrsonas. Rcciprocitatc cs lc cxcambionon ncccssarimcntc strictcmcntc
calculatcdc attitudcs c actioncs appropriatc. (c modo similar, lc parola
mcrcato non sc rcstringc scmprc a transactioncs strictcmcntc cconomic.
!n un scnso cxtcnditc, lc mcrcato cs un mctaphora pro omnc rclationcs
voluntari intcr homincs, in contrasto con rclationcs imponitc pcr lortia o
lraudc o costumcs rigidc c opprcssivc.)
Multo cconomicamcntc productivc, pro rccoltar lc ganios dcl spccia
lisation c commcrcio, cs lc grandc proccsso national c mundial dc cxcam
bios multilatcral dc bcncs c scrvicios intcr millioncs c billioncs dc pcrsonas
qui non sc cognoscc lc un lc altcrc. !n istc proccsso dc coopcration impcr
sonal, cvaluationcs monctari cs indispcnsabilc. Ma non omnc rclationcs
intcr homincs cs rclationcs dcl mcrcato commcrcial c dcl moncta. Como
dicc F.A. Hayck, laurcato Nobcl c cclcbrc campion dcl cconomia dcl mcr
cato, un cthica dc solidaritatc cs dcbitc in parvc gruppos spccial contcnitc
in lc grandc socictatc dc intcrcambios cconomic mundialgruppos como
lc lamilia, bon amicos, c lorsan cnthusiastas dcvotc a un causa commun.
!n un ccrtc grado, on potcrca addcr, lc mcsmo potc applicar sc anquc
intcr collcgas prolcssional c intcr cmplcatos c cmplcatorcs associatc dcsdc
longc tcmporc. !n un grandc socictatc o ordinc cxtcnditc (como lo appc
lla Hayck), lc individua appcrtinc a ordincs dc plurc typos. Lc intimi
tatc attingitc intra parvc gruppos spccial ha un grandc valor psychologic.
Pcrscqucr su intcrcssc pcrsonal strictc c immcdiatc, insistcr supcr calcu
los monctari dc costos c bcnccios, c insistcr supcr rcciprocitatc strictc
mcntc concipitc anquc intcr mcmbros dc tal gruppostotc isto dcstruc
rca grandc valorcs. Si nos scmprc applicava lc rcgulas dcl ordinc cxtcnditc
a nostrc gruppamcntos plus intimc, nos los applattarea. unquc nos dcbc
apprcndcr vivcr in duo spccics dc mundo simul. (!l wc wcrc always to
apply thc rulcs ol thc cxtcndcd ordcr to our morc intimatc groupings, .e
Chapter zo: Elementos del Economia Politic ..
.ould crush them. So wc must lcarn to livc in two sorts ol world at oncc.
Hayck, Te Fatal Conceit, ., p. ..) Lc mcrcato c lc moncta cs onsti
tutioncs indispcnsabilc al supcrvivcntia c conlorto human. Ma non omnc
aspcctos dcl vita dcbc o potc csscr transationcs monctari.
iv covvvx~:vx:o v voii:ic~s vuniic
!nlortunatcmcntc, non omnc pcrsonas obscrva lc rcgulas dc coopcration
social, alicunos cs prcdatorcs, criminalcs. !l sc bcsonia un agcntia dcl socic
tatc pro rcstringcr lcs c punir lcs. Assi argumcnta Tomas Hobbcs in su
libro Le.iathan dc .6.. Pro lc disvcloppamcnto cconomic c assi pro un vita
conlortabilcpro un modo commodc dc vivcr, como dicc Hobbcsil sc
bcsonia lc pacc c sccuritatc, comprcndcntc lc sccuritatc dc proprictatc pri
vatc protcgitc pcr un govcrnamcnto adcquatc. Sin illo, lc vita dcl hominc
csc hic scquc, in lc libro dc Hobbcs, un dcscription citatc tanto lrc
qucntcmcntc in anglcsc quc illo dcvcni toto cnoiosc. Ma io volc tradu
ccr lc parolas in intcrlingua. Alora, sin lc protcction dcl pacc c sccuritatc,
dicc Hobbcs, lc vita dcl hominc cs solitari, povrc, nauscabundc, brutal,
c brcvc. c lacto, nos obscrva tal conditioncs hodic in plurc paiscs dcl
Tcrtic Mundo, c pro lc rationcs cxplicatc pcr Hobbcs.
avid Humc cnuncia trcs rcgulas ncccssari pro un socictatc prospcrc:
lc sccuritatc dc posscssioncs, lor translcrcntia ab un proprictario ad un
altcrc solo pcr conscntimcnto (c non pcr lortia o lraudc), c lc dclitatc a
promissas. Sin lc obscrvation gcncral dc istc rcgulas, lc gcntc ha inccnti
vos rclativcmcntc dcbilc pro laccr planos pro lc luturo, pro intcrprcndcr
projcctos coopcrativc complicatc c cxtcnditc in tcmporc, pro sparniar, c
pro invcstir.
!ntcr lc attitudcs philosophic circa lc qualcs sc ragia disputas supcr
politicas plus spccic, uno notabilc cs lc cqualitarismo. !stc attitudc incar
garca lc govcrnamcnto a laccr lc conditioncs cconomic dcl individuos c
dcl stratas dcl socictatc minus dicrcntc quc illos altcrcmcntc csscrca.
Pauco controvcrsc cs lc idca dc un rctc social dc sccuritatc, quc volc
diccr lc institutioncs pro adjutar lc plus povrc c inlortunatc mcmbros dcl
socictatc. Plus controvcrsc cs lc idca quc lc cqualitarismo dcbc cxtcndcr
sc al suppositc problcma dcl troppo grandc ricchcssas c quc lc govcrna
mcnto dcbc anquc diminucr lc lortunas dcl lamilias plus ric. !n discu
tcr lc cqualitarismo, on dcbc considcrar lc rclationcs intcr lc cqualitatc
c lc libcrtatc pcrsonal. squc il cs possibilc pcrscqucr politicas dc rcdis
tribution, c spccialmcntc politicas pro punir lc plus ric pcrsonas, sin ullc
.a Part : Politics and Philosophy
costo in lc libcrtatc pcrsonal c sin ullc pcriculo dc un govcrnamcnto troppo
potcntc:
coxvusioxvs bv v~voi~s: iinvv:~:v v bv:ocv~:i~
iscussioncs dc libcrtatc cs conlunditc pcr varic intcrprctationcs. Pcr
cxcmplo, un lcctor (Angus Siblcy) scribc al magazinc Te Economist
(numcro dcl a. dc januario dc .):
Conicto intcr libcrtatc c communitatc cs incvitabilc ubi lc libcrtatc cs
simplcmcntc prcnditc signicar . . . lc dcrccto dcl individuo dc non su
rcr imposition pcr altcrcs. Compara lc opinion dc un cmincntc modcrnc
thcologo, Patrc 8crnard Haring: !n csscntia, lc libcrtatc cs lc potcr dc
laccr lc bon. Hic cs un plus largc c plus ric conccpto dc libcrtatc quc
cohcrc mclio con lc ncccssitatc basic dc communitatc.
Alora, illc lcctor c lc Patrc Haring intcrprcta lc libcrtatc como lc potcr
dc laccr lo quc sc considcra bon c conlormc al ncccssitatcs dc communi
tatc. Pcr istc intcrprctation, quando lc stato prcvcni un individuo dc agcr in
un modo considcratc mal, on non inlringc su libcrtatc (o su .er libcrtatc).
Como cquivoc! Ma tal cquivocationcs cs assatis commun in discussioncs
dc philosophia politic, como dcmonstra Sir !saiah 8crlin in un lamosc
conlcrcntia.
Un intcrprctation dcl libcrtatc plus lranc c plus conlormc al linguagc
ordinari cs suggcritc pcr plurc philosophos politic: Lc libcrtatc dc un pcr
sona cs lc absentia dc rcstrictioncs c compulsioncs supcr su activitatcs
imponitc pcr altcrc pcrsonas (includcntc agcntcs dcl stato). !stc dcni
tion admittc considcrar varic typos c grados dc rcstriction dcl libcrtatc, on
potc invcstigar cvcntual incompatibilitatcs intcr varic libcrtatcs spccic dc
dicrcntc pcrsonas, on potc invcstigar rclationcs intcr libcrtatc pcrsonal c
mcsuras pro promovcr lc cqualitatc.
n dcbc distingucr intcr lc libcrtatc dc un pais ab un govcrnamcnto
cstranic c lc libcrtatc pcrsonal dc su habitantcs, i.c., lc abscntia dc plurc
intrusioncs, typicamcntc govcrnamcntal, in lc vita dcl individuo. Lc citata
nos dc plurc paiscs in lc Tcrtic Mundo, spccialmcntc in Alrica, ha cxpcri
mcntatc lc ganio dc libcrtatc national (pcr lc dccolonisation) ma lc pcrdita
dc grandc partcs dc lor libcrtatcs pcrsonal.
Un altcrc parola multo abusatc pcr conlusioncs scntimcntal cs dcmo
cratia. Frcqucntcmcntc on includc in su signication non solo un lorma
Chapter zo: Elementos del Economia Politic .
o modo particular dc govcrnamcnto ma anquc varic spccics dc bon con
ditioncs como libcrtatc, cqualitatc, lratcrnitatc, varic conccptioncs dc
justitia social, varic dcrcctos dcl individuo c dcl socictatc, c mcsmo lc stilo
dc vita amcrican. Assi on conlundc distinctc conccptioncs sub un singulc
ctiquctta c impcdi considcrar in quc grado lc varic bon conditioncs cs
compatibilc lc un con lc altcrc. Pcr cxcmplo, quc tcnsioncs cxistc intcr
lc dominantia dcl majoritatc c lc libcrtatc pcrsonal: n glissa ab pcnsar
quc lc dcmocratia cs bon a pcnsar quc plus dc dcmocratia cs mclior c quc,
dunquc, il cs bon laccr plus c plus dccisioncs dcmocraticamcntc, quc volc
diccr lassar los laccr pcr lc govcrnamcnto dcmocratic, quc volc diccr quc
lc govcrnamcnto los lacc.
Un adjuta al clar pcnsamcnto cs lc dcnition dc dcmocratia suggc
ritc pcr Joscph Schumpctcr (intcr altcrcs). Lc dcmocratia cs un mcthodo
particular pro scligcr, inucr, c rcimplaciar lc govcrnatorcs politic, illo cs
lc mcthodo dc libcrc compctition pro lc scrutinios dc un largc clcctorato
in clcctioncs pcriodic. Como mcr mcthodo pro scligcr lc govcrnatorcs, lc
dcmocratia non potc csscr un scopo nal, un dcsidcratum in su propric
dcrccto. !n particular, lc govcrnamcnto dcl majoritatc non cs bon in sc.
Plus vicin a un tal scopo cs lc coopcration social con pacc, sccuritatc, c
libcrtatc pcrsonal. Con lc conccption strictc dcl dcmocratia como un spc
cic mcthodo politic, on potc considcrar lc tcnsioncs c compatibilitatcs
intcr istc mcthodo c altcrc conditioncs dcsiratc como libcrtatc, cquali
tatc, lratcrnitatc c lc bon lunctionamcnto dcl cconomia. n rccognoscc
quc lc dcmocratia non cs lc mcsmo quc libcrtatc pcrsonal c quc anquc
govcrnamcntos dcmocratic potc inlringcr lc libcrtatc pcrsonal c lc dcrcc
tos dcl hominc. n potc comparar lc dcmocratia con altcrc mcthodos
politic, c si on trova quc illo cs minus mal quc lc altcrcs, istc conclusion
non justica lc continuc cxtcnsion dcl potcrcs c activitatcs dc un govcrna
mcnto dcmocratic. !l sc bcsonia limitationcs anquc al activitatcs dc un tal
govcrnamcnto.
Como dicc Schumpctcr, lc dcmocratia cs un mcr mcthodo pro attin
gcr ncs ultcrior. Totcvia, lc Consilio dc Rcgistratorcs dc \otantcs dcl
Contato Lcc (ubi io vivc) ha annunciatc in lc jornal local (Lcc County
Eagle dc . c a. augusto .): !l non ha un plus grandc dcrccto in un
socictatc libcrc quc lc dcrccto, honor, c dcbcr dc votar. Villiam 8radlord
ha diagnosticatc istc spccic dc conlusion in un cssayo supcr Lc Novc Rcli
gion Civic. on pcnsa al latuitatcs quc circulava un anno rctro supcr lc
rcstauration dcl dcmocratia a Haiti, pais ubi il nunca ha habitc lc dcmo
cratia.
. Part : Politics and Philosophy
iv vvocvsso bv:ocv~:ic
Lc dcmocratia cs prclcribilc a altcrc lormas dc govcrnamcnto, ma isto non
volc diccr quc laccr lc cosas dcmocraticamcntc, illo cs, pcr govcrnamcnto
dcmocratic, cs prclcribilc a altcrc mcthodos a agcr, como pcr transactioncs
voluntari in lc mcrcato. Non plus volc illo diccr quc limitationcs supcr lc
dcmocratia cs ncccssarimcntc mal (in dcspccto dcl cpithcto antidcmocra
tic). Considcra, pcr cxcmplo, lc objcctioncs commun ma mal concipitc
contra lc limitationcs a tcrminos lcgislativc in lc Statos Unitc o a un amcn
damcnto constitutional pro lc budgct cquilibratc. !o critica lc supcrstitio
ncs rc lc dcmocratia in argucr pro limitar lc sphcra c lc potcrcs dcl govcrna
mcnto c non pro lc autoritarismo o alicun altcrc lorma dc govcrnamcnto.
!n comparation con altcrc lormas, lc dcmocratia ha importantc avantagcs
(cl. Te Economist dcl a, augusto .). (Totcvia, il ha argumcntos ratio
nabilc pro un rcgc o rcgina constitutional intra un rcgimc principalmcntc
dcmocratic.)
svivc:iox vuniic
Lc thcmas quc io rcvidc hodic lorma partclontan dcl totodcl matcrias
dc rcccrca dcl cconomistas dcl Schola dc Sclcction Public (public choicc
school). !o non ha lc tcmporc pro dcscribcr lc cxtcnsion c subtilitatc dc
lor rcccrcas, io potc solo mcntionar alicun aspcctos o thcmas. Lor rcccr
cas applica lc conccptos c mcthodos dcl analysc cconomic al invcstigar lc
lunctionamcnto dc institutioncs sin scopo lucrativc, supcr toto lc govcr
namcnto c su varic partcs, nivcllos, c institutioncs. n prcmc lc analysc
usquc al actor individual. Lc idca ccntral, banal ma dccisivc, cs quc lc indi
viduos cs lundamcntalmcntc lc mcsmc in institutioncs govcrnamcntal quc
in lc vita privatc. Solo pcr dcvcnir politico o cmplcato public, lc individuo
non acquirc plus dc spirito social o plus dc distachamcnto quc lc pcrsona
intcgral qui illc jamcs. Cata individuo ha su prclcrcntias c scopos pcrsonal
(quc non dcbc csscr strictcmcntc cgoista), c in pcrscqucr su scopos, cata
uno rcspondc a opportunitatcs c inccntivos (includcntc rcsultatos c costos
cxpcctatc).
Lc primc grandc obra dc istc schola (ultra, lorsan, un libro dc Anthony
owns dc .,) cs Le Calculo del Consentimento (Te Calculus of Consent),
publicatc in .6a pcr Jamcs M. 8uchanan c Gordon Tullock. Lc Prolcssor
8uchanan, qui ganiava lc Prcmio Nobcl in lc Scicntia conomic in .6,
cs lc primc Associato istinguitc dcl Union Mundial pro !ntcrlingua.
Chapter zo: Elementos del Economia Politic .
iv vo:~x:v ovbix~vi v ix:vvvssvs svvci~i
!n considcrar lc actorcs individual in lc proccsso politic, on non dcbc obli
dar lc votantc ordinari (lc clcctor, c anquc lc nonvotantcr proquc non
omnc citatanos cxcrcc lor dcrccto a votar). n rccognoscc su ignorantia
rational: al individuo, ordinarimcntc, il non valc lc pcna cxpcndcr tcm
porc c cncrgia in inlormar sc bcn dcl qucstioncs politic proquc su action
pcrsonal in acquircr inlormation non cambiara lc rcsultato dcl clcction.
n potc dcmandar: vistc quc lc singulc voto dcl individuo non dctcr
mina lc rcsultato, proquc mcsmo votar: n suggcrc varic cxplicationcs.
Alicun votantcs pcnsa a lor suppositc rcsponsibilitatc in prcndcr partc in
un ccrcmonia civic c assi cxprimcr solidaritatc con idcalcs dcmocratic. Ali
cunos trova lc acto dc votar un modo pcrsonalmcntc incostosc dc cxprimcr
cmotioncs dc bcncvolcntiao dc malitia. Prcciscmcntc proquc su inucn
tia cs tanto diluitc, quasi nullc, lc votantc individual potc agcr sin scnso
dc rcsponsabilitatc pcrsonal.
n rcmarca lc bassc qualitatc dc discussioncs dcl politica public, spc
cialmcntc politicas cconomic. n conccntra lc attcntion at troppo brcvc
tcrmino, on non pcnsa al conscqucntias al longc tcrmino dc politicas quc
supcrcialmcntc potc scmblar attractivc. n tcndc a crcditar o blasmar lc
prcsidcntc o partito in potcr pro lc bon o mal stato currcntc dcl cyclo con
junctural, on non comprcndc quc istc mcsmc cyclo rcsulta ab institutioncs
quc pcrsistc trans lc varic administrationcs. n comprcndc mal lc moncta.
Pcr cxcmplo, lc notion prcvalc quc lc taxas dc intcrcssc cs mcr paramctros
xatc pcr lc banca ccntral, xatc a bassc nivcllo quando lc banca sc scnti
bcncvolcntc c a altc nivcllo quando illo sc scnti malcvolcntc. Lc subtilitatcs
dcl rclationcs intcr lc ination dc prccios c lc crcscimcnto dcl production
total sc pcrdc in lc discussion public. Lc publico non comprcndc lc stato
prccari dcl dollar, quc rcmanc sin dcnition.
!stc bassc nivcllo dc discussionscquc dcl ignorantia rational dcl votantc
individual c dcl rcalismo dcl politicos in tractar lc votantcs como illcs vcr
mcntc cs c vcrmcntc pcnsa. Lor ignorantia lassa grandc campo pro lc
dcmogogia. rdinarimcntc il non scrvi lc intcrcssc dcl politicos prcdicar
bon scnso cconomic.
Tomas Sowcll ha dicitc, Lc primc lcction dcl scicntia cconomic cs
lc raritatc: il nunquam ha assatis dc aliquc pro satislaccr a omncs qui
lo volc. Lc primc lcction dcl politica cs disdignar lc primc lcction dcl
scicntia cconomic. (Tc rst lcsson ol cconomics is scarcity: Tcrc is
ncvcr cnough ol anything to satisly all thosc who want it. Tc rst lcsson
.6 Part : Politics and Philosophy
ol politics is to disrcgard thc rst lcsson ol cconomics. Citatc in CEI
UpDate, julio dc .).
Ultra lc votantc rationalmcntc ignorantc, nos considcra lc mcmbros
c rcprcscntantcs dc intcrcsscs cconomic spccial, qui ha rationcs pro inlor
mar sc bcn c cxcrccr prcssion supcr lc politicos. Similc in istc rcspccto cs
illcs quc on potc dcnominar hobbyistas, qui, pcr cxcmplo, ccrca rcgula
tioncs plus rigorosc contra suppositc pcriculos in activitatcs dc sport o in
lc dicta dcl hominc mcdic o qui volc plus grandc lundos govcrnamcntal
pro rcccrcas contra lc syndrorna dc immunodccicntia acquiritc (S!A)
o altcrc maladias particular o qui conducc un cruciada contra lc aborto o
pro lc dcrccto dcl lcmina a scligcr. n comprcndc proquc tal intcrcsscs
spccial c tal hobbyistas ha multo plus dc inucntia politic quc lc citatano
ordinari, cujc intcrcsscs cs rclativcmcntc ncgligitc.
voii:icos
Un altcrc classc dc participantcs in lc proccsso politic cs, obvicmcntc, lc
politicos mcsmc. uo scculos rctro in lc Statos Unitc, lc ocialcs public
c lc lcgislatorcs csscva, al minus idcalmcntc, citatanos dc spirito civic qui
occupava lor ocios tcmporarimcntc o solo un partc dcl tcmporc c postca
rctornava a lor lcrmas o altcrc occupationcs normal. (n pcnsa al ancian
romano Cincinnatus c a Gcorgc Vashington.) Hodic lc politica ha dcvc
nitc un prolcssion dc horario complctc c un carricra dcl vita. Lc politicos
ipsc ha dcvcnitc un intcrcssc spccial, con su particular dcsiros c puncto dc
vista. !sto cs un dcl rationcs pro lc proposition dc poncr limitcs a quantc
annos on potc scrvir in un ocio dctcrminatc. (!stc rclorma ccrto non
sanarca omnc dclcctos dcl systcma politic, ma il ha un ccrtc scnso.) !l ha
conictos intcr lc intcrcssc pcrsonal dcl politico c lc intcrcssc gcncral dcl
pais.
Lc politicos ha brcvc horizontcs dc tcmporc c vision rcstringitc como
in un tunncl. Como mcntionatc, illcs cxploita lc ignorantia dcl votantc
ordinari. Pro lc publicitatc c probabilcmcntc anquc pro un scnso dc amor
propric c dc importantia, illcs tcndc a invcntar idcas brillantc c ccrcar
implcr los pcr lc lortia dcl lcgc. n pcrvcni a pcnsar dcl govcrnamcnto
como Fcc 8cncc. n glissa a pcnsar quc si aliquc cs bon o dcsirabilc, lc
govcrnamcnto dcbc providcr o promovcr o subsidiar lo. Si aliquc cs mal,
lc govcrnamcnto dcbc supprimcr o discoragiar lo. n glissa a attribucr
istc rcsponsibilitatcs spccialmcntc al govcrnamcnto national, oblidantc
quc sub lc Constitution amcrican su potcrcs cs strictcmcntc limitatc c
Chapter zo: Elementos del Economia Politic .,
quc lc plus grandc partc dcl potcrcs c rcsponsabilitatcs cs rcstringitc al
cinquanta Statos c su subdivisioncs politic c al populo mcsmc. n tcndc
a pcnsar quc opposition a un proponitc action dcl govcrnamcnto national
cs opposition al bcn ipsc c conscntimcnto al mal ipsc.
xcmplos dc bcncs c malcs quc lc govcrnamcnto dcbc promovcr o
rcrncdiar, sccundo lc caso, listatc in nullc ordinc spccial, cs: cducation,
rcpastos pro inlantcs, systcmas dc pcnsion, drogas, pornographia, disci
mination intcr lc racias c altcrc manilcstationcs dcl pcnsamcnto pauco
nobilc, considcration spccial pro pcrsonas con handicaps corporal o mcn
tal, lc congcdo ab lc cmplco in caso dc problcmas lamilial, lc sccuritatc
physic in lc cmplco c in lc sport, prcscrvation dc tcrras humidc, c lc sup
positc altc cultura in lc artcs, tclcvision, c radio. !n martio dc ., pcr
lc posta, lc assi dcnominatc Gcntc pro lc \ia Amcrican (Pcoplc lor thc
Amcrican Vay) mc ha invitatc a inrolar mc in lc battalia contra lc ccn
sura (join in thc battlc against ccnsorship)pcr contribucr moncta, il
va sin diccr. Lc ccnsura in illc appcllo sc rclcrc al propositioncs pro dis
continuar lc subsidios dcl govcrnamcnto national al tclcvision.
n sc rcmcmora rarmcntc dcl Lcgc dc Conscqucntias Non !ntcnditc.
n non da dcbitc attcntion a ccctos latcral non dcsiratc c a altcrnativas
al action govcrnamcntal.
!stc gcncralisationcs rc brcvc horizontcs, lcgislation dc idcas suppositc
brillantc, c vision dc tunncl cs documcntatc in libros dc Jamcs L. Paync,
Robcrt Higgs, c Richard pstcin c in studios caso pcr caso dcl systcma
politic in lc Statos Unitc, c spccialmcntc dcl Congrcsso, studios scribitc
pcr jornalistas, cmplcatos in lc ocios al Collina dcl Capitolio in Vashing
ton, c altcrc proximc obscrvatorcs. !o rccommcnda Alan hrcnhalt, Te
United States of mbition, John Jacklcy, Hill Fat, c ric Fcltcn, Te Fuling
Class.
nuvv~ucv~:vs v v~v:iciv~x:vs ix vvocvssos ~i ivcv
Lc thcoria dcl sclcction public cxplora lc positioncs c inccntivos spccial
anquc dcl burcaucratcs. Mcsmo si su motivation cs purmcntc lc bcn dcl
publico, un burcaucratc sapc plus dcl nobilc mission dc su propric burcau
quc dc altcrc usos, public c privatc, dcl moncta c rcssourccs ncccssari. !llc
volc incrcmcntar lc grandor c lc budgct dc su burcau. Un burcau tcndc a
lormar alliantias intcr sc, lc scctor privatc acctatc, c lc committccs parla
mcntari cargatc con su supcrvision. Totc isto contribuc al crcscimcnto dcl
govcrnamcnto.
. Part : Politics and Philosophy
n dcbc considcrar lc situationcs spccial anquc dc advocatos, litigan
tcs, judiccs, c juratos. Lc proccssos dc lcgc pro trahcr judicamcntos nan
ciari ab tascas prolundc dcvcni ancora un manicra dc abusar lc govcr
namcnto ad in un organo dc rcdistribution dc ricchcssas, mcsmo dum
impcdir lor crcation.
ixvx~c:i:ubvs bvi vvocvsso bv:ocv~:ic
Mcsmo si il cs dcsirabilc implcmcntar lc prclcrcntias dcl populo, on
constata quc lc mcchanismo dcmocratic los rcgistra pauc accuratcmcntc.
n parla lrcqucntcmcntc dcl lallimcntos dcl proccsso dcl mcrcato cco
nomic. A causa dc tal appcllatc cxtcrnalitatcs, lc pcrsonas qui dccidc lc
natura c cxtcnsion dc varic activitatcs non dcbc prcndcr in considcration
totc lc costos c bcnccios. n mira al govcrnamcnto pro rcmcdiar tal
situationcs.
Alora, lc lallimcntos dcl proccsso dcmocratic cs ancora plus gravc.
ccisioncs lacitc sin adcquatc comparation dc costos c bcnccios cs
ancora pcjor. !sto sc cxplica non solo pcr lc considcrationcs jam indicatc
supcr lc positioncs dc individuos ma anquc pcr ccrtc tcchnicalitatcs. Plurc
paradoxos dc votation cs bcn cognoscitc. n construc cxcmplos con lis
tas monstrantc lc ordincs in lc qualcs lc votantcs o gruppos dc votantcs
prclcrc lc politicos o candidatos altcrnativc. Sccundo lc dctalios dcl pro
ccsso, on dcmonstra como un politica o candidato con minus appoio quc
un altcrnativa potc nonobstantc prcvalcr. (Pcr cxcmplo, supponc quc plus
dc mcmbros dcl clcctorato o dcl lcgislatura prclcrc lc option al option B
c anquc un majoritatc prclcrc option B al option C. Logicamcntc, pcr lc
transitivitatc dc prclcrcntias, on pcnsarca quc lc option C pcrdc, ma il
cs bcn possibilc quc illo gania.)
!o non ha lc tcmporc pro prcscntar tal cxcmplos in dctalio. !o mcn
tionara solo alicun phcnomcnos similc. Uno cs lc phcnomcno dc mino
ritatcs govcrna (assi appcllatc pcr Robcrt ahl): ni lc majoritatc ni lc
minoritatc, ma minoritatcs, plural, govcrna. Typicamcntc, lc majori
tatc in lavor dc un particular candidato o partito cs un coalition dc divcrsc
minoritatcs, cata un con su dcsiros particular. !l potc lacilcmcntc cvcnir
quc un particular projccto dc lcgc cs adoptatc contra lc dcsiros dc un majo
ritatc dcl populo o dcl lcgislatorcs proquc su prclcrcntias supcr istc parti
cular projccto cs rclativcmcntc dcbilc c illo lorma partc dc un pacchctto
asscmblatc pcr implicitc or cxplicitc commcrcio in votos. Post toto, lc poli
ticos cs intcrprcnditorcs in qucsta dc votos, c illcs lunctiona pcr asscmblar
Chapter zo: Elementos del Economia Politic .
coalitioncs pro scrvir un multiplicitatc dc intcrcsscs spccial cujc dcsiros,
anquc contra illos dcl population in gcncral, cs rclativcmcntc intcnsc.
!stc paradoxo dc minoritatcs govcrna cs un aspccto dcl conlusion
dc qucstioncs o thcmas in lc proccsso politic. Rarmcntc scligc lc votan
tcs intcr distinctc c clar accostamcntos a cata singulc qucstion. Plus tosto
illcs dcbc scligcr intcr pacchettos dc positioncs mal dcnitc rc un varictatc
dc qucstioncs. !n plus, lc candidatos c partitos politic cvita lormular su
positioncs c pacchcttos dc positioncs inncccssarimcntc clarmcntc proquc
illcs cs anxiosc dc non alicnar lc clcctorcs qui potcrca csscr pcrditc pcr
clar positioncs rc singulc qucstioncs. 8rcvcmcntc, lc candidatos c parti
tos ha rationcs pro conlundcr lc qucstioncs. !l ha un tcndcntia vcrso un
mal dcnitc ccntro dcl cammino, un position ccntristic. proquc on cvita
clar lormulationcs in lc proccsso politic, lc location dc istc ccntro otta al
dcriva trans lc annos. !llo quc sc considcra rcalistapoliticamcntc pos
sibilc otta al dcriva, c lc populo ha pauc opportunitatc a dctcrminar lc
rcsultato a longc tcrmino.
iv ~:ni:iox vxcvssivv bvi covvvx~:vx:o
Partialmcntc a causa dc istc manco dc prccision, lc participantcs in lc
proccsso politic non ha inccntivos pro ccrcar comparationcs accuratc dcl
bcnccios c costos dc programmas govcrnamcntal. Lc dccits chronic dcl
budgcts govcrnamcntal in lc Statos Unitc c a vcr diccr in lc plus grandc
partc dcl paiscs cs un grandc cxcmplo c conscqucntia dc istc manco dc
inccntivos appropriatc c lc lragmcntation dc rcsponsabilitatc.
c plus in plus on considcra lc govcrnamcnto como mcchanismo dcl
rcdistribution, c non solo pcr un rctc dc sccuritatc social contra lc grandc
c nonprcvisibilc inlortunitatcs dcl vita. Lc litigationlc avidc rccurso al
proccsos al lcgccs un notc cxcmplo. Lc notion dc rcsponsabilitatc nan
ciari pro productos allcgatc csscr dclcctuosc sc ha cxpanditc quasi in lc
notion quc ncmo dcbc surcr un mal lortuna sin quc alicun altcrc paga
lc cxpcnsas, rccompcnsation, c lrcqucntcmcntc anquc pcnalitatc. n da
attcntion inadcquatc al ccctos supcr lc disposition dc laccr innovationcs
c currcr riscos in intcrprisas industrial c commcrcial.
n non considcra quc lc activitatc govcrnamcntal in istc varic cam
pos potc obstrucr altcrnativas mclior. Si lc govcrnamcnto non sc habcva
inmiscitc, qui sapc lo quc intcrprcnditorcs privatc habcrca invcntatc in su
loco: n dcbc rcmcmorar sc dc lo quc Frdric 8astiat (.c..c) scri
bcva supcr lo quc on vidc c lo quc on non vidc. Si lc govcrnamcnto ccssava
ac Part : Politics and Philosophy
bloccar lc via, altcrnativas mclior potcrca disvcloppar sc (bcn quc, conlcs
scmcntc, con dicultatcs transitional, quc sc dcrivarca dcl involvimcnto
initial dcl govcrnamcnto).
!l cs ironic quc nos nos ha habituatc a cxpcctar tanto dcl govcrnamcnto,
vistc lc tristc historia dc su cxccssivc ambitioncs. Lc chronic dccit govcr
namcntal ducc a cxpcctar un quasircpudiation dcl dcbito govcrnamcntal
o quasibancarupta dcl govcrnamcnto. !o dicc quasi proquc isto cvcnira
non apcrtcrncntc ma pcr lc collapso inationari dcl dollar. !o non dicc quc
isto cvcnira jam intra pauc annos, ma nalmcntc. il cs thcoricamcntc
possibilc quc lc govcrnamcnto cambia curso a bon tcmporc.
coxciusiox
Mi conclusion cs: Nos non dcbc lassar nos dupar pcr irrccxivc laudcs dcl
dcmocratia. Nos dcbc guardar lc govcrnamcnto, mcsmo govcrnamcnto
dcmocratic, con un oculo rcalistic. Nos dcbc prcstar attcntion rc quantc
aspcctos dcl vita incargar al govcrnamcnto. Rc lc luturo, il ha mcsmo ali
cun rationcs pro spcrantia. Un cs lc comprcnsion dcl govcrnamcnto c dcl
cconomia politic quc crcscc in lc mundo acadcmic, gratias spccialmcntc al
laborcs dcl Schola dc Sclcction Public, c quc potcrca nalmcntc prcvalcr
in lc grandc publico. Mcsmo lc pubtico ordinari comcncia dcvcnir sagc
al trucos dcl govcrnamcnto, quc, como dicc Harry 8rown, candidato pro
lc nomination prcsidcntial dcl Partito Libcrtari in lc Statos Unitc, pcrdc
spatio pro manovrar.
cn~v:vv +
!s Tcrc a 8ias Toward
vcrrcgulation:

wn~: is :oo :ucn covvvx:vx:-

ltcn it is appropriatc to considcr thc qucstion ol govcrnmcnt rcgulation
industry by industry or problcm by problcm, locusing on spccic lacts.
Hcavcn knows thcrc has bccn cnough ol thc oppositc: adopting rcgula
tions lighthcartcdly, as il good intcntions wcrc justication cnough. n
thc othcr hand, somctimcs it is appropriatc to stcp back lrom a narrowly
lactual locus and considcr a broadcr qucstion. Prcoccupation with thc
immcdiatc and spccic is part ol thc problcm with govcrnmcnt action.
.
Abroadcr vicwsuggcsts that our political systcmharbors a bias toward
ovcractivity. Rcgulation is just onc ol scvcral things that govcrnmcnt docs
probably too much ol. Such a bias, il it docs cxist, argucs lor scckingor
rcstoringconstitutional rcstraints on rcgulatory activity and lor not lct
ting cach particular issuc bc dccidcd on its own narrow apparcnt mcrits.
cspitc thc scorn ol hardnoscd positivists, human rights bclong in thc
discussion.
Strictly spcaking, pcrhaps, what argucs lor rcstraint is not an incon
tcstablc bias toward too much rcgulation but a structurc ol govcrnmcnt

FromFights and Fegulation, cds. Tibor R. Machan and M. 8rucc Johnson (San Fran
cisco and Cambridgc, Mass.: Pacic !nstitutc lor Public Policy Rcscarch and 8allingcr,
.), .a6.
.
As F.A. Hayck notcs, wc arc not lully lrcc to pick and choosc whatcvcr combination
ol lcaturcs wc wish our socicty to posscss, or to . . . build a dcsirablc social ordcr likc
a mosaic by sclccting whatcvcr particular parts wc likc bcst. Yct this idca sccms to bc
intolcrablc to modcrn man. Tc suggcstion draws scorn that unwantcd dcvclopmcnts may
ncccssarily stcm lrom carlicr dccisions. ! am myscll now old cnough, Hayck continucd,
to havc bccn told morc than oncc by my cldcrs that ccrtain conscqucnccs ol thcir policy
which ! lorcsaw would ncvcr occur, and latcr, whcn thcy did appcar, to havc bccn told by
youngcr mcn that thcsc had bccn incvitablc and quitc indcpcndcnt ol what in lact was
donc (.,, pp. 6c).
a.
aa Part : Politics and Philosophy
dccisionmaking in which prospcctivc costs and bcncts cscapc accuratc
conlrontation. Tc rcsult may bc too much rcgulation in somc dircctions
and, in somc scnsc, too littlc in othcrs. rrors ol omission do not canccl
out crrors ol hypcractivity, though, and a casc lor rcstraint rcmains.
Vhat might thc idcal amount ol govcrnmcnt mcan: vcn without
bcing ablc to say (and without lacing thc anarchists challcngc to any gov
crnmcnt at all), onc can still rccognizc aspccts ol dccisionmaking proccsscs
that tilt thc outcomc toward too much govcrnmcnt. Somc uttcrly lamil
iar lacts suggcst this conclusion. Admittcdly, ! may havc ovcrlookcd somc
powcrlul and cvcn ovcrriding biascs working in thc oppositc dircction. As
a contribution to discussion, though, ! rcport thc biascs ! scc and challcngc
thc rcadcr to cxplain any oppositc oncs that might ovcrridc thcm.
vv~c:vx:vb bvcisioxs ~xb ~ccio:vv~:vb ~c:ivi:ivs
Almost cvcryonc who plays a part in govcrnmcntal dccisionmaking, lrom
thc avcragc citizcn on up, has a lragmcntary vicw. No onc has, or has rca
son to scck, a lull vicw ol thc prospcctivc costs and bcncts ol a contcm
platcd activity. ( Just onc kind ol rclativcly spccic and obvious cxamplc
conccrns lcdcral sharing in thc costs ol many statc and local projccts, with
thc rcsult that thc local authoritics arc dcciding on cxpcnditurc ol what,
lrom thcir points ol vicw, arc tcnccnt dollars or ltyccnt dollars.)
Nothing in govcrnmcnt corrcsponds to thc markct proccss ol spontancous
coordination ol dcccntralizcd dccisions, nothing corrcsponds to its way ol
bringing cvcn rcmotc considcrations to thc attcntion ol cach dcccntralizcd
dccisionmakcr in thc lorm ol priccs.
a
Knowlcdgc, authority, inccntivcs,
and rcsponsibility arc largcly lragmcntcd and uncoordinatcd in thc polit
ical and govcrnmcntal proccss. Farrcaching and longrun conscqucnccs
ol dccisions rcccivc skimpy attcntion.
nc aspcct ol this lragmcntation, notcd by Samucl 8rittan, is that
thc cost ol a political dccision is bornc by pcoplc othcr than thc votcr. A
customcr buying a suit or a washing machinc has to bcar thc cost himscll.
Somconc voting lor a candidatc who makcs somc attractivc promisc, how
cvcr, usuallyand rcalisticallyassumcs that othcrs will bcar thc cost
(8rittan .,, pp. .6.66).
a
bviously, ! havc in mind Hayck ..
l coursc, cxtcrnalitics, transactions costs, and all that kccp thc pricc systcm lrom opcr
ating with all imaginablc pcrlcction. 8ut what is a lringc impcrlcction ol thc markct
cconomy is a ccntral charactcristic ol govcrnmcntal dccisionmaking.
Chapter z,: Is Tere a Bias To.ard O.erregulation? a
Any numbcr ol govcrnmcnt activitics might cach sccm dcsirablc by
itscll in thc abscncc ol most ol thc othcrs, but it docs not ncccssarily lol
low that thc wholc agglomcration ol thcm is also dcsirablc. To supposc
so would bc to commit thc lallacy ol composition, ol supposing that any
thing truc ol thc part or individual must also bc truc ol thc wholc or group.
Adding any particular govcrnmcnt lunction to all thc othcrs complicatcs
thc tasks ol choosing, opcrating, and supcrvising thosc othcrs.

Tc morc
lunctions thc govcrnmcnt takcs on and thc morc complicatcd thcy arc,
thc morc thcy must bc lclt to thc cxpcrts, and thc pcoplcs clcctcd rcprc
scntativcs, lct alonc thc pcoplc thcmsclvcs, arc lcss ablc to cxcrcisc closc
and inlormcd control. Tc clcctcd rcprcscntativcs, who supposcdly should
monitor thc cxpcrts, must largcly dcpcnd on thcm lor inlormation, and
thc cxpcrts havc thcir own spccial vicws about thcir work.
Particular govcrnmcnt programs, and cspccially agglomcrations ol
thcm, havc rcmotc, unlorcsccn conscqucnccs. Tc currcnt ination is onc
cxamplc. 8urgconing programsincluding, ironically, oncs intcndcd to
hclp makc thc citizcns cconomically sccurchavc lcd to lcdcral dcc
its, govcrnmcnt borrowing, upward prcssurcs on intcrcst ratcs, Fcdcral
Rcscrvc actions to rcstrain thcir risc, conscqucnt cxccssivc cxpansion ol
thc monctary basc and moncy supply, pricc ination, lurthcr allowancc
lor ination in intcrcst ratcs, lurthcr shortrun corts to rcstrain thcir
risc by monctary cxpansion, cstablishmcnt ol a momcntum in priccs and
wagcs such that an antiinationary turn in monctary policy would not
bring quick succcss but would bring a rcccssion, monctary accommoda
tion ol thc rising wagcs and priccs, and so on. Tc rcsult is all thc insccurity
that ination brings, and all thc disruption ol cconomic calculation. Astill
morc pcrvasivc cxamplcso onc might argucis that thc accumulation
ol govcrnmcnt activitics and thcir rcpcrcussions brings a drilt in thc wholc
charactcr ol our social, political, and cconomic systcm, yct that drilt was
ncvcr squarcly laccd and dccidcd on as a political issuc.
:nv v~w ~xb :nv c~sv vov ii:i:s
vcrrcgulation stcms lrom a basic aw in our political systcm closcly
rclatcd to thc aw notcd in currcnt argumcnts lor a constitutional limit
to govcrnmcnt taxing or spcnding.

8ccausc ol its closc rclation to thc

Scc, in part, Fricdman .6a, p. a. !n thc tcchnical jargon, govcrnmcnt activitics havc
cxtcrnal discconomics.

nc prcscntation ol thc diagnosis appcars in Rickcnbackcr and Uhlcr .,,, chap. ..

a Part : Politics and Philosophy
prcscnt topic, thc ccntral argumcnt is worth rcvicwing. Tc altcrnativc
to such a limitlctting total spcnding cmcrgc as thc sum ol individu
ally cnactcd appropriationsis biascd upward. Somc pcoplc arc cspccially
intcrcstcd in govcrnmcnt spcnding on rivcrs and harbors and military
installations, othcrs in spcnding lor schools and tcachcrs, othcrs in hous
ing subsidics, and still othcrs in cncrgyrcscarch contracts. 8ccausc ol its
spccial intcrcst, cach group is wcll inlormcd about thc govcrnmcnt action
it wants and has argumcnts lor it rcadily at hand. Furthcrmorc, sincc thc
bcncts ol its lavoritc program will bc rclativcly conccntratcd on itscll
rathcr than dilutcd ovcr thc cntirc population, its mcmbcrs havc inccn
tivcs to incur thc troublc and cxpcnsc ol prcssing thc groups vicws on thc
lcgislators. A candidatc or lcgislator, lor his part, knows that cach spccial
intcrcst carcs intcnscly about what conccrns it and lcars that losing thc
support ol only a lcw such intcrcsts could cost him clcction or rcclcction,
so hc tcnds to bc rcsponsivc.

Tc links bctwccn particular govcrnmcnt cxpcnditurcs and particular

tax collcctions arc loosc. No onc rcally knows who will ultimatcly pay lor a
govcrnmcnt program. Tc votcr can drilt into thinking that somconc clsc,
pcrhaps thc rich or thc big corporations, will pay or ought to pay. (Not
cvcn cconomists knowwho ultimatcly pays thc corporatc incomc tax.) !t is
casy to drilt into thinking that thc govcrnmcnt gcts rcsourccs out ol somc
sort ol lourth dimcnsion. Politicians will not hastcn to disabusc votcrs ol
this scal illusion. Nowadays, with taxcs and ination bcing what thcy
arc, this illusion is cvaporating, but thc vcry lact that thc prcscnt statc ol
aairs could dcvclop suggcsts that somc such illusion has bccn at work
until rcccntly.
An artloving journalist has unwittingly illustratcd thc sort ol attitudc
that cxpands govcrnmcnt activityand thcrcby also illustratcd thc logic
ol thc sort ol limit hc was complaining against (Sanswcct .,, p. ..). Statc
and local govcrnmcnt actions takcn altcr passagc ol Proposition . in Cali
lornia rcvcal, hc complaincd, that many ocials scc thc arts as an cxpcnd
ablc clitist pursuit. Tc rcccnt trcmcndous growth in public lunding lor
thc arts had suddcnly bccn thrown into rcvcrsc. A 6c pcrccnt slash in thc
budgct ol a statc agcncy making grants to art programs and individual
artists had lowcrcd Calilornia to th placc among all statcs in pcr capita
lunding lor thc arts. Yct, hc continucd, thc arts pay thc wagcs ol hundrcds

Scc Singlc!ssuc Politics, in Ne.s.eek .,, pp. 6c, and, on congrcssmcns lccl
ings ol insccurity, scc Mann .,.
Chapter z,: Is Tere a Bias To.ard O.erregulation? a
ol thousands ol pcoplc, dircctly and indircctly. How many rcstaurants
ncar thc Music Ccntcr in downtown Los Angclcs would rcmain opcn
without thc audicnccs that thc Ccntcr draws: Tc arts ocr plcasurc and
cntcrtainmcnt and stimulation. Statc and local govcrnmcnts havc madc
too much ol a commitmcnt to thcm to back out now without scriously
rctarding thcir progrcss. A socicty that considcrs it a lrill to nourish its
soul is in dccp troublc. !n rcply, a rcadcr askcd: Vhat kind ol trou
blc can bc cxpcctcd by a socicty that dcpcnds on govcrnmcnt to nour
ish its soul: (8cavcr .,, p. .a). Tc journalist tacitly acccpts thc notion
that not to nancc particular activitics by taxcsby compulsionis to
bc ncglcctlul ol thcm. Also notcworthy is his misusc, rcgarding down
town Los Angclcs, ol thc ovcrworkcd thcorctical argumcnt about cxtcr
naliticshcrc, spillovcr bcncts.
Much thc samc points that apply to spcnding apply also to rcgulation.
Somc cconomic intcrcst groups bcnct lrom rcgulation (pcrhaps it pro
tccts thcm against compctition) and automatically havc thc inlormation
and inccntivcs to prcss candidatcs and lcgislators lor what thcy want. Tc
lattcr, lor thcir part, arc rationally morc rcsponsivc to spccialintcrcst prcs
surcs than to thc gcncral intcrcst ol thc avcragc votcrs, who arc rationally
ignorant and apathctic about thc dctails ol public policy. Furthcrmorc,
citizcns who idcntily thcmsclvcs with somc causcprotccting thc cnvi
ronmcnt, cracking down on hcalth and salcty hazards, dcvcloping cxotic
cncrgy sourccs, lostcring thc arts, rcmcdying supposcdly unjust incqual
itics, supprcssing (or lacilitating) abortion, improving thc cating habits
ol school childrcn, or whatcvcrtakc on thc political charactcrs ol spc
cial intcrcsts and, likc thcm, tcnd to havc disproportionatc inucncc with
politicians or thc rclcvant burcaucrats. Tc much discusscd ncw class
ol activist intcllcctuals and publicists bclongs in thc story. Lcgislators,
burcaucrats, and othcr mcmbcrs ol thc govcrnmcnt thcmsclvcs havc pcr
sonal stakcs in govcrnmcnt activism, though many ol thcm arc no doubt
sinccrcly motivatcd to do good as thcy conccivc ol doing good in thcir
own spccial nichcs in lilc.
:v:noboiocic~i ixbivibu~iis: ix ~x~ivzixc
covvvx:vx:
Nonc ol this amounts to casting aspcrsions on thc moral charactcrs ol
thc pcoplc who takc part in dcciding on govcrnmcnt activitics. ! am sim
ply drawing implications lrom thc lact that thcsc pcoplc dccidc and act
a6 Part : Politics and Philosophy
within particular lramcworks ol inlormation, inccntivcs, tcsts ol pcrlor
mancc, and rcwards.
6
conomists, long succcsslul with mcthodological
individualism in thcir own cld, arc now applying that approach to undcr
standing howpcoplc bchavc in thc govcrnmcntal lramcwork. Vc, thc ana
lysts, projcct oursclvcs into thc rolc ol busincssman, consumcr, burcaucrat,
lcgislator, political candidatc, or whocvcr it is whosc dccisions and actions
wc arc trying to undcrstand. Vc considcr his motivations and inccntivcs,
pcrhaps cvcn including thc circumstanccs accting his scllcstccm, as wcll
as thc opportunitics and constraints hc laccs. Vc can draw rclcvant inlor
mation lrom our own pcrsonal thoughts, actions, and cxpcricnccs. Such
an approach docs not dcpcnd on thc prolunditics ol psychology. !t draws
inlcrcnccs lromlamiliar lacts about human naturc and about dccisionmak
ing situations.
civcu:s:~xcvs ~xb ibv~s ov :nv ~vvv~cv vo:vv
Tc avcragc votcr is thc votcr considcrcd at random, othcrwisc than as
a mcmbcr ol any spccial intcrcst group. (To takc account ol nonvoting,
pcrhaps thc tcrm should bc avcragc citizcn.) Hc docs not automatically
posscss thc inlormation nccdcd to wcigh thc pros and cons ol morc or lcss
spcnding on cach spccial groups lavoritc projcct. Furthcrmorc, obtaining
such inlormation would cost him moncy, timc, and troublc bcttcr dcvotcd
to othcr purposcs. Hc prots morc lrom a day spcnt lcarning thc strong
and wcak points ol dicrcnt makcs ol car or rclrigcrator, whcn hc wants
to buy a ncw onc, than lrom a day spcnt trying to lcarn thc advantagcs
and disadvantagcs ol incrcascd govcrnmcnt spcnding on aircralt carricrs
or urban rcncwal.
Acquiring and acting on inlormation about public issucs has a low
payo bccausc it is a public good. Tc standard rationalc lor having any
govcrnmcnt at all is that it is ncccssary to providc public goods, such as
national dclcnsc, policc protcction, and thc lcgal systcm. Tcir bcncts
cannot bc conncd to pcoplc who voluntarily contributc moncy or cort
lor thcm. ach pcrson might as wcll sit back and cnjoy a lrcc ridc on
6
Kcnncth N. Valtz makcs an analogous point, which illuminatcs this onc, in his
Teory of International Politics (.,). Almost rcgardlcss ol thc intcrnal charactcr ol its
rcgimc, wc can say much about howa country bchavcs in thc arcna ol intcrnational politics
in vicw ol thc situation conlronting itin particular, according to whcthcr or not it is a
dominant powcr and, il it is, whcthcr it is onc ol scvcral or onc ol only two dominant
powcrs.
Chapter z,: Is Tere a Bias To.ard O.erregulation? a,
thc cxpcnditurcs or corts ol othcrs. So govcrnmcnt sclls public goods
compulsorily, lor taxcs. 8ut no such solution, impcrlcct as it may bc, has
bccn lound lor thc public good ol monitoring thc govcrnmcnt itscll.
,
!l
an avcragc votcr should go to thc troublc ol kccping inlormcd and polit
ically activc, most ol thc bcncts, in thc lorm ol soundcr policy, would
accruc to othcrs. Vhilc rcaping only a vcry minor sharc ol thcsc bcncts,
hc would havc to bcar all ol his own costs. Hc has about as littlc rca
son to incur thcm as hc would havc to stop driving his car to hold down
air pollution. Hc has littlc inccntivc to work lor what is in thc gcncral
intcrcst.

xhorting citizcns to study thc issucs and takc an activc rolc in politics
largcly ignorcs thcsc lacts. !t tacitly rcgards conccrn with govcrnmcntal
aairs as a noblc activity holding a spccial claimon cach citizcns attcntion.
Actually, badgcring him to divcrt his moncy, timc, and cncrgy lrom work
or rccrcation to political studics that pcrplcx or borc him will contributc
littlc to wisc policymaking. !t is an imposition, too, il holding down thc
rangc ol govcrnmcnt dccisions in thc rst placc could havc hcld down
thcsc dcmands on his attcntion.
vcn il, implausibly, thc votcr should bccomc wcll inlormcd and votc
accordingly, hc cannot cxprcss himscll on cach programscparatcly. !l hc is
voting on issucs at all whcn choosing bctwccn candidatcs, hc is voting on
policy positions all jumblcd togcthcr in vagucly spccicd packagcs, along
with thc candidatcs actual or advcrtiscd pcrsonalitics. Furthcrmorc, his
own monitoring ol thc govcrnmcnt through inlormcd voting (and lob
bying) would do littlc good unlcss othcr votcrs joincd him. Hc is only
onc out ol many, and his own inlormcd votc would hardly bc dccisivc
lor thc outcomc ol an clcction or lor thc dccision on somc program. !t
is rational lor him to contcnt himscll with supcrcial notions about clcc
tion issucs, voting lor a party labcl out ol habit or lor a wcllpackagcd
,
Tc conccpt ol monitoring as a public good is duc, ! bclicvc, to Roland McKcan.

Tc wcakncss ol pcrsonal inccntivcs to scck collcctivc rathcr than individual bcncts

is a lcading thcmc ol Mancur lson, Jr., Te Logic of Collecti.e ction (.6). Tc lrcc
ridc motivation ol thc avcragc votcr also charactcrizcs thc individual mcmbcr ol a spc
cial intcrcst group. !t opcratcs, though, to a lcsscr dcgrcc. Tc group mcmbcr bclongs
to a smallcr group with a morc intcnsc and conccntratcd intcrcst than thc avcragc
votcr docs, his own intcrcst is lcss dilutcd by bcing sharcd with othcrs. Furthcrmorc, as
lson notcs, an organizcd intcrcst group may bc ablc to command thc support ol its
mcmbcrs by supplying scrviccs ol valuc to thcm individually, such as busincss inlorma
tion and othcr tradcassociation scrviccs, in addition to its collcctivcly dcsircd lobbying
lunction.
a Part : Politics and Philosophy
pcrsonality out ol whim.

His position is dicrcnt lrom that ol pcoplc

who would rcap conccntratcd bcncts lrom particular programs and havc
good prospccts ol promoting govcrnmcnt acti.ism in thcir lavor. Avcragc
and spccialintcrcst votcrs alikc, though, cnjoy an apparcnt lrccdom lrom
pcrsonal rcsponsibility in thc voting booth, cach is acting anonymously
along with many othcrs.
!t is doubtlul that busincssmcn, as such, havc any strong intcrcst in
working to limit govcrnmcnt intcrvcntion. Just bccausc thcy arc thc kcy
actors in a lrccmarkct cconomy, it docs not lollow that thc individual
busincssman nds it in his scllintcrcst to work to prcscrvc such an ccon
omy. 8usincssmcn can copc with rcgulation. !ts burdcns may not bc much
worsc than thosc ol compctition, which, anyway, somc kinds ol rcgula
tion rcstrain. Tc prospccts lor busincssmcn ol ordinary ability rclativc
to thc prospccts ol thc most dynamic cntrcprcncurs may cvcn bc bcttcr
in a highly rcgulatcd cconomy than undcr substantial laisscz lairc, cnjoy
ing thc quict lilc may bc casicr. Hcncc thc pointlcssncss ol busincssmcn
cxhorting cach othcr to do a bcttcr job ol communicating thcir casc to thc
public. 8usincssmcn as such, rathcr than simply as human bcings, arc not
thc main bcncciarics ol a lrcc cconomy.
Vith littlc pcrsonal inccntivc rcally to undcrstand public aairs, thc
avcragc votcr tcnds to work with idcas that arc in thc air. Tc attitudc docs
sccm to prcvail widcly thcsc days that il anything is badpornography, or
small childrcns cating mcdicinc that thcy shouldnt havc, or junk lood in
thc schoolsthcn it is thc govcrnmcnts job to supprcss it. Similarly, il
anything is goodhousing, arts, ccctivc drugs, good nutritionthcn
govcrnmcnt ought to promotc or subsidizc it. Tis attitudc parallcls thc
doctrinc ol altruism, which rcccivcs widc lip scrvicc, thc doctrinc that onc
ought to bc primarily conccrncd with thc (supposcd) intcrcsts ol othcr
pcoplc. !t is wickcdly sclsh, thcn, to opposc a program lor doing good,
cvcn il it docs cost tax moncy. (Govcrnmcnt programs in oncs own spc
cial intcrcst can rcadily bc rationalizcd in altruistic tcrms, as good lor othcr
pcoplc also. !t is a routinc thcorctical cxcrcisc lor cconomists to concoct
cxtcrnality argumcnts lor govcrnmcnt intcrvcntions.) Tc altruist doc
trinc mcshcs wcll with thc idca that it is slightly indcccnt to bc a rightist
and thc prcsumption that thc dcccnt and humanc position on any issuc is
at lcast a littlc lclt ol ccntcr (llul .6, pp. a.a.).

Rational ignorancc is a lcading thcmc ol Anthony owns, n Economic Teory of

Democracy (.,).
Chapter z,: Is Tere a Bias To.ard O.erregulation? a
Tc psychological roots
.c
ol intcrvcntionismincludc pcoplcs tcndcncy
to bclicvc what thcy want to bclicvc and thc rcadincss ol politicians to
cxploit this tcndcncy. !n political argumcntation, plausibility counts. Mcrc
slogans and namccalling somctimcs work. Tc acccptancc ol mcrcly plau
siblc argumcnts is aidcd by a trait ol contcmporary thought roughly cquiv
alcnt to what F.A. Hayck has callcd scicntism.
..
Just as Chanticlccr
thought his crowing madc thc sun risc, so votcrs and politicians sccm to
think that thcir laws arc what makc good things happcn. Pcoplc arc unac
customcd to concciving ol how good rcsults will occur unlcss thcy arc
cxplicitly sought, thc invisiblc hand is not univcrsally apprcciatcd. Vhcn
a problcm has bccomc politically lashionablc, to suggcst lcaving its solu
tion to privatc initiativc sccms callous.
.a
Action is considcrcd positivc
and thcrclorc good, whilc opposition is ncgativc and thcrclorc bad.
Support lor activism intcrtwincs with thc idca that dcmocracy is a
good thing. Tat idca slidcs into thc bclicl that doing things dcmocrat
ically, that is, through dcmocratic govcrnmcnt, that is, through govcrn
mcnt, is a good thing.
Anothcr rcason lor thc widcsprcad appcal ol govcrnmcnt intcrvcntion
is disrcgard ol thc incomplctcncss ol knowlcdgc and thc costs ol inlorma
tion, transactions, and dccisionmaking in thc public scctor whilc cmpha
sizing such impcrlcctions ol thc privatc scctor. Tacitly, thc govcrnmcnt
is rcgardcd as a philosophcrking, totally bcncvolcnt, omniscicnt, ccicnt,
and ccctivc.
.
Handing ovcr a problcm to such an cntity sccms likc solv
ing it.
svvci~i ix:vvvs:s ~xb svx:nv:ic :~,ovi:ivs
So lar wc havc bccn considcring thc avcragc votcr, his circumstanccs and
attitudcs, and thc appcals dircctcd toward him. Ncxt wc turn to spccial
intcrcsts and thcn to hobbyists. Politicians arc tcmptcd to appcasc cach
.c
Hcrc ! am lalling into tcmptationinto amatcur psychologizingand what lollows
should pcrhaps bc discountcd.
..
His articlcs on Scicntism and thc Study ol Socicty arc rcprintcd in Te Counter-
Fe.olution of Science (Hayck .a, Pt. .).
.a
Scc bclow in thc scction on crowding out.
.
Gcorgc Stiglcr quotcs a pair ol rathcr typical passagcs on thc dclccts ol a privatc
markct cconomy that could rcadily bc ovcrcomc by a socialist cconomy (skar Langc)
or by thc Statc (A.C. Pigou). Tcn hc substitutcs Almighty Jchovah and his Scrcnc
mnipotcncc lor thc words hcrc in quotation markswith amusing and tclling ccct.
Scc Stiglcr .,, pp. ..a... Tc assumption illustratcd is now bcing undcrmincd by thc
application ol mcthodological individualism to thc study ol govcrnmcnt.
c Part : Politics and Philosophy
clamoring intcrcst by hclping it gct what it wants and to compcnsatc thc
othcrs by doing thc samc lor thcm. Undcr thcsc circumstanccs, logrolling
(cxplicit inlcgislaturcs and implicit inpolitical platlorms) asscmblcs major
itics out ol csscntially unrclatcd minoritics. Minoritics rulc
.
(ahl .6,
pp. .a.c)not the minority, but an implicit coalition ol scvcral minori
tics. Supposc that lor cach ol thrcc programs, a pcrccnt ol thc votcrs
lavor it so intcnscly that thcy would votc lor whichcvcr candidatc sup
ports it, rcgardlcss ol his position on othcr issucs. Scvcntyvc pcrccnt ol
thc votcrs opposc cach program, but only mildly. Supposc, lurthcr, that
thc minority lavoring cach ol thc thrcc programs is a distinct group. (To
rccognizc that two or thrcc ol thc groups havc somc mcmbcrs in common
would complicatc thc cxamplc without accting its point.) A candidatc
supporting all thrcc programs would bc clcctcd ovcrwhclmingly and bc
put in a position to work lor thcir cnactmcnt, cvcn though , pcrccnt ol
thc clcctoratc opposcd cach program. Tc samc sort ol implicit logrolling
opcratcs, though lcss clcarly than in this cxamplc, in thc growth ol gov
crnmcnt budgcts. As thc cxamplc suggcsts, by thc way, thc political pro
ccss aords scopc lor political cntrcprcncurship and not just lor passivc
rcsponsc to cxisting dcmands.
Particularly as thc votctrading proccss sprcads out ovcr timc and ovcr
numcrous scparatc ballots, spurious conscnsus bccomcs possiblc. Policy
combinations gct adoptcd that could not havc commandcd a majority il
considcrcd as a wholc. Tc proccdurc ol making dccisions ycar by ycar
lcads to commitmcnts to thc luturc growth ol spcnding that arc not sccn
or not apprcciatcd whcn madc, yct arc hard to rcvcrsc latcr. Furthcrmorc,
thc automatic growth ol rcvcnuc as thc cconomy grows and as ination
procccds, pushing taxpaycrs into highcr brackcts, allows thc govcrnmcnt
to avoid an explicit dccision to raisc taxcs to covcr incrcascd spcnding
(Stcin .,, p. ac).
Tc politics ol abortion illustratcs thc inucncc ol intcnscly conccrncd
minoritics. Tc Calilornia and Massachusctts lcgislaturcs wcrc so cm
broilcd in controvcrsy ovcr public lunding ol abortions in July ., that
thcy lailcd to nish thcir budgct work in timc lor thc ncw scal ycar. A
singlc issuc lought ovcr intcnscly by small but wcllorganizcd groups can
distract politicians attcntion lrom mattcrs ol broad but unlocuscd pub
lic conccrn. Similarly, a vast majority may grumblc about high taxcs, but
its conccrn is so diusc (or has bccn, until rcccntly) that it can scldom
.
Minoritics Rulc is thc titlc ol thc rcprintcd vcrsion ol ahl .6, pp. .a., in
Fcin .6, pp. .a.c.
Chapter z,: Is Tere a Bias To.ard O.erregulation? .
countcrbalancc powcrlul minority prcssurcs working lor spccic spcnd
ing programs (!all Street Journal .,, p. ac).
nonnvis:s
Activists on all sidcs ol thc abortion issuc arc cxamplcs ol what ! call
hobbyists, who cngagc in political study and activity not so much lor
obvious matcrial gain as bccausc thcy havc idcnticd thcmsclvcs with
somc mission or arc sccking an outlct lor thcir cncrgics or a scnsc ol partic
ipation in admirablc causcs. Hobbyists includc pcoplc who want a lcdcral
crash program to curc a discasc that killcd a rclativc, or who havc lost a
child in a boating accidcnt and thcrclorc scck lcdcral rcgulation, or want
subsidics lor art or music, or want prcscrvation ol thc unspoilcd wildcrncss.
Pcoplc acting out ol disintcrcstcd public spirit count among thc hobbyists,
thc tcrm is not mcant disparagingly. Strctchcd a bit, thc tcrm also covcrs
consumcr advocatcs, who, lor thc publicity thcy thrivc on, rcquirc a con
stant supply ol ncw chargcs against ncw villains . . . suitably printcd in thc
hot ink ol outragc (Stiglcr .,, p. .).
8y thc vcry naturc ol thcir hobbics, just as by thc vcry naturc ol spc
cial cconomic intcrcsts, most hobbyists arc prcssing lor morc govcrnmcnt
activity. A bclicl in laisscz lairc or limitcd govcrnmcnt is itscll a hobby lor
somc pcoplc, to bc surc, but it is just onc among a grcat many hobbics, most
ol which do tcnd toward intcrvcntionism. !t is no rcal cmbarrassmcnt lor
this argumcnt that somc intcllcctuals do takc an antiintcrvcntionist stand.
l coursc somc arc libcrtarians, but psychological lactors and aspccts ol
thc dcmocratic proccss makc it dicult lor thcir vicwto prcvail in practicc.
Hobbyists arc charmcd at having onc ccntral locus, Vashington, lor
thcir pcrsuasivc corts and charmcd by thc prospcct ol using thc lorcc
ol govcrnmcnt to impose what thcy want. Succcss sccms casicr along that
routc than along thc routc ol pcrsuading myriads ol individuals voluntarily
to obscrvc, lor cxamplc, strictcr standards ol boating salcty. Hobbyists
sccking cntcrtainmcnt or a scnsc ol participation arc inclincd to want to
bc in lashion. !l altruist and intcrvcntionist doctrincs prcvail, thcy will go
along.
:nv voii:ici~x
Tc politician, to thrivc in his carccr, must rccognizc thc votcrs as thcy
arcthc avcragc votcrs with thcir susccptibilitics, thc spccial intcrcsts and
a Part : Politics and Philosophy
hobbyists with thcir particular conccrns. Likc most pcoplc, hc wants to
think wcll ol himscll, hc wants to think hc is accomplishing somcthing.
His particular mission in lilc is to pcrccivc problcms and gct govcrnmcnt
programs cnactcd to solvc thcm.
.
vcn whcn out ol occ, thc politician
docs not typically strivc to limit thc scopc lor doing good in thc occ
hc hopcs to win at thc ncxt clcction.
.6
!n occ, hc wants to carry lorth
his uncomplctcd programs and continuc scrving thc public bcttcr than his
opponcnts could do.
Publicity is hclplul in thc qucst lor votcs. (So is having patronagc with
which to rcward supportcrs, and to which govcrnmcnt cxpansion con
tributcs.) nc way to gain lavorablc publicity is to bccomc idcnticd with
onc or morc problcms and with proposals lor thcir solutionpollution,
uncmploymcnt, thc urban crisis, thc cncrgy crisis, thc cxpcnscs ol mcdi
cal carc, povcrty, incquality, or whatcvcr. !t may cvcn count as a solution
that thc proposcd lcgislation mcrcly crcatcs a ncw agcncy assigncd to dcal
with thc problcm.
.,
nc rcason lor dclcgating work to rcgulatory agcncics
is that thc lcgislaturc has too much to do to considcr problcms and solu
tions in dctail, lcgislating, along with thc bargaining ncccssary lor it, is
a highcost activity with stccply rising marginal costs (Posncr .,). Fur
thcrmorc, thc vagucncss inhcrcnt in handling a problcmby turning it ovcr
to a ncw agcncy can itscll bc hclplul in lulling possiblc opposition, just as
vagucncss in thc wording ol a proposcd intcrnational agrccmcnt may bc
hclplul in gctting all partics to acccpt it.
Tc individual advocatc ol onc particular bit ol govcrnmcnt cxpansion
has littlc pcrsonal inccntivc to considcr thc cxtcrnal discconomics that
may rcsult in thc lorm ol thc cnhanccd rolc ol inadcquatcly supcrviscd
cxpcrts and thc worscncd dicultics ol monitoring govcrnmcnt. Ncithcr
hc nor thc votcrs will rccognizc any rcsponsibility ol his lor such long
run conscqucnccs. Latcr on, altcr such pscudosolutions havc cnhanccd
thc powcr ol administrators, rcduccd thc rclativc powcr ol thc pcoplc and
.
|T|hc pcoplcs rcprcscntativcs sccm to bc cnchantcd with thc notion that thcy arc
not doing thcir job unlcss thcy arc manulacturing laws (McClcllan .,, p. 66).
.6
Scc 8cnjamin Constant, Cours de Politique Constitutionnelle (...ac), as quotcd in
8crtrand dc Jouvcncl ., p. , and also dc Jouvcncl himscll, p. .c.
.,
Rclcvant hcrc is Amitai tzioni .,a, pp. a, .a.. Hcadcd Got a problcm. . . :
. . . call or writc Tc Grand Shaman, thc articlc notcs pcoplcs propcnsity to look to thc
lcdcral govcrnmcnt lor solutions to all sorts ol problcms. !ts main conccrn, howcvcr, is thc
cmpty, symbolic charactcr ol many ostcnsiblc solutions. Spccchcs arc madc, conlcrcnccs
hcld, commissions appointcd, bills passcd, agcncics cstablishcd, lunds appropriatcd, and
programs launchcd, oltcn doing littlc ol substancc to trcat thc problcms involvcd.
Chapter z,: Is Tere a Bias To.ard O.erregulation?
thcir clcctcd rcprcscntativcs, incrcascd thc dicultics ol monitoring thc
govcrnmcnt, and cxpandcd thc scopc lor court cascs, thcsc unintcndcd
rcsults will hardly bc traccd to and blamcd on thc original sponsors ol thc
lcgislation. Mcanwhilc, thcy gct crcdit lor bcing concerned with problcms.
Politicians and govcrnmcnt ocials tcnd to havc short timc horizons.
Unlikc corporation cxccutivcs, who may hold stock or stock options ol
thcir companics and whosc pcrlormancc tcnds to bc asscsscd and rcportcd
on thc stock markct anyway, govcrnmcnt ocials hold no sharcs ol stock
whosc currcnt priccs might rccct asscssmcnts ol thc long-run consc
qucnccs ol thcir actions, hcncc, shortrun clcctoral conccrns tcnd to prc
vail. How much inccntivc, lor cxamplc, do mayors havc to mount strong
rcsistancc to thc dcmands ol unionizcd city cmployccs: Mayor John Lind
say ol Ncw York took thc attitudc that hc would not bc around in tcn
ycars. Hc thought hc would bc cithcr in thc Vhitc Housc or doing somc
thing clsc, so hc dccidcd to pay pcoplc o with promiscs ol pcnsions that
would comc duc whcn hc was no longcr mayor (8ork .,, p. .).
Tc pcrsonal qualitics usclul in gaining lavorablc publicity and in polit
ical whccling and dcaling arc not likcly to coincidc with thc pcrsonal
qualitics ol a compctcnt, larsightcd, and couragcous statcsman. Ncithcr
arc thc qualitics ol a succcsslul campaigncr, which includc adroitncss in
projccting an appcaling pcrsonality and in clcvcrly stating or obscuring
issucs.
.
Similarly, a compctcnt and dcvotcd public scrvant would havc
rathcr dicrcnt qualitics than a pcrsonally succcsslul burcaucrat, whosc
abilitics might run morc toward cultivating supcriors by promoting thcir
pcrsonal ambitions.
xccptions do occur. Vhy cant a politician scc it as his mission in lilc
to do good by rcsisting and rcvcrsing thc trcnd toward cvcr morc govcrn
mcnt: !l that rcsistancc rcally is in thc intcrcst ol thc avcragc citizcn, why
.
Scc llul .6,, pp. .c..: Tc politician is gcncrally not compctcnt with rcgard to
thc problcms that arc his to solvc, particularly il, as it is now incvitablc, hc has bccomc
a spccialist in political aairs. . . . Tc political lcadcr must bc a politician by tradc, which
mcans to bc a clcvcr tcchnician in thc capturc and dclcnsc ol positions. . . . dcsirc lor powcr
clcarly has priority . . . bccausc hc cannot undcrtakc just and dcsirablc rclorms or guard thc
common good unlcss hc rst obtains powcr and kccps it. . . . Tc two lorms ol politics . . .
dcmand radically dicrcnt pcrsonal qualitics and contrary prcoccupations. To bc a clcvcr
mancuvcrcr in arriving at thc summit is no qualication lor pcrcciving thc common good,
making dccisions, bcing politically cnlightcncd, or mastcring cconomic problcms. Con
vcrscly, to havc thc moral qualitics and intcllcctual compctcncc to bc capablc ol gcnuinc
thought and ol cvcntually putting a gcnuinc political program into opcration in no way
cnsurcs having thc cquipmcnt to rcach thc top.
Part : Politics and Philosophy
cant thc politician both scrvc his scllcstccm and win votcs by campaign
ing on such a platlorm:
Conccivably hc might. 8ut thcsc qucstions, instcad ol rcluting thc
argumcnt about activist biascs, mcrcly notc a possiblc osct. For scvcral
rcasons, this osct is unlikcly to bc strong. (Tc cxccptional politician
to whom thc lollowing rcmarks do not apply stands at a disadvantagc in
winning clcctions and wiclding inucncc.) First, a political carccr would
gcncrally havc bccn lcss appcaling in thc rst placc to a skcptic about
govcrnmcnt than to a man who saw grcat opportunitics in it lor doing
good. pportunitics lor also gaining pcrsonal succcss in that cndcavor
arc grcatcr lor a politician, as lor a burcaucrat, il govcrnmcnt is big and
growing than il it is kcpt small. Sccondly, winning clcctions on a platlorm
ol restricting govcrnmcnt activitics dcpcnds on a grcatcr dcgrcc ol sophisti
catcd undcrstanding among votcrs than thcy arc likcly to havc (although
hopc on this scorc is now cmcrging). vcn il a politician is conccrncd
with cnlightcning thc citizcns ovcr thc long run, hc must rcalizc that his
chanccs ol providing cnlightcnmcnt arc poor il thc votcrs rcmovc him
lrom political lilc. Hc dirccts his campaigning to thc citizcns as thcy arc
and as thcy think, not to thc cconomists and political philosophcrs that
thcy arc not.
A third linc ol rcbuttal dcnics thc common idca that politicians try to
scll thcir programs to votcrs lor votcs quitc as busincssmcn try to scll thcir
warcs to consumcrs lor dollars. Tc analogy is dclcctivc in many rcspccts.
For cxamplc, candidatcs go bcyond dircct appcals to thc clcctoratc. Tcy
also scck votcs indircctly by appcaling to inucntial opinionmakcrs and to
othcr politicians. Allianccs arc csscntial lor gctting nominations, gctting
allocations ol party lunds and othcr hclp in campaigns, and logrolling thc
cnactmcnt ol oncs lavoritc projccts (and thcrcby gaining in pcrsonal sta
tus). Tc individual politician has to tailor his appcal partly to othcr politi
cians, most ol whominclinc toward an activist govcrnmcnt lor thc rcasons
undcr discussion. vcn thc cxccptional politician is rcstraincd, thcn, lrom
advocating as much limitation ol govcrnmcnt powcr as hc might othcr
wisc pcrsonally lavor.
ur amatcur psychologizing about politicians should pay somc attcn
tion to thc mcmbcrs ol lcgislators stas. Vith govcrnmcnt cxpansion and
lcgislativc burdcns making incrcasing dcmands on thcir cmploycrs timc
and ability to absorb inlormation, sta mcmbcrs havc growing inucncc.
Tcy lurthcr thcir own carccrs by hclping thcir cmploycrs gain promi
ncncc. 8right idcas hclp. Although a lcw idcas may locus on rcpcaling
Chapter z,: Is Tere a Bias To.ard O.erregulation?
laws and abolishing agcncics, activism gcncrally ocrs morc scopc lor
brightncss, as wcll as lor maintaining political allianccs, cspccially in an
intcllcctual atmosphcrc prcdisposcd to activism.
:nv nuvv~ucv~:
Tc burcaucrat, likc thc politician, may wcll scc his mission in lilc as doing
good through thc agcncy ol govcrnmcnt. Hc is likcly, though, cxccpt at
thc highcst lcvcls, to bc a spccialist. (At thc highcst lcvcls, hc is likcly
to bc mobilc bctwccn govcrnmcnt positions and to bc judgcd morc by
his rcputcd abilitics and pcrlormancc in thc short run than by thc long
run conscqucnccs ol how hc runs any particular agcncy.) Tc spccialist
idcntics with thc mission ol his burcau, apprcciatcs thc valuc ol its scr
viccs, but apprcciatcs lcss clcarly thc altcrnativc rcsults obtainablc lrom
dcvoting thc ncccssary moncy and rcsourccs to othcr purposcs, public or
privatc. Likc most pcoplc, hc wants to think that his job is important and
dcmanding and that hc is doing it wcll. Vith a biggcr budgct and a largcr
sta, hc could scrvc thc public still bcttcr. Fortunatcly lor his ambitions,
thc lcgislators must dcpcnd largcly on what hc and his lcllow cxpcrts tcll
thcm about thc bcncts and costs ol his agcncys activitics. 8ccausc his
job is spccializcd and complicatcd and bccausc thcy havc othcr tasks also,
thc lcgislators cannot monitor him closcly. Furthcrmorc, allianccs tcnd to
lorm among thc agcncy, thc mcmbcrs ol thc lcgislativc committcc moni
toring it, and thc constitucncy in thc privatc scctor that bcncts lrom thc
agcncys scrviccs or rcgulations.
.
:nv couv:s
Judgcs, likc othcr govcrnmcnt dccisionmakcrs, arc oltcn in a position to
takc a narrow vicw, doing what sccms good or bcncvolcnt in thc par
ticular casc at hand without having to wcigh costs against bcncts carc
lully and without having to cxcrcisc adcquatc lorcsight about thc longrun
.
Villiam A. Niskancn (.,.) argucs that burcaucrats strivc to maximizc thcir bud
gcts. Ycars carlicr, Ludwig von Miscs had strcsscd thc contrast bctwccn a protsccking
rm and a burcau. !n a rm, thc highcr cxccutivcs can monitor thc pcrlormancc ol thcir
subordinatcs by nancial accounting and thc tcst ol prot and loss. Monitoring is morc
complicatcd in a nonprot organization. spccially in onc that gcts its lunds lrom budgct
appropriations rathcr than by sclling goods or scrviccs to willing customcrs, thc nancial
tcsts arc ncccssarily wcakcncd, and dctailcd burcaucratic rulcs and rcgulations must takc
thcir placc as bcst thcy can (Miscs .).
6 Part : Politics and Philosophy
rcpcrcussions ol a particular dccision. l coursc, judgcs arc undcr an obli
gation to dccidc according to thc law, including prcccdcnt, but whcn lcg
islation, administrativc dccrccs, lawsuits, and court dccisions havc vastly
prolilcratcd, thc judgccucd by thc litigants attorncyshas all thc morc
dccisions to hunt among lor thc prcccdcnt that will rationalizc thc dcci
sion hc wants to makc.
Nathan Glazcr (.,) dcscribcs scvcral lactors contributing to a tidc
ol judicial activism. Powcrlul ncw intcrcsts arc at work, including public
advocacy lawccntcrs supportcd by govcrnmcnt or loundations. Lawlor
thc purposc ol thc corrcction ol prcsumcd cvils, lor changing govcrnmcnt
practiccs, lor ovcrruling lcgislaturcs, cxccutivcs, and administrators, lor
thc purposc indccd ol rcplacing dcmocratic proccdurcs with thc author
itarian dccisions ol judgcsbccamc cnormously popular (p. .a). Scc
ond, thc courts must work out thc logic ol positions oncc takcn and can
not casily withdraw lrom thcir implications. Ncw dccisions crcatc prccc
dcnts whosc applications and cxtcnsions cannot bc lully lorcsccn, casc law
cvolvcs with a momcntum ol its own. xamplcs conccrn thc conccpts ol
standing to suc, ol duc proccss, and ol cqual protcction. Tird, cxpansion
ol govcrnmcnt activity providcs all thc morc subjcct mattcr lor court cascs.
Tc lacts rclcvant to court dccisions bccomc all thc morc numcrous and
complcx. Social scicncc bccomcs rclcvant, and as it changcs, so may thc
law. Tc judgcs acquirc all thc morc opportunitics lor sccondgucssing
not only ordinary citizcns but also thc lcgislativc and cxccutivc branchcs
ol govcrnmcnt.
ac
!n short, thc courts wcll illustratc thc main thcmc ol
this papcr: thc lragmcntation, on thc govcrnmcntal sccnc, ol costbcnct
calculation, dccisions, and rcsponsibility.
~ vossiniv coux:vv~vcu:vx:
Considcring thc circumstanccs and inccntivcs ol votcrs, politicians, bu
rcaucrats, and judgcs docs sccmto rcvcal a bias toward hypcractivc govcrn
mcnt. Yct Anthony owns (.6c), who had lucidly cxplaincd thc rational
ity ol votcr ignorancc, wcnt on to ocr a supposcd cxplanation ol why thc
govcrnmcnt budgct is too small in a dcmocracy. Tc corc ol his argumcnt
is that thc rationally ignorant votcr docs not apprcciatc all thc rcmotc and
problcmatical bcncts that govcrnmcnt programs would providc. As soci
cty bccomcs wcalthicr and morc complcx, thc potcntial scopc lor rcmotc
ac
Glazcr citcs numcrous spccic cxamplcs ol judicial activism. ! havc rcarrangcd and
intcrprctcd Glazcrs points.
Chapter z,: Is Tere a Bias To.ard O.erregulation? ,
and poorly undcrstood but gcnuinc govcrnmcnt bcncts cxpands. Public
goods do not cnjoy thc advcrtising that privatc goods do. Tc avcragc votcr
is highly awarc, howcvcr, ol thc costs ol govcrnmcnt programs as rccctcd
in his taxcs. Catcring to such votcrs, politicians hold taxing and spcnding
down to lcvcls at which thc bcncts ol additional spcnding would still
cxcccd thc costs.
Scvcral things arc wrong with this argumcnt. First, taxcs arc not all
that cvidcnt to thc individual votcr. xcisc taxcs arc conccalcd in thc priccs
ol products, and just which pcrsons ultimatcly bcar thc burdcn ol thc cor
poration incomc tax is cvcn morc obscurc. vcn pcrsonal incomc taxcs can
bc madc lcss conspicuous by withholding. owns docs not takc adcquatc
account ol thcsc tax conccalmcnts. Hc docs not adcquatcly rccognizc thc
scvcral distinct ways in which ination can bring what amounts to hid
dcn tax incrcascs. Hc docs not rccognizc how casy it is lor govcrnmcnt
to spcnd thc incrcmcntal tax rcvcnucs gcncratcd by cconomic growth. Hc
docs not takc scal illusion scriously cnough. Sccond, politicians havc
discovcrcd thc bcautics ol dccit spcnding, and working as thcy do with
short timc horizons, thcy do not agonizc ovcr an ultimatc day ol rcck
oning. Tird, owns givcs only unconvincing cxamplcs ol govcrnmcnt
activitics that havc thin but widcsprcad bcncts, or bcncts that arc grcat
in thc long run but unnoticcd in thc short run. !n lact, his chicl cxamplc
sccms to bc lorcign aid. Although hc notcs thc cocrcivc naturc ol dcal
ings with govcrnmcnt, hc sccms not to rccognizc that privatc activitics
carricd out with rcsourccs not taxcd away might thcmsclvcs havc rcmotc
bcncts and that thc cocrcivc naturc ol thc cxpansion ol govcrnmcnt activ
ity makcs that cxpansion lcss likcly to lcavc a nct cxccss ol bcnct ovcr cost
than thc altcrnativc ol voluntary cxpansion ol privatc activity. Hc docs not
rccognizc thc dicrcntial inccntivcs that spccial privatc intcrcsts havc to
prcss cxaggcratcd claims about thc bcncts ol thc govcrnmcnt programs
that thcy arc sccking.
Fourth, whilc owns applics thc approach ol mcthodological indi
vidualism to thc votcr, hc docs not apply it consistcntly to burcaucrats,
politicians, judgcs, and litigants. !n somc passagcs, hc rclcrs to thc gov
crning party or cvcn thc govcrnmcnt as il it wcrc a monolithic cntity
making coordinatcd choiccs rathcr than an asscmblagc ol individual pcr
sons cach working with his own drivcs, motivcs, opportunitics, inccntivcs,
constraints, and spccial point ol vicw. Hc docs not takc hccd ol how
individual lcgislators or candidatcs can call lor particular spcnding pro
grams without calling lor thc taxcs to pay lor thcm. Hc supposcs that cach
Part : Politics and Philosophy
burcau would submit its budgct rcqucsts to, in ccct, thc dircctors ol thc
govcrning party, who, anxious lor votcs, would dcvclop suitablc chccks
on thc burcaus cxpansionism. Hc docs not rccognizc, as Villiam Niska
ncn (.,.) latcr cxplaincd, that scllaggrandizing burcaus arc in lact not
supcrviscd by a sucicntly authoritativc ccntral budgcting agcncy. n
thc contrary, thcy arc likcly to dcvclop cozy rclations with thc congrcs
sional committccs that arc supposcd to monitor thcm. !n short, owns
lails to grasp thc lull implications ol lragmcntcd govcrnmcnt dccision
making.
voiicv bviv:
Tc lragmcntation ol dccisions ovcr timc contributcs to an unintcndcd
drilt ol thc charactcr ol thc wholc cconomic and political systcm. spc
cially undcr a twoparty systcm, platlormbuildcrs and campaigncrs oltcn
avoid drawing issucs in a clcarcut way.
a.
A candidatc opposcd to protcc
tivc taris would not call lor complctc lrcc tradc lor lcar ol losing somc
protcctionist votcrs who would support him on othcr issucs. Hc rcalizcs
that many a votcr will choosc thc lcsscr cvil rathcr than wastc his votc
on a third party cvcn il onc happcncd to mirror his own sct ol vicws morc
accuratcly. Political straddling, togcthcr with thc jumbling togcthcr ol
unrclatcd issucs (and cvcn thc candidatcs pcrsonalitics) in cvcry clcction,
watcr down thc issuc ol intcrvcntionism vcrsus thc lrcc markct into an
uninspiring choicc bctwccn partics lcaning just a littlc morc onc way or
a littlc morc thc othcr. !nccntivcs and prcjudiccs lavoring a middlcol
thcroad position lcavc thc dircction ol cumulativc policy drilt to who
cvcr arc most activc in locating thc two sidcs ol thc road, or cvcn just
onc sidc. Tc kinds ol choiccs that votcrs and politicians considcr lcasi
blc (and, similarly, thc positions thcy considcr unrcalistically cxtrcmc) arc
conditioncd by how policy has bccn drilting. Rcsistancc to drilt wcakcns
whcn not only politicians but cvcn scholars makc a lctish ol rccommcnd
ing only policics thcy considcr politically rcalistic.
aa
Undcr such circum
stanccs, discussion docs not adcquatcly considcr longrun rcpcrcussions
and longrun compatibilitics and clashcs among various goals and mca
surcs. Major choiccs, such as oncs accting thc gcncral charactcr ol thc
a.
An carly cxplanation was providcd by Harold Hotclling (.a) in an articlc basically
dcaling with cconomic mattcrs.
aa
n thc harmlulncss and cvcn immorality ol such rcalism, scc Clarcncc . Phil
brook ..
Chapter z,: Is Tere a Bias To.ard O.erregulation?
cconomic and social systcm, may gct madc by dclault as thc cumulativc
rcsult ol picccmcal dccisions whosc combincd tcndcncics wcrc not rcal
izcd whcn thcy wcrc madc.
vv~c:vx:~:iox n~b ~xb coob
Closcly rclatcd to dispcrsion ol dccisionmaking among pcrsons and ovcr
timc is dispcrsion ol rcsponsibility. Tings that would bc considcrcd mor
ally rcprchcnsiblc il donc by a singlc dccisionmakcr cscapc moral con
dcmnation whcn donc by govcrnmcnt, sincc it is not apparcnt whcrc thc
rcsponsibility lics. xamplcs arc our ination mcss, thc quasircpudiation
ol govcrnmcnt dcbt, thc taxation ol phantom carnings and phantom cap
ital gains, cvcn whcn thc taxpaycr has sucrcd a rcal loss and cvcn whcn
hc has sucrcd it on bonds ol thc govcrnmcnt itscll, and thc govcrnmcnts
continucd pushing ol its savings bonds.
Fragmcntation ol dccisionmaking is not to bc condcmncd tout court.
!n many cascs, kccping dccisions closc to thc acctcd lcvcl will improvc
thc costbcnct conlrontation. Furthcrmorc, it hclps prcscrvc lrccdom.
!n lact, this is onc ol thc chicl argumcnts lor thc markct as opposcd to
govcrnmcnt control.
a
cvowbixc ou:
Anothcr disadvantagc ol routinc rcliancc on govcrnmcnt to supprcss all
bad and promotc all good is that it tcnds to lrcczc out altcrnativc solu
tions to thc problcms tacklcd. !t can hampcr divcrsc initiativcs and cxpcr
imcntation. !t can crowd out privatc activity by taxing away lunds that
a
Tc systcm ol dircct rcgulation cannot allow cxibility in thc application to indi
vidual cascs bccausc lavoritism cannot bc distinguishcd lrom cxibility and divcrsity ol
conditions cannot bc distinguishcd lrom capricc. Tc pricc systcm, howcvcr, posscsscs
this rcmarkablc powcr: il wc makc an activity cxpcnsivc in ordcr to rcducc its practicc,
thosc who arc most attachcd to thc practicc may still continuc it. !t is thc systcm which
cxcludcs lrom an industry not thosc who arrivcd last but thosc who prizc lcast thc right to
work in that industry. !t is thc systcm which builds roads by hiring mcn with an aptitudc
lor roadbuilding, not by thc corvc ol compulsory labor (Stiglcr .,, p. 6).
Tc rcccnt gasolinc shortagc and proposals to dcal with it by rationing or by making
cvcrybody lorgo driving onc day a wcck, or thc nonsystcm ol rationing by inconvcnicncc,
all illustratc Stiglcrs points about rcgulation vcrsus thc markct. Rcgulation cannot takc
into account thc dctailcd pcrsonal knowlcdgc that pcoplc havc about thcir own nccds and
wants and circumstanccs.
c Part : Politics and Philosophy
pcoplc would othcrwisc spcnd thcmsclvcs on satislying thcir wants, by
translcrring rcal rcsourccs lromthc privatc to thc public scctor, by crcating
or thrcatcning subsidizcd compctition with privatc approachcs, and by
stiing imagination with thc thought that thc problcm in qucstion is
alrcady bcing takcn carc ol. !t is instructivc to pondcr what thc statc ol
aairs in cducation, hcalth and rctircmcnt programs, housing, transporta
tion, thc mails, and othcr clds would bc today il govcrnmcnt had not
gottcn so hcavily involvcd as it has in lact. nc lrcqucnt advantagc ol
privatc ovcr govcrnmcnt nancing is that it can takc bcttcr account ol
how strongly pcoplc dcsirc an activity on thc wholc and in its various pos
siblc lorms. Far lrom thc importancc ol an activity arguing lor its bcing
takcn ovcr by thc govcrnmcnt, onc should think that its importancc argucs
against its bcing dominatcd by onc big supplicr. !t is all thc morc rcgrct
tablc whcn various monopolizcd activitics arc monopolizcd by thc samc
monopolist and whcn cconomic and political powcr arc combincd, with
all that implics about potcntialitics lor cocrcion.
Vhat crowding out mcans is illustratcd in thc cld ol cncrgy. Pro
posals abound lor govcrnmcnt action and subsidics to dcvclop noncon
vcntional sourccs. Taxpaycrs would in ccct havc to pay thc dicrcncc
bctwccn thc high cost and lowcr pricc ol subsidizcd lucls, and thcy could
not, acting individually, cscapc this burdcn by cncrgy conscrvation. Pro
duction lrom convcntional sourccs and potcntial production lrom unsub
sidizcd ncw sourccs will sucr as produccrs nd it casicr and lcss risky to
takc govcrnmcnt handouts. Not only moncy but also talcnt and ingcnuity
will bc divcrtcd lrom othcr typcs ol production, cxploration, and rcscarch
into thosc lavorcd by thc govcrnmcnt. 8usincss rms and invcstors will
shy away lrom risky, cxpcnsivc, longtcrmoricntcd projccts not only lor
lcar ol luturc govcrnmcntsubsidizcd compctition but also lor lcar ol
luturc inlringcmcnts on propcrty rights. Tc history ol cncrgy policy,
togcthcr with currcnt dcmogogy, providcs amplc grounds lor thc lattcr
lcar: rms and invcstors must rccognizc thc prospcct that cvcn altcr risk
ing hcavy losscs, thcy will not bc allowcd to collcct cxccptionally largc
prots lrom succcsslul hunchcs and good luck.
a
Govcrnmcnt rcassur
anccs, cvcn il madc, would nowadays not bc crcdiblc. Tis cxamplc bcars
on a broadcr point about rcmotc rcpcrcussionsrcmotc in timc and in scc
tor acctcd. A violation ol propcrty rightspcrhaps rcstrictions on usc ol
a
Paul L. Joskowand Robcrt S. Pindyck dcvclop points likc thcsc in Tosc Subsidizcd
ncrgy Schcmcs (.,, p. .a).
Chapter z,: Is Tere a Bias To.ard O.erregulation? .
propcrty rathcr than outright public purchascmay sccm thc cconomi
cal and cxpcdicnt thing to do in thc individual casc. Yct in contributing
to an atmosphcrc ol unccrtainty, it can havc gravc rcpcrcussions in thc
long run.
An advocatc ol limitcd govcrnmcnt cannot spccily just what nongov
crnmcntal solution to a problcm might havc bccn lound il it had not bccn
crowdcd out. An cconomist sympathctic to thc markct can cxplain how
cntrcprcncurs havc inccntivcs to scck unllcd wants and ways ol lling
thcm, but hc cannot prcdict what unllcd wants arc going to bc llcd,
and how and whcn.
a
Hcncc his position sccms complaccnt, it rccks ol
thc ivory towcr. !n contrast, thc intcrvcntionist position looks concrctc,
activc, practical, and downtocarth.
Hcrc ! am in dangcr ol bcing misundcrstood. Vhilc ! dcplorc rcg
ulating voluntary transactions that arc not immoral and that adults arc
undcrtaking with thcir cycs opcn, thc casc is dicrcnt with hiddcn salcty
or hcalth hazards or with thc imposition ol costs onto innoccnt third par
tics. ! havc qualms about coldturkcy dcrcgulation in such cascs. Yct ovcr
thc long run, phasing out govcrnmcnt rcgulation could opcn thc way lor
cntrcprcncurial discovcry ol altcrnativcs that wc can hardly imaginc in
advancc. Such altcrnativcs might, lor cxamplc, includc inspcction and ccr
tication by spccialist rms, as wcll as rcgulations imposcd by insurancc
companics as a condition ol insurancc. My cmphasis, howcvcr, is not on
prcdicting altcrnativc approachcs but on thcir unprcdictability and on how
ccntral control can lorcstall thcir discovcry.
a6
a
Scc Hayck .,, cspccially thc scction hcadcd Frccdom can bc prcscrvcd only by
lollowing principlcs and is dcstroycd by lollowing cxpcdicncy, pp. 6. Hayck rcminds
us that thc bcncts ol civilization rcst on using morc knowlcdgc than can bc dcploycd
in any dclibcratcly conccrtcd cort. Sincc thc valuc ol lrccdom rcsts on opportunitics
it providcs lor unlorcsccn and unprcdictablc actions, wc will rarcly know what wc losc
through a particular rcstriction ol lrccdom. Any rcstriction will aim at somc lorcsccablc
particular bcnct, whilc what it lorccloscs will usually rcmain unknown and disrcgardcd.
cciding cach issuc on its own apparcnt mcrits mcans ovcrcstimating thc advantagcs ol
ccntral dircction.
a6
!sracl M. Kirzncr cxplains how rcgulation can impcdc thc proccss ol discovcry. His
conccrn, howcvcr, is not so much with altcrnativc solutions to problcms takcn undcr thc
govcrnmcnts wing as, rathcr, with discovcry ol ncwand bcttcr goods and scrviccs and pro
duction mcthods. Furthcrmorc, rcgulation divcrts cntrcprcncurs cncrgics lrom sccking
discovcrics ol thcsc constructivc kinds into coping with or circumvcnting thc rcgulations
thcmsclvcs. Scc Kirzncr .,, csp. chap. .
a Part : Politics and Philosophy
s:iii nvo~bvv cos:s ov vvcui~:iox
Costs (and conccivably bcncts) ol rcgulatory mcasurcs includc cccts
on thc wholc social, political, and cconomic climatc and on pcoplcs
attitudcs. nc cxamplc ol what ! havc in mind conccrns how cvcn thc
vagucst hints about discriminatory cnlorccmcnt ol myriad rcgulations can
bc uscd to cncouragc voluntary compliancc with thc wagc and pricc con
trols dccrccd by thc prcsidcnt, without lcgal authority, in ctobcr .,.
a,
Anothcr hardtolathom cost is thc dangcr (alrcady alludcd to in thc scc
tion on Tc Courts) ol undcrmining thc rulc ol law and thc laws objcc
tivity, prcdictability, and worthincss ol rcspcct.
My worrics do not hingc on any particular onc ol thc scvcral thcorics
ol rcgulation that arc in circulation.
a
! am not, lor cxamplc, adopting
as thc ccntral story thc thcory that rcgulatcd industrics capturc thcir
rcgulatory authoritics. No doubt somc aspccts cvcn ol thc publicintcrcst
thcory ol rcgulation cntcr into thc cxplanation ol why wc havc so much
ol it. Numcrous prcssurcs, motivations, and govcrnmcntal dccisionmakcrs
intcract.
a
Tc issuc ol rcgulation lalls undcr thc broadcr qucstion ol whcthcr pol
icy should scrvc principlc or cxpcdicncy, thc lattcr mcaning to act on thc
supposcd mcrits ol cach individual casc, narrowly considcrcd. lcmcnts
ol an answcr to that qucstion arguc lor lraming policy with primc attcn
tion, instcad, to thc gcncral lramcwork ol rulcs within which pcrsons and
companics can pursuc thcir own goals. (!n philosophical tcrminology, thc
argumcnt lavors rulcsutilitarianism ovcr actutilitarianism.)
Somc typcs ol rcgulation arc cvcn opcn to objcction on cthical grounds.
Notions ol human rights propcrly bclong in thc discussion, including
rights ol pcoplc to makc opcnandabovcboard voluntary transactions
a,
Rclcrring to this program, onc Fcdcral Rcscrvc cconomist has writtcn as lollows:
\iolators arc cxplicitly thrcatcncd with bad publicity and loss ol govcrnmcnt contracts.
!mplicitly, possiblc violators must bc awarc ol potcntial rctaliation by rcgulatory agcncics
not lormally incorporatcd in thc wagcpricc control program. . . . uc to thc magnitudc
ol discrctionary authority posscsscd by thc !ntcrnal Rcvcnuc Scrvicc, nvironmcntal Pro
tcction Agcncy, Fcdcral Tradc Commission, ccupational Salcty and Hcalth Adminis
tration, ctc., a largc potcntial lor rctaliation conlronts any busincss (Vcbb .,, p. . n.).
a
Scc Stiglcr .,, Richard A. Posncr .,, and Sam Pcltzman .,6.
a
Morc gcncrally, dicrcnt typcs ol constitutionally cmpowcrcd agcnts on thc polit
ical sccncburcaucrats, judgcs, lcgislators, and clcctcd cxccutivcscach bring distinct
motivations, authoritics, and constraints into thc proccss ol political cxchangc that lcads
to thc nal rcgulatory outcomc (Hirshlcilcr .,6, p. aa).
Chapter z,: Is Tere a Bias To.ard O.erregulation?
with cach othcr and to usc and dcal in thcir own propcrty.
c
!t is a qucs
tionablc vicw to accord cqual rcspcct to pcoplcs usc ol thcir own propcrty
and lorciblc intcrlcrcncc with that usc. Tat vicw scts asidc thc qucstion
ol who has a right to do what in lavor ol thc qucstion ol which cxpcctcd
pattcrn ol propcrty usc and rcsourcc allocation appcals morc to politicians
and othcr outsidc obscrvcrs.
voiicv i:viic~:ioxs
Vhat implications lollowlrommy argumcnt, il it is broadly corrcct: Most
gcncrally, it rccommcnds alcrtncss to activist bias, and an appropriatc con
stitutional attitudc. Proposals havc bccn madc lor a rcgulatory budgct:
includcd in thc annual limit to cach rcgulatory agcncys cxpcnscs would
bc not only its own cash outlays but also thc cstimatcd costs that compli
ancc with its rcgulations would imposc on thc privatc scctor. Admittcdly,
implcmcnting such a proposal would run into practical dicultics, but it
is mainly its spirit that conccrns us hcrc.
!t is instructivc to rcvicw thc rationalc lor thc analogous proposal ol
placing a constitutional limit on lcdcral govcrnmcnt taxing or spcnding.
Tc opportunity to cnact such a limit would givc thc public at largc thc
hithcrto lacking mcans to votc on thc total ol thc govcrnmcnt budgct. 8y
voting lor a limit, a majority could ovcrridc thc spcnding bias that ariscs
lrom thc accumulation ol smallcr spccialintcrcst dccisions.
.
Tc pcoplc
assign a budgct to thc lcgislaturc and rcquirc it spcnd thc limitcd amount
ol moncy in thc most ccctivc way. (Supportcrs ol a limit ask: il lamilics
havc to opcratc within incomc ccilings, why shouldnt thc govcrnmcnt
also:) vcrall limitation would lorcc choiccs among thc many spcnding
programs that might bc scparatcly dcsirablc. To arguc pcrsuasivcly in thc
lacc ol a givcn budgct total, a group wanting a particular program would
havc to point out othcr budgct itcms that could and should bc cut. Spccial
intcrcsts would thcn bc lorccd to work lor thc gcncral intcrcst rathcr than
against it.
Rcgulatory activity is not as quantiablc as taxing and spcnding. 8ut it
would bc prcmaturc to givc up on ingcnuity. Pcrhaps a quantitativc spcci
cation will provc impossiblc and proccdural rcstraints will havc to scrvc as
a substitutc. Aconstitutional amcndmcnt might rcquirc that cnactmcnt ol
c
Scc Tibor R. Machan .,.
.
Scc !all Street Journal ., and, in particular, Milton Fricdman .,, pp. ,..
Part : Politics and Philosophy
ncw rcgulatory mcasurcs bc couplcd with rcpcal ol othcrs ol comparablc
scopc (pcrhaps as judgcd by numbcrs ol rcgulators involvcd, or numbcr ol
pcrsons or dollar volumc ol activitics in thc privatc scctor dircctly acctcd).
Pcrhaps it would bc ncccssary to scttlc lor somc vagucr and morc ncarly
only hortatory rcstraint. Anyway, good intcntions would not bc cnough
to justily a ncw rcgulation, thc proposcd mcasurc would havc to bc shown
to bc not mcrcly dcsirablc but cxccptionally so, dcsirablc cvcn against thc
background ol an alrcady ovcrgrown govcrnmcnt. Tc objcctivc is a lramc
work ol constraints and opinion in which dicrcnt govcrnmcnt activitics
arc sccn to bc in rivalry with onc anothcr, cach costing thc sacricc ol
othcrs. !dcally, advocatcs ol cach ncw rcgulatory mcasurc would acccpt
thc obligation ol showing it to bc so dcsirablc as to bc worth thc sacricc
ol spccicd cxisting rcgulations.
pponcnts somctimcs chargc that a budgct limit would undcmocrat
ically tic thc hands ol dcmocratic govcrnmcnt, and a similar objcction
would no doubt bc madc to constitutional rcstrictions on rcgulation. Yct
thc purposc ol cithcr limit is not to undcrcut dcmocracy but to makc it
morc ccctivc by rcmcdying a aw that has so lar kcpt thc pcoplc lrom
controlling thc ovcrall conscqucnccs ol picccmcal dccisions. A budgct
limit or a rcgulatory limit no morc subvcrts dcmocracy than thc First
Amcndmcnt docs by sctting limits to what Congrcss may do. Vithout
that amcndmcnt, popular majoritics might havc placcd many particular
rcstrictions on lrccdom ol spccch, but our Founding Fathcrs rollcd all
thcsc issucs up togcthcr instcad ol lctting cach onc bc dccidcd by a scpa
ratc majority votc (Fricdman .,, pp. .c).
Just as proponcnts ol tax cuts or budgct limits lacc thc supposcdly
cmbarrassing dcmand that thcy draw up lists ol spccic cxpcnditurc cuts,
so proponcnts ol limits to rcgulation might cncountcr a similar dcmand.
Tis onc might wcll bc casicr to comply with than thc dcmand about
spcnding cuts. ithcr dcmand, howcvcr, is unrcasonablc. !t in ccct invitcs
thc limitationists to shut up unlcss thcy cxhibit dctailcd knowlcdgc ol gov
crnmcnt (and privatc) activitics that thcy cannot rcalistically bc cxpcctcd
to havc. !t tacitly dcnics that thc principlc ol spccialization and division ol
labor applics in public policymaking as in othcr arcas ol lilc. !t tacitly sup
poscs that gcncral knowlcdgcnamcly, knowlcdgc ol bias in thc currcnt
systcmis worthlcss unlcss accompanicd by dctailcd lurthcr knowlcdgc
on thc part ol thc samc pcrsons. Yct thc vcry purposc ol an ovcrall limit
is to bring thc dctailcd knowlcdgc ol its posscssors to bcar in coping with
that bias.
Chapter z,: Is Tere a Bias To.ard O.erregulation?
su::~vv
Tc privatc scctor is routincly madc thc targct ol rcgulation bccausc ol
cxtcrnalitics, mcaning cascs in which thc pcrsons who dccidc on somc
activity or its scalc dccidc wrongly bccausc thcy do not thcmsclvcs bcar
or takc lull account ol all ol its costs and bcncts.
a
How ironic, thcn,
routincly to cxpcct a solution lrom govcrnmcnt! Govcrnmcnt is thc pro
totypical scctor in which dccisionmakcrs do not takc accuratc account ol
all thc costs as wcll as all thc bcncts ol cach activity. Tc lragmcnta
tion ol dccisionmaking and rcsponsibility gocs part way toward cxplain
ing this condition, along with thc kinds ol opportunitics and inccntivcs
that burcaucrats, politicians, lcgislativc sta mcmbcrs, judgcs, and citizcns
havc.
!t is dicult to comparc cvcn thc rclativcly dircct and obvious costs
and bcncts ol an individual govcrnmcnt policy action. !t is practically
impossiblc to asscss thc indircct and longrun conscqucnccs ol individ
ual actions and ol thcir aggrcgatc, including thcir cccts on thc drilt
ol policy and on thc charactcr ol thc cconomic and social systcm. Tc
aggrcgatc ol activitics all appcaring individually dcsirablc may itscll turn
out quitc undcsirablc. Hcncc thc importancc ol lrankly allowing consid
crations ol political philosophy into policy discussions. 8road principlcs
should count, including a principlc ol skcpticism about govcrnmcnt activ
ity. vcn whcn no strong and obvious disadvantagcs arc apparcnt, thcrc
is prcsumption (though a dclcasiblc onc) against cach ncw govcrnmcnt
lunction. Tc pragmatic, rcalistic approach ol considcring cach individ
ual lunction scparatcly and narrowly, on its own supposcd mcrits, is latally
awcd.
ur Founding Fathcrs acccptcd thc conccpt ol human rights that gov
crnmcnt should not violatc. Tat conccpt nccd not bc bascd on mysticism.
!t lollows lrom a vcrsion ol rulcsutilitarianism (as distinguishcd lrom act
utilitarianism). As John Stuart Mill argucd (in Utilitarianism, chaptcr ,
writing whcn thc word justicc had not yct bccn strctchcd into usclcss
ncss lor all but cmotivc purposcs), unswcrvingly to put rcspcct lor justicc
ahcad ol what might bc callcd narrow cxpcdicncy is a rulc ol topmost util
ity (or cxpcdicncy in a broad and dccp scnsc). ! bclicvc it can bc shown
that rcspcct lor and basing policy on ccrtain rights and valucs, likc justicc,
a
xtcrnalitics arc duc, anyway, not to thc vcry logic ol thc markct systcm but to
dicultics and costs ol lully applying that systcm, including propcrty rights, to thc cascs
in qucstion.
6 Part : Politics and Philosophy
accords with human naturc and with thc sort ol socicty in which pcoplc
havc good chanccs lor coopcrating ccctivcly as thcy pursuc happincss in
thcir own spccic ways. Ludwig von Miscs and Hcnry Hazlitt, lollow
ing avid Humc, havc pcrsuasivcly argucd that social coopcration is such
an indispcnsablc mcans to pcoplcs pursuit ol thcir own divcrsc spccic
goals that it dcscrvcs rccognition practically as a goal in its own right.

Considcrations likc thcsc mcrit rcspcct again in appraisals ol govcrnmcnt

rcgulation.
vvvvvvxcvs
8cavcr, Roy A. Lcttcr to !all Street Journal , a6 July .,.
8ork, Robcrt. Taxpayers Fe.olt: re Constitutional Limits Desirable? Amcrican
ntcrprisc !nstitutc Round Tablc, July .,. Vashington, .C.: Amcrican
ntcrprisc !nstitutc, .,.
8rittan, Samucl. Te Political Economy of Ination. ditcd by Frcd Hirsch and
John H. Goldthorpc. Cambridgc, Mass.: Harvard Univcrsity Prcss, .,.
ahl, Robcrt A. Preface to Democratic Teory. Chicago: Univcrsity ol Chicago
Prcss, .6.
dc Jouvcncl, 8crtrand. On Po.er. Ncw York: \iking, ..
owns, Anthony. n Economic Teory of Democracy. Ncw York: Harpcr, .,.
. Vhy thc Govcrnmcnt 8udgct is Too Small in a cmocracy. !orld
Politics ( July .6c): .6.
llul, Jacqucs. Te Political Illusion. Translatcd by Konrad Kcllcn. Ncw York:
Knopl, .6,.
. Critique of the Ne. Commonplaces. Translatcd by Hclcn Vcavcr. Ncw
York: Knopl, .6.
tzioni, Amitai. Tc Grand Shaman. Psychology Today 6 (Novcmbcr .,a):
a, .a..
Fcin, Lconard J., cd. merican Democracy. Ncw York: Holt, Rinchart and Vin
ston, .6.

Scc Ludwig von Miscs . and .,, csp. pp. ,, and Hcnry Hazlitt .6. An
cmphasis on social coopcration as a ncarultimatc critcrion, il not thc usc ol thc tcrm,
traccs back at lcast as lar as Tomas Hobbcs.
Chapter z,: Is Tere a Bias To.ard O.erregulation? ,
Fricdman, Milton. Capitalism and Freedom. Chicago: Univcrsity ol Chicago
Prcss, .6a.
. Tc Limitations ol Tax Limitation. Policy Fe.ie. (Summcr .,):
,..
Glazcr, Nathan. Towards an !mpcrial Judiciary: Te Public Interest . (Fall .,):
.c.a.
Hayck, F.A. Tc Usc ol Knowlcdgc in Socicty. merican Economic Fe.ie.
(Scptcmbcr .): .c.
. Te Counter-Fe.olution of Science. Glcncoc, !ll.: Frcc Prcss, .a.
. Fules and Order. \ol. . ol La., Legislation and Liberty. Chicago: Uni
vcrsity ol Chicago Prcss, .,.
Hazlitt, Hcnry. Te Foundations of Morality. Princcton, N.J.: . \an Nostrand,
.6.
Hirshlcilcr, Jack. Commcnt on Toward a Morc Gcncral Tcory ol Rcgu
lation, by Sam Pcltzman. Journal of La. and Economics . (August .,6):
aa.
Hotclling, Harold. Stability in Compctition. Economic Journal (March .a):
.,.
Joskow, Paul L., and Robcrt S. Pindyck. Tosc Subsidizcd ncrgy Schcmcs.
!all Street Journal , a July .,.
Kirzncr, !sracl M. Te Perils of Fegulation: Market-Process pproach. Law and
conomics Ccntcr ccasional Papcr. Coral Gablcs, Fla.: Law and co
nomics Ccntcr ol thc Univcrsity ol Miami, .,.
Machan, Tibor R. Somc Normativc Considcrations ol crcgulation. Journal
of Social and Political Studies (Vintcr .,): 6,,.
Mann, Tomas . Unsafe at ny Margin. Vashington, .C.: Amcrican ntcr
prisc !nstitutc, .,.
McClcllan, Jamcs. Tc Tyranny ol Lcgalism. A rcvicw ol 8runo Lconi, Free-
dom and the La.. Uni.ersity Bookman (Spring .,): 66.
Miscs, Ludwig von. Bureaucracy. London: Hodgc, ..
. Human ction. Ncw Havcn, Conn.: Yalc Univcrsity Prcss, ..
. Teory and History. Ncw Havcn, Conn.: Yalc Univcrsity Prcss, .,.
Part : Politics and Philosophy
Niskancn, Villiam A. Bureaucracy and Fepresentati.e Go.ernment. Chicago: Al
dincAthcrton, .,..
lson, Mancur, Jr. Te Logic of Collecti.e ction. Cambridgc, Mass.: Harvard
Univcrsity Prcss, .6.
Pcltzman, Sam. Toward a Morc Gcncral Tcory ol Rcgulation. Journal of La.
and Economics . (August .,6): a..ac.
Philbrook, Clarcncc . Rcalism in Policy spousal. mericanEconomic Fe.ie.
(cccmbcr .): 6.
Posncr, Richard A. Tcorics ol conomic Rcgulation. Bell Journal of Economics
and Management Science (Autumn .,): .
Rickcnbackcr, Villiam F., and Lcwis K. Uhlcr. Taxpayers Guide to Sur-
.i.al: Constitutional Tax-Limitation. 8riarcli Manor, N.Y.: National Tax
Limitation Committcc, .,,.
Sanswcct, Stcphcn J. Proposition .s !mpact on thc Arts. !all Street Journal ,
. July .,.
Singlc!ssuc Politics. Ne.s.eek, 6 Novcmbcr .,.
Stcin, Hcrbcrt. Tc Rcal Rcasons lor a Tax Cut. !all Street Journal , . July
.,.
Stiglcr, Gcorgc J. Te Citi.en and the State. Chicago: Univcrsity ol Chicago Prcss,
.,.
!all Street Journal . ditorial. .a July .,.
Valtz, Kcnncth N. Teory of International Politics. Rcading, Mass., and Mcnlo
Park, Calil.: AddisonVcslcy Publishing Company, .,.
Vcbb, Roy H. VagcPricc Rcstraint and Macrocconomic iscquilibrium.
Fcdcral Rcscrvc 8ank ol Richmond Economic Fe.ie. 6, no. (May/Junc
.,).
cn~v:vv +8
conomics and Principlcs

Tc titlc docs not announcc a talk about thc Principlcs ol conomics

coursc. !nstcad, ! am going to dclivcr a scrmonand ! usc thc word in
a sclldcprccatory scnsc. So lar as my scrmon champions principlc ovcr
cxpcdicncy, it is dircctcd morc toward acadcmics in thcir rolcs as scll
appointcd policy adviscrs than toward practicing politicians. Politicians
could not lunction without making compromiscs. Scnator vcrctt irk
scn uscd to say, quitc aptly, ! am a man ol principlc, and my chicl prin
ciplc is cxibility.
Now, a scrmon is not rcquircd on an occasion likc this onc. Somc ol my
prcdcccssors havc talkcd about tcchnicalitics ol thcir spccial clds. n thc
othcr hand, thcrc is plcnty ol prcccdcnt lor talking morc about thc intcr
rclations ol topics than about thc dctails ol any, lor making broad obscr
vations and swccping conjccturcs, and lor including a pcrsonal clcmcnt.
My thcmc is thc twoway rclation that cxists bctwccn cconomics and
gcncral principlcs ol bchavior. conomics hclps us undcrstand thc naturc
and basis ol such principlcs, thcir scrviccability, and thc conditions that
tcnd to support or undcrminc thcm.
.
:nv vcoxo:ics ov vvixcivivs
conomists can hclp cxplain thc valuc ol rcspccting principlcs not only
in thc rcalm ol cconomic policy but also in othcr intcractions among
human bcings. Rclcvant strands ol cconomic thcory rclcr to: thc conccpt,
madc lamiliar by Hayck (.6,, chap. 6) ol rcsults ol human action but
not ol human dcsign (cthical codcs and languagcs, as wcll as moncy and
othcr cconomic institutions, bcing primc cxamplcs), thc importancc, lor

Prcsidcntial addrcss at mcctings ol thc Southcrn conomic Association, printcd in

Southern Economic Journal a (April .,6): ,..
.
Tc scction Principlcs and Policy in thc original vcrsion ol this articlc was rcmovcd
lor brcvity. !ts major points arc addrcsscd in chaptcr .,, !s Tcrc a 8ias Toward vcrrcg
ulation:.

c Part : Politics and Philosophy

a lunctioning socicty, ol pcoplcs having somc basis lor prcdicting cach
othcrs actions, thc incvitablc impcrlcction, incomplctcncss, dispcrsion,
and costlincss ol knowlcdgc, thc costs ol making transactions and ol ncgo
tiating, monitoring, and cnlorcing agrccmcnts, and thc conscqucnt usc
lulncss ol tacit agrccmcnts and inlormally cnlorccd rulcs, applications ol
mcthodological individualism and ol propcrtyrights thcory to analysis
ol nonmarkct institutions and activitics, conccpts ol cxtcrnalitics and col
lcctivc goods and thc supposcd lrccridcr problcm, and thc principlc ol
gcncral intcrdcpcndcncc.
Such conccpts cntcr into cxplaining thc usclulncss ol cthical rulcs and
cvcn ol conccrn with pcoplcs charactcrs.
a
Statutory law cannot prcvcnt
all bad and cnlorcc all good bchavior. Laws attcmpting that would bc
prohibitivcly costly to lramc and cnlorcc, as would thc mobilization ol
thc ncccssary inlormation. Tcy would havc to bc swccping and vaguc,
would lcavc dangcrous scopc lor administrativc discrction, and would vio
latc thc principlc ol nulla poena sine lege. Tc law could not cnlorcc ordi
nary dcccncy, lct alonc actual bcncvolcncc. (rdinary dcccncy mcans
such things as honcsty, rcspcct lor othcr pcoplcs rights, and bcing consid
cratc, as in not throwing bottlcs into thc strcct or making too much noisc.)
Tc vcry attcmpt at lcgal cnlorccmcnt ol dcccncy, though doomcd to lail
urc, would spcll totalitarian control ovcr pcoplcs livcs. Tis is not to dcny
that propcrly cnlorccablc cthical standards cxistlar lrom it, and ! shall
havc morc to say about cnlorccmcnt latcr on, but thc casc is ovcrwhclm
ing lor kccping thosc standards and thcir cnlorccmcnt outsidc thc rcalm
ol govcrnmcnt and lor kccping thcm inlormal, cxiblc, and subjcct to
picccmcal, gradual, dcccntralizcd rclorm (Hazlitt .6, csp. pp. ..).

a
A social scicntist may takc intcrcst in how cthical principlcs rclatc to thc lunction
ing ol a social and cconomic systcm without imagining himscll to posscss supcrior moral
charactcr. !t is no coincidcncc that many cmincnt cconomists havc pursucd such an intcr
cstavid Humc, Adam Smith, John Stuart Mill, Hcnry Sidgwick, J.M. Kcyncs, and
Jamcs 8uchanan, to mcntion a lcw. Vithout implicating him in any mistakcs ol minc, !
should particularly likc to mcntion my collcaguc Roland McKcan, a lormcr prcsidcnt ol
our Association, with whosc idcas on thc cconomics ol morality minc run largcly in paral
lcl. Scc, lor cxamplc, his two papcrs ol .,. ! should also likc to acknowlcdgc a signicant
parallclism (dcspitc somc dicrcnccs) with thc thinking ol anothcr lormcr prcsidcnt and
a lormcr collcaguc, Jamcs 8uchanan, whosc Te Limits of Liberty (.,) ! havc rcad sincc
dclivcring this addrcss.

Tc most basic principlcs ol morality, ! would arguc, arc rclativcly unchanging, dcriv
ing as thcy do lrom human naturc, including mans naturc as a social animal. 8ut thc
spccic rulcs that arc appropriatc do changc as lactual circumstanccs and knowlcdgc
changc. Furthcrmorc, as Hazlitt suggcsts, thcrc may bc such a thing as progrcss in moral
Chapter z8: Economics and Principles .
(\agucncss and cxibility arc undcsirablc, howcvcr, as charactcristics ol
govcrnmcnt law.)
For insight into thc rcspcctivc mcrits ol voluntarism and law in var
ious aspccts ol lilc, lct us considcr thc lamiliar kind ol appcal lor volun
tary rcstraint in pricing, in wagc dcmands, in cncrgy consumption, and
in spcnding and invcsting abroad. Such an approach tcnds, ! arguc, to
undcrminc ordinary morality. 8y and largc, it is in a pcrsons longrun
scllintcrcst to bchavc with ordinary dcccncy and to cultivatc thc kind ol
charactcr that lcads him to do so.

For this proposition to hold truc, social

institutions should bc such as to hold down tcnsion bctwccn scllintcrcst
and social intcrcst (ostcnsiblc or actual), allowing thc invisiblc hand to
work. Vhilc lcgal rulcs and pcnaltics do havc a rolc in such arrangcmcnts,
it is trcmcndously important lor social coopcration that pcoplc gcncrally
bc ablc to trust cach othcr anyway. \oluntary dcccncy is a scarcc rcsourcc
not to bc wastcd.
Vasting voluntary dcccncy mcans putting an cxccssivc strain on
thc implicit contract cxisting among mcmbcrs ol socicty to trcat cach
othcr dcccntly. Such a strain occurs whcn, as is likcly to bc truc in thc
contcxt ol appcals to voluntary cconomic sclldcnial, bchavior in thc
supposcd social intcrcst docs in lact clash with scllintcrcst. A countcr
argumcnt to my contcntion is oltcn morc implicit than cxplicit. !t sccs
valuc in giving pcoplc cxcrcisc lor thcir moral musclcshabitlorming
cxcrcisc in sctting asidc scllintcrcst in thc social intcrcst. ! conjccturc,
though, that plcnty ol occasions lor moral cxcrcisc arisc anyway in cvcry
day lilc, whcn an cxccssivcly narrow and shortrun conccption ol scll
intcrcst clashcs with a lullcr conccption. ! am warning against thc kind
ol cxcrcisc that strains and damagcs moral musclcs bccausc thc clash
bctwccn scllintcrcst and supposcd social intcrcst is gcnuinc and not
mcrcly apparcnt.
undcrstanding, with a minority ol individuals lcading thc way. !n morality as in law, con
tinuity and modiability both havc valuc. Changc is dcsirablc in vicw ol changing cir
cumstanccs and knowlcdgc, but not changc so rapid that pcoplc cannot act and lorm
cxpcctations on thc basis ol a known moral codc.

r so arguc writcrs whom ! rcspcct, such as Moritz Schlick (.c/.6a), Mortimcr

Adlcr (.,c), and Ayn Rand (., and othcr novcls). !n ccct thcy arguc that thc bcst
prospccts lor a satislying lilc hingc on having thc sort ol charactcr that somctimcs lcads
onc to subordinatc oncs immcdiatc narrow intcrcst or whim to oncs morc cnduring intcr
cst. Yct cxccptions do occur, and in rarc cascs, dcccncy will cost a man his lilc. Still, whilc
a dcccnt charactcr docs not guarantcc happincssnothing canit tcnds to improvc thc
probabilitics. Scc Schlick .c/.6a, pp. .., but csp. pp. ...
a Part : Politics and Philosophy
xpccting pcoplc to act against thcir own cconomic intcrcst tcnds
to undcrcut thc signaling lunction ol priccs and thc inccntivc ol loss
avoidancc and prot. How arc pcoplc to know, thcn, whcn it is lcgiti
matc and whcn illcgitimatc to pursuc cconomic gain:

Vhy should thcy

supposc that thc Prcsidcnt ol thc Unitcd Statcs knows bcst: Vhy should
thcy rcspcct an attcmpt to obtain thc rcsults ol possibly momcntous lcgis
lation by bypassing thc constitutional proccss:
6
To cxhort pcoplc to think
ol compliancc as in thcir own intcrcst whcn it plainly is not, or to appcal
to scllsacricc as il it wcrc thc csscncc ol morality, is to undcrcut thc
rational basis ol morality and cvcn rationality itscll.
,
!t obscurcs thc com
patibility bctwccn social intcrcst and rational scllintcrcst that can gcn
crally hold undcr appropriatc social institutions. Tis cducativc ccct is
cspccially pcrvcrsc whcn thc ostcnsiblc social intcrcst is not gcnuinc and
whcn thc cconomic controls would bc damaging cvcn il cnlorccd by law.
Appcals to voluntary sacricc promotc pcrvcrsc sclcction by pcnalizing
thc pcoplc who do comply to thc bcnct ol othcrs. Minc is similar to Gar
rctt Hardins point (.6/.6) about thc voluntary approach to popula
tion control in an ovcrpopulatcd country:

thc pcoplc who comply thcrcby

contributc to thc population rclativcly lcwpcrsons cxposcd in thcir lorma
tivc ycars to thcir own moral standards (and also having whatcvcr gcncs
may bc rclcvant). Tc noncomplicrs will havc rclativcly many childrcn,
who will growup cxposcd to thc lowcr moral standards ol thcir parcnts (as
wcll as having any rclcvant bad gcncs). vcr timc, thcsc othcrs will out
brccd thc dcccnt pcoplc. !n cconomic aairs, similarly, thc compliant busi
ncssman who holds his sclling pricc bclow thc markctclcaring lcvcl will

! am rclcrring, ol coursc, to thc pursuit ol gain as such, not to thc mcthods uscd.
Lying, chcating, and stcaling do not bccomc right by bcing uscd in thc pursuit ol othcrwisc
honorablc cnds.
6
Furthcrmorc, thc voluntary approach tcnds to obscurc rcsponsibility lor thc unsat
islactory conditions occasioning thc appcals to rcstraint and sacricc. Appcals to ordi
nary citizcns to Stop !nation by rcstraint in consumption or in paying incrcascd priccs
(appcals such as wcrc lrcqucnt latc in .,.) tcnd to draw attcntion away lrom thc rcal
sourcc ol troublc.
,
As Robcrt G. lson says (.6, pp. .a, .a6), thc probablc ccct ol urging a man to
act contrary to what hc rationally rcgards as his own bcst intcrcsts is cithcr to cmbittcr
him or to inspirc contcmpt lor rcason. !l . . . an cconomic systcm is such that honcsty
puts an individual at a scrious compctitivc disadvantagc, thc systcm is at lcast as much at
lault as thc dishoncst individual, lor honcsty ought to pay not only with prcstigc but with
prots.

! citc Hardin only to clarily my point, not to ccho his spccic rccommcndation on
an issuc rathcr lar acld lrom my prcscnt topic.
Chapter z8: Economics and Principles
havc to turn away somc customcrs, who will thcn buy lromhis noncomply
ing rivals. !n carning prots and winning control ovcr rcsourccs, thcn, thc
lcss publicspiritcd busincssmcn will prcvail ovcr thc morc publicspiritcd.
8y practicing rcstraint in driving, publicspiritcd car owncrs will lcavc
morc gasolinc availablc, and at a lowcr pricc than othcrwisc, to drivcrs
lcss publicspiritcd than thcmsclvcs. vcntually such cccts bccomc cvi
dcnt, lurthcr supporting thc pcrvcrsc idca that morality is lor suckcrs and
dupcs.
!n contrast with voluntary controls, lcgally cnactcd pcnaltics against
spccically dcncd violations do tcnd to makc compliancc scrvc thc indi
viduals scllintcrcst. Tc contrast wcakcns, though, il supposcdly com
pulsory controls, by thcir naturc, arc casy to cvadc, so that any compli
ancc must in ccct bc voluntary. Tc contrast also wcakcns il thc law
makcs crimcs out ol actions not othcrwisc morally wrong, or il thc con
trols bccomc so cxtcnsivc and complicatcd that thc individual can hardly
know just what is cxpcctcd ol him.
My criticism ol voluntary cconomic controls docs not imply oppo
sition to voluntarism in all aspccts ol lilc. Quitc thc contrary: prcciscly
bccausc voluntarism is indispcnsablc, wc must bcwarc ol misusing and
subvcrting it. Far lrom dcnying that thcrc arc valid distinctions bctwccn
right and wrong, ! am strcssing thc altcrnativcs to dctailcd govcrnmcntal
compulsion and prohibition. Many typcs ol wrongdoing can bc discour
agcd, il at all, only in an inlormal, dcccntralizcd way. iscouragcmcnt
consists in part ol an atmosphcrc in which wrongdocrs bcar ccrtain costs,
including, pcrhaps, that ol bcing rcgardcd with appropriatc rcvulsion.
Although dcaling with rclativcly trivial cascs, a mcmorablc Ne.s.eek
column by Stcwart Alsop (.,c, p. .cc) contains valuablc insights. |T|hc
man who makcs a justicd luss, said Alsop, docs a public scrvicc.

Alsop
citcd cxamplcs ol indicrcncc ol clcrks at railroad tickct countcrs and
hotcl dcsks as long qucucs lormcd, thc surlincss ol waitcrs, thc dishon
oring ol conrmcd air rcscrvations. Prolcssor avid Klcin ol Michigan
Statc Univcrsity practiccs rcndcring thc kind ol public scrvicc that Alsop
praiscd. Vhcn a Montrcal hotcl tricd to dishonor his conrmcd rcscrva
tion, Klcin gavc thc dcsk clcrk thrcc minutcs to nd him a room, othcr
wisc, hc would changc to his pajamas in thc lobby and go to slccp on a
sola. Klcin got his room. Klcin also makcs it his practicc to bill busincss

Alsop dcplorcd thc shccpish docility ol most Amcrican customcrs. !n thc public
intcrcst, thc pricks should bc kickcd against at cvcry opportunity.
Part : Politics and Philosophy
rms lor timc spcnt coping with crrors on thcir part. A quict, wcllbrcd
sccnc docs not cmbarrass him. |!|l morc pcoplc did what ! do, hc says,
busincss practiccs might improvc. !l middlcclass pcoplc uscd thcir clout
in thc right way, thcy could makc cnormous changcs in rctailing, and in
othcr practiccs (Ncmy .,).
.c
Alsop and Klcin wcrc suggcsting that thc cxccptional victim who docs
protcst dcscrvcs admiration lor imposing costs on abuscs and thcrcby dis
couraging thcir rcpctition. 8ccausc this scrvicc is a public good, as Alsop
notcd, thc protcstcr unlortunatcly rcaps only a lraction at bcst ol thc total
bcnct lrom his action.
A lurthcr rcason why inccntivcs to protcst arc inadcquatc cmcrgcs
lrom Hclmut Schoccks analysis ol a casc lcss trivial than thosc rcportcd
by Alsop and Klcin. Schoccks casc may cvcn aord insight into why total
itarian rcgimcs can oltcn cnjoy apparcnt mass support. Schocck supposcs
that a ncw ccntcr ol powcr has comc into bcing in somc organization, pcr
haps by loul mcans. !t sccks to bring undcr its domination thosc groups
and pcrsons who havc not yct submittcd to it. Somc groups or pcrsons
will alrcady havc lincd up bchind it, whcthcr out ol grccd, cowardicc,
stupidity or gcnuinc cnthusiasm. 8ut thcsc mcn . . . arc not satiscd with
conlorming, thcmsclvcs, and almost invariably dcvclop intcnsc lcclings ol
hostility towards thosc who continuc to stand asidc. . . . Tcnsion, usually
originating with thc conlormists, thcn ariscs bctwccn thosc who conlorm
and thosc who do not. A conlormist bcgrudgcs othcrs thcir couragc,
thc lrccdom thcy still cnjoy. Hc sccs both himscll and his choscn powcr
group cndangcrcd by thosc who obviously prclcr . . . to kccp thcir distancc.
Tosc at thc pcriphcry ol thc powcr ccntcr . . . now bcgin to cxcrt prcssurc
on othcr pcoplc . . . with thc objcct ol gctting thcm to conlorm as wcll
(Schocck .66/.,c, pp. c).
Schocck could havc strcngthcncd his analysis by invoking Lcon Fcs
tingcrs thcory ol cognitivc dissonancc (.,, p. , chap. and passim).
Tosc who rcsist cvil not only lail to rcap thc lull bcncts ol thcir public
scrvicc but cvcn risk bcing rcvilcd lor pcrlorming it. thcrs will prclcr to
.c
Tc Southcrn conomic Association has bccn victimizcd by thc doublcbooking ol
hotcl rooms lor convcntion scssions. \igorous protcst in cvcry such casc would prcsumably
hold down this sort ol abusc, thus conlcrring cxtcrnal bcncts. n thc cxtcrnal bcncts
ol what 8uchanan calls stratcgic couragc in tough individual cascs and thc cxtcrnal
costs ol what hc calls pragmatic compassionbut pragmatic compliancc might bc a
bcttcr tcrm, scc his .,a/.,. Stratcgic couragc is rclatcd to acting on principlc, whilc
pragmatic compliancc lollows lrom trcating cach casc on its own narrow mcrits.
Chapter z8: Economics and Principles
bc rcalistic, to gct along. Tosc who conlorm out ol cowardicc or cal
culation (to usc Schoccks words) shun lacing that lact, such a cognition
would bc dissonant with thcir scllimagc as dcccnt human bcings. Tcy
havc to adjust thcir cognitions. Tcy comc to bclicvc that conlormity is
propcr and moral, that thc usurping powcr is worthy and its tactics hon
orablc. Tc nonconlormists posc an obstaclc to this adjustmcnt ol cogni
tions, so thc adjustmcnt procccds until thc collaborators can rcally bclicvc
that thc othcrs arc scoundrcls. A lurthcr strand to thc thcory ol cognitivc
dissonancc is ironic but undcrstandablc: thc morc ncarly just barcly adc
quatc was thc induccmcnt to collaboratc, thc strongcr is thc intcrnal prcs
surc on thc collaborator to adjust his cognitions until hc bclicvcs, sinccrcly,
that hc has lcnt his support to a worthy causc. No onc likcs to bclicvc that
hc has bctraycd his principlcs lor small stakcs, although as lliot Aronson
(.,a) says, il a man sclls out lor a largc amount ol moncy, thcn hc has
as many cognitions as dollars that arc consonant with his having takcn a
stand hc docs not rcally bclicvc in.
For rcasons likc thcsc, thcn, prospcctivc rcsistcrs may dccidc not to
makc thc ncccssary sacricc in thc rst placc. Vhy not cultivatc a kind ol
stoicism instcad:
..
Vhy not sit back, possibly cnjoying a lrcc ridc il othcr
pcoplc do raisc thc justicd luss:
Such passivcncss is rcinlorccd il pcoplc actually bclicvc in turning thc
othcr chcck and in not passing judgmcnt on othcr pcoplcs actions. Pas
sivcncss can crcatc cxtcrnal discconomics by almost inviting rcpctition ol
thc wrongs tolcratcd. Tcrc is such a thing as culpablc blindncss to cvil.
Harold Macmillan had a point in saying ol a ccrtain 8ritish cabinct mcm
bcr ol thc .cs who rcmaincd pacistic in thc lacc ol thc Nazi mcnacc
that hc was a good man in thc worst scnsc ol thc word (quotcd in avis
.,, p. ).
Lct mc bc clcar. ! am not calling lor promiscuous mcddling. ! am not
calling on cvcryonc to go around hunting lor misbchavior to condcmn.
!nstcad, ! amrclcrring to thc rolc ol pcoplc dircctly acquaintcd withabuscs.
Silcnt acquicsccncc on thcir part is no virtuc.
.a
Still, ! would not say that
..
!n ccct, though not in so many words, this is thc advicc ol such writcrs as Albcrt
llis (.6, csp. chap. .), and, with Robcrt Harpcr (llis and Harpcr .6.), and Harry
8rownc (.,), thc bcstsclling amatcur cconomist and gold bug.
.a
Tc Honor Systcm at thc Univcrsity ol \irginia dcpcnds on thc willingncss ol stu
dcnts who know ol violations to accusc thc ocndcrs. Silcncc in such cascs is considcrcd
dishonorablc, subvcrsivc ol thc systcm. Tc systcm applics only to studcnts, not to laculty
mcmbcrs and administrators.
6 Part : Politics and Philosophy
thcy havc an actual obligation to spcak out at grcat pcrsonal cost. ! amurg
ing a good dcal lcss. Anyonc who docs rcndcr that public scrvicc dcscrvcs
at lcast sympathctic undcrstanding.
Vorsc than lrcc riding on othcr pcoplcs carrying thc burdcn ol protcst
against injusticcs is thc lrccriding ol thc culprits thcmsclvcs. Tc morc
prcvalcnt and wcll bascd is thc bclicl that pcoplc arc gcncrally dcccnt
and honcst, thc grcatcr is thc chancc that culprits havc to bcnct lrom
thc prcsumption that thcy too havc thcsc virtucs. Tcy will cnjoy a lrcc
ridc on, whilc posing unlair compctition with, thc warrantcd crcdibility ol
othcr pcoplc. ! conjccturc that a gcncral atmosphcrc ol dcccncy and trust
in socicty is unstablc lor at lcast two rcasons. Tc morc prcvalcnt knav
cry bccomcs, thc strongcr is thc tcmptation on thc individual to bchavc
likcwisc, rathcr than lic down likc a doormat (Hazlitt .6, pp. ..6).
n thc othcr hand, as ! havc just bccn arguing, whcn morality docs gcn
crally prcvail, thc individual violator has a corrcspondingly high chancc
ol proting lrom thc prcsumption that hc is dcccnt and honcst though
hc is not.
.
Just as Xinccicncy probably causcs morc cconomic loss than alloca
tivc inccicncy,
.
so, ! conjccturc, docs thc impairmcnt ol social coopcr
ation through crosion ol thc prcsumption ol dcccncy and honcsty. Tat
prcsumptionand its basis in lactis practically indispcnsablc lor coor
dination ol individuals divcrsc activitics and so lor an cconomically pro
grcssivc socicty. Vhat cconomists arc capablc ol contributing to analysis
ol this conncction may wcll havc morc signicancc lor wcllarc than lurthcr
rcncmcnts ol thc analysis ol dcviations lrom Parctooptimality. Alrcady,
somc ol thc bcst writings on cconomic backwardncss and cconomic dcvcl
opmcnt do lay strcss on thc cthos ol socicty.
.
.
Furthcrmorc, as 8uchanan (.6) has cxplaincd, largcncss ol thc socicty or group
conccrncd probably incrcascs thc tcmptation on thc individual to bchavc immorally.
.
Tc standard rclcrcncc to a burgconing litcraturc on this topic is Lcibcnstcin .66.
.
8ancld . has shown thc rolc ol amoral lamilism (an cxccssivcly narrow and
shortrun conccrn lor thc matcrial wcllarc ol thc nuclcar lamily), togcthcr with dishon
csty, suspiciousncss, and cnvy, in impcding social coopcration and cconomic dcvclopmcnt
in a town ol southcrn !taly around .. Tc importancc ol attitudcs and culturc lor dcvcl
opmcnt or backwardncss is thc main thcmc ol Zinkin .6. Vhilc Zinkin docs not par
ticularly cmphasizc trustworthincss and honcsty, hc docs rccognizc thcir importancc in
scvcral contcxts. Hc also notcs thc importancc ol burcaucrats abiding by principlc rathcr
than undcrcutting prcdictability by dcciding cach casc on its own mcrits. Scc also Vraith
and Simpkins .6, particularly pp. ., .,, ., whcrc thc authors notc thc rolc ol busincss
and accounting in dctcrring corruption.
Chapter z8: Economics and Principles ,
coxciusiox
!n conclusion and in summary, cconomic thcory hclps clarily thc usclul
ncss and ncccssity ol lcaving much in thc rcalm ol good and cvil to inlor
mal principlcs and thcir dcccntralizcd, nongovcrnmcntal cnlorccmcnt. !t
also points out dangcrs to such principlcs and obstaclcs to such cnlorcc
mcnt. !t hclps cxplain thc rolc ol broad principlcs in asscssing cconomic
policics and hclps cxplain why thc mcrits ol cach spccic govcrnmcnt
intcrvcntion, narrowly asscsscd, arc not thc only rclcvant considcrations.
Vc should appraisc cach proposcd intcrvcntion, as bcst wc can, lor its
likcly lcgal, political, social, and cthical rcpcrcussionslor its rcpcrcus
sions on thc systcm as a wholc. !l wc avoid appraising and comparing
altcrnativc cconomic systcms as wholcs, il wc avoid lorming and acting
on a cohcrcnt conccption ol thc good socicty, wc shall makc momcntous
choiccs in ignorancc and by dclault. Tc oppositc approach, rcspccting
principlcs, would go lar, ! bclicvc, toward rcinstating thc wisdom ol thc
Founding Fathcrs rcgarding thc scopc and powcr ol govcrnmcnt.
vvvvvvxcvs
Abclson, Philip H. Fcdcral !ntcrvcntion in Univcrsitics. Science .c (., ctobcr
.,): cditorial pagc.
Adlcr, Mortimcr J. Te Time of Our Li.es. Ncw York: Holt, Rinchart and Vin
ston, .,c.
Alsop, Stcwart. Lcts Raisc Morc Hcll. Ne.s.eek, March .,c.
Aronson, lliot. Te Social nimal. San Francisco: Frccman, .,a.
8ancld, dward C., assistcd by Laura C. 8ancld. Te Moral Basis of a Back.ard
Society. Ncw York: Frcc Prcss, ..
8rownc, Harry. Ho. I Found Freedom in an Unfree !orld. Ncw York: Avon
8ooks, .,.
8rowning, dgar K. Vhy thc Social !nsurancc 8udgct !s Too Largc in a
cmocracy. Economic Inquiry . (Scptcmbcr .,): ,.
8uchanan, Jamcs M. thical Rulcs, xpcctcd \alucs, and Largc Numbcrs.
Ethics ,6 (ctobcr .6): ...
. Amcricas Tird Ccntury in Pcrspcctivc. tlantic Economic Journal .
(Novcmbcr .,): .a.
Part : Politics and Philosophy
. Te Limits of Liberty. Chicago: Univcrsity ol Chicago Prcss, .,.
. Tc Samaritans ilcmma. Manuscript, .,a. !n ltruism, Morality,
and Economic Teory, cditcd by .S. Phclps. Ncw York: Russcll Sagc Foun
dation, .,.
ahl, Robcrt. Minoritics Rulc. .6. !n merican Democracy, cditcd by Lconard
J. Fcin, .a.c. Ncw York: Holt, Rinchart and Vinston, .6.
avis, Joscph S. Te !orld bet.een the !ars, z,z,,: n Economists !ie.. 8alti
morc: Johns Hopkins Univcrsity Prcss, .,.
owns, Anthony. n Economic Teory of Democracy. Ncw York: Harpcr, .,.
. Vhy thc Govcrnmcnt 8udgct is Too Small in a cmocracy. !orld
Politics ( July .6c): .6.
llis, Albcrt. Is Objecti.ism a Feligion? Ncw York: Lylc Stuart, .6.
llis, Albcrt, and Robcrt Harpcr. Guide to Fational Li.ing in an Irrational
!orld. nglcwood Clis, N.J.: Prcnticc Hall, .6..
tzioni, Amitai. Tc Grand Shaman. Psychology Today 6 (Novcmbcr .,a):
a, .a..
Fcstingcr, Lcon. Teory of Cogniti.e Dissonance. vanston, !nd. and Vhitc
Plains, N.Y.: Row, Pctcrson, .,.
Fricdman, Milton. Capitalism and Freedom. Chicago: Univcrsity ol Chicago
Prcss, .6a.
Glazcr, Nathan. Towards an !mpcrial Judiciary: Te Public Interest, no. . (Fall
.,): .c.a
Grccncld, Mcg. Food lor Tought. Ne.s.eek, .c Novcmbcr .,.
Hardin, Garrctt. Tc Tragcdy ol thc Commons. .6. !n Population, E.olution,
and Birth Control, a cd., cditcd by Hardin, 6,.. San Francisco: Frccman,
.6.
Hayck, F.A. Studies in Philosophy, Politics and Economics. Chicago: Univcrsity ol
Chicago Prcss, .6,.
. Fules and Order. \ol. . ol La., Legislation and Liberty. Chicago: Uni
vcrsity ol Chicago Prcss, .,.
Hazlitt, Hcnry. Te Foundations of Morality. Princcton, N.J.: . \an Nostrand,
.6.
Chapter z8: Economics and Principles
Hotclling, Harold. Stability in Compctition. Economic Journal (March .a):
.,.
Kahn, Robcrt L., 8arbara A. Gutck, ugcnia 8arton, and anicl Katz. Amcr
icans Lovc thcir 8urcaucrats. Psychology Today ( Junc .,): 66,..
Lcibcnstcin, Harvcy. Allocativc cicncy vs. Xcicncy. merican Eco-
nomic Fe.ie. 6 ( Junc .66): a..
McKcan, Roland N. Collcctivc Choicc. !n Social Fesponsibility and the Busi-
ness Predicament, cditcd by Jamcs V. McKic, .c.. Vashington, .C.:
8rookings !nstitution, .,.
. conomics ol thical and 8chavioral Codcs. Manuscript, .,.
Miscs, Ludwig von. Bureaucracy. London: Hodgc, ..
Ncmy, nid. Prolcssor Rcbcls Against Systcm. Ncw York Timcs Ncws Scrvicc
dispatch, Charlottes.ille Daily Progress, . cccmbcr .,.
Niskancn, Villiam A., Jr. Bureaucracy and Fepresentati.e Go.ernment. Chicago:
Aldinc, .,..
lson, Mancur, Jr. Te Logic of Collecti.e ction. Cambridgc, Mass.: Harvard Uni
vcrsity Prcss, .6.
lson, Robcrt G. Te Morality of Self-Interest. Ncw York: Harcourt 8racc &
Vorld, .6.
rtcga y Gassct, Jos. Te Fe.olt of the Masses. .c. Ncw York: Norton, .,.
Philbrook, Clarcncc H. Rcalism in Policy spousal. merican Economic Fe-
.ie. (cccmbcr .): 6.
Rand, Ayn. tlas Shrugged. Ncw York: Ncw Amcrican Library, .,.
Rawls, John. Teory of Justice. Cambridgc, Mass.: Harvard Univcrsity Prcss,
.,..
Schlick, Moritz. Problems of Ethics. .c. Translatcd by . Rynin. Ncw York:
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Schocck, Hclmut. En.y: Teory of Social Beha.iour. .66. Translatcd by Mi
chacl Glcnny and 8ctty Ross. Ncw York: Harcourt 8racc & Vorld, .,c.
Smith, Adam. Te Teory of Moral Sentiments. .,. !n dam Smiths Moral and
Political Philosophy, cditcd by Hcrbcrt V. Schncidcr. Ncw York: Harpcr
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6c Part : Politics and Philosophy
\incr, Jacob. Tc Short \icw and thc Long in conomic Policy. .c. !n Te
Long !ie. and the Short, .c.c. Glcncoc, !ll.: Frcc Prcss, ..
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Vraith, Ronald, and dgar Simpkins. Corruption in De.eloping Countries. Ncw
York: Norton, .6.
Zinkin, Mauricc. De.elopment for Free sia. Ncw cd. Ncw York: xlord Univcr
sity Prcss, .6.
cn~v:vv +
Amcrican cmocracy
iagnoscd

Alan hrcnhalt carncd a mastcrs dcgrcc in journalism, has workcd as a

political rcportcr, cditor, and columnist, has bccn a Nicman Fcllow at
Harvard and a visiting scholar in political scicncc at 8crkclcy, and is now
cxccutivc cditor ol Go.erning magazinc in Vashington. His ncw book,
Te United States of mbition, shapcs his kccn obscrvations into an intclli
giblc pattcrn.
Tc U.S. political systcm has changcd vastly lrom what it was scv
cral dccadcs ago. ldstylc machincs likc thc onc bosscd in Utica, Ncw
York, by Rulus lclantc (ncvcr clcctcd to anything) arc gonc. Political par
tics havc lost thcir organizcd charactcr. xpcricnccd politicians and party
lcadcrs no longcr havc much chancc to scrccn potcntial candidatcs. Suc
ccss no longcr bclongs to tcam playcrs. Tc political proccss has bccomc
much morc opcn to lcadcrlcss individuals sccking occ on thcir own. Tc
skills that work in Amcrican politics at this point in history arc thosc ol
cntrcprcncurship. At all lcvcls ol thc political systcm . . . it is unusual lor
partics to nominatc pcoplc. Pcoplc nominatc thcmsclvcs (p. .,).
Tosc who gain and kccp occ tcnd to bc pcoplc who likc politics, scc
it as a lulltimc carccr, and cithcr cnjoy campaigning or dislikc its rigors
lcss than most pcoplc would. Tcy bask in publicity and put a rclativcly
low valuc on privacy. As carccrist prolcssionals, thcy dcvclop cxpcrtisc
in lundraising and in cxploiting tcchnology and thc mcdia. Furthcrmorc,
pcoplc who havc thcsc tastcs tcnd to bc pcoplc who bclicvc in activist
govcrnmcnt. vcn out ol gcnuinc public spirit, thcy work to cxpand thcir
scopc lor doing good in thcir lavoritc way, through cxcrcising govcrnmcn
tal powcr.

From Liberty ( January .a): 6,.. Rcvicw ol Alan hrcnhalt, Te United States
of mbition: Politicians, Po.er, and the Pursuit of Oce (Ncw York: Timcs 8ooks, ..).
6.
6a Part : Politics and Philosophy
Pcoplc with a ncgativc imagc ol govcrnmcnt, sccing it as ovcrly mcd
dlcsomc, or whatcvcr, tcnd to shun politics. xccptions do cxist, but thcy
arc just that, cxccptions, and thcy tcnd not to pcrscvcrc in politics as tcna
ciously as carccroricntcd dcvotccs ol activist govcrnmcnt. Undcr our cur
rcnt systcm, lurthcrmorc, a partys succcss dcpcnds on stcadily rccruiting
lulltimc talcnt. Govcrnmcntbashing docs not build majoritics. Ronald
Rcagans antigovcrnmcnt rhctoric rcinlorccd a distastc lor political carccrs
among young Rcpublicans.
Vhcn conscrvativcs occasionally comc to powcr, thcy do not do much
to roll back activist programs alrcady in placc. Govcrnmcnt programs
acquirc an incrtia and a sct ol constitucncics that makc rcpcal look likc
oncrous and politically costly work, cvcn lor a ncwly installcd conscrvativc
rcgimc that nds thcm unattractivc (p. 6).
|T|hrough thc .,cs and .cs, thc cmocratic party strcngthcncd itscll
as thc vchiclc lor pcoplc who grcw up intcrcstcd in govcrnmcnt and pol
itics and wantcd to makc a carccr ol thcm. And thc Rcpublican party
was lorccd to compctc as thc vchiclc ol thosc who lclt that govcrnmcnt
was a dirty busincss and that thcy wcrc dcmcaning thcmsclvcs to takc
part in it. (p. aaa)
hrcnhalt illustratcs his points with casc studics ol local govcrnmcnt
(Concord, CA., Utica, N.Y., Grccnvillc county, S.C.), statc govcrnmcnt
(SouthCarolina, Alabama, Connccticut, Colorado, Visconsin), andmcm
bcrs ol Congrcss.
!n Visconsin, lor cxamplc, thc pcoplc
havc ncvcr choscn thc cmocratic party en bloc to bc thc lcgislativc
majority. Tc qucstion is not put to thc clcctoratc that way. . . . Viscon
sins votcrs havc clcctcd individual cmocrats who outpcrlormcd thcir
opposition at thc tasks a modcrn political carccr rcquircs. Tc clcctoratc
has not scnt thcm to govcrn, it has mcrcly maintaincd thc conditions
undcr which thcy could scnd thcmsclvcs. (p. .a)
!n Visconsin, thc GP has bccomc thc party ol Cincinnatusthc
party ol thosc who, in thc nal analysis, would rathcr bc doing somc
thing clsc lor a living. Tc cmocrats arc thc party ol thosc who bclicvc,
with |Asscmblyman| avid Clarcnbach, that ! cant think ol anything !d
rathcr dcvotc my lilc to (p. .a6).
As hrcnhalt rccognizcs, his obscrvations do not lully apply to thc
gcncral clcction lor Prcsidcnt. For a bricl pcriod cvcry lour ycars, altcr
Chapter z,: merican Democracy Diagnosed 6
thc scllnomination proccss is ovcr, thc opinions and valucs ol thc clcc
toratc arc dccisivc. Howcvcr littlc thc votcrs know about thc vast major
ity ol political choiccs conlronting thcm, thcy do havc cnduring imagcs
ol what thc two major partics arc about in prcsidcntial politics (p. a,c).
Tcy apply thcsc imagcs and thcy pay attcntion to thc campaign as thcy
choosc bctwccn thc two major candidatcsor many ol thc votcrs do, so
thc qualication should run. Anothcr qualication should bc that thc vot
crs arc choosing only bctwccn two candidatcs that thcy havc not thcm
sclvcs dclibcratcly nominatcd.
hrcnhalt idcntics a ccntral contradiction ol thc U.S. political sys
tcmthat crics out lor cxplanation: although votcrs havc shown a clcar prcl
crcncc lor Rcpublican prcsidcntial candidatcs ovcr thc last twcnty ycars,
this has donc nothing to givc thc GP a majority in thc country as a
wholc (p. ac). Yct his own mcthod ol analysis suggcsts how to cxplain
this contradiction, as wcll as thc common obscrvation (il it is corrcct)
that votcrs tcnd to disdain Congrcss in gcncral whilc admiring thcir own
particular rcprcscntativc.
Prcsidcntial clcctions dcal with thc big picturc. \otcrs arc intcrcstcd
and inlormcdrclativcly. Tcy havc a chancc to cxprcss conscrvatism
morc ccctivcly than in local and Congrcssional clcctions.
\otcrs may dislikc thc pcrlormancc ol Congrcss as a wholc. Taking
thc systcm as givcn, though, thcy can scnsibly clcct a rcprcscntativc who
knows howto manipulatc it in dclcnsc ol thcir intcrcsts. Forbcarancc lrom
grabbing thcir own supposcd sharc ol lcdcral largcssc would not apprc
ciably turn thc systcm around. Rcsponsiblc govcrnmcntgovcrnmcnt
rcsponsiblc to thc gcncral public intcrcst rathcr than ovcrrcsponsivc, piccc
mcal, to numcrous local and spccial intcrcstsis a public good, pursuing
it has prisoncrsdilcmma aspccts. Vhy should oncs own rcprcscntativc
bchavc rcsponsibly whcn lcw othcrs would lollow thc cxamplc and whcn
thc payo to himscll and his or hcr constitucnts would bc so slight and
conjcctural: Furthcrmorcas is onc ol thc books main thcmcsthcir
rcprcscntativc tcnds to bc a spccialist in providing scrviccs to constitucnts
and in projccting an attractivc pcrsonal imagc.
hrcnhalt mcntions thc chronic U.S. govcrnmcnt budgct dccit as an
cxamplc ol irrcsponsibility or dissipation ol rcsponsibility in thc political
and lcgislativc proccsscs (although hc docs not phrasc thc mattcr just that
way, scc pp. aac). Morc gcncrally, thc political systcm has dcvclopcd
a critical aw: !t has allowcd powcr and lcadcrship, at many lcvcls, simply
to cvaporatc (p. ).
6 Part : Politics and Philosophy
Vhat accounts lor changcs in thc political systcm ovcr thc past lcw
dccadcs: hrcnhalt makcs or hints at scvcral suggcstions. Skill in commu
nicatingin town mcctings, in doortodoor canvassing, on tclcvision, in
dircctmail litcraturchas gaincd in importancc (p. .). Tc morc cam
paigning bccomcs a scicncc unto itscll, thc morc public occs and rcwards
ow to pcoplc who havc mastcrcd its dctails (p. ac6).
Air conditioning and jct plancs hclpcd changc thc charactcr ol Con
grcss. Morc so than bclorc, scrving in it can and must bc a ycarround, lull
timc occupation, yct mcmbcrs can kccp in touch with thcir constitucnts.
8ut long wcckcnds back in thc district, togcthcr with hcavicr work loads,
havc lurthcr crodcd camaradcric among thc mcmbcrs (p. a in particu
lar). n local as wcll as congrcssional lcvcls, an cxplosion in stang has
changcd thc lcgislativc proccss, making lcgislaturcs both morc compctcnt
and morc activc (p. .).
Rcdistricting undcr thc .6a Suprcmc Court dccision and thc civil
rights movcmcnt contributcd to opcning up thc political systcm. Changcd
convcntion rulcs and thc incrcascd importancc ol primarics havc altcrcd
thc prcsidcntial racc. \ictnam and Vatcrgatc crcatcd opportunitics lor
anticstablishmcnt, antiorganization typcs (pp. .a, aca.c).
Somc ol thcsc points, obviously, arc just as much lcaturcs as cxpla
nations ol thc ncw systcm and rcquirc cxplanation thcmsclvcs. hrcnhalt
docs not, and docs not claim to, providc anything approaching a lull, wcll
articulatcd, pcrsuasivc cxplanation.
Still, hc has madc a praiscworthy contribution to political scicncc. !t
mcshcs niccly with thc work ol publicchoicc cconomists. Pcrhaps morc
acadcmically oricntcd rcscarchcrs will build on his work, guring out, lor
cxamplc, how to obtain statistics on thc pcrsonal charactcristics ol politi
cians and how to tcst his insights in ingcnious ways.
Tc books two nal paragraphs statc a bricl conclusion. ur political
systcm is dccicnt in lcadcrship, disciplinc, and thc willingncss to scck
accommodation ol divcrgcnt pcrsonal prclcrcnccs. !t gcncratcs a politics
ol posturing and stalcmatc. Yct it will not do simply to blamc ambitious
prolcssional politicians lor this mcss:
Vc undcrstand morc than wc might likc to admit about city councils
that cant dclcr to lcadcrship, about statc lcgislaturcs whcrc cvcry indi
vidual is a laction unto himscll, about a Congrcss that lacks any sort ol
mcaninglul community among its mcmbcrs. Vc undcrstand thcsc prob
lcms, or should, bccausc thcy arc all around us in Amcrican lilc. For all
Chapter z,: merican Democracy Diagnosed 6
our ignorancc as votcrs and inattcntivcncss as citizcns, wc havc a politics
that is, in thc cnd, appropriatc to its timc and placc.
Tis rathcr lamc conclusion ovcrlooks thc insights ol Anthony owns
in n Economic Teory of Democracy (.,): !t is pcrlcctly rational lor thc
individual citizcn ordinarily to rcmain ignorant ol political issucs and givc
thcm only supcrcial attcntion. Any rclorm cort that hopcs to succccd
must takc this circumstancc to hcart.
hrcnhalt ncithcr lully cxplains our political malady nor givcs advicc
on how to curc it. Yct cvcn unaccompanicd by an ctiology and a prcscrip
tion, his diagnosis is wcll worth having. Although hrcnhalt is not push
ing any particular idcological linc, his analysis tcmpts mc to ocr somc
libcrtarian cmbroidcry.
Shccr cloqucncc, ! conjccturc, including a knack lor dcvising mcmo
rablc slogans, succccds bcttcr in thc political arcna than compctcnt con
ccrn lor thc sizcs or importancc ol various supposcd problcms and ol thc
bcncts and costs ol rcmcdics ocrcd. Knowing cconomics can hobblc
thc honcst politician, whilc thc pangs ol conscicncc sparc thc cconomic
ignoramus as hc prcvails with promiscs and cloqucncc. Conccrn lor thc
long run is a similar handicap, sincc looking good at clcction timc is what
counts.
Tcsc arc among thc rcasons why thc qualitics and skills ol a succcsslul
political campaigncr do not coincidc with thosc ol a good govcrnmcnt
cxccutivc or lcgislator (as hrcnhalt notcd in Concord, CA., p. ). Tc
ability to canvass lor votcs in !owa or NcwHampshirc docs not havc much
to do with thc qualitics that makc a succcsslul prcsidcnt. 8ut it has comc
to bc a virtual prcrcquisitc lor anyonc who wants thc job (p. ac6).
hrcnhalt lurthcr hclps us undcrstand why thc outcomc ol thc polit
ical proccss docs not ncccssarily rcprcscnt thc will ol thc pcoplc. !t is a
lallacy to say (as Gcorgc Vill and Hcrbcrt Stcin did) that pcoplc must
bc prctty wcll satiscd with govcrnmcnt as a wholc, othcrwisc thcy would
votc to changc it. Tc votcrs do not havc an opportunity to cxprcss thcm
sclvcs, and cxprcss thcmsclvcs knowlcdgcably, on thc charactcr ol govcrn
mcnt and its ovcrall scalc ol activity. Tc political proccss opcratcs with
a bias toward bigncss. Furthcrmorc, votcrs arc probably trappcd in a kind
ol prisoncrs dilcmma (as suggcstcd in rcmarks about Congrcss abovc).
hrcnhalts rcadcrs will scc lurthcr rcasons lor skcpticism about dc
mocracy as a good in its own right. cmocracy is a particular politi
cal mcthod, a mcthod ol choosing, rcplacing, and inucncing our rulcrs.
66 Part : Politics and Philosophy
!dcally it ocrs us a way ol avoiding or dismissing rulcrs who would
dcstroy our individual rights. !t is a radically inaccuratc mcthod ol implc
mcnting thc dcsircs ol thc pcoplc, but thc altcrnativc political mcthods
arc cvcn worsc. !t is a gross lallacy to slidc lrom thc casc lor dcmocracy as
thc lcast bad political mcthod into admiring political mcthods as such and
into a supposcd casc lor throwing morc and morc aspccts ol lilc into thc
politicalmcaning govcrnmcntalarcna. hrcnhalts obscrvations bol
stcr thc casc lor strictly limiting thc scopc ol govcrnmcnt.
Although rclorms in thc dcmocratic proccss will not dispcl thc dan
gcrs ol big govcrnmcnt, hrcnhalts book should arousc intcrcst in cxplor
ing thcm. Tc casc lor limiting thc tcrms ol govcrnmcntal occ looks
bcttcr. So docs thc casc lor choosing lcgislators, or somc ol thcm, by lot
rathcr than by clcction. So, pcrhaps, do thc radical rclorms suggcstcd by
F.A. Hayck in Te Political Order of a Free People (.,).
Prospccts lor rclorming politics and rcstraining govcrnmcnt may look
blcak just now. !n thc long run, though, cxpcricncc, rcason, and thc growth
ol organizcd knowlcdgc can changc what is politically lcasiblc. (Tc his
torical and intcllcctual dcmisc ol socialism is a casc in point.) hrcnhalt
has madc a solid contribution to this growth ol knowlcdgc. So doing, hc
providcs grounds lor optimism.
cn~v:vv :o
Civic Rcligion Rcasscrtcd

!n rcccnt dccadcs thc publicchoicc school has bccn applying cconomic

analysis to political institutions and activitics. Pcoplc arc lundamcntally
thc samc in govcrnmcnt as in privatc lilc. !n trying to achicvc thcir pur
poscs (which nccd not bc narrowly cgoistic oncs), individuals rcspond to
opportunitics and inccntivcs. Tc spccics ol thcsc arc dicrcnt in politics
than in thc markctplacc ol busincss.
nc implication is that thc ordinary votcr scldom nds it worth whilc
to bccomc wcll inlormcd on a widc rangc ol political issucs. Almost ncvcr
would his troublc changc an clcction rcsult or thc policics adoptcd. Hc
has bcttcr uscs lor his timc and cncrgy. Tc privatc markct givcs him a
bcttcr chancc than politics docs to satisly his own prclcrcnccs, cvcn quirky
oncs. Similarly, hc has only slight opportunitics and inccntivcs to monitor
thc pcrlormancc ol his supposcd scrvants in govcrnmcnt. Spccial intcrcst
groups havc bcttcr opportunitics to stccr govcrnmcnt policics in thcir own
lavoritc dircctions.
For thcsc and othcr rcasonsonly somc ol thcm noticcd in thc book
undcr rcvicwthc dcmocratic political proccss rcsponds inaccuratcly to
what thc citizcns would dcsirc il thcy wcrc wcll inlormcd. Modcrn dcmo
cratic govcrnmcnt has a bias toward countcrproductivc hypcractivity.
An cxtcnsivc litcraturc making such points mccts swccping rcjcction
by a 8crkclcy Ph.. graduatc, lormcr assistant prolcssor ol political sci
cncc at thc Univcrsity ol Chicago, and now prolcssor ol cconomics at thc
Univcrsity ol Calilornia at Santa Cruz. !n an carlicr articlc now cxpandcd
into thc book, onald Vittman claimcd that dcmocratic markcts work
as wcll as cconomic markcts (., p. .). Tc book (., p. .) wcakcns
this claim into both political and cconomic markcts work wcll. !n articlc
and book alikc, Vittman claims that thc dcmocratic proccss is ccicnt,

From Liberty .c ( January .,): ,6c, thcrc titlcd Vc Many, Vc Happy Many.
Rcvicw ol onald A. Vittman, Te Myth of Democratic Failure: !hy Political Institutions
re Ecient (Chicago: Univcrsity ol Chicago Prcss, .).
6,
6 Part : Politics and Philosophy
scarccly bothcring to dcscribc what his standard ol comparison might bc.
Hc docs invokc, but only ritualistically, thc critcria ol Parcto optimality
and wcalth maximization (pp. 6, aa n., chap. ..). Rclativc to what is
dcmocracy ccicnt: Rclativc to othcr lorms ol govcrnmcnt: Rclativc to
lcaving widc aspccts ol lilc outsidc thc political arcna, as thc Amcrican
Foundcrs cvidcntly intcndcd: Vittman docs not say.
Vittman argucs his ccicncy claim lccbly. Hc scarccly gocs bcyond
asscrting that thc positions hc attacks arc incorrcct or havc bccn cxaggcr
atcd. (! havc alrcady argucd that thc dcgrcc ol opportunism by politi
cians has bccn grcatly cxaggcratcd, p. .) Such claims arc hard to con
lront and arc corrcspondingly limp, sincc somc cxaggcrations occur on
almost any sidc ol any issuc. Furthcrmorc, Vittman rclics hcavily on thc
analogyhardly morc than thatbctwccn cconomic markcts and dcmo
cratic politics (this book dcvclops an invisiblchand thcory ol ccicnt
dcmocratic markcts, p. ). Gordon Tullock, Richard Posncr, and othcrs
had argucd that spcnding to curry govcrnmcnt lavors will tcnd to dissipatc
thc rcnts sought. Vittman rcplics that rulcs will dcvclop to minimizc thc
social cost. Campaign contributions arc not dcad losscs, thcy hclp providc
valuablc inlormation. 8csidcs, rcntsccking gocs on in thc busincss scc
tor also. Pct storcs push salcs ol bird lccdcrs, which rcdistributcs incomc
lrom humans to birds. !l rcntsccking is not vicwcd as a scrious problcm
in thc busincss scctor, it probably should not bc so vicwcd in political
markcts cithcr (p. 6).
Vittman providcs many morc cxamplcs ol trying mcrcly to talk away
points madc by publicchoicc analysts. Political cntrcprcncurs, likc busi
ncss cntrcprcncurs, can gain lrom discovcring and cxploiting unknown
dcmands, providing rclatcd inlormation, and clcaring up conlusion. So
doing, thcy hclp solvc thc supposcd problcms ol thc rational ignorancc
ol votcrs and thc dicrcntial inlormation ol spccial intcrcsts. As lor princi
palagcnt problcms (problcms ol monitoring by votcrs ol thcir supposcd
political scrvants), wcll, thcy arc mitigatcd by institutions such as gov
crnmcnt structurc, political partics, and candidatc rcputation. 8csidcs, il
thc principal cannot monitor his political agcnt, thcn ncithcr can thc aca
dcmic rcscarchcr. Compctition lor occ rcduccs politicians potcntial lor
opportunism and shirking. Tc party is thc analoguc in politics ol thc
lranchisc in thc busincss scctor. Party labcls, accumulatcd rcputations,
intcrcstgroup cndorscmcnts, and comparativc political advcrtising also
providc good substitutcs lor spccic knowlcdgc about particular candi
datcs. \otcrs discount inlormation lrom sourccs known to bc biascd. As
Chapter :c: Ci.ic Feligion Feasserted 6
lor thc allcgation that diusc taxpaycrs arc inscnsitivc to spcnding lor
conccntratcd intcrcsts, wcll, uninlormcd pcoplc may cvcn cxaggcratc thc
cxtcnt and harm ol porkbarrcl projccts. vcn il somc votcrs do makc
incorrcct choiccs, thc law ol largc numbcrs is likcly to yicld thc corrcct
majority choicc anyway. Political institutions, including lcgislaturcs much
smallcr than thc constitucncics rcprcscntcd, rcducc transactions costs and
lacilitatc ccicnt policy dcals. cspitc supposcd problcms ol transitiv
ity, cxtcrnalitics, localism, and prcssurc groups, corts to gain a majority
push a govcrnmcnt toward achicving ccicnt outcomcs. Local zoning,
lor cxamplc, is likcly to bc ccicnt.
Hcrc arc thrcc morc cxamplcs ol Vittmans stylc ol argumcnt. (r) o
votcrs shilt somc ol thc burdcn ol currcnt govcrnmcnt spcnding onto
luturc gcncrations through dcbtnanccd dccits: Trcc short scntcnccs
assuming that taxcs lall on land introducc a swccping conclusion: Tc
burdcn ol thc dcbt lalls on thc prcscnt gcncration, and thcy will thcrc
lorc choosc thc optimal discount ratc, just as thcy choosc thc optimal
policy in othcr arcas (p. .). (a) ||cicnt cconomic markcts constrain
thc bchavior ol dcmocratic markcts. !l votcmaximizing politicians try
to monkcy with thc cconomy, it backrcsthc cconomy bccomcs lcss
ccicnt, and workcrs and capitalists votc thcm out ol occ. So politi
cians arc rcstraincd lrom such mancuvcrs in thc rst placc (p. .,6). () !n
making consumptionvcrsusinvcstmcnt dccisions in a socialist cconomy,
\otcmaximizing politicians would again bc constraincd in thcir choiccs
by rcquircmcnts ol an ccicnt cconomy. Making dicrcnt choiccs would
ultimatcly yicld lcwcr votcs (p. .,6). Ultimatclypcrhaps so, il lrcc
dom and dcmocracy survivc undcr socialism, but why should thc individ
ual politician carc about ultimatcly:
Vittman providcs littlc sustaincd rcasoning to support his positions,
and scant cvidcncc bcyond airy rclcrcnccs to thc cxistcncc ol clcctions,
partics, idcologics, rivalrics, campaigning, Congrcssional hcarings, and so
lorth. Hc docs citc many books and articlcs claimcd to support his posi
tion, but hc citcs thcmswccpingly, without dctailcd discussion. Hc spcnds
morc spacc on thc supposcd mcthodological and othcr aws ol studics
that rcach contrary conclusions. nc wholc chaptcr criticizcs psycholog
ical studics casting doubt on how dcpcndably pcoplc bchavc rationally
as cconomists undcrstand thc tcrm.
Vittman pays littlc or no attcntion to major strands ol publicchoicc
litcraturc. Vhilc hc docs paw away at thc conccpt ol votcr ignorancc,
hc sccms not dccply to apprcciatc why supcrciality is rational lor thc
,c Part : Politics and Philosophy
individual votcr (and nonvotcr). thcr such phcnomcna includc: thc luzz
ing ol issucs in a twoparty systcm (thc Hotclling ccct), and thc associ
atcd drilt ovcr timc in what positions arc considcrcd rcspcctably main
strcam, thc jumbling togcthcr ol divcrsc issucs in oltcn incohcrcnt pack
agcs, thc chasm bctwccn thc pcrsonal qualitics ol an ccctivc campaigncr
and thosc ol a sound statcsman, various rathcr mcchanical inaccuracics
ol thc political proccss (including scvcral paradoxcs ol voting and what
Robcrt ahl labclcd minoritics rulc), thc lragmcntation ol dccisionmak
ing powcr and rcsponsibility among lcvcls and branchcs ol govcrnmcnt
and among individual politicians, burcaucrats, and judgcs, thc analogous
intcrtcmporal lragmcntation ol rcsponsibility, thc associatcd rcasons why
politicians and burcaucrats havc short timc horizons, thc lorcstalling ol
markct solutions to problcms by govcrnmcntal prccmption, thc way that
govcrnmcnt activism, lar lrom just rcmcdying cxtcrnalitics in thc privatc
scctor, crcatcs major cxtcrnalitics in govcrnmcnt dccisionmaking itscll,
thc lcsscr scopc lor priccs to lunction in govcrnmcnt than in markcts, and
thc cocrcivc aspcct ol govcrnmcnt that is abscnt lrom privatc busincss.
Hc docs not draw thc implications ol politicians and burcaucrats consti
tuting spccial intcrcsts ol thcir own (hc should havc takcn to hcart such
casc studics as Alan hrcnhalt, Te United States of mbition, .., John
Jacklcy, Hill Fat, .a, and ric Fcltcn, Te Fuling Class, .).
nc wondcrs what world Vittman has bccn living in. Hasnt hc no
ticcd cxamplcs ol govcrnmcnt irrcsponsibility and lailurc in policy on
crimc, cducation, wcllarc, rcgulation, litigation, moncy, and budgcting:
Can votcrs diagnosc who is rcsponsiblc lor currcnt poor cconomic pcr
lormancc, cspccially givcn lags in thc cccts ol policics: Hasnt Vittman
noticcd votcrs tcndcncy to blamc or crcdit thc administration in powcr
lor thc currcnt stagc ol thc busincss cyclc: Hasnt hc noticcd thc wrctchcd
quality ol argumcnts on cconomic policy issucs prcscntcd by all major
sidcs and rcportcd on tclcvision and in thc popular prcss: ocsnt hc rcc
ognizc that thc quality ol political discussion is so low bccausc politicians
appcal to votcrs as thcy actually arc, with thcir short attcntion spans in
thcir actual circumstanccs:
Although Vittman ncglccts most such countcrcvidcncc, his trcatmcnt
ol what hc docs noticc suggcsts how hc would dcal with thc rcst ol it. !t
is all too casy, hc says, to point to such standard cxamplcs ol supposcd
govcrnmcnt inccicncy as rcnt control, taris, tobacco and othcr larm
subsidics, and agriculturalmarkcting ordcrs. 8ut somc obscrvcrs com
plain about too much lorcign aid or too much support lor rightwing
Chapter :c: Ci.ic Feligion Feasserted ,.
dictators, othcrs complain about too littlc. So, whilc just about cvcryonc
has hcr |sic| thcory ol govcrnmcnt lailurc, at lcast hall must bc wrong.
|M|any cxamplcs ol politicalmarkct lailurc arc mutually contradictory
and mcthodologically unsound (chap. ., quotations lrompp. .a and ..).
Vittmans argumcnts arc not only lccblc but somctimcs inconsistcnt.
||pportunism by politicians is mitigatcd whcn thcy arc paid abovc
markct salarics and thcn thrcatcncd with losing occ il thcy shirk. Tc
lact that candidatcs cngagc in vcry costly clcction campaigns is consistcnt
with thc hypothcsis that holding occ pays abovcmarkct salarics (p. a,).
Vhat, thcn, has bccomc ol thc much trumpctcd compctition: ont thc
costly campaigns dissipatc wcalth: And how docs Vittmans judgmcnt
about politicians salarics squarc with his cqually blithc judgmcnt (p. .c6)
that burcaucrats wagcs are kcpt at thc compctitivc lcvcl:
!ronically, Vittmans book, likc thc prccursor articlc, was publishcd at
thc Univcrsity ol Chicago, a citadcl ol positivism in cconomic thcory and
ol insistcncc that thcorics bc lalsiablc. (! intcrprct this, pcrhaps charita
bly, as insistcncc that thcorics havc actual contcnt, as opposcd to bcing lor
mulatcd with builtin immunity to any advcrsc cvidcncc.) Vittman him
scll makcs scllcongratulatory rcmarks about sound and unsound mcthod
ologics. His two concluding chaptcrs, totaling only . pagcs, bcar thc titlcs
Tc Tcsting ol Tcory and piloguc: Tc 8urdcn ol Prool. (Pagc a had
alrcady placcd thc burdcn ol prool . . . on thosc who arguc that dcmocratic
political markcts arc inccicnt.) Tc rcadcr cxpccts Vittman at last to
say what hc would rccognizc as wcighty cvidcncc or argumcnt against his
thcsis and say how it stands up to thc tcst.
Yct hc docs not lollow through. vcn so, hc cnds his book claiming
to havc carricd ovcr to modcls ol politicalmarkct lailurc thc suspicion
about undcrlying assumptions that cconomists propcrly apply to asscr
tions ol lailurc in thc busincss scctor. ! havc argucd that votcrs makc
inlormcd judgmcnts and that dcmocratic markcts arc compctitivc (p. .a).
conomists do not dwcll on busincss crror or pathological consumcr
bchavior. !nstcad, thcy analyzc thc normal and look lor ccicncy cxpla
nations lor abnormal markct bchavior. Similarly, political scicntists should
not dwcll on thc mistakcs madc by political markcts (p. . n.). 8ut hc
docs not claim to havc actually shown that dcmocracy is ccicnt. Tc
luzzincss that rcmains rcndcrs his thcsis cvcn lcss tcstablc than it might
havc bccn il morc sharply lormulatcd. Again hc insinuatcs that thc burdcn
ol prool lics on thosc who would dcny thc prcsumption ol ccicncy to
cconomic markcts and political markcts alikc.
,a Part : Politics and Philosophy
Tat somcthing as inadcquatc and pcrvcrsc as this book (and its prcdc
ccssor articlc) has bccn writtcn and publishcd undcr prcstigious acadcmic
auspiccs is a phcnomcnon crying out lor cxplanation. Tackling thc puzzlc
is important, lor thc books mcrc cxistcncc and acadcmic trappings will
carry somc wcight. Along with likcmindcd acadcmics, politicians and
burcaucrats rclish support lrom what studics havc shown.
8clorc cxploring possiblc cxplanations, ! should conlcss to indigna
tion dating back to thc . articlc. Pcrhaps my judgmcnt must bc dis
countcd. ! uscd to criticizc that articlc in my graduatc scminars in political
cconomy. Vhat callcd my attcntion to thc book was onald 8oudrcauxs
cxccllcnt, and propcrly advcrsc, rcvicwarticlc on it in thc rst issuc (Spring
.6) ol Te Independent Fe.ie.. (!n hopcs ol avoiding duplication, ! sct
8oudrcauxs rcvicw asidc whilc rcading thc book and dralting my own
rcvicw.)
! must also conlcss to cmbarrassmcnt. !t is a commonplacc rcmark that
onc should not ask about pcoplcs motivcs. Yct somctimcs such inquiry is
ncccssary. A dctcctivc in a murdcr casc must conjccturc about motivcs
whilc lormulating rival hypothcscs and trying to rulc out all but onc ol
thcm. Tc intcllcctual puzzlc ol a curious book rcquircs a roughly similar
proccdurc.
My rst hypothcsis must bc that Vittman is drivcn by passion lor
truth. Conccivably hc is quitc right: thc nowlamiliar publicchoicc thc
orics ol burcaucracy and dcmocratic politics arc radically dccicnt, and
in thc ways hc diagnoscs. cmocratic proccsscs do indccd closcly rcscm
blc compctitivc proccsscs in markcts lor goods and scrviccs. !t is ! who
am wrong, blindcd by mindlcss indignation to thc mcrits ol Vittmans
brilliant rcvisionism.
8ut othcr hypothcscs suggcst thcmsclvcs. Tc thought did cross my
mind that Vittmans book (and articlc) might bc a sustaincd spool, likc
physicist Alan Sokals articlc on postmodcrn gravity in Social Text, or il
not a spool, at lcast a movc in an acadcmic gamc. Vittman docs acknowl
cdgc (p. ix) that hc has bccn playing a gamc, that latccomcrs to an intcl
lcctual controvcrsy cnjoy an advantagc, and that hc has had a lot ol lun.
r pcrhaps Vittman was trying, as an cxcrcisc, to makc thc bcst casc
lor dcmocratic govcrnmcnt hc could dcvisc. cmocratic dccisions should
bc trcatcd as innoccnt until provcn guilty, hc says, and thcy dcscrvc a
lawycr arguing thcir sidc ol thc casc (p. .). Vith amplc talcnt alrcady
making thc prosccutions casc, pcrhaps Vittman chosc to writc thc lcgal
bricl lor thc dclcnsc. Lctting somconc clsc rccognizc how wcak cvcn that
Chapter :c: Ci.ic Feligion Feasserted ,
bcst casc isprovoking thc rcadcr toward a judgmcnt ol his ownmight
bc an ccctivc way to rcinlorcc publicchoicctypc skcpticism about activ
ist dcmocratic govcrnmcnt.
nc variant ol thc hypothcsis about an intcllcctual cxcrcisc is that
Vittman saw an opportunity to ll a vacant nichc in thc acadcmic land
scapc. From that hithcrto unoccupicd intcllcctual loxholc (as Charlcs
Pcircc said), hc might sally lorth in battlc with holdcrs ol othcr posi
tions. vidcntly thc markctplacc ol idcas had lclt room lor an acadcmi
cally crcdcntialcd rchabilitation ol what R.V. 8radlord (., pp. ..6)
has callcd Tc Ncw Civic Rcligionpop wisdom about thc virtuc and
ccacy ol voting and about thc mandatcs conlcrrcd by clcctions. ! do not
know about Vittman, but as a gcncral proposition, holding a distinctivc
intcllcctual position can draw invitations to attcnd scholarly conlcrcnccs
and contributc chaptcrs to collcctivc works. Scrving as a loil lor othcr posi
tions is not ncccssarily disrcputablc: as John Stuart Mill said in On Liberty,
truth may somctimcs strcngthcn its appcal by strugglc against crror, cvcn
contrivcd crror.
Tc hypothcsis about nichclling mcshcs with onc about thc statc
ol acadcmic cconomics (at lcast as diagnoscd by scvcral cmincnt partici
pants). Acadcmics lccl prcssurc to publish and bc noticcd. Latching onto
a lad is onc way. clivcring shock valucbcing an iconoclast, challcnging
cstablishcd bcliclsis anothcr way, which can cvcn add to thc lun ol thc
gamc. ccasionally thc two approachcs can cvcn blcnd into a kind ol rou
tinc originality: cxtcnd a lad so as to challcngc yct anothcr widcly acccptcd
bclicl. ! havc obscrvcd plcnty ol laddism, iconoclasm, and thcir combina
tion in my own cld ol macrocconomics. Ccrtain strands ol Chicago and
UCLA cconomics cultivatc thc lad ol arguing that whatcvcr institution
or practicc has long cndurcd thcrcby dcmonstratcs a ccrtain ccicncy,
whcthcr or not its rationalc has hithcrto bccn spcllcd out. Such icon
oclastic laddism (or chic iconoclasm) purports to rationalizc lorms ol
protcction and rcntshilting long condcmncd by mainstrcam cconomists.
Vittmans work could bc anothcr cxamplc, whcthcr intcntionally or not
! do not know.
Following acadcmic practicc in onc or scvcral ol thcsc ways nccd not
indicatc insinccrity or othcr pcrsonal immorality. 8csidcs, Lcon Fcsting
crs principlc ol cognitivc dissonancc may bc at work. !l onc lccls uncom
lortablc as a gamcsman saying things onc docs not rcally bclicvc, onc can
rcmovc or lorcstall thc dissonancc by coming quitc sinccrcly to bclicvc
thosc things.
, Part : Politics and Philosophy
! do not know which ol thc hypothcscs mcntioncd is corrcct, maybc
somc othcr onc is. Pcnding lurthcr cvidcncc, wc should pcrhaps opt lor a
charitablc onc. Mcanwhilc, Vittmans judgmcnts rcmain puzzlingly pcr
vcrsc. !l thcy should succccd in making a grcat splash, that would rccct
advcrscly on acadcmic social scicncc and on popular discoursc inlcctcd
by it.
vvvvvvxcvs
8radlord, R.V., cd. It Came fromrkansas. Port Townscnd, Vash.: Libcrty Pub
lishing, ..
Vittman, onald A. Vhy cmocracics Producc cicnt Rcsults. Journal of
Political Economy , (cccmbcr .): ..a.
Vittman, onald A. Te Myth of Democratic Failure. Chicago: Univcrsity ol
Chicago Prcss, ..
cn~v:vv :+
A Libcrtarian Casc lor
Monarchy

bv:ocv~cv ~xb o:nvv coob :nixcs

Clcar thought and discussion sucr whcn all sorts ol good things, likc lib
crty, cquality, lratcrnity, rights, majority rulc, and gcncral wcllarcsomc
in tcnsion with othcrsarc markctcd togcthcr undcr thc portmantcau
labcl dcmocracy. cmocracys corc mcaning is a particular mcthod ol
choosing, rcplacing, and inucncing govcrnmcnt ocials (Schumpctcr
.c/.6a). !t is not a doctrinc ol what govcrnmcnt should and should not
do. Nor is it thc samc thing as pcrsonal lrccdomor a lrcc socicty or an cgali
tarian social cthos. Truc cnough, somc classical libcrals, likc Tomas Painc
(.,..,a/.) and Ludwig von Miscs (../.), did scorn hcrcditary
monarchy and did cxprcss touching laith that rcprcscntativc dcmocracy
would choosc cxccllcnt lcadcrs and adopt policics truly scrving thc com
mon intcrcst. xpcricncc has taught us bcttcr, as thc Amcrican Foundcrs
alrcady kncw whcn constructing a govcrnmcnt ol scparatcd and limitcd
powcrs and ol only ltcrcd dcmocracy.
As an cxcrcisc, and without claiming that my argumcnts arc dccisivc,
!ll contcnd that constitutional monarchy can bcttcr prcscrvc pcoplcs lrcc
dom and opportunitics than dcmocracy as it has turncd out in practicc.
.

From Liberty . ( January acc): ,a, whcrc this articlc was titlcd Monarchy:
Fricnd ol Libcrty.
.
! do not know how to tcst my casc cconomctrically. Tc control variablcs to bc
includcd in cquations rcgrcssing a mcasurc ol libcrty or stability or prospcrity or whatcvcr
on prcscncc or abscncc ol monarchy ol somc typc or othcr arc too incablc and too many.
Vc would havc to dcvisc variablcs lor such conditions as history and traditions, gcography,
climatc, natural rcsourccs, typc ol cconomic systcm, past lorms ol govcrnmcnt, cthnicity
and cthnic homogcncity or divcrsity, cducation, rcligion, and so on. Plausiblc historical
data points arc too lcw. Somconc clcvcrcr than ! might dcvisc somc sort ol cconomctric
tcst altcr all. Mcanwhilc, wc must wcigh thc pros and cons ol monarchy and dcmocracy
against onc anothcr qualitativcly as bcst wc can.
,
,6 Part : Politics and Philosophy
My casc holds only lor countrics whcrc maintaining or rcstoring (or con
ccivably installing) monarchy is a livc option.
a
Vc Amcricans havc soundcr
hopc ol rcviving rcspcct lor thc philosophy ol our Foundcrs. ur traditions
could scrvc somc ol thc lunctions ol monarchy in othcr countrics.
An unclcctcd absolutc rulcr could conccivably bc a thoroughgoing
classical libcral. Although a wisc, bcncvolcnt, and libcralmindcd dictator
ship would not bc a contradiction in tcrms, no way is actually availablc to
assurc such a rcgimc and its continuity, including lrictionlcss succcssion.
Somc clcmcnt ol dcmocracy is thcrclorc ncccssary, totally rcplacing
it would bc dangcrous. cmocracy allows pcoplc somc inucncc on who
thcir rulcrs arc and what policics thcy pursuc. lcctions, il not subvcrtcd,
can oust bad rulcrs pcacclully. Citizcns who carc about such things can
cnjoy a scnsc ol participation in public aairs.
Anyonc who bclicvcs in limiting govcrnmcnt powcr lor thc sakc ol
pcrsonal lrccdom should valuc also having somc nondcmocratic clcmcnt
ol govcrnmcnt bcsidcs courts rcspcctlul ol thcir own narrow authority.
Vhilc somc monarchists arc rcactionarics or mystics, othcrs (likc rik
von KuchncltLcddihn and Scan Gabb, citcd bclow) do comc across as
gcnuinc classical libcrals.
snov:co:ixcs ov bv:ocv~cv
cmocracy has glaring dclccts.

As various paradoxcs ol voting illustratc,

thcrc is no such thing as any cohcrcnt will ol thc pcoplc. Govcrnmcnt
itscll is morc likcly to supply thc contcnt ol any supposcd gcncral will
(Constant ..../., p. .,). Vinston Churchill rcputcdly said: Tc
bcst argumcnt against dcmocracy is a vcminutc convcrsation with thc
avcragc votcr (8rainyQuotc and scvcral similar sourccs on thc !ntcrnct).
Tc ordinary votcr knows that his votc will not bc dccisivc and has littlc
rcason to wastc timc and cort bccoming wcll inlormcd anyway.
Tis rational ignorancc, so callcd in thc publicchoicc litcraturc,
lcavcs corrcsponding inucncc to othcrthanordinary votcrs (Campbcll
a
Monarchist organizations cxist in surprisingly many countrics, a lcw ol thcir wcb
sitcs appcar in thc Rclcrcnccs. vcn Argcntina has a small monarchist movcmcnt,
dcscribcd in thc Scptcmbcr . issuc ol Monarchy at thc sitc ol thc !ntcrnational Monar
chist Lcaguc.

8arry acc partially summarizcs thcm. Hayck ., dcscribcs thc dclccts at lcngth
and proposcs an claboratc rclormol thc systcmol rcprcscntation, not discussing monarchy.
Jamcs 8uchanan and thc Public Choicc school analyzc dcmocracy in many writings.
Chapter :z: Libertarian Case for Monarchy ,,
.). Politics bccomcs a squabblc among rival spccial intcrcsts. Coali
tions lorm to gain spccial privilcgcs. Lcgislators cngagc in logrolling and
cnact omnibus spcnding bills. Politics itscll bccomcs thc chicl wcapon in
a Hobbcsian war ol all against all (Gray ., pp. a..a.a). Tc diusion
ol costs whilc bcncts arc conccntratcd rcinlorccs apathy among ordinary
votcrs.
Politicians thcmsclvcs count among thc spccial intcrcst groups. Pco
plc who drilt into politics tcnd to havc rclativcly slightcr qualications
lor othcr work. Tcy arc cntrcprcncurs pursuing thc advantagcs ol occ.
Tcsc arc not matcrial advantagcs alonc, lor somc politicians scck powcr
to do good as thcy undcrstand it. Gratilying thcir nccd to act and to lccl
important, lcgislators multiply laws to dcal with discovcrcd or contrivcd
problcmsand lcars. 8cing ablc to raisc vast sums by taxcs and borrowing
cnhanccs thcir scnsc ol powcr, and moral rcsponsibility wancs (as Con
stant, ..../., pp. ..6, a,.a,a, alrcady rccognizcd almost two
ccnturics ago).
cmocratic politicians havc notoriously short timc horizons. (Hoppc
acc. blamcs not just politicians in particular but dcmocracy in gcncral lor
high timc prclcrcnccindicrcncc to thc long runwhich contributcs
to crimc, wastcd livcs, and a gcncral dcclinc ol morality and culturc.)
Vhy worry il popular policics will causc criscs only whcn onc is no longcr
running lor rcclcction: vidcncc ol scal irrcsponsibility in thc Unitcd
Statcs includcs chronic budgct dccits, thc cxplicit national dcbt, and thc
still hugcr cxccsscs ol luturc liabilitics ovcr luturc rcvcnucs on account
ol Mcdicarc and Social Sccurity. Yct politicians continuc ocring ncw
plums. Conict ol intcrcst likc this lar ovcrshadows thc pctty kinds that
ncvcrthclcss arousc morc outragc.
Rcsponsibility is diuscd in dcmocracy not only ovcr timc but also
among participants. \otcrs can think that thcy arc only cxcrcising thcir
right to mark thcir ballots, politicians that thcy arc only rcsponding to thc
wishcs ol thcir constitucnts. Tc individual lcgislator bcars only a small
sharc ol rcsponsibility lragmcntcd among his collcagucs and othcr gov
crnmcnt ocials.
cmocracy and libcrty cocxist in tcnsion. Nowadays thc Unitcd Statcs
govcrnmcnt rcstricts political spccch. Tc prolcsscd purposc ol campaign
nancc rclorm is to limit thc powcr ol intcrcst groups and ol moncy in
politics, but incrcascd inucncc ol thc mass mcdia and incrcascd sccu
rity ol incumbcnt politicians arc likclicr rcsults. A broadcr kind ol tcn
sion is that popular majoritics can lcnd an air ol lcgitimacy to highly
, Part : Politics and Philosophy
illibcral mcasurcs. 8y thc shccr wcight ol numbcrs and by its ubiquity
thc rulc ol pcr ccnt is morc hcrmctic and morc opprcssivc than thc
rulc ol . pcr ccnt (KuchncltLcddihn .a, p. ). Vhcn majority rulc is
thought good in its own right and thc ction prcvails that wc ordinary
citizcns arc thc govcrnmcnt, an clcctcd lcgislaturc and cxccutivc can gct
away with impositions that monarchs ol thc past would scarccly havc vcn
turcd. Louis X!\ ol Francc, autocrat though hc was, would hardly havc
darcd prohibit alcoholic bcvcragcs, conscript soldicrs, and lcvy an incomc
tax (pp. aca.)or, wc might add, wagc war on drugs. Not only consti
tutional limitations on a kings powcrs but also his

not having an clcctoral

mandatc is a rcstraint.
At its worst, thc dcmocratic dogma can abct totalitarianism. History
rccords totalitarian dcmocracics or dcmocratically supportcd dictatorships.
Countrics opprcsscd by communist rcgimcs includcd words likc dcmo
cratic or popular in thcir ocial namcs. Totalitarian partics havc por
traycd thcir lcadcrs as pcrsonilying thc common man and thc wholc nation.
Gcrman National Socialism, as KuchncltLcddihn rcminds us, was nci
thcr a conscrvativc nor a rcactionary movcmcnt but a synthcsis ol rcv
olutionary idcas tracing to bclorc ., (KuchncltLcddihn .a, pp. ..,
a6a,, a6). Hc suggcsts that antimonarchical scntimcnts in thc back
ground ol thc Frcnch Rcvolution, thc Spanish rcpublic ol .., and Gcr
manys Vcimar Rcpublic pavcd thc way lor Robcspicrrc and Napolcon, lor
Ncgrin and Franco, and lor Hitlcr (p. c). Vinston Churchill rcportcdly
judgcd that had thc Kaiscr rcmaincd Gcrman Hcad ol Statc, Hitlcr could
not havc gaincd powcr, or at lcast not havc kcpt it (!ntcrnational Monar
chist Lcaguc). |M|onarchists, conscrvativcs, clcrics and othcr rcactionar
ics wcrc always in bad gracc with thc Nazis (p. a).
svv~v~:iox ov vowvvs
A nonclcctcd part ol govcrnmcnt contributcs to thc scparation ol pow
crs. 8y rctaining ccrtain constitutional powcrs or dcnying thcm to othcrs,
it can bc a salcguard against abuscs.

Tis is pcrhaps thc main modcrn

justication ol hcrcditary monarchy: to put somc rcstraint on politicians

! hopc that rcadcrs will allowmc thc stylistic convcnicncc ol using king to dcsignatc
a rcigning quccn also, as thc word koning docs in thc utch constitution, and also ol
using hc or him or his to covcr shc or hcr as contcxt rcquircs.

|T|hc rst and indispcnsablc condition lor thc cxcrcisc ol rcsponsibility is to scp
aratc cxccutivc powcr lrom suprcmc powcr. Constitutional monarchy attains this grcat
Chapter :z: Libertarian Case for Monarchy ,
rathcr than lct thcm pursuc thcir own spccial intcrcsts complaccnt in
thc thought that thcir winning clcctions dcmonstratcs popular approval.
Vhcn lormcr prcsidcnt Tcodorc Rooscvclt visitcd mpcror Franz Joscph
in ..c and askcd him what hc thought thc rolc ol monarchy was in thc
twcnticth ccntury, thc cmpcror rcportcdly rcplicd: To protcct my pco
plcs lrom thcir govcrnmcnts (quotcd in both Tcscn pro Monarchic
and Purccll acc). Similarly, Lord 8crnard Vcathcrill, lormcr spcakcr ol
thc Housc ol Commons, said that thc 8ritish monarchy cxists not to cxcr
cisc powcr but to kccp othcr pcoplc lrom having thc powcr, it is a grcat
protcction lor 8ritish dcmocracy (intcrvicw with 8rian Lamb on CSpan,
a6 Novcmbcr .).
Tc history ol ngland shows progrcssivc limitation ol royal powcr
in lavor ol parliamcnt, but, in my vicw, a wclcomc trcnd wcnt too lar.
Almost all powcr, limitcd only by traditions lortunatcly continuing as an
unwrittcn constitution, camc to bc conccntratcd not only in parliamcnt
but cvcn in thc lcadcr ol thc parliamcntary majority. cmocratization
wcnt rathcr too lar, in my opinion, in thc Contincntal monarchics also.
cox:ixui:v
A monarch, not dcpcndcnt on bcing clcctcd and rcclcctcd, cmbodics con
tinuity, as docs thc dynasty and thc biological proccss.
Constitutional monarchy ocrs us . . . that ncutral powcr so indispcnsablc
lor all rcgular libcrty. !n a lrcc country thc king is a bcing apart, supcrior
to dicrcnccs ol opinion, having no othcr intcrcst than thc maintcnancc
ol ordcr and libcrty. Hc can ncvcr rcturn to thc common condition, and
is conscqucntly inacccssiblc to all thc passions that such a condition gcn
cratcs, and to all thosc that thc pcrspcctivc ol nding oncscll oncc again
within it, ncccssarily crcatcs in thosc agcnts who arc invcstcd with tcm
porary powcr.
!t is a mastcr strokc to crcatc a ncutral powcr that can tcrminatc
somc political dangcr by constitutional mcans (Constant ..../.,
pp. .6.,). !n a scttlcd monarchybut no rcgimc whatcvcr can bc guar
antccd pcrpctual cxistcnccthc king nccd not worry about clinging to
powcr. !n a rcpublic, Tc vcry hcad ol thc statc, having no titlc to his
occ savc that which lics in thc popular will, is lorccd to hagglc and bar
gain likc thc lowlicst occscckcr (Mcnckcn .a6, p. ..).
aim. 8ut this advantagc would bc lost il thc two powcrs wcrc conluscd (Constant
..../., p. ..).
c Part : Politics and Philosophy
ynastic continuity parallcls thc rulc ol law. Tc king symbolizcs a
statc ol aairs in which prolound political changc, though cvcntually pos
siblc, cannot occur without amplc timc lor considcring it. Tc king stands
in contrast with lcgislators and burcaucrats, who arc inclincd to think, by
thc vcry naturc ol thcir jobs, that diligcnt pcrlormancc mcans multiply
ing laws and rcgulations. Continuity in thc constitutional and lcgal rcgimc
providcs a stablc lramcwork lavorablc to pcrsonal and busincss planning
and invcstmcnt and to innovation in scicncc, tcchnology, cntcrprisc, and
culturc. Continuity is ncithcr rigidity nor conscrvatism.
Tc hcir to thc thronc typically has many ycars ol prcparation and is
not dazzlcd by pcrsonal advanccmcnt whcn hc nally inhcrits thc occ.
8clorc and whilc holding occ hc accumulatcs a lund ol cxpcricncc both
dicrcnt lrom and grcatcr than what politicians, who comc and go, can
ordinarily acquirc. vcn whcn thc king comcs to thc thronc as a youth or,
at thc othcr cxtrcmc, as an old man with only a lcw activc ycars rcmaining,
hc has thc counscl ol cxpcricnccd lamily mcmbcrs and adviscrs. !l thc king
is vcry young (Louis X\, Allonso X!!!) or insanc (thc cldcrly Gcorgc !!!,
tto ol 8avaria), a closc rclativc scrvcs as rcgcnt.
6
Tc rcgcnt will havc
had somc ol thc opportunitics to pcrlorm ccrcmonial lunctions and to
accumulatc cxpcricncc that an hcir or rcigning monarch has.
on,vc:ioxs ~xb vvnu::~is
Somc argumcnts occasionally cmploycd lor monarchy arc qucstionablc. !l
thc monarch or his hcir may marry only a mcmbcr ol a princcly lamily (as
KuchncltLcddihn sccms to rccommcnd), chanccs arc that hc or shc will
marry a lorcigncr, providing intcrnational conncctions and a cosmopoli
tan way ol thinking. Anothcr dubious argumcnt (also uscd by Kuchnclt
Lcddihn) is that thc monarch will havc thc blcssing ol and pcrhaps bc
thc hcad ol thc statc rcligion. Somc argumcnts arc downright absurd,
lor cxamplc: Monarchy lostcrs art and culturc. Austria was culturally
much richcr around .,c than today! Just think ol Mozart! (Tcscn pro
Monarchic).
6
tto von Habsburg blamcs thc risk that an incompctcnt might occupy thc thronc on
an incxiblc lcgitimismprcoccupation with a particular dynastythat displaccd salc
guards lound in most classical monarchics. Hc rccommcnds that thc king bc assistcd
by a body rcprcscnting thc highcst judicial authority, a body that could il ncccssary
rcplacc thc hcir prcsumptivc by thc ncxt in linc ol succcssion (./.,c, pp. a6a, a6,
a66a6,).
Chapter :z: Libertarian Case for Monarchy .
8ut ncithcr all argumcnts lor nor all objcctions to monarchy arc lalla
cious. Tc samc is truc ol dcmocracy. !n thc choicc ol political institutions,
as in many dccisions ol lilc, all onc can do is wcigh thc pros and cons ol
thc options and choosc what sccms bcst or lcast bad on balancc.
Somc objcctions to monarchy apply to dcmocracy also or othcrwisc
invitc commcnts that, whilc not actual rclutations, do strcngthcn thc casc
in its lavor. Monarchy is chargcd with bcing govcrnmcntlromabovc
(KuchncltLcddihn .a, p. a,6). 8ut all govcrnmcnts, cvcn popularly
clcctcd oncs, cxccpt pcrhaps small dircct dcmocracics likc ancicnt Athcns,
arc rulcd by a minority. (Robcrt Michcls and othcrs rccognizcd an iron
law ol oligarchy, Jcnkin .6, p. aa.) Although dcmocracy allows thc
pcoplc somc inucncc ovcr thc govcrnmcnt, thcy do not and cannot actu
ally run it. Constitutional monarchy combincs somc strcngths ol dcmoc
racy and authoritarian monarchy whilc partially ncutralizing thc dclccts
ol thosc polar options.
Anothcr objcction condcmns monarchy as a divisivc symbol ol incqual
ity, it bars an idcal socicty in which cvcryonc will bc cqual in status, and
in which cvcryonc will havc thc right, il not thc ability, to risc to thc high
cst position (Gabb acca, who rcplics that attcmpts to crcatc such a soci
cty havc usually cndcd in attacks on thc wcalthy and cvcn thc wcllo).
Michacl Prowsc (acc.), calling lor pcriodic rclcrcndums on whcthcr to
kccp thc 8ritish monarchy, invokcs what hc considcrs thc corc idca ol
dcmocracy: all pcrsons cqually dcscrvc rcspcct and considcration, and no
onc dcscrvcs to dominatc othcrs. Tc royal lamily and thc aristocracy, with
thcir titlcs, dcmcanor, and scllpcrpctuation, violatc this dcmocratic spirit.
!n a rcpublican 8ritain, cvcry child might aspirc to cvcry public position,
cvcn hcad ol statc.
So arguing, Prowsc strctchcs thc mcaning ol dcmocracy lrom a par
ticular mcthod ol choosing and inucncing rulcrs to includc an cgalitar
ian social cthos. 8ut monarchy nccd not obstruct casy rclations among
pcrsons ol dicrcnt occupations and backgrounds, a suspicious cgalitari
anism is likclicr to do that. !n no socicty can all pcrsons havc thc samc
status. A morc rcalistic goal is that cvcryonc havc a chancc to achicvc dis
tinction in somc narrow nichc important to him. vcn in a rcpublic, most
pcoplc by lar cannot rcalistically aspirc to thc highcst position. No onc
nccd lccl humblcd or ashamcd at not asccnding to an occ that simply
was not availablc. A hcrcditary monarch can bc likc thc Alps (Tcscn
pro Monarchic), somcthing just thcrc. Pcrhaps it is thc kings good
luck, pcrhaps his bad luck, to havc inhcritcd thc privilcgcs but also thc
a Part : Politics and Philosophy
limitations ol his occ, but any qucstion ol unlairncss palcs in compari
son with advantagcs lor thc country.
Prowsc complains ol divisivcncss. 8ut what about an clcction: !t pro
duccs loscrs as wcll as winncrs, disappointcd votcrs as wcll as happy oncs.
A king, howcvcr, cannot symbolizc dclcat to supportcrs ol othcr candi
datcs, lor thcrc wcrc nonc. A monarch mounting thc thronc ol his anccs
tors lollows a path on which hc has not cmbarkcd ol his own will. Unlikc
a usurpcr, hc nccd not justily his clcvation (Constant ..../., p. ).
Hc has no lurthcr political opportunitics or ambitions cxccpt to do his job
wcll and maintain thc good namc ol his dynasty. Standing ncutral abovc
party politics, hc has a bcttcr chancc than an clcctcd lcadcr ol bccoming
thc pcrsonicd symbol ol his country, a locus ol patriotism and cvcn ol
acction.
Tc monarch and his lamily can assumc ccrcmonial lunctions that
clcctcd rulcrs would othcrwisc pcrlormas timc pcrmittcd. Scparating ccrc
monial lunctions lromcampaigning and policymaking siphons o glamor
or adulation that would othcrwisc accruc to politicians and cspccially to
dcmagogucs. Tc occasional Hitlcr docs arousc popular cnthusiasm, and
his opponcnts must prudcntly kccp a lowprolc. Amonarch, whosc powcr
is prcscrvativc rathcr than activc (pp. ...a), is salcr lor pcoplcs lrccdom.
Prowsc is irritatcd rathcr than imprcsscd by thc pomp and opulcncc
surrounding thc Quccn. Clinging to outmodcdlorms andascribing impor
tancc to unimportant things rccks ol collcctivc bad laith and corrosivc
hypocrisy. Yct a monarchy nccd not rcst on prctcnsc. n thc contrary, my
casc lor monarchy is a utilitarian onc, not appcaling to divinc right or any
such ction. Not all ritual is to bc scorncd. vcn rcpublics havc Fourth ol
July paradcs and thcir countcrparts. Ccrcmonial trappings that may havc
bccomc lunctionlcss or comical can cvolvc or bc rclormcd. Not all monar
chics, as Prowsc rccognizcs, sharc with thc 8ritish thc particular trappings
that irritatc him.
A casc, admittcdly inconclusivc, can bc madc lor titlcs ol nobility
(cspccially lor closc royal rclativcs) and lor an uppcr housc ol parliamcnt ol
limitcd powcrs whosc mcmbcrs, or somc ol thcm, hold thcir scats by inhcr
itancc or royal appointmcnt (c.g., Constant ..../., pp. .acc).
Tc glory ol a lcgitimatc monarch is cnhanccd by thc glory ol thosc
around him. . . . Hc has no compctition to lcar. . . . 8ut whcrc thc monarch
sccs supportcrs, thc usurpcr sccs cncmics (p. ., on thc prccarious posi
tion ol a nonhcrcditary autocrat, comparc Tullock .,). As long as thc
noblcs arc not cxcmpt lromthc laws, thcy can scrvc as a kind ol lramcwork
Chapter :z: Libertarian Case for Monarchy
ol thc monarchy. Tcy can bc a lurthcr clcmcnt ol divcrsity in thc social
structurc. Tcy can providc an altcrnativc to shccr wcalth or notoricty as a
sourcc ol distinction and so dilutc thc lawning ovcr cclcbritics charactcr
istic ol modcrn dcmocracics. rdinary pcrsons nccd no morc lccl humil
iatcd by not bcing born into thc nobility than by not bcing born hcir to
thc thronc. n balancc, though, ! am ambivalcnt about a nobility.
~ xixcs vowvvs
Michacl Prowscs complaint about thc prctcndcd importancc ol unim
portant things suggcsts a lurthcr rcason why thc monarchs rolc should
go bcyond thc purcly symbolic and ccrcmonial. Tc king should not bc
rcquircd (as thc Quccn ol ngland is rcquircd at thc opcning ol parlia
mcnt) mcrcly to rcad words writtcn by thc cabinct. At lcast hc should
havc thc thrcc rights that Valtcr 8agchot idcnticd in thc 8ritish monar
chy: thc right to bc consultcd, thc right to cncouragc, thc right to warn.
And a king ol grcat scnsc and sagacity would want no othcrs. Hc would
nd that his having no othcrs would cnablc him to usc thcsc with singular
ccct (8agchot .6,/.66, p. ...).
Vhcn 8agchot wrotc, thc Primc Ministcr was bound to kccp thc
Quccn wcll inlormcd about thc passing politics ol thc nation. Shc has
by rigid usagc a right to complain il shc docs not know ol cvcry grcat act
ol hcr Ministry, not only bclorc it is donc, but whilc thcrc is yct timc to
considcr itwhilc it is still possiblc that it may not bc donc.
A sagacious king could warn his primc ministcr with possibly grcat
ccct. Hc might not always turn his coursc, but hc would always troublc
his mind. uring a long rcign hc would acquirc cxpcricncc that lcw ol
his ministcrs could match. Hc could rcmind thc primc ministcr ol bad
rcsults somc ycars carlicr ol a policy likc onc currcntly proposcd. Tc king
would indccd havc thc advantagc which a pcrmancnt undcrsccrctary has
ovcr his supcrior thc Parliamcntary sccrctarythat ol having sharcd in thc
procccdings ol thc prcvious Parliamcntary sccrctarics. . . . A pompous man
casily swccps away thc suggcstions ol thosc bcncath him. 8ut though a
ministcr may so dcal with his subordinatc, hc cannot so dcal with his king
(8agchot .6,/.66, pp. .....a). A primc ministcr would bc disciplincd,
in short, by having to cxplain thc objcctivc (not mcrcly thc political) mcrits
ol his policics to a ncutral authority.
Tc thrcc rights that 8agchot listcd should bc intcrprctcd broadly,
in my vicw, or cxtcndcd. Constant (..../., p. c.) rccommcnds
Part : Politics and Philosophy
thc right to grant pardons as a nal protcction ol thc innoccnt. Tc king
should also havc powcr: to makc somc appointmcnts, cspccially ol his
own sta, not subjcct to vcto by politicians, to consult with politicians
ol all partics to rcsolvc an impassc ovcr who might obtain thc support or
acquicsccncc ol a parliamcntary majority, and to dismiss and tcmporar
ily rcplacc thc cabinct or primc ministcr in cxtrcmc cascs. (! assumc a
parliamcntary systcm, which usually docs accompany modcrn monarchy,
but thc cxccutivc could bc clcctcd scparatcly lrom thc lcgislators and cvcn
subjcct to rccall by spccial clcction.) vcn dissolving parliamcnt and call
ing ncw clcctions in an cxccptional casc is no insult to thc rights ol thc
pcoplc. n thc contrary, whcn clcctions arc lrcc, it is an appcal madc
to thcir rights in lavor ol thcir intcrcsts (p. .,). Tc king should try to
rally national support in a constitutional crisis (as whcn King Juan Carlos
intcrvcncd to loil an attcmptcd military coup in ..).
xixcs ~xb voii:ici~xs
Vhat il thc hcrcditary monarch is a child or is incompctcnt: Tcn, as
alrcady mcntioncd, a rcgcncy is availablc. Vhat il thc royal lamily, likc
somc ol thc Vindsors, aunts uncdilying pcrsonal bchavior: 8oth dan
gcrs arc just as rcal in a modcrn rcpublic. Politicians havc a systcm
atic tcndcncy to bc incompctcnt or worsc.
,
For a dcmocratic politician,
undcrstanding cconomics is a handicap.

Hc cithcr must takc unpopular

(bccausc misundcrstood) stands on issucs or clsc spcak and act dishon
cstly. Tc cconomically ignorant politician has thc advantagc ol bcing
ablc to takc votccatching stands with a morc ncarly clcar conscicncc.
Particularly in thcsc days ol tclcvision and ol lascination with cclcbri
tics, thc pcrsonal charactcristics ncccssary to win clcctions arc quitc dicr
cnt lrom thosc ol a publicspiritcd statcsman. History docs rccord grcat
statcsmcn in lcss dcmocratizcd parliamcntary rcgimcs ol thc past. Nowa
days a Grcshams Law opcratcs: thc inlcrior human currcncy drivcs thc
bcttcr onc out ol circulation (KuchncltLcddihn, pp. .., .ac). !dcal
,
Considcr thc onc Rcpublican and ninc cmocrats currcntly (ctobcr acc) compct
ing lor thc U.S. prcsidcncy. Tc day altcr thc tclcviscd dcbatc among thc cmocrats in
ctroit, Rogcr Hitchcock, substitutc host on a radio talk show, askcd: Vould you likc
to havc dinncr with any ol thosc pcoplc: Vould you hirc any ol thcm to managc your
convcnicncc storc:

Tc rst lcsson ol cconomics is scarcity: Tcrc is ncvcr cnough ol anything to satisly

all thosc who want it. Tc rst lcsson ol politics is to disrcgard thc rst lcsson ol cconomics
(Sowcll .).
Chapter :z: Libertarian Case for Monarchy
dcmocratic govcrnmcnt simply is not an availablc option. ur bcst hopc
is to limit thc activitics ol govcrnmcnt, a purposc to which monarchy can
contributc.
Although somc contcmporary politicians arc honorablc and cconom
ically litcratc, cvcn simplc honcsty can worscns oncs clcctoral chanccs.
H.L. Mcnckcn wrotc acidly and with charactcristic cxaggcration: No
cducatcd man, stating plainly thc clcmcntary notions that cvcry cducatcd
man holds about thc mattcrs that principally conccrn govcrnmcnt, could
bc clcctcd to occ in a dcmocratic statc, savc pcrhaps by a miraclc. . . . !t
has bccomc a psychic impossibility lor a gcntlcman to hold occ undcr
thc Fcdcral Union, savc by a combination ol miraclcs that must tax thc
rcsourcclulncss cvcn ol God. . . . |T|hc man ol nativc intcgrity is cithcr
barrcd lromthc public scrvicc altogcthcr, or subjcctcd to almost irrcsistiblc
tcmptations altcr hc gcts in (Mcnckcn .a6, pp. .c, .c6, ..c). Undcr
monarchy, thc courticr nccd not abasc himscll bclorc swinc, prctcnd
that hc is a worsc man than hc rcally is. His sovcrcign has a ccrtain rcspcct
lor honor. Tc courticrs sovcrcign . . . is apt to bc a man ol honour him
scll (Mcnckcn .a6, p. .., mcntioning that thc King ol Prussia rcluscd
thc Gcrman impcrial crown ocrcd him in . by a mcrc popular parlia
mcnt rathcr than by his lcllow sovcrcign princcs).
Mcnckcn conccdcd that dcmocracy has its charms: Tc lraud ol dc
mocracy . . . is morc amusing than any othcrmorc amusing cvcn, and by
milcs, than thc lraud ol rcligion. . . . |Tc larcc| grcatly dclights mc. ! cnjoy
dcmocracy immcnscly. !t is incomparably idiotic, and hcncc incomparably
amusing (pp. ac, a..).
coxciusiox
nc argumcnt against institutions with a vcncrablc history is a mindlcss
slogan bctraying tcmporal provincialism, as il ncwcr ncccssarily mcant
bcttcr: ont turn back thc clock. Soundcr advicc is not to ovcrthrow
what cxists bccausc ol abstract notions ol what might sccm logically or
idcologically ncatcr. !n thc vcrnacular, !l it aint brokc, dont x it. !t is
progrcss to lcarn lrom cxpcricncc, including cxpcricncc with inadcquatcly
ltcrcd dcmocracy. Vhcrc a monarchical clcmcnt in govcrnmcnt works
wcll cnough, thc burdcn ol prool lics against thc rcpublicans (cl. Gabb
acca). KuchncltLcddihn, writing in .a (p. .c), notcd that thc royal,
nondcmocratic alloy has supportcd thc rclativc succcss ol scvcral rcp
rcscntativc govcrnmcnts in uropc. nly a lcw nontotalitarian rcpublics
6 Part : Politics and Philosophy
thcrc and ovcrscas havc cxhibitcd a rccord ol stability, notably Switzcr
land, Finland, and thc Unitcd Statcs.

Constitutional monarchy cannot solvc all problcms ol govcrnmcnt,

nothing can. 8ut it can hclp. 8csidcs lcsscr argumcnts, two main oncs rcc
ommcnd it. First, its vcry cxistcncc is a rcmindcr that dcmocracy is not thc
sort ol thing ol which morc is ncccssarily bcttcr, it can hclp promotc bal
anccd thinking. Sccond, by contributing continuity, diluting dcmocracy
whilc supporting a hcalthy clcmcnt ol it, and lurthcring thc scparation ol
govcrnmcnt powcrs, monarchy can hclp protcct pcrsonal libcrty.
vvvvvvxcvs
8agchot, Valtcr. Te English Constitution. .6,, .,a. !thaca, N.Y.: Corncll Papcr
backs, .66.
8arry, Norman. Vhats So Good About cmocracy: Ideas on Liberty (May
acc): .
Campbcll, Colin M. Largc lcctoratcs and ccisivc Minoritics. Journal of Polit-
ical Economy .c, (cccmbcr .): ...a.,.
Constant, 8cnjamin. Political !ritings. ..... Translatcd and cditcd by 8ian
camaria Fontana. Cambridgc, U.K., and Ncw York: Cambridgc Univcrsity
Prcss, ..
Gabb, Scan. !n clcncc ol thc Monarchy. Free Life Commentary, no.
( cccmbcr acca). http://www.seangabb.co.uk/flcomm/flc083.htm.
Gray, John. Post-Liberalism: Studies in Political Tought. London and Ncw York:
Routlcdgc, ..
Habsburg, tto von. Monarchy or Rcpublic. .. !n Te Conser.ati.e Tradi-
tion in European Tought, cditcd by Robcrt Schucttingcr, aa6,. Ncw York:
Putnam, .,c.
Hayck, F.A. Te Political Order of a Free People. \ol. ol La., Legislation and
Liberty. Chicago: Univcrsity ol Chicago Prcss, .,.
Hoppc, HansHcrmann. Democracy: Te God Tat Failed. Ncw 8runswick, N.J.:
Transaction Publishcrs, acc..

Comparc Lcwis and Voolscy acc: ||l thc nations that havc bccn dcmocracics
lor a vcry long timc and show cvcry sign that thcy will rcmain so, a substantial majority
arc constitutional monarchics (thc U.S. and Switzcrland bcing thc principal cxccptions).
Chapter :z: Libertarian Case for Monarchy ,
!ntcrnational Monarchist Lcaguc. Tc Casc lor Monarchy.
Jcnkin, Tomas P. ligarchy. !n International Encyclopedia of the Social Sciences,
cditcd by avid L. Sills, vol. ..: a.a. Ncw York: Macmillan and Frcc
Prcss, .6.
KuchncltLcddihn, rik von. Liberty or Equality. ditcd by John P. Hughcs.
London: Hollis & Cartcr, .a. http://www.scribd.com/doc/3917515/
KuehneltLeddihn-Liberty-or-Equality.
Lcwis, 8crnard, and R. Jamcs Voolscy. King and Country. !all Street Journal,
a ctobcr acc.
Mcnckcn, H.L. Notes on Democracy. Ncw York: Knopl, .a6.
Miscs, Ludwig von. Nation, State, and Economy. ... Ncw York: Ncw York Uni
vcrsity Prcss, ..
Painc, Tomas. Te Fights of Man. Part First, .,., and Part Sccond, .,a. !n
T.o Classics of the French Fe.olution: Edmund Burkes Rccctions on thc Rcv
olution in Francc and Paines Tc Rights ol Man, pp. a6,.. Ncw York:
oublcday, Anchor 8ooks, .,, ..
Prowsc, Michacl. Vhy 8ritain Should Hold Royal Rclcrcndums. Financial
Times, a.aa April acc..
Purccll, Frank. All Hail thc Housc ol Habsburg! Li.e Journal, . August acc.
http://arisbe.livejournal.com/42592.html.
Schumpctcr, Joscph A. Capitalism, Socialism, and Democracy. .c. cd. Ncw
York: Harpcr and Row, .6a.
Sowcll, Tomas. Quotcd (without indication ol sourcc) in ndnotcs. CEI
UpDate , ( July .): .
Tcscn pro Monarchic. http://rasputin.de/Monarch/thesen.html. Tradition
und Lcbcn c.\. http://www.pro-monarchie.de/
Tullock, Gordon. utocracy. ordrccht and 8oston: Kluwcr, .,.
cn~v:vv ::
Uchronia, or Altcrnativc
History

Tc history that didnt happcn can bc just as intcrcsting as thc history that
did.
Tis articlc is a small cxamplc ol its own topic. xccpt by chancc, !
wouldnt now bc writing it. Not nding what ! wantcd whilc browsing in
our librarys magazinc aislcs, ! camc across mcntion ol uchronic in Le
Nou.el Obser.ateur. Tc philosophcr Charlcs Rcnouvicr chosc this word
as thc titlc ol his novcl ol ., and .,6, hc coincd it lrom Grcck roots
mcaning notimc. Hc was lollowing thc pattcrn sct by St. Tomas Morc,
whosc Utopia dcrivcs lromroots mcaning noplacc. Utopia is a placc that
docs not cxist, uchronia is a timc that did not cxist. Uchronian worksto
introducc thc nglish adjcctivcarc also callcd whatil, altcrnativc, con
jcctural, or countcrlactual history. Tcy considcr what would havc hap
pcncd il somcthing clsc had chanccd to happcn.
Such works lall into two catcgorics. Tc distinction is luzzy but usc
lul. Vritings ol thc rst kind, unlikc actual history or a standard historical
novcl, arc shccr ction. Tcy arc not spcculations about rcal cvcnts, thcy
arc storics that stand on thcir own. Tc Star !ars movics and Tolkicns
talcs arc good cxamplcs. Anothcr is Islandia, a novcl by Austin Tappan
Vright, publishcd posthumously in .a. Vright dcscribcs cvcnts and
pcrsonalitics in a country on a ctional contincnt in thc southcrn hcmi
sphcrc bclorc Vorld Var !. Tc pcoplc ol !slandia, whilc highly civilizcd
and advanccd in philosophy and psychology, prclcr thcir old ways, rcjcct
ing railroads and most othcr modcrn tcchnology and narrowly limiting
contact with thc outsidc world. Tc rcadcr (this onc, anyway) drilts with
thc author into sympathy with thc !slandian way ol thinking.

From Liberty a (Scptcmbcr acc): .. ! thank thc cditor, Stcphcn Cox, lor sug
gcstions and somc ol thc wording.

Chapter ::: Uchronia, or lternati.e History

dward 8cllamys Looking Back.ard (.,) projccts an oppositc vision,
onc intcndcd as backward only in an ironic scnsc, it imagincs a prospcrous
and happy socialist utopia ol accc. Tis uchronia actually cxcrtcd somc
inucncc in its timc, convcrting many rcadcrs to socialism bccausc thcy
wantcd to livc in thc world ol 8cllamys vision. Alcss satislying cxamplc ol
thc rst catcgory ol uchronian works is Hadrian !II (.c), a rathcr ama
tcurish lantasy by Frcdcrick Rollc, thc scllappointcd 8aron Corvo. !ts
hcro is a lrustratcd wouldbc pricst whom a dcadlockcd Collcgc ol Cardi
nals implausibly clccts as popc, thc sccond nglish popc in history. Popc
Hadrian radiatcs his bcncvolcncc right up to Vorld Var ! or, rathcr, to
its avoidancc. His ministrations succcsslully adjust thc worlds important
political conicts. Tis story also had rcalworld cccts. Tc oddncss ol
thc book and its author inspircd a lamous work ol litcrary dctcction, Te
Quest for Cor.o (.), in which A.J.A. Symons discovcrcd how strangc
thc 8aron actually was.
Tc sccond (and my prclcrrcd) catcgory ol uchronian litcraturc is morc
strictly whatil history. !t conccrns actual cvcnts or circumstanccs that
might plausibly havc bccn dicrcnt. If: Or History Fe.ritten, cditcd by
J.C. Squirc (..), samplcs thc gcnrc with storics by many writcrs. Phillip
Gucdalla supposcs that thc Christian Rcconquista ol Spain had somchow
not gonc lar cnough to absorb thc Moorish Kingdom ol Grcnada, lcaving
it a powcr in intcrnational aairs into thc twcnticth ccntury and prcsum
ably bcyond. Hcndrik Villcm van Loon supposcs that thc utch had
rctaincd Nicuw Amstcrdam until, by a trcaty with a curiously libcrtarian
provision, it joincd thc Unitcd Statcs in ... Andr Maurois supposcs
that Louis X\! had bccn rm cnough to kccp Turgot, his libcralizing
nancc ministcr, until and bcyond ., (whcn thc Frcnch Rcvolution
bcgan, in thc rcal world), instcad ol dismissing himin .,,6. Hillairc 8clloc
supposcs that thc cart that blockcd Louiss path whcn hc tricd to cc
lrom Francc in .,. had gottcn stuck bclorc rcaching thc crucial spot
at \arcnncs. mil Ludwig asks what il Gcrman mpcror Frcdcrick !!!,
libcralmindcd and marricd to a daughtcr ol Quccn \ictoria, instcad ol
dying altcr only ninctyninc days on thc thronc in ., had survivcd
and cxcrtcd his modcrating inucncc until ... Vinston Churchill, in
a doublc twist, writcs as a historian in a world in which Lcc had actu
ally won thc battlc ol Gcttysburg and who spcculatcs about his not hav
ing won. Milton Valdman supposcs that 8ooths shot misscd Lincoln.
G.K. Chcstcrton imagincs on John ol Austria marricd to Mary Quccn
ol Scots, Harold Nicholson, 8yron cnthroncd as King ol Grcccc, and
c Part : Politics and Philosophy
H.A.L. Fishcr, Napolcon cscapcd to Amcrica and bccomc a prospcrous
plantcr. Squirc, thc cditor, postulatcs discovcry ol prool that Lord 8acon
wrotc Shakcspcarcs works.
Such spcculation nccd not bc lrivolity. Contrasts with what rcally hap
pcncd can dccpcn our undcrstanding ol actual history and ol thcorics ol
cconomics, psychology, political scicncc, intcrnational rclations, military
aairs, thcology, mcdicinc, and cvcn natural scicncc as applicd by dcci
sionmakcrs ol thc past. History lor us was thc unknown luturc lor thcm.
And cach ol us has undoubtcdly cxpcricnccd choiccs in his own lilc vcry
dicrcntly lrom thc way in which a biographcr would dcscribc thcm. Hc
would know thc rcsults, wc didnt.
nc subcatcgory ol conjcctural history docsnt much appcal to mc.
Likc Gucdallas Grcnada sccnario, it spcculatcs about major trcnds or
conditions that turncd out dicrcnt lrom thc actual oncs. Vhat il thc
dinosaurs or thc Roman mpirc hadnt disappcarcd: Vhat il uropc
had ncvcr discovcrcd Amcrica: So swccping a conjccturc is unsatislying
bccausc it locuscs on gcncral lramcworks ol history instcad ol particular
cvcnts, oncs that may havc sccmcd unimportant in thcmsclvcs but had
major conscqucnccs. ( Just what might havc cnablcd Grcnada to survivc
thc Rcconquista:) Likcwisc, it sccms out ol thc spirit ol thc gcnrc to
usc somc cvcnt or noncvcnt as a takco point lor shccr ction, as about
Napolcons imaginary cxploits in thc Ncw Vorld.
ivcrgcnccs bctwccn what did happcn and what might havc hap
pcncd somctimcs triggcr momcntous domino or buttcry cccts. Scvcral
may particularly intcrcst libcrtarians. Vhat il thc Civil Var had bccn
avoidcd, and with it thc lcdcral govcrnmcnts domination ol thc monc
tary systcm: Vhat il thc Fcdcral Rcscrvc Systcm had ncvcr bccn crcatcd:
Vhat il Chanccllor ol thc xchcqucr Vinston Churchill had hccdcd
warnings against rcturning Grcat 8ritain to thc gold standard in .a
at thc no longcr viablc prcwar parity: Vhat il (as Milton Fricdman and
Anna Schwartz havc spcculatcd) 8cnjamin Strong, Govcrnor ol thc Fcd
cral Rcscrvc 8ank ol Ncw York, dominant gurc in thc Fcdcral Rcscrvc
Systcm, and a bcttcr intuitivc cconomist than most ol his collcagucs, had
not dicd prcmaturcly in .a: Vhat il Harry Gunnison 8rown or !rving
Fishcr had hcadcd thc Systcm, or il his advicc had prcvailcd around .a:
Vould an ordinary rcccssion havc turncd into thc Grcat cprcssion, crc
ating opportunitics both lor thc Ncw cal and lor Hitlcr: ! think not.
8ut wc can carry spcculations lurthcr. Vhat il Giuscppc Zangaras
shot at Prcsidcntclcct Rooscvclt in Fcbruary . hadnt killcd Chicagos
Chapter ::: Uchronia, or lternati.e History .
Mayor Ccrmak instcad: Vhat il thc Unitcd Statcs hadnt adoptcd thc
silvcrpurchasc program ol thc .cs, which bcnctcd domcstic silvcr
intcrcsts but ruincd Chinas monctary systcm and thus improvcd thc
chanccs ol thc Communists: Vhat il von Papcn and his associatcs, carly
in ., had not cxpcctcd to managc Hitlcr and makc him a salc choicc
lor Chanccllor: Vhat il Hitlcr had dccidcd to nish o ngland in
.c.. bclorc tackling Russia: Vhat il FR, scriously ill, had dicd
bclorc thc Yalta conlcrcncc ol Fcbruary .or carlicr, whilc Hcnry
Vallacc was still vicc prcsidcnt: Vhat il Hitlcr had dicd in thc ncarly suc
ccsslul attcmpt to assassinatc him in .: Vhat il Lcc Harvcy swald
had provcd a poor marksman at allas in .6: How would Gcrald Ford
and thc country havc larcd il hc had not pardoncd Richard Nixon: r
what would Nixons rclusal ol a pardon havc mcant: Vhat il thc tight
votc in Florida in accc had gonc thc othcr way, as it might wcll havc
gonc, wcrc it not lor hanging chads, misaligncd ballots, and accidcntal
votcs lor Pat 8uchanan: A Gorc administration would havc bccn a disas
tcr, but ol a dicrcnt sort lrom thc disastcr 8ush brought us. And would
todays nancial crisis bc lcss or morc scvcrc il thc rcscuc ol LongTcrm
Capital Managcmcnt, orchcstratcd by thc Fcdcral Rcscrvc in ., and ol
othcr institutions bclorc and latcr hadnt worscncd thc dilcmma ol moral
hazard:
Surc, history has its dctcrministic aspccts, Marx strcsscd tcchnology.
8ut thc possibilitics inhcrcnt in many juncturcs ol history discrcdit ovcr
cmphasis on dctcrminism and undcrlinc thc clcmcnt ol chancc. Supposc
that Pontius Pilatc had savcd Jcsus Christ, lorcstalling his crucixion and
thc rcsurrcction story. Vould Jcsus still havc bccomc thc locus ol a rcli
gion dominating, lor good and ill, most ol thc Vcstcrn world: r would
hc havc rcmaincd an itincrant prcachcr scarccly mcntioncd in thc history
ol rcligion: Vould onc ol thc mystcry rcligions ol thc astcrn Mcditcr
rancan havc bccomc dominant instcad ol Christianity:
Considcr an cpisodc ol 8ritish history. Quccn Annc had . childrcn,
morc or lcss, counting miscarriagcs and stillbirths as wcll as livc births. !l
bcttcr mcdical carc had managcd to savc cvcn onc ol thcsc potcntial hcirs
bcyond Anncs dcath in .,., thc Protcstants ol hcr lamily, thc Stuarts (thc
Catholics among thcm bcing incligiblc by law), would havc rctaincd thc
8ritish crown. 8ut Annc dicd without lcaving a Protcstant Stuart hcir, so
thc crown passcd to thc distantly rclatcd Housc ol Hanovcr. Hanovcrians
had vcry dicrcnt intcrcsts and political traditions. !t was among thcm
that thc 8ritish dcvclopcd what camc to bc thc charactcristically modcrn
a Part : Politics and Philosophy
partyandprimcministcr systcm. Vould it havc dcvclopcd in a similar
way undcr a Stuart succcssion:
Hcrc wc arc spcculating about thc latcnt potcntial ol pcoplc and movc
mcnts that wc can idcntily. 8ut what about thc multitudc ol whatil cascs
that ncvcr had a chancc to comc to our attcntion: Vcrc it not lor thc
accidcnt ol dying carly, how many mcn and womcn would havc survivcd
to changc thc coursc ol cultural and political history: Tis is a thcmc ol
Grays lcgy Vrittcn in a Country Churchyard:
Pcrhaps in this ncglcctcd spot is laid
Somc hcart oncc prcgnant with cclcstial rc,
Hands that thc rod ol cmpirc might havc swaycd,
r wakcd to ccstasy thc living lyrc.
Hcrc, pcrhaps, spcculation ccascs with our lack ol knowlcdgc. 8ut
cvcnts that arc too ccrtain arc not lruitlul subjccts ol spcculation, cithcr.
Historical strugglcs makc poor cxamplcs ol uchronia whcn thc advantagc
was dccisivcly on onc sidc. Tcy bccomc morc intcrcsting whcn thc dctails
could casily havc gonc thc othcr way. My kingdom lor a horsc! crics
Shakcspcarcs Richard !!! at 8osworth Ficld. To mc, cvcn morc intcrcst
ing than battlcs that might havc gonc cithcr way arc wars that might havc
gonc cithcr wayin thc scnsc that thcy might havc bccn avoidcd.
!l Amcrican war hawks had not misrcprcscntcd thc cxplosion ol thc
Mainc in Havana harbor in ., Spain might wcll havc rcmaincd a sub
stantial powcr, and thc Unitcd Statcs might havc avoidcd its dccpcr colo
nial and gcopolitical burdcns. Supposc that hothcads had bccn lcss inucn
tial in Charlcston in April .6. or that Jccrson avis had rcstraincd thcm.
Tc Conlcdcratcs could havc bccn morc paticnt, not lalling lor Lincolns
provocativc movc to rcsupply Fort Sumtcr. Vithout thcir ring on thc
lort, Lincoln could not havc whippcd up war lcvcr in thc North. How
would a lcw morc months or cvcn ycars ol a Union garrison in Charlcston
harbor havc impaircd Conlcdcratc indcpcndcncc, thus lar succccding:
Altcr all, thc garrison had bccn allowcd to buy supplics in Charlcston cvcn
altcr scccssion. Ncithcr sidc cxpcctcd lour ycars ol tragic bloodshcd. Tc
issuc ol slavcry might havc bccn rcsolvcd at much lcss cost lor cithcr sidc.
Francc in .,c is an cxamplc ol not taking ycs (compliancc) lor an
answcr. Tc Spanish provisional govcrnmcnt had invitcd a Hohcnzollcrn
princc to bccomc thc countrys ncw king. Tc govcrnmcnt ol thc Frcnch
mpcror, Napolcon !!!, objcctcd, and thc Gcrman princc, a mcmbcr
ol thc housc thcn ruling Prussia, withdrcw. vcnts could casily havc
Chapter ::: Uchronia, or lternati.e History
stoppcd thcrc, but thcy didnt. Not contcnt with this diplomatic triumph,
thc Frcnch lorcign ministry tricd to humiliatc thc Prussians lurthcr. !t
instructcd thc Frcnch ambassador to accost Prussias King Villiam ! at a
spa and prcss lor writtcn assurancc that no such candidacy would cvcr bc
rcncwcd. Tc king politcly rcluscd. 8ismarck, thc Prussian primc minis
tcr, publishcd thc kings rcport ol thc cpisodc altcr tcndcntiously cditing
it to givc thc imprcssion to thc Frcnch that thc king had insultcd thcir
ambassador and to thc Prussians that thc ambassador had bccn impolitc
to thcir king. mprcss ugcnic ol Francc, a lcading war hawk, cxpcctcd
that victory would lurthcr consolidatc thc Napolconic dynasty. So thc
Frcnch cnthusiastically lct thcmsclvcs bc trickcd into dcclaring war, cvcn
though thcy wcrc militarily unprcparcd and lackcd cvcn adcquatc maps
ol thc likcly thcatcrs ol opcrations. Napolcon !!! lost his thronc, thc
8onapartist Sccond mpirc collapscd, Francc lost AlsaccLorrainc, rcvan
chismc cmcrgcd as a political lorcc in Francc, and dangcr ol anothcr war
dcvclopcd. Vhat il sobcrcr minds had prcvailcd in thc Frcnch govcrn
mcnt: Vhat il thc Spaniards had invitcd somc nonGcrman as thcir king
in thc rst placc:
As thc cnd ol thc Sccond mpirc hingcd on chancc, so did its bcgin
ning. LouisNapolcon 8onapartc, as hc was thcn known, stagcd a gcncr
ally unlorcsccn coup dctat on cccmbcr a, ... His tcrm as prcsidcnt ol
thc rcpublic (won by namc rccognition) would soon cxpirc, and thc consti
tution barrcd his rcclcction. Hcncc hc scizcd powcr. 8ut his crucl strokc
might wcll havc lailcd, and with it thc train ol cvcnts that lcd Francc and
Gcrmany to thc wars ol .,c and ...
Tc Grcat Var was a tragic and unncccssary modcrn turning point.
Tink ol its conscqucnccscconomic, political, military, and psycho
logical. !n .. no powcr dcsircd or lorcsaw a war so long and bloody.
Although a complicatcd nctwork ol allianccs did posc dangcr, cvcnts on
thc scalc that latcr dcvclopcd wcrc not prcdictcd. Tcy did not stop with
thc armisticc ol ... Vorld Var !! lollowcd, largcly as a conscqucncc ol
and scqucl to thc rst war. nc ol thc causal conncctions was thc lact that
Gcrmanys dclcat and thc cnsuing Trcaty ol \crsaillcs gavc Hitlcr matc
rial lor domcstic propaganda. 8ut what il advicc not to punish Gcrmany
so scvcrcly had prcvailcd at \crsaillcs: r what il 8ritain and Francc had
actcd dccisivcly whcn Hitlcr rst violatcd thc trcaty in ..6:
Tc latclul signicancc ol Junc a, ..thc datc whcn thc Aus
trian Archdukc Franz Fcrdinand was assassinatcd at Sarajcvo and thc
curtain bcgan to risc lor thc world conict ol .... and thcn ol
Part : Politics and Philosophy
..lcd mc, along with a lricnds young son who was accompa
nying mc to a conlcrcncc in !taly, to makc a sidc trip to Sarajcvo. Tcrc
wc saw whcrc Gavrilo Princip stood whcn ring thc shot that killcd Franz
Fcrdinandby a building whcrc a laudatory commcmorativc plaquc was
subscqucntly mountcd and a muscum cstablishcd. ! wondcrcd: what il
thc Archdukcs car had not madc a wrong turn: Vhat il Princips shot
had misscd, il cvcn only by inchcs: An assassination attcmpt had alrcady
lailcd carlicr thc samc day, just barcly. Tis onc might also havc lailcd.
Still, thc assassination did not makc war incvitablc. Suspccting Scr
bian complicity, AustriaHungary scnt Scrbia an ultimatum imposing
drastic conditions: it must collaboratc in an invcstigation and supprcss
lurthcr tcrrorist agitation. Scrbia camc surprisingly closc to agrccing com
plctcly, but AustriaHungary, unwilling (likc Francc in .,c) to takc a
ncarycs lor an answcr, startcd a war, and allianccs lcd contagion. Vhat
il AustriaHungary had bccn satiscd with thc ncarycs, or il Scrbia had
totally complicd:
8cyond thc qucstions it poscs, conjcctural history can contributc to
undcrstanding oncscll as wcll as thc rolcs ol othcr pcoplc and ol chancc
in human aairs. Vhcn ! was in high school ! bought Hugos Spanish Sim-
plied and a lcw ol thc HaldcmanJulius Companys chcap littlc books on
rcligion and on thc intcrnational languagc spcranto. Miss Connor, my
history tcachcr, stccrcd mc to thc cconomics ol Hcnry Gcorgc and to a
book about !talian history. Tcsc littlc cpisodcs acctcd my latcr lilc in
unlorcsccablc ways. Miss Connor was what wc would now call an out
spokcn lcltlibcral, still, shc was a conscicntious and inspiring tcachcr.
Vithout hcr inucncc, ! might not havc majorcd in cconomics in collcgc
and gonc on lor a Ph.. in cconomics. Mcanwhilc, thc littlc Haldcman
Julius books arouscd my intcrcsts in rcligion and in an intcrnational lan
guagc, both ol which ! havc discusscd in Liberty (ctobcr acc, and Jan
uary/Fcbruary acc).
Pcrhaps most accidcntal, yct signicant, was thc inucncc ol Hugos
Spanish book. ! wcnt on lcarning Spanish, cntircly without any lormal
classcs. At Auburn Univcrsity ! joincd thc Fricnds ol Guatcmala, a dor
mant thcn rcsurrcctcd wcckly Spanish convcrsation group, thc origin ol
whosc namc nobody could rcmcmbcr. All but two ol our groups mcm
bcrs soon droppcd out, but Luis opico and ! carricd on, cvcntually
having our Spanish convcrsations at dinncr oncc a wcck. ! visitcd him
oncc in his homc city in Spain. Hc now livcs in North Carolina and has
dual citizcnship. ! talk with him by phonc in Spanish lor about an hour
Chapter ::: Uchronia, or lternati.e History
almost cvcry Sunday, thcn lor about . minutcs in nglish with his wilc,
Stcphanic Crolton. !l ! hadnt bccn turncd onto Spanish by Hugos book,
! would ncvcr havc madc thcsc two closc lricndships. Tis is a primc cxam
plc ol a microstochastic cvcntan instancc ol randomncss on a vcry small
scalcwith major conscqucnccs lor mc.
And what il ! had lailcd, likc somc ol my collcagucs, in a Japancsc
languagc coursc during thc war: Vhat il ! had lollowcd my lathcrs (bad)
advicc, ocrcd bccausc ! had lost thrcc ycars in thc Army, to skip rcturning
to collcgc and go dircctly into thc busincss world: Vhat il ! had not hap
pcncd onto books by Ludwig von Miscs in thc bcrlin Collcgc library
and by Vilhclm Ropkc in a Ncw York bookstorc, works that grcatly
inucnccd my undcrstanding ol cconomics and ol libcrtarianism or quasi
libcrtarianism: Vhat il ! had choscn thc problcm ol innovation undcr
socialism as my disscrtation topic in .c.a, instcad ol thc othcr topic
! was considcring, An valuation ol Frccly Fluctuating xchangc Ratcs,
which ! did choosc: (! know ! would havc had troublc nding much to
say about innovation undcr socialism.) Vhat il ! hadnt taught at Tcxas
A&M lor onc ycar and at thc Univcrsity ol Maryland lor vc, making
a lcw closc lricnds at thc two schools: A ycar in Marylands uropcan
program camc at just thc right timc ol my lilc. Vhat il an articlc ol minc
had not brought mc an invitation to movc to thc Univcrsity ol \irginia in
.,: 8y happcning to takc part in an !nstitutc lor Humanc Studics pro
gram in thc summcr ol .., ! mct a valucd acadcmic collaborator, Robcrt
Grccncld. !n ., thc idca ol buying a big housc with a big mortgagc as
an ination hcdgc tippcd my agonizingly closc dccision toward moving
lrom \irginia to Auburn Univcrsity. (Ycs, not only ination but unccr
tainty about it can disrupt cvcn pcrsonal planning.) Spcculation not only
about cpisodcs in world history but also about turning points in a singlc
lilc can makc lor livcly but scrious convcrsationwith othcrs, and with
oncscll.
!vc savcd lor last an cxamplc ol uchronia that, lor two rcasons, is my
lavoritc. Likc many ol thc cxamplcs abovc and as bcst ! can rcmcmbcr,
! thought ol it myscll. Morc importantly, it is an cxtrcmc cxamplc ol its
typc, arguably, it cvcn bcars on thc philosophical issuc ol lrcc will and
dctcrminism. Supposc that in .. Quccn \ictoria had bccn conccivcd as
a malc rathcr than a lcmalc. Hcr (or his) scx dctcrmination was surcly a
microstochastic cvcnt. xccpt only lor this accidcnt ol scx, thc crowns ol
Grcat 8ritain and Hanovcr would havc rcmaincd unitcd altcr thc dcath
ol \ictorias unclc, Villiam !\, in .,. Vomcn could succccd to thc
6 Part : Politics and Philosophy
thronc ol 8ritain, but thc mcdicval Salic Law cxcludcd all lcmalcs lrom
thc thronc ol Hanovcr so long as any malc hcirs wcrc to bc lound. So
anothcr ol \ictorias unclcs, rncst Augustus, bccamc king ol Hanovcr,
scparating thc two crowns.
Now, il thc ncw monarch ol 8ritain had bccn a malc, hc would also
havc bccn king ol Hanovcr. A kingdom in thc hcart ol northcrn Gcr
many sharing thc samc nglishspcaking, nglishcducatcd monarch
with Grcat 8ritain would havc grcatly hampcrcd 8ismarcks corts toward
Gcrman unication. Tc Scvcn Vccks Var ol .66 (Prussia against Aus
tria), having in its background thc .6 war ol Prussia and Austria against
cnmark ovcr thc northGcrman SchlcswigHolstcin issuc, might ncvcr
havc takcn placc. As its rcsult, howcvcr, Hanovcr, an ally ol dclcatcd Aus
tria, lost its indcpcndcncc in .66 and was absorbcd into Prussia. Vithout
\ictorias conccption as a lcmalc, thcn, thc wars ol .66 and .,c.,., thc
cstablishmcnt ol thc Gcrman mpirc, Vorld Var !, and thc 8olshcvik
rcvolution ol .., might ncvcr havc occurrcd, at lcast not at thcir actual
timcs and in thcir actual ways. Vould our livcs bc dicrcnt: !ts dicult
to arguc othcrwisc.
Small chancc cvcnts can indccd sway history. Tis is how uchronia
bccomcs rcality.
cn~v:vv :
Hayck on thc Psychology ol
Socialism and Frccdom

ix:vobuc:iox (nv nvvnvv: s:vix)

Ninctccn cightylour is thc cightylth annivcrsary ol thc birth ol Fric
drich Hayck, Nobcl laurcatc and onc ol this ccnturys grcat cconomists.
Tis ycar is also thc lorticth annivcrsary ol Haycks bcstknown book, Te
Foad to Serfdom.
Te Foad to Serfdom was publishcd at a critical timc. Tc .cs had
bccn a dccadc ol cxccptionally rapid incrcasc ol thc cconomic rolc ol gov
crnmcnt in thc Vcstcrn dcmocracics, including thc Unitcd Statcs and
8ritain. !n ., as thc war was coming to an cnd, thc common, cxpcc
tation was that this trcnd would bc rcsumcd in thc postwar pcriod. Tc
usual tcrmlor thc postwar cconomic cnvironmcnt was postwar planning,
mcaning planning by govcrnmcnt.
uring thc .cs thcrc had bccn littlc objcctivc intcllcctual rcsistancc
to thc movcmcnt toward incrcasing govcrnmcnt controls. !n thc Unitcd
Statcs rcsistancc camc lrom Rcpublicans, Southcrn cmocrats, and busi
ncss organizations and could bc dismisscd as partisan, nostalgic, or scll
intcrcstcd.
Haycks book was thc opcningand thc most importantshot in
thc intcllcctual rcsistancc to thc trcnd toward govcrnmcnt control. Hayck
argucd that military victory ovcr thc Nazis and Fascists would not pcr
mancntly cnsurc thc triumph ol lrccdom. Tc rcpulsivc lcaturcs ol thc
Nazi and Fascist rcgimcs wcrc not thc rcsults ol pcculiarly Gcrman and
!talian charactcristics. Rathcr thcy wcrc thc rcsults ol carrying out lully
thc implications ol a socialist way ol thinking that was alrcady prcscnt in
8ritain and thc Unitcd Statcs. Hc warncd that unlcss wc rcjcctcd that way
ol thinking wc could lollow along thc samc road to scrldom.

From EI Economist (Novcmbcr .): ..

,
Part : Politics and Philosophy
Tc book was an immcdiatc scnsation. !t had an cnormous popular
audicncc, partly through a condcnsation in thc Feaders Digest, and has
bccn translatcd into somc sixtccn languagcs.
!l wc arc not now on thc road to scrldomand wc do not sccm to
bcsomc ol thc crcdit lor that must go to Fricdrich Hayck. !n salutc to
him wc publish thc lollowing articlc by a distinguishcd studcnt ol Haycks
work, Prolcssor Lcland Ycagcr ol thc Univcrsity ol \irginia.
n~vvx ox :nv vsvcnoiocv ov soci~iis: ~xb vvvvbo:
Now, lorty ycars altcr its publication, is a good timc to rcconsidcr Fricdrich
Haycks Te Foad to Serfdom (.). Gcorgc rwclls z,8, also dcscrvcs
mcntion, sincc rwcll had writtcn a kind rcvicw ol Haycks book bclorc
writing his own.
.
Somconc rcading a book again altcr a long intcrval is likcly to rcccivc
a rathcr dicrcnt mcssagc. Tis lact illustratcs thc thcsis that Hayck dcvcl
ops in Te Sensory Order (publishcd in .a but dcrivcd lrom a papcr
draltcd ovcr thirty ycars carlicr). !d likc to cxplain my point, and also
hail Haycks inadcquatcly rcmcmbcrcd work in psychology, by rst sur
vcying that book. A lurthcr link bctwccn his books ol . and .a is
that Hayck oltcn dcploycd psychological insights in Te Foad to Serfdom
to cxplain, lor cxamplc, why ccrtain wrong idcas ncvcrthclcss havc widc
appcal. Fully apprcciating Haycks work in cconomics and political scicncc
rcquircs knowing ol his intcrcst in psychology.
n~vvxs vsvcnoiocic~i boc:vixvs
Although Te Sensory Order docs not strcss thc conncction, Haycks psy
chological doctrincs do mcsh wcll with his mcthodology in cconomics
and his approach to practical aairs. A sharp distinction bctwccn thcory
and lact or bctwccn thcory and practicc is not tcnablc. All our actions, all
our obscrvations ol lact, cvcn all our supposcdly ultimatc or irrcduciblc
scnsc pcrccptions arc shot through with thcory. vcn at thc lcvcl closcst
to barc lact, thcory is indispcnsablc to making scnsc out ol thc world and
cvcn to pcrcciving it.
Vc ncvcr pcrccivc uniquc propcrtics ol individual objccts but only
propcrtics that objccts havc in common. Pcrccption always involvcs
.
Hayck mcntions rwclls rcvicw in a ncw lorcword to Te Foad to Serfdom (Hayck
./.6, p. viii n.).
Chapter :: Hayek on the Psychology of Socialism and Freedom
intcrprctation ascribing impulscs rcccivcd to onc or morc classcs. Tis
classication is at lcast rudimcntary thcory. Tc qualitics wc attributc to
cxpcricnccd objccts bclong, actually, to thc rclations by which wc classily
thcm.
xamplcs may hclp. Vhcn ! hcar a sound or scc a patch ol rcd, ncithcr
simply cxists as a distinct part ol objcctivc rcality imprcssing itscll on my
ncrvous systcm. Rathcr, my ncrvous systcm sclccts ccrtain aspccts ol rcal
ity acccssiblc to my scnsc organs, classics thcm, and organizcs thcm into
my pcrccption ol thc sound or thc rcd patch. Far lrom playing a purcly
passivc rolc, my ncrvous systcm imprcsscs ordcr or charactcr onto my pcr
ccptions and thus shapcs and in a way cvcn crcatcs thcm.
Vhat aspccts ol rcality can acct my scnsc organs and how its cccts
shapc thcmsclvcs into pcrccptions dcpcnd on thc statc ol thosc organs, ol
my ncrvous systcm, and indccd ol my cntirc body. Tc rolc ol thc phys
ical body is obvious. Unlikc a dog, ! cannot pcrccivc ccrtain smclls or
highpitchcd sounds. Unlikc mc, thc dog cannot rccognizc and so cannot
pcrccivc words in a convcrsation or on a printcd pagc.
8iological proccsscs and natural sclcction havc prcsumably shapcd
organisms in such ways that thcir pcrccptions posscss an ordcr corrc
sponding to whatcvcr ordcr may cxist in thc world. rganisms that lrc
qucntly conluscd hot and cold, small and largc, ncar and lar, up and down,
hungcr and saticty, woll and bush would bc lcss likcly to survivc and rcpro
ducc than oncs whosc pcrccptions corrcspondcd bcttcr to rcality. Among
highcr organisms, actions conlorming to principlcs ol logic would havc
grcatcr survival valuc than actions clashing with logic.
Vc scc somc possiblc truth, thcn, in !mmanucl Kants contcntion
that human bcings can havc knowlcdgc prior to cxpcricncc. Quibbling,
wc might narrow that contcntion down. Pcoplc do not havc any a pri
ori knowlcdgc in an articulatcd lorm. Vhat thcy morc plausibly havc arc
prcdispositions to bchavc as il thcy had ccrtain knowlcdgc and prcdispo
sitions to rccognizc and bccomc ablc to articulatc it.
!n Haycks intcrprctation, cxpcricncc is involvcd in knowlcdgc, altcr
all, but it is not rcstrictcd to cxpcricncc obtaincd by thc individual organ
ism itscll. Rathcr, it includcs thc cxpcricncc ol thc spccics and its anccs
tors as cmbodicd, through biology and natural sclcction, in cach indi
viduals gcnctic and physiological makcup. Tc individual human bcing
inhcrits thc cxpcricncc ol his anccstors not only through biological but
also through cultural proccsscs, notably through languagc. Languagc
incrcascs his capacity lor discrimination in dcaling with ncw cxpcricncc.
cc Part : Politics and Philosophy
Languagc is itscll thc product ol intcrwovcn biological and cultural
cvolution.
Still anothcr typc ol cxpcricncc bcsidcs his own dircct currcnt cxpcri
cncc hclps shapc thc individuals currcnt pcrccptions. His own past cxpc
ricncc docs so by having acctcd physical and chcmical conditions within
his body, such as ncrvc conncctions govcrning thc travcl ol impulscs to
and lrom thc brain. Pcoplc do not rst havc scnsations that arc thcn prc
scrvcd by mcmory. Rathcr, it is as a rcsult ol physiological mcmory that
physiological impulscs rcccivcd arc convcrtcd into scnsations.
Vc nccd not go into what Hayck says lurthcr about physiology and
about what cxpcrimcnts do or would tcnd cithcr to support or to rclutc his
thcory. !t is worth mcntioning, though, that whilc Hayck (likc almost all
scicntists) is a mcchanist as opposcd to a vitalist, hc is no rcductionist. Hc
docs not bclicvc that thc lilc scicnccs and social scicnccs can bc rcduccd
to physics and chcmistry in such a way as to rccommcnd banishing thc
languagc ol sccing, hcaring, thinking, consciousncss, purposcs, intcntions,
dccisions, and actions and rcquiring all propositions about such mattcrs
to bc phrascd cxclusivcly in physical and chcmical tcrms instcad.
Hayckargucs, inshort, that thc individuals cognitivc apparatus, shapcd
by his biological and cultural inhcritanccs and by his own past cxpcricnccs,
brings a prcdisposition to cach ncwsituation to pcrccivc it and organizc its
aspccts in particular ways. No such thing opcratcs as raw, purc, unltcrcd
pcrccption. Rathcr, thc obscrvcr largcly shapcs what hc pcrccivcs.
Knowlcdgc docs indccd havc an a priori aspcct thcn (though its naturc
and sourccs arc not quitc what Kant had supposcd). !t is not truc that
all wc know must bc subjcct to conrmation or contradiction by scnsc
cxpcricncc, that is, by currcnt or luturc scnsc cxpcricncc. At lcast part ol
what wc know at any momcnt about thc cxtcrnal world is implicit in thc
mcans through which wc can obtain cxpcricncc.
Many obscrvations tcnd to support or illustratc Haycks thcory, or at
lcast to providc illuminating parallcls. Gcorgc Stiglcr and Gary 8cckcr
(.,,), in a wcllknown mcthodological articlc, tacitly acccpt somcthing
likc thc thcory. Tcy warn against hastily chalking up a changc in a pcr
sons bchavior to a changc in his tastcs. Tcy rccommcnd postulating a
stablc basic structurc ol tastcs within which thc accumulation ol cxpcri
cncc may altcr thc rcsponsc cvcn to othcrwisc unchangcd circumstanccs.
A pcrson may rcspond dicrcntly than bclorc to a givcn sct ol oppor
tunitics, including pcrhaps priccs, il in thc intcrval hc has acquircd, lor
cxamplc, morc music apprcciation capital.
Chapter :: Hayek on the Psychology of Socialism and Freedom c.
Vhcn onc uscs a lorcign languagc, particularly ovcr thc tclcphonc,
what hc hcarsnot just undcrstands, but cvcn hcarsdcpcnds on how
wcll hc knows thc languagc, that is, on his prcvious cxpcricncc.
Haycks thcory, along with Lcon Fcstingcrs thcory ol cognitivc disso
nancc, hclps cxplain why many pcoplc cannot rccognizc thc worst sourcc
ol cruclty, prcdation, and mortal pcril in thc world today and instcad
dump thc blamc onto thosc Vcstcrn statcsmcn who do idcntily thc cvil
and call lor adcquatc dclcnsc. Tosc thcorics also hclp cxplain why ccr
tain cconomists who trumpct thcir supposcd cmpirical oricntation ncvcr
thclcss cannot scc which ol thcir lavoritc postulatcs arc lalsicd by lacts
and cannot scc how substantial or how slight thc rcsults arc that thcir
lavoritc mcthods havc yicldcd. Admittcdly, it may bc !, not thc pcoplc !
am criticizing, who is wrong, but thcn my crrors would still illustratc thc
ccntral point that thc cxpcricnccs and thc mind sct onc brings to a cogni
tivc situation acct not only oncs intcrprctation ol it but cvcn what onc
can scc.
Many writcrs havc prcsumably bccn criticizcd, as ! havc, lor vicws thcy
had not cxprcsscd. Tcir rcadcrs cvidcntly could not pcrccivc, unltcrcd,
what thcy wcrc saying. Rathcr, thc rcadcrs classicd thc matcrial in thcir
own prccxisting pigconholcs. Tcy thcn rcactcd to what thcir ling sys
tcms accommodatcd, not just to any barc substancc ol what had bccn said.
Tc mcssagc that a rcadcr draws lrom a book lollows partly lrom thc
cxpcricnccs hc brings to it, including his past rcading. Tat is why a book
rcrcad altcr a long intcrval may makc a dicrcnt imprcssion than bclorc.
:nv vo~b :o svvvbo:
Tat is how Te Foad to Serfdom has acctcd mc. Tc books ccntral mcs
sagc is, ol coursc, hard to miss: Socialism, in thc scnsc ol collcctivc own
crship ol thc mcans ol production and ccntral dircction ol cconomic lilc,
cntails loss ol pcrsonal lrccdom. Vhat camc morc strongly to my attcn
tion is Haycks conccrn with political institutions and inccntivcs and also
with linkagcs ol idcas. Sincc ! had also bccn scnsitizcd in thc mcanwhilc to
Haycks intcrcst in psychology, thc samc is truc ol his many psychological
insights.
Tcsc, in Te Foad to Serfdom, arc insights ol litcrary psychology
(thymology, as Ludwig von Miscs callcd it) rathcr than ol thc tcchni
cal disciplinc. Hayck strcsscs thc inucncc ol bclicls and attitudcs and
cxplorcs rcasons why pcoplc hold thcm.
ca Part : Politics and Philosophy
Spccialists tcnd to bc cnthusiastic lor ccntral planning bccausc thcy
tacitly assumc that thc planncrs will, likc thcmsclvcs, bc intclligcnt pcrsons
having scnsiblc scalcs ol valucs and so undcrstanding thc spccial impor
tancc ol cach particular spccialists lavoritc goal. (xamplcs might bc cdu
cation, cnvironmcntal protcction, high tcchnology, mass transportation,
or morc ncarly cqual distribution ol incomc and wcalth.) Accordingly, an
apparcnt conscnsus in lavor ol planning is likcly to bc spurious, lor thc
dicrcnt cnthusiasts will havc dicrcnt visions ol thc plan to adopt.
Vhat givcs thc dcmand lor planning its strongcst impctus, says Ha
yck, is thc rcscntmcnt ol thc lrustratcd spccialist (./.6, p. ). No
singlc cconomic lactor has contributcd morc to hclp Fascist and National
Socialist movcmcnts than thc cnvy ol thc unsucccsslul prolcssional man,
thc univcrsitytraincd cnginccr or lawycr, and ol thc whitccollarcd prolc
tariat in gcncral, ol thc cnginc drivcr or compositor and othcr mcmbcrs ol
thc strongcst tradc unions whosc incomc was many timcs thcirs (p. ..6).
Anothcr sourcc ol discontcnt with thc markct cconomy is a vaguc
rcscntmcnt at oltcn having to pay a matcrial cost to scrvc highcr val
ucslilc and hcalth, bcauty and virtuc, honor and pcacc ol mind. Pco
plc rcscnt having thc highcr valucs ol lilc brought into thc cash ncxus.
At bottom, and without rcalizing it, what thcy rcscnt is thc cconomic
problcmthc incxorablc lact ol scarcity and thc nccd to makc choiccs
(pp. ,).
Hayck dcscribcs thc attitudc, cultivatcd in thc Gcrmany that cvcntu
ally put Hitlcr in powcr, that somcthing disrcputablc attachcs to taking
cconomic risks and making prot: to cmploy a hundrcd pcoplc is rcprc
scntcd as cxploitation but to command thc samc numbcr as honorablc
(pp. .c..).
!n a complcx civilization with a dcvclopcd markct cconomy, many
pcoplc will not undcrstand why thcy must adjust to changcs ol unknown
sourcc and naturc, as by shilting occupations, or why somc things thcy
dcsirc should bccomc hardcr to obtain than in thc past. Tcy do not undcr
stand that thc only altcrnativc to submission to thc impcrsonal and sccm
ingly irrational lorccs ol thc markct is submission to an cqually uncontrol
lablc and thcrclorc arbitrary powcr ol othcr mcn (p. ac).
nc lamous piccc ol Haycks psychologizing is his chaptcr on Vhy
thc Vorst Gct on Top. !n a systcm in which achicving wcalth and posi
tion dcpcnds lcss than it docs in a markct cconomy on satislying thc
wants ol oncs lcllows through voluntary transactions, ambitious pcoplc
havc morc scopc lor pandcring to popular rcscntmcnts and prcjudiccs
Chapter :: Hayek on the Psychology of Socialism and Freedom c
and to thc vanity and powcrhungcr ol thcir supcriors. pportunitics lor
thc unscrupulous, ruthlcss, and uninhibitcd (including pcoplc not inhib
itcd by conccrn lor truth) will bc rclativcly grcatcr. Hayck (p. .a) quotcs
Frank Knight: thc probability ol thc pcoplc in powcr bcing individuals
who would dislikc thc posscssion and cxcrcisc ol powcr is on a lcvcl with
thc probability that an cxtrcmcly tcndcrhcartcd pcrson would gct thc job
ol whippingmastcr in a slavc plantation.
!t hclps dcscribc Te Foad to Serfdom to comparc it with a book
publishcd in Switzcrland lour ycars latcr whosc author rcpcatcdly citcs
Hayck: Valtcr Adoll Johr (.), Ist ein freiheitlicher So.ialismus moglich?
(!s Socialismwith FrccdomPossiblc:). Haycks is thc longcr book, though
both arc short (a pagcs plus introductions vcrsus ., pagcs). Johr sticks
morc closcly to systcmatic analysis ol what cconomic and othcr aspccts
ol socicty arc or arc not likcly to bc compatiblc with onc anothcr, hc
aims rathcr narrowly at answcring thc qucstion poscd. His answcr turns
out No. Hc citcs, and rcjccts, publishcd corts to rcconcilc social
ism and lrccdom by rcdcning onc or both tcrms. Hc cxplains why a
ccntrally dircctcd cconomy would dcstroy cconomic lrccdoms, why cco
nomic and othcr lrccdoms cannot bc sharply scparatcd, and why polit
ical and cultural lrccdoms would thcrclorc sucr also. Hc shows why
losscs ol somc lrccdoms arc unlikcly to bc outwcighcd by gains ol othcrs.
cccntralizcd socialism and partial socialism would havc dicultics ol
thcir own and would cxpcricncc prcssurcs to cvolvc toward lullcrcdgcd
socialism.
Tc two books arc complcmcntary. Hayck covcrs much thc samc
ground as Johr, but in a looscr, morc discursivc, lcss narrowly analytical
way, hc argucs morc by piling up plausiblc insights. Hc also rangcs morc
widcly. Hc diagnoscs morc trcnds and draws morc parallcls. Hc points
out, lor cxamplc, that thc risc ol lascism and Nazism was not a rcaction
against socialist trcnds but rathcr thcir cxtcnsion.
Tc intcnsity ol thc moral cmotions bchind a movcmcnt likc that ol
National Socialism or communism can probably bc comparcd only to
thosc ol thc grcat rcligious movcmcnts ol history. ncc you admit that
thc individual is mcrcly a mcans to scrvc thc cnds ol thc highcr cntity
callcd socicty or thc nation, most ol thosc lcaturcs ol totalitarian rcgimcs
which horrily us lollow ol ncccssity. . . . Vhcn Gcrman philosophcrs
again and again rcprcscnt thc striving lor pcrsonal happincss as itscll
immoral and only thc lullmcnt ol an imposcd duty as praiscworthy,
thcy arc pcrlcctly sinccrc, howcvcr dicult this may bc to undcrstand
c Part : Politics and Philosophy
lor thosc who havc bccn brought up in a dicrcnt tradition. (Hayck
./.6, p. .)
8csidcs dclving into psychology, Hayck gocs lurthcr than Johr into thc
history and intcrconncctions ol idcas. Hc makcs morc allusions to pcoplc,
cvcnts, and litcraturc. Hc considcrs thc allcgcdly incxorablc dcclinc ol
compctition and thc supposcd ncccssity ol planning lor that rcason. Hc
dcscribcs thc positivc accomplishmcnts ol a pricc systcm. Anticipating
chaptcr 6 ol his Te Constitution of Liberty (.6c), hc prcscnts thc casc
lor allowing markct inccntivcs to guidc thc allocation ol rcsourccs, cort,
and riskbcaring rathcr than trying to makc thc distribution ol incomc
corrcspond somchow to judgmcnts ol moral mcrit.
Te Foad to Serfdom lorcshadows many ol Haycks latcr writings and
could scrvc as an introduction and summary. vcr his lilctimc his work
shows continuity. !n his writings, as ! know thcm, hc has had to rcvcrsc
himscll on rcmarkably littlc. Tis is not to say that hc is stuck in a rut,
rcciting carlicr lormulationsnot at all. His thought has dcvclopcd, but
largcly through his dccpcning ol carlicr insights and cxtcnding thcm to
ncw clds. Vith rcgard to thc dcgrcc ol cconomic intcrvcntion hc lavors,
hc has cvolvcd il anything in a laissczlairc dircction, as illustratcd by
his proposals lor taking cvcn thc monctary systcm out ol thc clutchcs ol
govcrnmcnt.
Te Foad to Serfdomcxplains thc pcrvcrsc conscqucnccs ol govcrnmcnt
mcasurcs to shcltcr individual scctors ol thc cconomy against thc advcrsc
impact ol changc. Alrcady in ., Hayck had bcgun to grasp somc points
latcr claboratcd by Mancur lson in his Te Fise and Decline of Nations
(.a). Tc longcr a socicty cnjoys pcacc and stability, thc bcttcr organizcd
cconomic intcrcst groups bccomc and thc morc succcsslul in lobbying
thc govcrnmcnt lor spccial privilcgc and lor protcction against domcs
tic and lorcign compctition. conomics bccomc sclcrotic, with advcrsc
conscqucnccs lor productivity, growth, and macrocconomic pcrlormancc.
lson was ablc to cxplain much rcccnt cconomic history with this simplc
insight.
Hayck had alrcady cxplaincd how anticompctitivc rcstrictions imposc
all thc morc ol thc burdcn ol changc on occupations outsidc thc lavorcd
oncs.
!n conscqucncc, instcad ol priccs, wagcs, and individual incomcs, it is
now cmploymcnt and production which havc bccomc subjcct to violcnt
uctuations. . . . Fcw catchwords havc donc so much harm as thc idcal ol
Chapter :: Hayek on the Psychology of Socialism and Freedom c
a stabilization ol particular priccs (or wagcs), which, whilc sccuring thc
incomc ol somc, makcs thc position ol thc rcst morc and morc prccarious.
(./.6, p. .a, cl. p. ).
Haycks warning that socialism cndangcrs lrccdom is widcly rccog
nizcd as validnowadays. Alrcady inthc lorcwordto his .6 cdition, Hayck
rccognizcd that hot socialism is probably a thing ol thc past and that a
hodgcpodgc ol illasscmblcd and oltcn inconsistcnt idcals labclcd thc
Vcllarc Statc had largcly rcplaccd socialism as thc goal ol thc rclorm
crs (p. ix). Fcwpromincnt nglishspcaking cconomists actually advocatc
socialism any longcr. xccptions likc J.K. Galbraith and Robcrt Lckach
man do comc to mind, but it is not clcarnot to mc, anywayjust what
thcy mcan by socialism. Politicians still advocating socialism in dcvclopcd
countrics, likc Franois Mittcrrand in Francc, no longcr mcan lullcdgcd
socialism, but rathcr a wcllarc statc, with rcdistributionist mcasurcs and
only limitcd nationalization ol industry. Hayck is right: hot socialism
is dcad.
! do not say that pcoplc nowrcjcct socialismbccausc thcy havc dircctly
absorbcd Haycks mcssagc. Rathcr, his argumcnts havc bccn in thc air
and havc workcd indircctly. xpcricncc at rst or sccond or nth hand
has oozcd into pcoplcs consciousncss. !n thc lorty ycars sincc ., thc
world has obscrvcd socialism in Sovictbloc and third world countrics.
8ut it has not sccn pcrsonal lrccdom cocxisting with lullcdgcd social
ism. As Hayck wrotc alrcady in ., libcral socialism as most pcoplc in
thc Vcstcrn world imaginc it is purcly thcorctical, whilc thc practicc ol
socialism is cvcrywhcrc totalitarian (p. ..). Failurc to obscrvc lrccdom
undcr socialism is no mcrc accidcnt.
!l wc in thc dcvclopcd countrics cvcntually wind up socialist altcr
all, wc will havc donc so unintcntionally. spccially in his latcr writ
ings (Hayck ., and .,), Hayck has lorcsccn how this might hap
pcn. Tc irrcsponsibility ourishing in dcmocratic politics could accom
modatc cxccssivc dcmands lor spccial govcrnmcntal lavor and protcction
against compctition, hampcr cntcrprisc, swcll govcrnmcnt budgcts and
dccits, bring dcbt monctization and pricc ination, and bring countcr
productivc attcmpts to ght ination with dircct controls. Capitalism
could sccm to havc lailcd, and opportunistic politicians would ocr gov
crnmcntal rcmcdics. Actually, what would havc lailcd would bc thc ina
tionpronc, intcrvcntionriddcn cconomy and thc political systcmrcspon
siblc lor thosc ills.
c6 Part : Politics and Philosophy
Hayck (.,/.,) has rccognizcd such dangcrs and has rccommcndcd
political rclorms. Alrcady in Te Foad to Serfdom hc anticipatcd his latcr
and lullcr diagnoscs ol aws in thc political systcm. Hc cxplaincd thc
naturc ol dcmocracy and why onc should not makc a lctish ol it (pp. ,c,.),
thc impossibility ol working out a cohcrcnt cconomic plan dcmocrati
cally (pp. 6.6), and why planning is incompatiblc with thc rulc ol law
(pp. ,a,).
Vill wc still blundcr into socialism and totalitarianism through thc
back doorthrough cxploitation ol govcrnmcnt powcr by spccialintcrcst
groups run amok, ovcrburdcning ol govcrnmcnt, rigidication ol thc ccon
omy, ination and stagation and misconccivcd mcasurcs against thcm,
slowdown ol productivity growth, and, in gcncral, a botch lrom which
dcmagogucs and powcrscckcrs can makc hay: ur chicl hopc is that wc
will combinc and absorb thc tcachings ol F.A. Hayck and ol thc public
choicc school, lcd by Jamcs 8uchanan, and put thcm into practicc bclorc
thc opportunity runs out.
vvvvvvxcvs
Hayck, F.A. Te Sensory Order. London: Routlcdgc & Kcgan Paul, .a.
. Te Foad to Serfdom. .. Chicago: Univcrsity ol Chicago Prcss,
Phocnix 8ooks, .6.
. Te Constitution of Liberty. Chicago: Univcrsity ol Chicago Prcss, .6c.
. Ne. Studies in Philosophy, Politics, Economics, and the History of Ideas.
Chicago: Univcrsity ol Chicago Prcss, .,.
. Te Political Order of a Free People. \ol. ol La., Legislation, and Liberty.
.,. Chicago: Univcrsity ol Chicago Prcss, .,.
. Tiger by the Tail. Compilcd by Sudha R. Shcnoy. San Francisco: Cato
!nstitutc, .,.
Johr, Valtcr A. Ist ein Freiheitlicher So.ialismus Moglich? 8crn: Franckc, ..
lson, Mancur. Te Fise and Decline of Nations. Ncw Havcn, Conn.: Yalc Uni
vcrsity Prcss, .a.
Stiglcr, Gcorgc, and Gary 8cckcr. c Gustibus Non st isputandum. mer-
ican Economic Fe.ie. 6, (March .,,): pp. ,6c.
cn~v:vv :
Kirzncr on thc Morality ol
Capitalist Prot

!sracl Kirzncr dcvclops insights into thc moral lcgitimacy ol capital

ism and cspccially ol cntrcprcncurial prot. Tis papcr trics to ccho or
strcngthcn Kirzncrs points by rclating thcm morc closcly than hc docs
to thc loundations ol cthics. Although ! havc no rcason to supposc so,
Kirzncr may conccivably rcsist bcing linkcd with onc vcrsion ol utilitari
anism, a vcrsion tracing as lar back in thc history ol philosophy as avid
Humc and cvcn carlicr, lorthrightly cxpoundcd by Kirzncrs mcntor Lud
wig von Miscs and by Hcnry Hazlitt, and cmploycd at lcast tacitly by
Fricdrich A. Hayck.
.
!l Kirzncr should think ! am trying to dralt him
into an unwclcomc alliancc, ! can only apologizc and only hopc that hc
will ncvcrthclcss acccpt my contribution to a dialoguc that hc himscll has
activcly advanccd.
xivzxvvs vosi:ivv ~x~ivsis
As ! just implicd, Kirzncr docs not claim to bc sctting lorth a novcl cth
ical position or to bc contributing to cthical thcory as distinct lrom cco
nomics (.ab, chap. ., ., p. , but scc .,, p. a..). Hc docs not try
to show that thc critics ol capitalism havc uscd morally awcd critcria.
For his immcdiatc purposcs, hc acccpts cxisting and widcly sharcd cthical
intuitions without challcngc. Hc rccognizcs that somconc might rcjcct
his conclusions, indcpcndcntly ol thc cconomics, on dicrcnt cthical

Fromd.ances inustrian Economics, vol. a~, cds. Pctcr J. 8octtkc and Mario J. Rizzo
(Grccnwich, Conn.: JA! Prcss, .), .,ac.
.
Scc Hazlitt .6 and, lor discussion ol Miscss and Haycks writings, Ycagcr . and
Ycagcr ..
Kirzncr docs mcntion Miscss utilitarianism (., pp. 66). Unlortunatcly, hc sccms
to imply that Miscs was littlc conccrncd with cthics and dclcndcd capitalism simply on
thc grounds that it dclivcrs thc goods.
c,
c Part : Politics and Philosophy
grounds. (Tis charactcrization ol his vicws dcrivcs lrom .ab, p. ac,
., pp. .a.c, and, morc broadly, lrom all his writings listcd in thc
rclcrcnccs.)
Kirzncr argucs, as positivc cconomic analysis, that capitalism works
othcrwisc than its critics and most ol its dclcndcrs bclicvc. Hc traccs
thc cntrcprcncurs purc prot to gcncrally unapprcciatcd lacts. Tc cntrc
prcncur creates wcalth, practically ex nihilo, by discovcring and cxploiting
opportunitics. Kirzncr sharply distinguishcs thcsc acts ol discovcry lrom
acts ol dclibcratc production (., p. .66). !nstcad ol taking rcsourccs
away lrom anyonc clsc, thc cntrcprcncur crcatcs what did not cxist bclorc,
bcncting othcr pcrsons as wcll as himscll. Tc prior physical cxistcncc ol
a diamond discovcrcd on a rcmotc mountain is irrclcvant to thc crcativc act
and thc moral cntitlcmcnt it cngcndcrs. Kirzncr sccs thc discovcrcr/pro
duccr as cntitlcd to thc product not bccausc hc translormcd and combincd
inputs ovcr which hc alrcady hcld just titlc but bccausc hc gcnuincly orig
inatcd it. No onc has any right to dcprivc thc crcator ol thc cnjoymcnt ol
his crcation (., pp. .c, .).
l coursc, an cntrcprcncur docs not crcatc ex nihilo thc entire mar
kct valuc ol thc products ol his discovcrics. Typically, hc combincs his
crcativcncss with thc scrviccs ol alrcady cxisting rcsourccs and lactors ol
production, paying thcir owncrs lor thcm. Kirzncr locuscs on thc nct valuc
ol rcsults rcmaining to thc cntrcprcncur bcyond all ncccssary lactor pay
mcnts. Tis purc prot dcriving lrom thc cntrcprcncurs crcation is thc
subjcct ol Kirzncrs distinctivc thcory.
Allcgcdly, as Kirzncr notcs, discovcrics dcpcnd on good luck, which
sccms a wcak basis lor capitalist propcrty rights. 8ut luck docs not opcratc
alonc, motivatcd alcrtncss also cntcrs into discovcry (., pp. .6..6a,
.ab, pp. aa.., F.A. Hayck spcaks somcwhcrc ol Findigkeit).
Kirzncr docs not maintain that a lactual account ol discovcry and crc
ation by itscll constitutcs a justication ol capitalism, hc docs not claim
to bc dissolving thc dichotomy bctwccn is and ought. Hc appcals not
only to cconomics but also, as hc must, to moral intuitions (about which
! say morc bclow).
~vvvovvi~:iox ~xb vx:i:iv:vx:
Kirzncr nds thc cntitlcmcnt thcorics ol John Lockc, John 8atcs Clark,
and Robcrt Nozick not downright wrong but incomplctc or inadcquatc.
Tcsc thcorists tacitly takc thc cconomic pic, or thc rcsourccs uscd to
Chapter :,: Kir.ner on the Morality of Capitalist Prot c
producc it, as givcn. Tcy dcal with thc supposcd issuc ol justicc in appro
priating what alrcady cxists. ncc, though, wc rccognizc thc crcativcncss
ol cntrcprcncurial discovcry, wc can no longcr bc satiscd with a moral
philosophy which, in its considcration ol propcrty rights and propcrty
institutions, trcats thc world as il thc luturc is an uncnding scrics ol lully
pcrccivcd mannadcposits waiting to bc assigncd and distributcd (.,
p. .c, cl. p. .6.). As lor purc prot, John 8atcs Clarks purportcd marginal
productivity dclcnsc ol capitalist distribution docs not cvcn claim to dcal
with it.
Nozicks thcory is unsatislactory in a lurthcr way. !t rclics on John
Lockcs justication ol privatc appropriation ol prcviously unowncd rc
sourccs lrom naturc. Tc appropriator acquircs just titlc by mixing his
own labor with thcm, labor assumcd to bc unqucstionably his propcrty.
Lockc hcdgcs this justication with thc proviso that thc appropriator
lcavc cnough and as good rcsourccs availablc lor latccomcrs. Tis pro
viso can scarccly cvcr bc mct, howcvcr, sincc appropriating rcsourccs lrom
an unowncd common stock brings closcr a stagc at which a subscqucnt
appropriator simply could not lcavc cnough and as good availablc lor
still latcr wouldbc appropriators (., pp. .6.,). !t is no answcr to
postulatc that thc rcsourccs arc so supcrabundant in rclation not only to
prcscnt human wants but cvcn to all luturc wants that thcy would ncvcr
bccomc cconomically scarcc. Fcw il any rcsourccs mcct such a spccica
tion, lcaving Lockcs thcory rclcvant only to an imaginary world. !l any
rcsourccs wcrc incxhaustibly abundant and dcstincd to rcmain lrcc goods
lorcvcr, thcy would hardly bc rcsourccs in an cconomic scnsc, and making
thcm privatc propcrty would bc pointlcss in thc rst placc. !t is only in a
world ol scarcity that privatc propcrty mattcrs.
Sincc Kirzncrs doctrinc docs not pcrtain to appropriation ol alrcady
cxisting things, it is uncncumbcrcd by any Lockcan proviso (.ab, p. aa).
!n sccing that somc hithcrto unrccognizcd and valuclcss aspcct ol naturc
might bc put to cconomic usc, thc alcrt cntrcprcncur in ccct creates thc
rcsult. Hc cannot dcprivc anyonc ol what did not prcviously cxist. No
qucstion ariscs ol lcaving cnough and as good lor othcrs.
avid Schmidtz (.., chap. a) conlronts thc Lockcan proviso in a
way dicrcnt lrom but rcconcilablc with Kirzncrs. Schmidtz rclormu
latcs it as justilying an appropriation ol rcsourccs lrom naturc il it docs
not worscn and cspccially il it improvcs thc opportunities opcn to othcr
pcrsons. !nstituting privatc propcrty docs in gcncral do so, whilc lcaving
things owncd by no onc or owncd in common practically cnsurcs thcir
.c Part : Politics and Philosophy
ruin through a tragcdy ol thc commons (as Hardin .6/.6 callcd it).
A commons is tragic prcciscly whcn things arc cconomically scarcc and
lcaving cnough and as good lor cvcryonc just is not possiblc. 8y avoiding
thc tragcdy, privatc propcrty givcs cvcn pcoplc othcr than thc initial appro
priators morc and bcttcr opportunitics to prospcr lrom spccialization,
tradc, thc prudcnt administration ol rcsourccs, and thc accumulation ol
wcalth.
8cyond his own distinctivc contributions, Kirzncr wcll undcrstands
othcr strands in thc justication ol privatc propcrty and prot. Purc
prot, or thc lurc ol it, hclps mobilizc cntrcprcncurial alcrtncss, includ
ing alcrtncss to potcntial wants ol consumcrs, and hclps translcr control
ovcr rcsourccs out ol rclativcly lcss into rclativcly morc compctcnt hands.
Kirzncr knows about dcccntralizcd dccisionmaking, thc usc ol scattcrcd
knowlcdgc, and thc productivity ol a capitalist systcm. 8ut hc docs not
dwcll on thcsc lamiliar thcmcs bccausc hc wants to answcr criticisms ol
capitalism madc on moral grounds.
c~svs ov guvs:iox~niv vx:i:iv:vx:
clcnsc ol thc capitalist systcmdocs not cxtcnd to whatcvcr occurs within
it. Kirzncr would contcnd (! am condcnt) that translcrsccking through
govcrnmcnt, cvcn whcn donc by cntrcprcncurs, is not capitalism. 8usincss
alcrtncss docs not justily just anything (., p. .,,). Vc may moralizc
against tradcrs who cxploit thc impossibility ol sharply dclincating thc
lcgal lrom thc illcgal, or cvcn thc moral lrom thc immoral. No systcm can
makc lcgal, moral, and actual bchaviors lully coincidc. Part ol thc rationalc
ol cthics is that it can dcal, cxibly, with innumcrablc individual cascs that
could not bc lorcsccn in dctail and lor which dctailcd rulcs could not bc
laid out in advancc.
Kirzncr is uncasy at thc imaginary casc ol onc ol scvcral travclcrs in
a dcscrt who raccs ahcad to appropriatc a watcrholc so hc can chargc thc
othcrs an cxorbitant pricc lor watcr (.,, pp. aaaaa). Hc sccms lcss
uncasy, though, than ! would cxpcct. Racing ahcad implics alrcady cxist
ing knowlcdgc about thc watcrholc and its importancc. !nstcad ol making
a crcativc discovcry, thc raccr scizcs a hold on his lcllows by blocking thcm
lrom an opportunity.
Morc lundamcntally, cconomic rivalry and markct transactions arc
not appropriatc to all human rclations. Not all bchavior conlorming to
thc logic and cthics ol thc capitalist systcm is cthically acccptablc lor that
Chapter :,: Kir.ner on the Morality of Capitalist Prot ..
rcason alonc. Part ol thc rationalc ol an cthical codc is that it would bc
impossiblc lor thc law to codily and cnlorcc all dcsirablc charactcr traits
and all dcsirablc lincs ol bchavior in all imaginablc and unimaginablc cir
cumstanccs. Tc logic ol an cthical codc rcquircs adhcring to its spirit
rathcr than to minutcly spccicd rulcs, it rcquircs a ccrtain cxibility in
its application. Pcoplcs moral obligations toward onc anothcr dcpcnd on
many circumstanccs, including what kind and dcgrcc ol solidarity or loy
alty among thcm arc appropriatc.
!n thc impcrsonal markct rclations ol thc nationwidc and worldwidc
grcat socicty or cxtcndcd ordcr (as Hayck . calls it), no spccial
solidarity or loyalty is appropriatcnothing bcyond honorablc dcaling
and rclraining lrom lying, chcating, stcaling, and cocrcion. Tc situation
is dicrcnt within rclativcly small and intimatc groupslamily, lricnds,
and pcrhaps cnthusiasts dcvotcd to somc sharcd causc. !n such groups,
thc attitudcs ol solidarity and altruism, prcsumably inhcritcd biologically
lrom thc prchistoric days ol lilc in small huntcrgathcrcr bands, arc morc
appropriatc. vcn or cspccially within an impcrsonal cxtcndcd ordcr, thc
intimacy availablc within small, closcknit groups has grcat psychological
valuc. Vithin thcm, cmulating markct bchavior, pursuing narrow scll
intcrcst, and insisting on cost/bcnct calculations and carclul mcasurc
mcnts ol quid pro quo would bc dcstructivc. Such markctoricntcd bchav
ior would subvcrt thc solidarity and loyalty appropriatc to such groups and
would tcnd to crush thcm (Hayck ., p. .).
\cnturcrs on an cxpcdition through a hazardous dcscrt, likc cxplorcrs
in Antarctica, arc in a scnsc collcagucs, cvcn il thcy happcn not to bclong
to thc samc organizcd group, or so it sccms to mc. Tcy owc a ccrtain
cxtra rcspcct, solidarity, and loyalty to onc anothcr. Charactcr traits con
ducivc to rccognizing this spccial obligation arc praiscworthy on broadly
thc samc utilitarian grounds that undcrpin cthical principlcs in gcncral. To
turn thc advcnturc into a zcrosum strugglc, to racc ahcad lor a chancc
to cxploit oncs collcagucs, manilcsts antisocial traits. To condonc such
bchavior in thc namc ol thc cthics ol capitalism would ill scrvc both capi
talism and cthics.
!n anothcr casc, also, Kirzncr implics somc uncasc about thc moral
lcgitimacy ol prot. Hc rcpcatcdly (c.g., ., pp. c) mcntions Paul
Samuclsons cxamplc ol a commodity spcculator who rcaps a big prot by
lcarning about a crop lailurc just minutcs bclorc othcr tradcrs do. Truc
cnough, spcculators pcrlorm a socially usclul lunction in acquiring inlor
mation rclcvant to thc timing ol thc consumption ol scarcc goods and in
.a Part : Politics and Philosophy
using that inlormation to acct priccs appropriatcly. 8ut just what justics
thc big prot ol Samuclsons slightly carly spcculator:
!l wc agrcc that his windlall is unjusticd, wc agrcc with lullcr knowl
cdgc ol thc situationaltcr all, wc oursclvcs thought it upthan pcoplc in
a comparablc rcalworld situation would posscss bclorc hindsight bccamc
availablc. Anyway, what do wc morally disapprovc ol in such a casc: Vc
probably would lccl rcvulsion at proting through somchow dclaying thc
availability ol inlormation to othcrs. bstructing thc translcr ol inlorma
tion is thc oppositc ol productivc.
Somconc who is in thc busincss ol bcaring risks, howcvcr, hoping to
prot on avcragc ovcr timc lrom his supcrior instincts and dccisivcncss,
is rcndcring a public scrvicc. !l on occasion hc is alcrt cnough or cvcn
just lucky cnough to rcccivc protablc inlormation carly, wcll, that is part
ol thc gamc. Vc could hardly cxpcct spcculators to opcratc il thcy had
to stand thcir losscs lrom bad luck thcmsclvcs but wcrc ncvcr allowcd to
kccp thc lruits ol good luck.
icrcnccs in knowlcdgc ol priccs cntcr into thc qucstion, laccd by
Kirzncr (c.g., ., p. .c), whcthcr transactions madc in ignorancc ol
thc lull potcntial valucs ol thc things cxchangcd arc ncvcrthclcss truly
voluntary. Robcrt Nozick (.,) linkcd thc moral lcgitimacy ol holdings
ol propcrty to thcir acquisition in voluntary transactions. Supposcmy
cxamplc, not Kirzncrsthat an art dcalcr sccs thc grcat valuc ol an
old painting brought to him by its uninlormcd owncr. !s thc dcalcr
morally justicd in cxploiting its owncrs ignorancc by buying thc painting
chcap:
Possibly hc is, providcd hc had madc it clcar that hc was a sharp tradcr
grccdy cvcn lor qucstionablc gains. rdinarily, though, or so ! undcrstand,
art dcalcrs at lcast tacitly rcprcscnt thcmsclvcs as cxpcrts combining thc
rolcs ol brokcrs, dcalcrs on thcir own account, and dc lacto adviscrs, and
thcy want to dcscrvc a longrun rcputation lor honorablc dcaling in all
thcsc prolcssional capacitics. rdinarily, thcn, thc dcalcr has somc du
ciary obligation to a novicc who comcs to him possibly lor a busincss dcal
but also partly lor advicc. Morc gcncrally, it may bc in a busincss rms
own longrun intcrcst to lcan ovcr backwards in bcing honcst, tclling not
just thc truth but thc wholc rclcvant truth. Tc just pricc is not an cntircly
nonscnsical notion. (Kirzncr is indccd awarc, c.g., .,, p. ac, ol notions
ol honor, duciary rcsponsibility, and just pricc.)
Similar issucs arisc about thc moral lcgitimacy ol stockmarkct prots
dcriving lrominsidc inlormation. Much dcpcnds on thc dctails, including
Chapter :,: Kir.ner on the Morality of Capitalist Prot .
how thc tradcr camc by thc inlormation and what duciary obligations hc
might havc to thc various partics involvcd.
Vhat policy implications lollow lrom imagincd cascs likc thosc ol
thc pcrson who raccs ahcad to thc oasis, Samuclsons commodity spccula
tor, thc art dcalcr, and thc insidcr tradcr: !t would bc cxtrcmcly dicult
to draw up spccic rulcs that would suitably covcr all such conccivablc
cascs. Much bchavior must bc lclt to thc inlormal prcssurcs ol moral judg
mcnts and rcputation cccts. Vc scarccly wantdo wc:to cstablish a
govcrnmcnt authority chargcd with appraising cvcryoncs moral cntitlc
mcnt to cach bit ol his incomc and with rcctilying allocations ol incomc
dccmcd unjusticd. !nstitutions and policics simply cannot bc dcviscd to
guarantcc cthically appcaling dctailcd outcomcs in cach individual casc.
As Rutlcdgc \ining (.) cmphasizcs, lcgislators do not havc a handlc
on ultimatc outcomcs, thcy can only tinkcr with rulcs and institutions.
A discovcrcr docs not in gcncral havc an obligation to sharc thc lruits
ol his discovcry just bccausc a rival would soon havc madc thc samc dis
covcry on his own anyway. !n Kirzncrs cxamplc (., pp. .6,.6), onc
pcrson on a bcach stcalthily but lcgitimatcly snatchcs a spcctacular scashcll
lrom bcncath thc nosc ol somconc cntranccd by thc sunsct. Hc has not
blockcd discovcry by thc sunsctwatchcr, hc has simply bccn morc alcrt.
!n othcr cascs, howcvcr, onc transactor may havc a moral duty to
divulgc inlormation to anothcr, although lailurc to do so docs not ncc
cssarily cntitlc thc othcr pcrson to claim that hc was robbcd or chcatcd
(., p. .,c). Tcrc appcar to bc a numbcr ol moral gradations, in rcgard
to thc rcprchcnsibility ol gaining bcnct by lailurc to disclosc availablc
inlormation (., pp. .,c.,.). oubts about thc dcccncy ol bcncting
lrom thc rcmovablc ignorancc ol othcrs sccm to rcccdc thc morc impcr
sonal thc rclation is bctwccn thc partics (., p. .,.). Although wc may
wcll sympathizc with pcrsons whosc ignorancc is cxploitcd, wc should
considcr that thcy would probably bc cvcn lcss wcll inlormcd and lcss
wcllo than undcr somc systcm in which cntrcprcncurial prot wcrc not
allowcd to providc thc driving motivation (., p. .,.).
vx:i:iv:vx: vuv:nvv coxsibvvvb
Lct us stcp back lrom our dubious or bordcrlinc cascs and locus on wcalth
that thc holdcr indisputably has crcatcd or has rcccivcd by indisputably
voluntary transactions untaintcd by ignorancc. vcn thcn, can wc bc surc
that thc holdcr is morally cntitlcd to his wcalth: Kirzncr (., pp. .c..ca)
. Part : Politics and Philosophy
mcntions Robcrt Nozicks (.,, pp. .6..6) hypothctical cxamplc ol Vilt
Chambcrlain, who arrangcs lor spcctators to pay an additional a ccnts
carmarkcd lor him bcyond thc rcgular pricc ol admission to his baskct
ball gamcs. Nozick holds Chambcrlain lully cntitlcd to this incomc. Still,
onc might disagrcc. 8y paying voluntarily, thc spcctators arc not ncccs
sarily approving thc nancial arrangcmcnts and thc additional incqual
ity ol incomc distribution that rcsults, thcy arc not ncccssarily indicating
opposition to a supposcd rcmcdy through rcdistributionary taxation. Tc
individual spcctator might rcalizc that hc alonc could not thwart thc anti
cgalitarian rcsult by boycotting thc gamc, so hc might as wcll attcnd il hc
valucs thc pcrlormancc sucicntly morc than thc tickct pricc plus Cham
bcrlains a ccnts. Partly bccausc, in cconomists jargon, an cxtcrnality is
opcrating, thc voluntarincss ol thc transactions docs not automatically
conlcr moral lcgitimacy on Chambcrlains wcalth. Jamcs 8uchanan (.,,,
chap. ) argucs, in part, that Chambcrlains largc incomc is an cconomic
rcnt, itscll largcly attributablc to thc socicty in which hc has thc good
lortunc ol pcrlorming, and that othcr, cqually voluntary, arrangcmcnts
could distributc this rcnt much dicrcntly. Although ! myscll dislikc thc
attitudc ol my hypothctical spcctator, ncithcr that critic nor 8uchanan
commits a logical lallacy.
!n Te Mirage of Social Justice (.,6) and othcr works, F.A. Hayck dis
misscd social justicc as an cmpty pair ol words. Although onc might
spcak ol thc justicc or injusticc ol a dclibcratc parccling out ol an cxisting
stock ol goods, such an cvaluation cannot pcrtain to thc pattcrn ol dis
tribution ol incomc and wcalth that rcsults, unplanncd by anyonc, lrom
thc markct proccss ol innumcrablc dcccntralizcd dccisions. (Tc rcsult ol
thc markct proccss is not cvcn a distribution in thc strict, ctymologi
cal scnsc.) nc might as wcll discuss thc justicc or injusticc ol natural
phcnomcna.
Although ! havc not lookcd up advcrsc rcvicws ol Haycks work, !
can wcll imaginc a critic rcplying that it is unjust to lcavc a particular dis
tribution ol incomc and wcalth uncorrcctcd, howcvcr spontancous it is
and howcvcr littlc it is anyoncs lault, il it can bc corrcctcd without unac
ccptablc sidc cccts. 8ad luck, or unlair shakcs lrom naturc, can in somc
circumstanccs and to somc cxtcnt bc rcmcdicd by bcing sharcd. Lcaving
rcmcdiablc bad luck ncvcrthclcss unrcmcdicd might rcasonably! do not
say conclusivclybc dccmcd unlair.
clcndcrs ol capitalism will havc to do bcttcr than simply dismiss
discussions ol social justicc and injusticc as having no subjcct mattcr but
Chapter :,: Kir.ner on the Morality of Capitalist Prot .
miragcs. John Rawls (.,.) may havc bccn wrong in writing about rcc
tication ol thc natural distribution and in sctting lorth his dicrcncc
principlc ol distribution, but hc was not writing nonscnsc.
Lct us milk thc Vilt Chambcrlain cxamplc lurthcr. Chambcrlains
largc incomc ows lrom no spccial moral mcrit, hc just cnjoys thc good
luck ol posscssing talcnts that happcn to command a high pricc. Vc might
lurthcr complain about thc bad tastc among lans that conlcrs big rcwards
on not particularly mcritorious sports gurcs.
!n Te Constitution of Liberty (.6c, chap. 6) F.A. Hayck docs lacc
thc criticism that a lrccmarkct cconomy conlcrs matcrial rcwards in an
unjust way. Tc markct valucs ol thc scrviccs ol pcoplc and thcir propcrty
dcpcnd on many circumstanccs and scldom corrcspond to pcoplcs moral
mcrit. Somc dclcndcrs ol thc markct systcm dcny thc chargc, rcplying
that thc markct docs indccd, il only in a rough and rcady way, distributc
rcwards in proportion to mcrit. Hayck warns against this rcply:
Any attcmpt to lound thc casc lor lrccdom on this argumcnt is vcry
damaging to it, sincc it conccdcs that matcrial rcwards ought to bc madc
to corrcspond to rccognizablc mcrit and thcn opposcs thc conclusion
that most pcoplc will drawlromthis by an asscrtion which is untruc. Tc
propcr answcr is that in a lrcc systcmit is ncithcr dcsirablc nor practicablc
that matcrial rcwards should bc madc gcncrally to corrcspond to what
mcn rccognizc as mcrit and that it is an csscntial charactcristic ol a lrcc
socicty that an individuals position should not ncccssarily dcpcnd on
thc vicws that his lcllows hold about thc mcrit hc has acquircd. (.6c,
pp. )
Hayck gocs on to cxaminc thc conccpts ol valuc and mcrit. Hc con
sidcrs thc advantagcs (conncctcd with inlormation and inccntivcs) ol lct
ting markct valucs guidc pcoplcs dccisions about how to usc thcir crcativ
ity and thcir othcr abilitics. Hc asks what institutions would bc rcquircd
lor trying to implcmcnt thc altcrnativc principlc ol distribution according
to moral mcrit. Hc cxplorcs thc psychological conscqucnccs ol a statc ol
aairs in which matcrial rcwards wcrc supposcd to bc clcar indicators ol
moral mcrit. His cxcrcisc in comparativcinstitutional analysis lcavcs thc
thoughtlul rcadcr rccoiling in horror at thc conscqucnccs ol radically non
markctoricntcd mcthods ol distribution. His wholc chaptcr 6 is worth
pondcring at lcngth.
n cthical grounds, ncvcrthclcss, a critic might qucstion whcthcr a
pcrson is truly cntitlcd to whatcvcr hc has crcatcd through alcrt discovcry
.6 Part : Politics and Philosophy
or crcatcd in somc morc litcral and pcdcstrian way. nc might cvcn qucs
tion a pcrsons Lockcan scllowncrship ol his own body. Altcr all, John
Rawls (.,.) argucd that cach pcrsons physical and mcntal capacitics arc
in somc rcspccts a morally arbitrary gilt ol naturc and thc cnvironmcnt
and so arc propcrly at thc disposal ol socicty in gcncral.
! myscll do not dcny a pcrsons cntitlcmcnt to his body and his crc
ations, ! do not agrcc with Rawls. ! objcct, though, to prcmaturcly rcst
ing judgmcnts on such issucs on undiscussablc shccr intuitions. Tc judg
mcnts in qucstion arc not fundamental valuc judgmcnts (to usc a tcrm
that will bccomc clcarcr in what lollows). Tcy arc rclativcly spccic judg
mcnts that thcmsclvcs rcquirc grounding in thc lacts ol rcality and in onc
or morc valuc judgmcnts that arc morc ncarly lundamcntal.
ovicix ~xb ~vvv~is~i ov v:nic~i ix:ui:ioxs
Appraising capitalism on cthical grounds ncccssarily involvcs both thc
lacts about how thc systcm opcratcs and thc cthical standards thcmsclvcs.
Kirzncr spccializcs, quitc lcgitimatcly, in thc positivc cconomics ol thc
issuc, but room rcmains to considcr thc sourccs and lorcc ol thc prcvail
ing cthical intuitions takcn lor grantcd in his writings rcvicwcd hcrc.
Vhcrc did thcsc intuitions comc lrom: !t sccms plausiblc to tracc
thcm to social and pcrhaps biological cvolution: acting in accordancc with
thcmconlcrrcd advantagcs on socictics and individuals. n thc account ol
F.A. Hayck (. and othcr writings), practiccs bascd on thosc intuitions
havc stood thc tcst ol social and pcrhaps biological cvolution. Groups
adhcring to cthical prcccpts and institutions and kinds ol bchavior con
ducivc to survival ol thc group and rcproduction ol its mcmbcrs do tcnd
to ourish, whilc othcrs withcr. Groups havc a bcttcr chancc to prospcr
undcr traditions that conducc to thc accumulation ol wcalth and to tradc,
including tradc with outsidcrs. Tcsc traditions conccrn privatc propcrty,
saving, voluntary cxchangc, truthlulncss, promisckccping, and contract.
Favorablc traditions gain ground not only through transmission to succcs
sivc gcncrations but also by bcing imitatcd.
a
a
Hayck knows that cultural natural sclcction works through trial and crror and
through mcrc tcndcncics toward cvcntual dcclinc ol socictics with incxpcdicnt institu
tions and traditionsunlcss thcy rclormthcmsclvcs, pcrhaps by imitating morc succcsslul
socictics. Hc thcrcby rccognizcs that crrors do occur and can pcrsist. Hc also knows that
dclibcratc attcntion, within a socicty, to how wcll or poorly its institutions arc lunctioning
plays a rolc in thc cvolutionary proccss. Still, thc proccss as a wholc is not dircctcd by a
Chapter :,: Kir.ner on the Morality of Capitalist Prot .,
xplanation ol origins is not appraisal. Should onc indccd approvc
ol intuitions, prcccpts, and practiccs that conducc to thc ourishing ol
groups and individuals: Vcll, it is thc csscncc ol valuc judgmcntsthis
onc includcdthat thcy cannot bc cstablishcd purcly by lacts and logic.
Somc clcmcnt ol shccr moral intuition or cmotion ncccssarily cntcrs into
thc story.
soci~i coovvv~:iox
A plausiblc swccping intuition (though not an irrcducibly lundamcntal
onc) rccommcnds what Ludwig von Miscs and Hcnry Hazlitt, among
othcrs, havc cmphasizcd undcr thc labcl social cooperation. Social coopcr
ation charactcrizcs a wclllunctioning socicty, it is thc complcx ol insti
tutions, practiccs, sharcd cthical standards, and cvcn attitudcs that lostcr
pcacc, sccurity, spccialization, and thc gains lromtradc and so casc lruitlul
coopcration among individuals striving to makc good livcs lor thcmsclvcs
in thcir own divcrsc ways. Privatc propcrty, thc markct, contractual lib
crty, voluntary associations, and thc rulc ol law arc kcy clcmcnts ol it in
succcsslul modcrn socictics. Tc idca, though not thc actual tcrm, gocs
back to avid Humc and cvcn to Tomas Hobbcs, pionccrs in thc utili
tarian tradition. Social coopcration is much thc samc as what John Gray
calls civil socicty and Michacl akcshott callcd civil association (Gray
., pp. a6, a,, and passim).
A vcrsion ol utilitarianism ccntcring on this conccpt appraiscs cthical
prcccpts, kinds ol pcrsonal conduct, traits ol charactcr, institutions, and
policy choiccs according to how likcly thcy arc to scrvc or subvcrt social
coopcration. !t is practically thc samc thing as a comparativcinstitutions
approach to cvaluation. An adhcrcnt ol this doctrinc trics to contcmplatc
and comparc altcrnativc scts ol mutually compatiblc institutions. Tc cri
tcrion ol social coopcration, togcthcr with positivc analysis in cconomics,
psychology, and othcr disciplincs, rccommcnds thc prcccpts, attitudcs,
bchaviors, and so lorth conducivc to an cxtcndcd ordcr, as Hayck calls
it, and to many kinds ol intimatc rclationships cmbcddcd in a hcalthy
cxtcndcd ordcr. Tc critcrion rccommcnds truthtclling, promisckccping,
justicc, rcspcct lor pcrsons and individual rights, rcspcct lor privatc prop
crty, thc translcr ol propcrty by conscnt, and cvcn, within limits, honcst
partiality towards oncscll and oncs compatriots, lricnds, and associatcs.
singlc mind or committcc, and not all thc knowlcdgc opcrating in it has bccn consciously
articulatcd.
. Part : Politics and Philosophy
8ut social coopcration is only a nearly ultimatc critcrion. !t is instru
mcntal toward somcthing morc complctcly ultimatc, somcthing lor which
no lurthcr argumcnt is possiblc, somcthing takcn as dcsirablc by shccr
intuition or cmotion. Tat ultimatcly dcsirablc somcthing is individuals
succcss in living, or lulllmcnt, or lilc appropriatc to human potcntial. No
singlc word is an adcquatc labcl, but whcn a singlc word is rcquircd, thc
traditional choicc is happincss, undcrstood in a suitably strctchcd scnsc.

~ u:iii:~vi~x coxciusiox
Kirzncr gocs lar toward justilying capitalist principlcs ol owncrship and
distribution, as wcll as thc systcm itscll, by positivc analysis combincd
with appcal to simplc and widcly acccptcd cthical intuitions. A pcrson is
cntitlcd to what hc himscll crcatcs or discovcrs

and to what hc obtains in

a voluntary transaction lrom a prcvious owncr whosc titlc is undisputcd.
Tcsc, howcvcr, arc lairly spccic intuitions. Vhcn thcy arc qucstioncd, a
social thcorist rclying on thcmshould bc ablc to dclcnd thcm(conccivably

Hayck (.) appcars to makc survival, not happincss, thc ultimatc critcrion. !t docs
sccmplausiblc that thc proccsscs ol biological and cultural sclcction havc opcratcd through
thc survival or climination ol individuals and groups, not through thcir happincss or
unhappincss. Again, though, wc must distinguish bctwccn cxplanation and appraisal. !n
thc contcxt ol appraisal, wc nccd not dccidc bctwccn survival and happincss as ultimatc
critcria. Sincc social coopcration is prcrcquisitc to both, it can scrvc as a surrrogatc critc
rion. nly on a particularly rarccd lcvcl ol philosophizing must wc try to choosc bctwccn
rival ultimatc critcria.

!hy is hc cntitlcd to his crcation or discovcry: A short answcr, prcsumably, is that

such a rulc holds down disputcs and lostcrs social coopcration and crcativity bcttcr than
any altcrnativc would do.
Kirzncr calls his vicw ol cntitlcmcnt a ndcrskccpcrs cthic (c.g., .a, p. aaa, .,
pp. ..c..., .66). Vhilc agrccing with thc substancc ol his doctrinc, ! rcgrct that labcl.
!n my own childhood cxpcricncc, anyway, thc lull slogan was ndcrs kccpcrs, loscrs
wccpcrs. !t convcycd a ccrtain graspingncss combincd with a rathcr cynical unconccrn
lor whocvcr had lost or bccn unlairly donc out ol somc itcm. Kirzncr cvokcs thc sccond
part ol thc slogan by mcntioning thc ndcrs cntitlcmcnt to a coin that somconc clsc had
lost in Timcs Squarc (., p. .). ! am condcnt, though, that Kirzncr docs not hold
thc attitudc that thc lull slogan brings to my mind.
Sincc dralting this papcr and this notc in particular, ! havc sccn Rickcttss .a papcr.
Rickctts aptly calls Kirzncrs ndcrskccpcrs cthic a graspcrskccpcrs cthic (p. c). Hc
also qucstions Kirzncrs position on thc travclcr who raccs ahcad to appropriatc thc watcr
holc (pp. ,6,). Rickctts objccts that Kirzncr pays inadcquatc attcntion to thc naturc ol
propcrty rights, cvcn though his dcscription ol his imaginary situation suggcsts that thc
watcrholc, instcad ol bcing simply unhcld, is alrcady rcgardcd as a communal assct that
individuals arc cntitlcd to use.
Chapter :,: Kir.ner on the Morality of Capitalist Prot .
modicd in thcir dctails) by lurthcr positivc analysis and by appcal to lur
thcr and morc ncarly lundamcntal cthical intuitions. Tis lurthcr analysis
will almost surcly cmphasizc social coopcration and rcly on a lundamcntal
valuc judgmcnt against miscry and lor happincss in a suitably strctchcd
scnsc ol thc lattcr tcrm.
Kirzncr appcars to adopt this utilitarian (indircct utilitarian) approach,
which might also bc callcd a comparativcinstitutions approach.

Altcrna
tivcs to it arc conccivablcjust barcly, in my judgmcnt. Sincc Kirzncr
shows no sympathy lor thcm, howcvcr, thcrc is no nccd to rcvicw thcm
hcrc.
Tc ultimatc basis ol Kirzncrs conclusions about cntitlcmcnts to cap
italist wcalth and prot must bc that a socicty opcrating with dicrcnt
(morc collcctivist) principlcs would lunction lcss wcll than a socicty cm
bodying broadly classical libcral principlcs. !t would lunction lcss wcll
in thc scnsc ol aording its individual mcmbcrs inlcrior prospccts ol thc
succcsslul pursuit ol happincss.
!n conclusion, ! quotc onc ol scvcral passagcs (., p. .,,) suggcsting
Kirzncrs agrccmcnt with thc position just skctchcd out:
A dclcnsc ol capitalist justicc has not dcclarcd it innoccnt ol all moral
aws. !t ccrtainly has not dcclarcd all bchaviour undcr historical capital
ism to havc bccn moral or cvcn to havc bccn just. A dclcnsc ol capitalist
justicc suggcsts, howcvcr, that thc systcmthat has bccn so cxtraordinarily
productivc in raising thc standards ol human lilc nccd not bc rcjcctcd out
ol hand on thc grounds ol innatc unlairncss. Moral improvcmcnt may
bc sought within thc capitalist lramcwork, without harboring a guilty
scnsc ol participation in an incvitably and lundamcntally awcd lorm ol
social organization.
vvvvvvxcvs
8uchanan, Jamcs M. Freedom in Constitutional Contract. Collcgc Station: Tcxas
A&M Univcrsity Prcss, .,,.
Gray, John. Mill on Liberty: Defence. London: Routlcdgc, ..

Tis approach is lar lroman act utilitarianism that would rcquirc making cach largc
or small dccision according to thc apparcnt mcrits ol thc individual casc and without
rcgard to lurthcr principlcs or to individual rights. Such a crudc vcrsion ol utilitarianism
has by now, onc hopcs, bccomc hardly morc than a straw man bcatcn by supcrcial critics.
Vhat John Gray (.) calls indirect utilitarianism rccognizcs thc grcat utility ol abiding
by gcncral principlcs and not practicing cascbycasc cxpcdicncy.
ac Part : Politics and Philosophy
. Post-Liberalism: Studies in Political Tought. London and Ncw York:
Routlcdgc, ..
Hardin, Garrctt. Tc Tragcdy ol thc Commons. .6. !n Population, E.olution,
and Birth Control, a cd., cditcd by Hardin, 6,.. San Francisco: Frccman,
.6.
Hayck, F.A. Te Constitution of Liberty. Chicago: Univcrsity ol Chicago Prcss,
.6c.
. Te Mirage of Social Justice. \ol. a ol La., Legislation, and Liberty.
Chicago: Univcrsity ol Chicago Prcss, .,6.
. Te Fatal Conceit. ditcd by V.V. 8artlcy, !!!. Chicago: Univcrsity ol
Chicago Prcss, ..
Hazlitt, Hcnry. Te Foundations of Morality. Princcton, N.J.: . \an Nostrand,
.6.
Kirzncr, !sracl M. Perception, Opportunity, and Prot. Chicago: Univcrsity ol
Chicago Prcss, .,.
. Disco.ery and the Capitalist Process. Chicago: Univcrsity ol Chicago
Prcss, ..
. Disco.ery, Capitalism, and Distributi.e Justice. xlord and Ncw York:
8asil 8lackwcll, ..
. Commcntary on Martin Rickcttss papcr. !n ustrian Economics: Ten-
sions and Ne. Directions, cditcd by 8rucc J. Caldwcll and Stcphan 8ochm,
.ca. 8oston: Kluwcr, .aa.
. Te Meaning of Market Process. London and Ncw York: Routlcdgc,
.ab.
Nozick, Robcrt. narchy, State, and Utopia. Ncw York: 8asic 8ooks, .,.
Rawls, John. Teory of Justice. Cambridgc, Mass.: 8clknap Prcss ol Harvard
Univcrsity Prcss, .,..
Rickctts, Martin. Kirzncrs Tcory ol ntrcprcncurshipA Critiquc. !n us-
trian Economics: Tensions and Ne.Directions, cditcd by 8rucc J. Caldwcll and
Stcphan 8ochm, 6,. 8oston: Kluwcr, .a.
Schmidtz, avid. Te Limits of Go.ernment: n Essay on the Public Goods rgu-
ment. 8ouldcr, Colo.: Vcstvicw Prcss, ...
Chapter :,: Kir.ner on the Morality of Capitalist Prot a.
\ining, Rutlcdgc. On ppraising the Performance of an Economic System. Ncw
York: Cambridgc Univcrsity Prcss, ..
Ycagcr, Lcland 8. Miscs and His Critics on thics, Rights, and Law. !n Te
Meaning of Lud.ig .on Mises, cditcd by Jcrcy M. Hcrbcncr, a.. Nor
wcll, Mass., and ordrccht, Ncthcrlands: Kluwcr, .. Rcprintcd hcrc as
chaptcr a.
. Utility, Rights, and Contract: Somc Rccctions on Haycks Vork. !n
Te Political Economy of Freedom: Essays in Honor of F.. Hayek, cditcd by Kurt
R. Lcubc and Albcrt H. Zlabingcr, 6.c. Munich and \icnna: Philosophia
\crlag, ..
cn~v:vv :
Miscs and His Critics on thics,
Rights, and Law

:isvss u:iii:~vi~xis:
Ludwig von Miscs was a utilitarian and has bccn criticizcd lor bcing onc.
Utilitarianism is a particular approach to cthics in pcrsonal lilc and public
aairs. !t comparcs altcrnativc scts ol institutions, laws, traditions, pat
tcrns and maxims and rulcs ol bchavior, and traits ol pcrsonal charactcr.
!t approvcs ol thosc that support and disapprovcs ol thosc that subvcrt thc
kind ol socicty that aords pcoplc rclativcly good opportunitics to makc
satislying livcs lor thcmsclvcs. !nstitutions and practiccs and attitudcs that
lacilitatc lruitlul coopcration among individuals as thcy pursuc thcir own
divcrsc spccic cnds scorc ahcad ol oncs that makc lor dcstructivc clashcs.
Social coopcration (so callcd by Miscs and othcr thinkcrs in thc utilitar
ian and libcrtarian traditions) is so ncarly csscntial to individuals succcss
in thcir own divcrsc pursuits that it is a ncarly ultimatc critcrion ol insti
tutions, cthical prcccpts, charactcr traits, and so lorth. n this critcrion,
truthtclling and promisckccping command approval. So docs rcspcct
lor justicc, propcrty rights, and othcr human rights.
Tcsc words arc minc, not Miscss, but his stancc on cconomic policy
docs rcst on an cthical undcrpinning likc thc onc just skctchcd out. Miscs
wrotc bluntly. Tc thcory ol social coopcration claboratcd by 8ritish polit
ical cconomy lrom Humc to Ricardo, hc says,
consummatcd thc spiritual, moral and intcllcctual cmancipation ol man
kind inauguratcd by thc philosophy ol picurcanism. !t substitutcd
an autonomous rational morality lor thc hctcronomous and intuition
ist cthics ol oldcr days. Law and lcgality, thc moral codc and social

From Te Meaning of Lud.ig .on Mises, cd. Jcrcy M. Hcrbcncr (Auburn, Ala., and
Norwcll, Mass.: Ludwig von Miscs !nstitutc and Kluwcr, .), a.. Alcwpagcs havc
bccn cut out hcrc.
aa
Chapter :: Mises and His Critics on Ethics, Fights, and La. a
institutions arc no longcr rcvcrcd as unlathomablc dccrccs ol Hcavcn.
Tcy arc ol human origin, and thc only yardstick that must bc applicd to
thcm is that ol cxpcdicncy with rcgard to human wcllarc. Tc utilitarian
cconomist docs not say: Fiat justitia, pcrcat mundus. Hc says: Fiat justi
tia, ne pcrcat mundus. Hc docs not ask a man to rcnouncc his wcllbcing
lor thc bcnct ol socicty. Hc adviscs him to rccognizc what his rightly
undcrstood intcrcsts arc. !n his cycs Gods magniccncc docs not man
ilcst itscll in busy intcrlcrcncc with sundry aairs ol princcs and politi
cians, but in cndowing his crcaturcs with rcason and thc urgc toward thc
pursuit ol happincss. (Miscs ./.6, p. .,)
Tc ultimatc yardstick ol justicc is conducivcncss to thc prcscrvation
ol social coopcration . . . |,| lor almost cvcry man thc grcat mcans lor
thc attainmcnt ol all cnds. An cmincntly human common intcrcst, thc
prcscrvation and intcnsication ol social bonds, is substitutcd lor piti
lcss biological compctition, thc signicant mark ol animal and plant lilc.
Man bccomcs a social bcing. . . . thcr pcoplc bccomc his lcllows. . . . As
social coopcration is . . . a mcans and not an cnd, no unanimity with
rcgard to valuc judgmcnts is rcquircd to makc it work. . . . |S|ocial coopcr
ation is lor man a mcans lor thc attainmcnt ol all his cnds. . . . Tc char
actcristic lcaturc ol a lrcc socicty is that it can lunction in spitc ol thc
lact that its mcmbcrs disagrcc in many judgmcnts ol valuc. (.,/.,
pp. 6.)
8y its rccognition that social coopcration is lor thc immcnsc majority
a mcans lor attaining all thcir cnds, |utilitarianism| dispcls thc notion
that socicty, thc statc, thc nation, or any othcr social cntity is an ultimatc
cnd and that individual mcn arc thc slavcs ol that cntity. !t rcjccts thc
philosophics ol univcrsalism, collcctivism, and totalitarianism. !n this
scnsc it is mcaninglul to call utilitarianisma philosophy ol individualism.
(.,/., p. )
As Murray Rothbard has corrcctly pointcd out (.a, p. a.a), no onc
can cvcr advocatc any policy whatsocvcr on a purely scicntic, valuclrcc
basis. Miscs would agrcc. No onc can approvc or disapprovc ol a partic
ular policy or ol anything at all without holding at lcast onc ultimatc or
lundamcntal valuc judgmcnt. A judgmcnt is ultimatc in thc scnsc that its
holdcr, in cxprcssing it, has comc to thc cnd ol bcing ablc to givc lactual
and logical rcasons lor his attitudcs.
.
For Miscs and othcr utilitarians, thc
lundamcntal valuc judgmcnt is approval ol happincss and disapproval ol
miscry. (nc can arguc lor or against particular policics, lilcstylcs, and so
.
n lundamcntal valuc judgmcnts, scc Paul dwards .6, Sidncy S. Alcxandcr .6,,
csp. pp. .c.c, and ...., and Amartya K. Scn .,c, csp. pp. 6a6.
a Part : Politics and Philosophy
lorth by trying to show that thcy tcnd toward happincss or miscry, but
! cannot imaginc how onc could arguc lor happincss and against miscry
thcmsclvcs. 8ut il onc could so arguc, thc argumcnt would ncccssarily
invokc somc lurthcr, dccpcr, valuc judgmcnt, which would thcn bc thc
lundamcntal onc.)
Miscs hastcns to disavowhcdonismin thc narrowscnsc: dcspitc supcr
cial critics, happincss docs not mcan mcrc matcrial, bodily plcasurcs.
Advanccd utilitarians, hc says, intcrprct plcasurc and pain, utility and disu
tility, in thc purcly lormal scnscs ol thosc words, cmptying thcm ol all
spccic contcnt. Tcy rclcr to whatcvcr individuals in lact try to achicvc
or avoid (Miscs ./.6c, pp. a, .., Miscs .,/., pp. .a., Miscs
./.6, p. a.). Miscs rccognizcs that many pcoplc, cspccially crcativc
workcrs, arc not drivcn by matcrial dcsircs or narrow scllintcrcst alonc.
Tcy may also bc cxprcssing compctcncc and strcngth and cvcn hcroism
(Miscs ../., pp. ., a.). Tcrc arc pcoplc whosc only aim is to
improvc thc condition ol thcir own cgo. Tcrc arc othcr pcoplc with whom
awarcncss ol thc troublcs ol thcir lcllow mcn causcs as much uncasincss
as or cvcn morc uncasincss than thcir own wants (./.6, p. .).
Miscss rcmarks about thc mcrcly lormal contcnt ol happincss hardly
scttlc all qucstions about lundamcntal valuc judgmcnts. Roomrcmains lor
discussing whcthcr thc utilitarian critcrion should bc thc truc happincss ol
individuals or instcad, il thcrc is a dicrcncc, thc satislaction ol whatcvcr
dcsircs individuals supposc thcy havc. Still, Miscs is on thc right track.
Happincss, bclorc bcing unpackcd, is an inadcquatc tcrm lor thc ulti
matc utilitarian valuc judgmcnt. ! can only takc stabs at labcling what
is ultimatcly dcsirablc: it is individuals succcss in making good livcs lor
thcmsclvcs, or lulllmcnt, or satislaction, or lilc appropriatc to human
potcntiality. No singlc word is an adcquatc labcl, but whcn a singlc word
is rcquircd as shorthand, happincss is thc traditional choicc.
Tis lormulation might bc criticizcd as bcing allcncompassing to thc
point ol vacuousncss. Yct it is not vacuous: altcrnativc critcria arc con
ccivablc. Tcy includc conlormity to thc supposcd will ol God, or pcr
lormancc ol duty lor dutys sakc alonc, with no analysis ol conscqucnccs
cntcring into thc idcntication ol dutics, or conlormity to intuitcd cthical
prcccpts lor conlormitys sakc alonc, or rcspcct lor individual rights that
havc simply bccn postulatcd rathcr than argucd lor on utilitarian or any
othcr grounds, and again rcgardlcss ol conscqucnccs, or conducivcncss to
thc ourishing ol thc highcst or noblcst spccimcns ol thc human racc,
howcvcr ordinary pcoplc might thcn larc (a vicw somctimcs attributcd,
Chapter :: Mises and His Critics on Ethics, Fights, and La. a
rightly or wrongly, to Nictzschc). r instcad ol taking thc happincss
ol pcoplc in gcncral as thc critcrion ol institutions and prcccpts and so
lorth, onc might conccivably urgc thc happincss ol oncscll or somc othcr
spccic pcrson.
Tat thcsc altcrnativcs arc conccivablc shows that thc utilitarian critc
rion is not vacuous, whilc thcir implausibility strcngthcns its own appcal.
As a practical mattcr, lurthcrmorc, utilitarianism docs not hingc on any
exact spclling out ol its lundamcntal valuc judgmcnt. !ts lulllmcnt is
scrvcd by social coopcrationa wclllunctioning nctwork ol bcnccial
rclations among individuals. !nstitutions, prcccpts, and so lorth may bc
appraiscd according to how thcy support or subvcrt this crucial mcans to
happincss, without constant appcal to any prccisc intcrprctation ol hap
pincss itscll.
Vith charactcristic bluntncss, Miscs dcnics that utilitarian philoso
phy has anything to do with thc doctrinc ol natural rights. Hc has a point:
rcspcct lor rights is ill scrvcd by a laulty dclcnsc. Rights arc not mcrcly
conlcrrcd by govcrnmcnt, rathcr, thcy dcrivc lrom cthical prcccpts, which
in turn havc a rational undcrpinning. Utilitarianism, Miscs says, rccom
mcnds popular govcrnmcnt, privatc propcrty, tolcrancc, and lrccdom
not bccausc thcy arc natural and just, but bccausc thcy arc bcnccial. . . .
|S|ocial coopcration and division ol labor . . . is bcnccial. Vith appar
cnt approval, Miscs quotcs 8cntham: Natural rights is simplc nonscnsc:
natural and imprcscriptiblc rights, rhctorical nonscnsc. !n invcstigating
what ought to bc right, 8cntham docs not carc about prcconccivcd idcas
conccrning Gods or naturcs plans and intcntions, lorcvcr hiddcn to mor
tal mcn, hc is intcnt upon discovcring what bcst scrvcs thc promotion ol
human wcllarc and happincss (./.6, p. .,).
Miscs occasionally slippcd into rcpcating slogans about thc grcatcst
happincss lor thc grcatcst numbcr (../., p. .). Such a lormulation,
takcn litcrally, has no prccisc mcaning, ol coursc. All that Miscs prcsum
ably mcant by it is that thc happincss to bc lurthcrcd by social institu
tions and practiccs is thc happincss ol pcoplc in gcncralol thc mcmbcr
ol socicty choscn at random, in F.A. Haycks lormulation (Hayck .6,,
p. .6, Hayck .,6, pp. .a.c)rathcr than thc dicrcntial happincss
ol spccic pcrsons or classcs. Miscs spccically rcpudiatcd any numcr
ical utilitarianism such as critics cnjoy attacking. Hc dcnicd that it is
thc task ol cconomics to cstablish how in thc wholc ol socicty thc grcat
cst possiblc satislaction ol all pcoplc or ol thc grcatcst numbcr could bc
attaincd. . . . |T|hcrc is no mcthod which would allow us to mcasurc thc
a6 Part : Politics and Philosophy
statc ol satislaction attaincd by various individuals and makc compari
son|s| bctwccn various pcoplcs happincss(Miscs ./.6, p. aa).
cvi:icis:
Miscss utilitarianism has drawn criticism cvcn lrom studcnts and oth
crs inspircd by his work. ! do not maintain that Miscs cxpoundcd thc
subtlcst vcrsions ol utilitarianism, complctc with distinctions bctwccn
act utilitarianism and thc various rulc or indircct vcrsions. Hc was
writing bclorc most philosophical trcatmcnts ol thcsc subtlctics wcrc
publishcd. Furthcrmorc, thc subtlctics wcrc not csscntial to his main
conccrns, thcorctical and applicd cconomics. Still, his basic philosophi
cal stancc is worth dclcnding (Hazlitt .6 ocrs an admirably dctailcd
dclcnsc).
nc ol his critics, Karcn \aughn rcgrcttcd that
Miscs, unlortunatcly, attcmptcd to rclutc thc collcctivists and authoritar
ians by acccpting thc tcrms ol thcir argumcnt and arguing lor thc supc
rior ability ol thc lrcc markct to providc lor thc cconomic wcllbcing
ol thc populacc. . . . Such an attcmpt to dclcnd lrccdom is dangcrous
on two counts. First, it is opcn to cmpirical rclutation. (\aughn .,6,
p. .c)
Sccond, such a dclcnsc is dangcrous bccausc ol nonmatcrial itcms
in individual utility lunctions (.,6, p. .c). 8urcaucrats may cnjoy con
trolling and rcgulating. !l thcir utilitics should bc takcn into account and
il intcrpcrsonal comparisons arc not possiblc, how can wc bc surc that a
nonlibcral systcm will not providc maximum social wcllarc:
\aughn sccms to approvc ol thc rcportcd intcllcctual outlook in scvcn
tccnthccntury ngland, whcn libcralism was cmcrging. Tcn, shc says,
lrccdom was considcrcd . . . dcsirablc lor its own sakc |as| a natural con
dition ol human bcings. . . . !t was a moral valuc that, as a bonus, also hap
pcncd to lcad to thc wcllbcing ol socicty. Tc utilitarian argumcnt sim
ply providcd additional rc powcr. 8y thc timc ol John Stuart Mill,
howcvcr, thc argumcnt bccamc rcvcrscd, and lrccdom was cspouscd, not
bccausc it was a good in itscll, but bccausc it lcd to thc grcatcst good lor
thc grcatcst numbcr (p. .c).
Possibly ! havc misundcrstood hcr, but \aughn docs sccm to say that
Miscs was wrong to dcvclop argumcnts lor lrccdom bccausc thcy might
conccivably bc rclutcd and thc casc lor lrccdom thcrcby cmbarrasscd. To
Chapter :: Mises and His Critics on Ethics, Fights, and La. a,
lorcstall cmbarrassmcnt, it is bcttcr not to arguc any casc but simply to
postulatc lrccdom as a suprcmc valuc. Admittcdly, somconc who mounts
no argumcnts nccd lcar no rclutations, but why, thcn, should hc cxpcct
anyonc to pay attcntion: As lor lrccdoms supposcdly just happcning, as a
bonus, to promotc thc wcllbcing ol socicty, Miscs might wcll ask what
could constitutc that wcllbcing cxccpt thc wcllbcing ol individuals. And
how, apart lrom cntcring into or contributing to thcir wcllbcing, could
lrccdom bc a suprcmc valuc:
Murray Rothbardrcpcatcdly criticizcs utilitarianism, includingMiscss
lormulations. nc ol his criticisms is similar to \aughns. Tc utilitarian
will rarcly adopt a principlc as an absolutc and consistcnt yardstick to
apply to thc varicd concrctc situations ol thc rcal world. Hc will only
usc a principlc, at bcst, as a vaguc guidclinc or aspiration, as a tendency
which hc may choosc to ovcrridc at any timc. . . . |N|inctccnthccntury
laissczlairc libcrals camc to usc laissczlairc as a vaguc tcndcncy rathcr
than as an unblcmishcd yardstick, and thcrclorc incrcasingly and latally
compromiscd thc libcrtarian crccd. To say that a utilitarian cannot bc
trustcd to maintain libcrtarian principlc in cvcry spccic application
may sound harsh, but it puts thc casc lairly. A notablc contcmporary
cxamplc is . . . Prolcssor Milton Fricdman who . . . holds to lrccdom as
against statc intcrvcntion as a gcncral tcndcncy, but in practicc allows
a myriad ol damaging cxccptions, cxccptions which scrvc to vitiatc thc
principlc almost complctcly. (Rothbard .,, p. a)
Tis chargc is rst, and rathcr inconsistcntly, utilitarian itscll: utili
tarianism tcmpts its adhcrcnts into considcring and somctimcs cvcn rcc
ommcnding unwisc, nonlibcrtarian, policics. Sccond, thc chargc suggcsts
that an altcrnativc philosophical stancc can guard its adhcrcnts lrom
lalling into crror. Unlortunatcly, no doctrinc can providc such builtin
protcction against its bcing misundcrstood or misuscd or impropcrly sct
asidc. !t is an illcgitimatc tcst ol a doctrinc to cxpcct it to do what no
doctrinc can do. Nothing can substitutc lor thc constant disciplinc ol lact
and logic.
Rothbard callcd Miscs an opponcnt ol objcctivc cthics (.,6, p. .c).
! wondcr il this is a lair dcscription. Ccrtainly Miscs was not an cthi
cal rclativist or nihilist, scornlul ol all judgmcnts ol right and wrong and
complaccnt about howcvcr individuals might bchavc, cvcn violating thc
rights ol othcrs, in pursuit ol narrow and shortrun scllintcrcst. n thc
contrary, Miscs was conccrncd with whcthcr bchavior and prcccpts ol
a Part : Politics and Philosophy
bchavior tcndcd to scrvc or subvcrt social coopcration and so scrvc or sub
vcrt happincss. Much scopc cxists lor positivcobjcctivcinvcstigation
into thc likcly conscqucnccs ol various kinds and prcccpts ol bchavior,
and thc scopc lor purcly subjcctivc cthical judgmcnts is corrcspondingly
narrow.
Miscs, says Rothbard, was willing to makc only onc valuc judgmcnt:
hc joincd thc majority ol thc pcoplc in lavoring thcir common pcacc,
prospcrity, and abundancc, hc cndorscd thc dcsirability ol lullling thc
subjcctivcly dcsircd goals ol thc bulk ol thc populacc (p. .c). Actually,
Miscss lundamcntal valuc judgmcnt, instcad ol simply lavoring whatcvcr
a majority wantcd or thought it wantcd, lavorcd thc actual happincss ol
pcoplc in gcncral. Ncvcrthclcss, Rothbard poscs a casc in which thc grcat
majority wants to murdcr thc rcdhcads. How could Miscs rcbut this pro
poscd policy cithcr as a praxcologist or as a utilitarian libcral: ! submit that
hc could not do so
a
(p. .c). r somconc might dcsirc to scc an innoccnt
pcrson sucr. . . . Yct a utilitarian must hold that |such prclcrcnccs|, lully
as much as thc most innocuous or altruistic prclcrcnccs, must bc includcd
in thc quantitativc rcckoning (.a, p. a. n. ).
Vho says so: Miscs supposcdly cannot quarrcl with thc cthical naturc
ol |pcoplcs| choscn goals, lor, as a utilitarian, hc must connc himscll to
thc one valuc judgmcnt that hc lavors thc majority achicving thcir choscn
goals (.a, p. a.c). (Rothbard makcs swccping rclcrcnccs to Miscs, but
instcad ol dcaling with his actual statcmcnts, hc criticizcs what Miscs, as
a utilitarian, supposcdly must bclicvc.) Now, what cvcn hallway sophis
ticatcd utilitarian maintains that prclcrcnccs and attitudcs and charactcr
traits must bc immunc lrom appraisal: Miscs, to my knowlcdgc, ncvcr
said any such thing.
A rulcs or indircct utilitarianism is indccd conccrncd with how atti
tudcs and cvcn charactcr traits, so lar as thcy arc amcnablc to cncouragc
mcnt or discouragcmcnt, tcnd to acct thc hcalth ol a socicty and so thc
happincss ol its mcmbcrs (on John Stuart Mills indircct utilitarianism, scc
Gray .). For lcar ol advcrsc sidccccts and lor othcr rcasons, a utili
tarian docs not want to cnlist thc statcs cocrcivc powcrs in supprcssing all
unlortunatc prclcrcnccs and attitudcs and traits, but this in no way mcans
that hc considcrs all ol thcmcqually worthy ol rcspcct and cqually cntitlcd
to inucncc public policy. Ncithcr as a utilitarian nor as a libcrtarian must
a
Tis cxamplc ol thc rcdhcads turns up rcpcatcdly in Rothbards writings against util
itarianism.
Chapter :: Mises and His Critics on Ethics, Fights, and La. a
! myscll, lor cxamplc, dcplorc psychological and sociological and othcr
positivc inquiry into what sorts ol prclcrcnccs and attitudcs and lilcstylcs
tcnd in lact to scrvc or to undcrcut social coopcration and happincss. 8ut
saying so in no way commits mc to wanting thc statc to implcmcnt thc
supposcd ndings ol such inquirics.
Tc utilitarian, says Rothbard, has no conception lct alonc thcory ol
justicc.

Vith rcgard to propcrty rights in particular, thc utilitarian must

lall back on thc pragmatic, ad hoc vicwthat all titlcs to privatc propcrty cur
rcntly cxisting at any timc or placc must bc trcatcd as valid and acccptcd as
worthy ol dclcnsc against violation (Rothbard .a, p. a). |U|tilitarians
. . . plac|c| an arbitrary and indiscriminatc cthical blcssing upon cvcry cur
rcnt propcrty titlc (.a, pp. ). !l thc tyrannical king ol Ruritania
dissolvcs his rulc but rst dividcs up thc wholc country into thc privatc
propcrty ol himscll and his rclativcs, consistcnt utilitarians . . . must bow
to this subtcrlugc (.a, p. ).
8ut whcrc docs Rothbard gct this notion that utilitarianism rcquircs
rcspcct lor cvcn patcntly spurious titlcs:

Miscss discussion in Socialism

(.aa/..) is quitc sophisticatcd and hardly bcars out thc suspicion that
hc would dclcnd cvcn thc cthically shabbicst status quo.
To makc thc casc lor laisscz lairc and thc lrccmarkct cconomy, says
Rothbard,
onc must go bcyond cconomics and utilitarianism to cstablish an objcc
tivc cthics that arms thc ovcrriding valuc ol libcrty and morally con
dcmns all lorms ol statism, lrom cgalitarianism to thc murdcr ol rcd
hcads, as wcll as such goals as thc lust lor powcr and thc satislaction ol
cnvy. To makc thc lull casc lor libcrty, onc cannot bc a mcthodologi
cal slavc to cvcry goal that thc majority ol thc public might happcn to
chcrish. (Rothbard .,6, p. .c)
8ut why would anyonc want to makc a casc lor libcrty, thc lrcc mar
kct, and laisscz lairc and against statism, cnvy, and thc lust lor powcr
cxccpt out ol conccrn lor thc charactcr ol socicty and, morc lundamcn
tally, lor thc happincss ol its mcmbcrs: And ho. could anyonc go about
making such a casc cxccpt in somc broadly utilitarian way: !t sccms
backwards to dcsirc a loundation lor a particular policy stancc bclorc

Rothbard .a, p. a,but what about John Stuart Mills Utilitarianism, .6/.6,
chap. :

Rothbard .a, p. 6c n. a, docs citc Miscss Socialism .aa/.a/.., pp. ,.

c Part : Politics and Philosophy
having somc idca ol its conscqucnccs. 8ut Rothbard docs think hc has
anothcr way.
vo:nn~vbs ~xio:s ~nou: vicn:s
Rothbard idcntics thrcc broad typcs ol philosophical basis lor libcrtari
anism, rst is utilitarianism. Sccond is cmotivism: it adopts libcrty, or thc
libcrtarian nonaggrcssion axiom, as its prcmisc on purcly subjcctivc, cmo
tional grounds. As Rothbard suggcsts, such a stancc abandons thc rcalm
ol rational discoursc (.,, pp. aa).
Tird is Rothbards own approach, cmphasizing natural rights cmbcd
dcd in natural law. ach cntity, including thc spccics man, has its own
distinct naturc.
Sincc mcn can think, lccl, cvaluatc, and act only as individuals, it bc
comcs vitally ncccssary lor cach mans survival and prospcrity that hc bc
lrcc to lcarn, choosc, dcvclop his lacultics, and act upon his knowlcdgc
and valucs. Tis is thc ncccssary path ol human naturc, to intcrlcrc with
and cripplc this proccss by using violcncc gocs proloundly against what
is ncccssary by mans naturc lor his lilc and prospcrity. (.,, pp. aa6)
To appcal to what is ncccssary lor mans lilc and prospcrity, givcn his
naturc, sounds likc a utilitarian argumcnt. Anyway, Rothbard bcgins with
thc right to scllowncrship, with thc axiomthat cach man or woman owns
his or hcr own body. Altcrnativcs arc conccivablc, though barcly. nc
castc ol pcrsons might bclong to anothcr, an arrangcmcnt hardly com
patiblc with an objcctivc, impartial cthics. r cach pcrson might own
a tiny cqual sharc ol himscll and all othcr pcrsons. Trying to managc
pcoplcs livcs on such a basis, howcvcr, would quickly bring inccicncy
and starvation. (Hcrc is anothcr tacitly utilitarian argumcnt.) Vith thcsc
altcrnativcs rulcd out, scllowncrship rcmains (.,, pp. a6a, and .a,
pp. 6).
Rothbards sccond axiom conccrns owncrship ol products and land.
vcryonc has a right to thc goods hc has produccd and to hithcrto un
owncd land that hc has translormcd by his labor. A pcrson docs not
acquirc this homcstcading right in all thc unowncd land that hc may
claim, his right is limitcd to thc amount ol land hc actually puts into
usc. 8ut oncc is cnough. Hcrc Rothbard avowcdly lollows thc doctrinc
ol John Lockc, but with modications, lor cxamplc, hc rcjccts thc Lock
can proviso that homcstcading lcavc cnough and as good land availablc
Chapter :: Mises and His Critics on Ethics, Fights, and La. .
lor latccomcrs (.,, pp. a,, and .a, pp. 6c, 66, ac). Pcoplc
may ol coursc acquirc and disposc ol owncrship rights in goods and land
through honcst trading.
Tcsc principlcs ol propcrty rights, cspccially ol homcstcading, look
dctailcd or spccic cnough to raisc doubts about whcthcr thcy arc truly
axioms. ont thcy havc somc utilitarian undcrpinning altcr all: Rothbard
docs makc commcnts about owncrship ol land similar to his commcnts
about owncrship ol human bcings.
|!|l thc land is to bc uscd at all as a rcsourcc in any sort ol ccicnt man
ncr, it must bc owncd or controllcd by someone or somc group, and wc
arc again laccd with our thrcc altcrnativcs: cithcr thc land bclongs to
thc rst uscr, thc man who rst brings it into production, or it bclongs
to a group ol othcrs, or it bclongs to thc world as a wholc, with cvcry
individual owning a quotal part ol cvcry acrc ol land. . . . !n practicc,
again, it is obviously impossiblc lor cvcry pcrson in thc world to cxcr
cisc ccctivc owncrship ol his lourbillionth portion (il thc world popu
lation is, say, lour billion) ol cvcry piccc ol thc worlds land surlacc. (.,,
pp. )
Noticc Rothbards rclcrcnccsutilitarian rclcrcnccsto ccicncy,
practicality, and ccctivcncss.
Ncvcrthclcss, Rothbard maintains that his two axioms, thc right ol
scllowncrship and thc right to homcstcad, cstablish thc complctc sct ol
principlcs ol thc libcrtarian systcm. Tc cntirc libcrtarian doctrinc thcn
bccomcs thc spinning out and thc application ol all thc implications ol
this ccntral doctrinc (.,, p. c).
vvcuii~vi:ivs ov :nv ~xio:~:ic ~vvvo~cn
nc pcculiarity ol this approach appcars at thc bcginning, in thc supposcd
axiom that cach pcrson owns himscll, his body. An argumcnt phrascd in
such a pcculiar way is suspcct lor that vcry rcason. A utilitarian argumcnt
can rcadily show thc importancc ol propcrty rights, but to put propcrty
rights at thc vcry bcginning, cvcn ahcad ol considcrations ol human pcr
sonality, sccms odd indccd. Somconc not intcnt on a particular chain ol
dcductivc rcasoning would dcscribc human naturc and thc human condi
tion morc straightlorwardly. Hc would probably spcak not ol cach pcr
sons o.ning himscll but ol cach pcrsons being his own scll and having
his own consciousncss and purposcs and capacity to lccl plcasurc and pain,
a Part : Politics and Philosophy
satislaction and lrustration. Hc would probably asscrt or arguc lor cach
pcrsons right to pcrsonal lrccdom. Propcrty rights would comc into thc
argumcnt, but not as its vcry loundation.
Amorc pcrvasivc pcculiarity is thc attcmpt, opcnly avowcdrccall thc
quotation abovcto spin out positions on all sorts ol spccic issucs lrom
thc two axioms about owncrship ol sclvcs and othcr propcrty. (Although
utilitarian points occasionally crccp into Rothbards argumcnts, thcy do
not charactcrizc his approach.) Rothbards positions on crimc, cxtortion,
blackmail, contracts, and bankruptcy providc striking cxamplcs, calling
his wholc approach into qucstion, as ! shall try to show. For brcvity, !
lorgo commcnting on how scllcondcntly hc spins out rm positions
on abortion, boycotts, childrcns rights, animal rights, and othcr issucs.
Again, my purposc is not to attack Rothbard but to dclcnd Miscs.
Mcanwhilc, lct us notc, a utilitarian would not try to dcrivc all sorts
ol spccic judgmcnts by dcducing thcm in onc dircction only lrom a vcry
lcw initial axioms. !nstcad, hc would chcck his tcntativc spccic judg
mcnts and his tcntativc gcncralizations (rulcs) against onc anothcr. !n a
way, judgmcnts about spccic cascs would scrvc as datatcntativc, cor
rigiblc datalor rcaching gcncralizations. Tc utilitarian would stand
rcady to modily any or all ol his spccic and gcncral judgmcnts until
hc had achicvcd consistcncy among thcm, as wcll as consistcncy with
his lundamcntal valuc judgmcnt about happincss and miscry. Hc would
scck consistcncy bctwccn his judgmcnt about somc spccic provision ol
thc bankruptcy laws, lor cxamplc, and his gcncralizations about honcsty,
promiscs, and propcrty rights. At cach stagc, lacts ol rcality, including thc
principlcs ol psychology and cconomics and othcr disciplincs, would bc
cligiblc to cntcr into his rcasoning.

Crimc providcs my rst cxamplc ol thc pcculiar positions that Roth

bard dcduccs. Hc rcgards crimc as, in ccct, a privatc transaction bctwccn
culprit and victim.
6
Supposc somconc mugs mc. 8y his aggrcssion, thc
muggcr has violatcd my propcrty right in my own pcrson and, il hc has
takcn any valuablcs, my propcrty right in thcm also. ! am cntitlcd to
rcstitution or compcnsation. !l, howcvcr, ! waivc this right and lorgivc
thc muggcr, thcn ! havc madc him a gilt ol thc usc (or abusc) hc has

Tis mcthod ol sccking consistcncy bctwccn spccic judgmcnts and gcncral rulcs is
what John Rawls, not himscll an avowcd utilitarian, has callcd thc mcthod ol rccctivc
cquilibrium, Rawls .,., csp. pp. aca., ..
6
Rothbard .a, chap. .. ! hopc it is lcgitimatc to draw, also, on pcrsonal corrcspon
dcncc with Rothbard.
Chapter :: Mises and His Critics on Ethics, Fights, and La.
madc ol my body and also, il ! so choosc, ol thc propcrty hc has takcn.
8ccausc thcsc wcrc minc to givc away, thc situation bccomcs thc samc as
il no crimc had occurrcd. No authority has any right to prosccutc him,
on Rothbards vicwnot il ! objcct (and il thc muggcr happcncd to kill
mc, it is my hcirs who havc thc option ol lorgiving him, subjcct to any
applicablc provisions ol my will).
8ut lcts lacc rcality. !n all probability thc muggcr did not intcnd to
makc his transaction with mc in particular. !t just happcncd to bc ! who
was in thc wrong placc at thc wrong timc. 8y his actions and attitudcs, thc
muggcr is a thrcat to socicty, to pcoplc in gcncral, hc contributcs to undcr
mining thc pcacc and sccurity and social coopcration on which practically
cvcryoncs wcllbcing dcpcnds. 8ccausc ol thc mcnacc hc constitutcs, and
lor othcr rcasons, hc dcscrvcs to bc rcstraincd and punishcd. Tc accidcnt
that ! rathcr than somconc clsc was his victim docs not cntitlc mc to lor
givc him and thcrcby contributc to pcrpctuating thc gcncral mcnacc that
hc and pcoplc likc himposc. !n lactthough this is not thc main point!
probably do not want thc option ol lorgiving him. Particularly in cascs
involving criminal organizations, thc option to lorgivc would cxposc thc
victim to unwantcd prcssurc. (!t is not always truc that a widcr rangc ol
options is prclcrablc to a narrow onc. Vhcn ! was tcaching at thc Univcr
sity ol \irginia, ! wclcomcd thc rulc that lorbadc mc to changc a gradc,
oncc rcportcd, cxccpt to corrcct an actual crror. Tat rulc shcltcrcd mc
lrom appcals to my compassion by studcnts nccding a highcr gradc.)
Now lor cxtortion.
,
Supposc a scoundrcl prcssurcs mc to pay him
s.cc,ccc or to scll him my busincss rm lor a tokcn pricc, othcrwisc hc
will bcat mc upor pcrhaps hc just thrcatcns to kick mc in thc shins or
tramplc my tomato plants. !n any casc, hc is violating my rights in my
pcrson or propcrty (lor thc thrcat, likc thc thrcatcncd act, is itscll a vio
lation). Hc is propcrly subjcct to rcstraint or punishmcnt. 8ut supposc
hc makcs a dicrcnt thrcat, which ! nd morc ominous: hc will sprcad
vicious lics to ruin my busincss and my pcrsonal lilc. Hc may add, rightly
or wrongly, that his crcdibility with a widc circlc ol inucntial contacts
will makc his lics cspccially ccctivc. Yct in this casc hc is not propcrly
subjcct to lcgal rcstraint, lor hc is violating no propcrty right ol minc. !
havc no right to an unsullicd rcputation, no mattcr how much ! may havc
in somc scnsc carncd it, lor it is othcr pcoplc, not !, who havc propcrty
,
n this and thc closcly rclatcd topic ol blackmail, scc Rothbard .a, chap. .6, hcrc
too ! draw on pcrsonal corrcspondcncc.
Part : Politics and Philosophy
rights in thc contcnts ol thcir own minds, cvcn including thcir opinions
ol mc.
!t sccms strangc that a mcmbcr ol thc Austrian school ol cconomists,
who put such cmphasis on thc radically subjcctivc naturc ol bcncts and
costs, goods and bads (Ycagcr .,), should makc such a momcntous
distinction bctwccn thrcats according to whcthcr thcy do or do not involvc
physical harm to pcrsons or objccts. 8ut that is what Rothbard dcduccs
lrom his two axioms.
Rothbard takcs a similar position on blackmail, dcncd as obtaining or
trying to obtain moncy or goods in cxchangc lor silcncc on somc mattcr.

Again, thc supposcdly dccisivc qucstion is who has a propcrty right to thc
contcnts ol thc minds ol thc blackmailcr and othcr pcoplc with whom
hc might sharc his inlormation (or misinlormation). Not thc victimso
runs Rothbards answcr. !t is irrclcvant to Rothbards judgmcnt that thc
victim might bc bcttcr o il thc blackmailcr had ncvcr bccn born. Roth
bard brushcs asidc thc contcntion that thc blackmailcrs activity might bc
judgcd unproductivc in somc scnsc. Rights, not asscssmcnts ol produc
tivity, must prcvail. A utilitarian sidc point cntcrs in: thc victim may bc
bcttcr o with than without thc opportunity to givc thc posscssor ol inlor
mation an inccntivc not to blab. Tc prcsumption still holds that voluntary
transactionsin this casc, an cxchangc ol moncy lor silcnccbcncts all
conccrncd. ! would rcply (not taking spacc hcrc to dcvclop thc argumcnt)
that such a proposition about gains lrom tradc is no morc univcrsally
valid than thc proposition about morc options always bcing prclcrablc to
lcwcr.
Rothbards conccption ol propcrty rights also dctcrmincs his position
on what contracts arc propcrly cnlorccablc at law(.a, chap. .). Supposc
a pcrlormcr agrccs with an imprcsario to takc part in a conccrt tour lor a
spccicd compcnsation, and thc imprcsario procccds with costly arrangc
mcnts. r supposc a rctailing chain agrccs to buy .cc,ccc tablcs ovcr thc
lollowing two ycars at a spccicd pricc, thcrcby inducing thc manulacturcr
to construct a ncw lactory to bc ablc to dclivcr. Now, lor no cxtcnuating
rcason (whatcvcr onc might bc), thc pcrlormcr or thc rctailcr dclaults on
his part ol thc bargain, lcaving thc imprcsario or thc manulacturcr with
hcavy cxpcnscs that hc can hardly rccoup. !n ncithcr casc, wc stipulatc, has
any moncy or othcr propcrty yct changcd hands bctwccn thc contracting

Rothbard .a, chap. .6 and pp. a.a, similar argumcnts appcar in 8lock and
Gordon . and 8lock .6.
Chapter :: Mises and His Critics on Ethics, Fights, and La.
partics. Tough luck, Rothbard says in ccct, thc aggricvcd party should
havc drawn up thc contract morc warily in thc rst placc. Tc law can
not propcrly rcquirc thc dclaultcr to kccp his promisc or pay compcnsa
tion. Tc rcason is that thc dclault docs not constitutc stcaling propcrty
(rcmcmbcr, no moncy has bccn paid), thc dclaultcr has violatcd no prop
crty right. !l, howcvcr, thc contract had rcad in such a way that dclault
did count as taking propcrty by lorcc or lraud, thcn Rothbards judgmcnt
would bc dicrcnt.
A utilitarian must wondcr. Vhy, cspccially with subjcctivist Aus
trian cconomists, should so grcat a dicrcncc hingc on thc rclativcly matc
rialistic issuc ol whcthcr and whcn propcrty had actually changcd hands:
Tc opportunity lor pcoplc to makc cnlorccablc contracts in which prom
iscs scrvc as considcration lor cach othcr scrvcs social coopcration, just as
it undcrmincs it to urgc pcculiar axioms as rcasons lor tolcrating dclault
on such contracts.
Rothbard condcmns bankruptcy laws. Tcy compcl thc dischargc ol
a dcbtors voluntarily contractcd dcbts, and thcrcby invadc thc propcrty
rights ol crcditors. Tc dcbtor who rcluscs to pay his dcbt has stolcn
thc propcrty ol his crcditor. Fraudulcnt conccalmcnt ol asscts makcs thc
ocnsc cvcn worsc. 8ut cvcn il thc dclaulting dcbtor is not ablc to pay,
hc has still stolcn thc propcrty ol thc crcditor. 8ankruptcy laws virtually
conlcr a liccnsc to stcal upon thc dcbtor. !nstcad, thc lcgal systcm should
cnlorcc paymcnt through, lor cxamplc, attachmcnt ol thc dcbtors luturc
incomc (.a, p. .a).
l coursc dclault is rcgrcttablc. So is rcsort to bankruptcy, so is thc
poor planning or bad luck that rcsults in its appcaring ncccssary. 8ut
rcgrcttablc things do happcn. !nstcad ol just condcmning thcm with sim
plistic axioms, thc utilitarian considcrs howbcst to lorcstall thcmand how
bcst to dcal with thcm il thcy do happcn anyway. Hc asks how thc world
would work and how social coopcration would ourish or would sucr il
no lcgal mcans wcrc availablc lor distributing thc asscts ol a hopclcssly
indcbtcd dcbtor in an ordcrly way and lor clcaring away obstaclcs to his
luturc productivc activity.
:ov~ii:v ~xb i~w
Murray Rothbard and Valtcr 8lock try to ward o outragc ovcr thcir posi
tions on crimc and blackmail and othcr issucs by distinguishing bctwccn
rights and thc morality ol cxcrcising thcm and bctwccn law and morality
6 Part : Politics and Philosophy
(.a, pp. aa, 8lock and Gordon ., pp. ,, , 8lock .6, p. ,). To
say that ! havc a right to cxcmpt a muggcr lrom prosccution is not at all to
say that ! should do so. To say that it should not bc illcgal lor a scoundrcl to
cxtort moncy lrommc by thrcatcning to sprcad scurrilous storics, whcthcr
lalsc or truc, is not to dcny that hc is indccd a scoundrcl. n thc vicw ol
Rothbard and 8lock, apparcntly, two catcgorics coincidcthc violation
ol rights and what should bc illcgal. !mmorality is a scparatc qucstion.
Rothbard and 8lock apparcntly bclicvc thcy can hold to thcir distinctivc
thcorics ol rights and law whilc holding lairly standard cthical vicws and
waxing just as indignant as any ol thc rcst ol us ovcr thc lorgiving ol mug
gcrs, cxtortion accomplishcd by thrcats ol vcrbal as wcll as physical action,
blackmail, and dclault on contractual promiscs.
! wondcr il thcir thcorics can bc rcscucd so casily. Tc troublc is too
dccpscatcd: it stcms lromtrying to dcducc all sorts ol spccic policy posi
tions lrom thc two axioms about propcrty, with no morc than incidcntal
attcntion to thc conscqucnccs ol altcrnativc rulcs and policics.
! scc a closcr rclation bctwccn cthics and lawthan Rothbard and 8lock
do. (Miscs .aa/.., pp. ,, makcs scnsiblc commcnts on this rcla
tion, as docs Hazlitt .6, chap. .) A long proccss ol cvolution and sclcc
tion has yicldcd cthical prcccpts that, by and largc, praisc or condcmn
kinds ol bchavior and traits ol charactcr according as thcy tcnd to scrvc
or subvcrt human survival, social coopcration, and happincss. 8y a simi
lar proccss ol cvolution, which in somc culturcs involvcs thc accrction ol
prcccdcnts sct in court dccisions, lawhas comc to rcinlorcc thc obscrvancc
and pcnalizc thc violation ol cthical prcccpts in thc rclativcly most clcar
cut cascs. Tis cvolvcd law has bccn codicd and modicd by lcgislaturcs.
!dcally, thcsc strands ol law proscribc acts that arc wrong in thcmsclvcs.
thcr strands cstablish acts that arc wrong bccausc thcy arc prohibitcd.
!dcally, thcir purposc is to improvc cach pcrsons opportunitics to prc
dict othcr pcoplcs actions and so to mcsh his own actions with thcirs.
Trac laws arc thc standard cxamplc (driving on thc lclt sidc ol thc road
is wrong not intrinsically but bccausc thc law prohibits it and bccausc thc
violation would now inlringc thc warrantcd cxpcctations and thc rights
ol othcr pcoplc and cndangcr thcir livcs). Tcchnicalitics ol rcalcstatc
and inhcritancc law also providc cxamplcs ol law intcndcd to improvc
coordination.
Hcrc, though, wc arc cmphasizing thc rclation bctwccn law and
cthics. Vhy shouldnt rcinlorccmcnt bc total, with thc law prohibiting
and punishing absolutcly all immoral bchavior: !magining such a statc
Chapter :: Mises and His Critics on Ethics, Fights, and La. ,
ol aairsa utilitarian cxcrciscprovidcs thc answcr. Lcgally prohibit
ing all sorts ol undcsirablc actions, including inappropriatc sulkincss, and
lcgally rcquiring all sorts ol dcsirablc actions, including kind words whcn
appropriatc, would bc downright impossiblc. Tc vcry attcmpt to makc
law complctcly coincidc with cthics, though doomcd to lailurc, would
bring an opprcssivc totalitarianism and would givc thc rulcrs vast oppor
tunitics to prosccutc individuals sclcctivcly and arbitrarily. Vc should
bc chary about applying and thrcatcning violcncc, on which cnlorcc
mcnt ol thc law ultimatcly rcsts. Usc and thrcat ol lorcc is tolcrablc only
whcnbut not whcncvcrthc cascs in which it is applicd arc clcarly
spccicd and whcn individuals can know how thcy must bchavc to avoid
having lorcc applicd to thcm. Tc law must contcnt itscll, thcrclorc, with
proscribing and punishing acts that can bc dcncd lairly dcnitcly and
dctcctcd lairly straightlorwardly, without unacccptablc sidc cccts.
Tc grcatcst rangc ol human bchavior must rcmain outsidc thc dircct
purvicw ol thc lawkind words and charitablc actions on thc onc hand,
pcrvcrtcd ambition, carclcss gossip, and malicious lics on thc othcr hand.
ncouragcmcnt and discouragcmcnt ol most actions and attitudcs must
bc lclt to thc cxiblc, inlormal, and dcccntralizcd application ol cth
ical prcccpts. thics, by its vcry logic, must bc cxiblc in its applica
tion to particular cascs and capablc ol cvolving as knowlcdgc grows and
conditions changc (Hazlitt .6, pp. ..). Vhcthcr thc law should
lorbid ccrtain uncthical actions, such as blackmail and dclault on con
tractual promiscs, cannot scnsibly bc dccidcd dircctly lrom rst princi
plcs alonc. Utilitarian considcrations must carry wcight, including thc
importancc ol kccping thc law dcnitc and conccntratcd powcr con
straincd.
Vhy dont wc want to go to thc othcr cxtrcmc, with law so divorccd
lrom cthics as not to cxist at all: Not cvcn actual anarchists likc Rothbard
would go that lar. (Rothbard cxpccts law to pcrsist cvcn in thc abscncc
ol govcrnmcnt, privatc cntcrpriscs would asccrtain and cnlorcc it, .,,
chap. ...) Allowing cvcn murdcr and thclt to go lcgally unpunishcd would
put rclativcly cthical pcoplc at thc mcrcy ol thc uncthical, and a Hobbc
sian war ol all against all would ragc. Vhcn it can bc lramcd and applicd
lairly dcnitcly, lurthcrmorc, thc lawhas cducativc valuc: it can hclp tcach
cthically rathcr dcnsc pcoplc that ccrtain acts arc wrong, or at lcast that
committing thcm puts thcmsclvcs at risk.
n onc point ! cmphatically agrcc with what ! think is Rothbards
and 8locks position: thc law docs not and should not bc cxpcctcd or
Part : Politics and Philosophy
thought to determine morality. !t is not truc that whatcvcr thc law pcrmits
is morally right and whatcvcr it lorbids morally wrong. thics is prior
to law, logically and probably also historically. !dcally, law scrvcs a good
socicty by rcinlorcing thc prcccpts ol morality in ccrtain clcarcut cascs,
doing so through thc duly rcstrictcd cxcrcisc and thrcat ol govcrnmcntal
cocrcion.
Unlortunatcly, actual lawis not idcal law. Particular laws can bc unwisc
in thcir conccption and wickcd in thcir conscqucnccs and cvcn in thcir
intcnt. Laws should always bc subjcct to appraisal on cthical grounds. For
rcasons ! wont takc spacc to dcvclop hcrc (scc Ycagcr ., pp. aca), a
strong prcsumption runs in lavor ol obcying thc law, cvcn laws onc thinks
should bc changcd. !n cascs ol cxccptionally wickcd laws, howcvcr (a par
ticular U.S. lawol .c comcs to mind), cthical considcrations may call lor
disobcdicncc. !n somc such cascs, lurthcrmorc, it may cvcn bc thc lcsscr
cvil lor judgcs to rcndcr dccisions contrary to thc actual law, at lcast ! can
sympathizc with argumcnts to that ccct.
Tc lorcgoing is what scnsc ! can makc ol thc conccpts ol natu
ral law or a highcr law. So intcrprctcd, ! do not disparagc thosc con
ccpts, thcy arc lcgitimatc and importantcnough so to dcscrvc a scn
siblc grounding. Actual laws, mcrcly by bcing actual, do not acquirc
cthical lorcc bcyond what thcir contcnt warrants and bcyond thc lorcc
ol thc gcncral prcsumption in lavor ol obcying thcm. Laws arc always
propcrly subjcct to appraisal not only in vicw ol thcir purposcs, consc
qucnccs, and sidc cccts but also on broadcr cthical grounds. Tcy should
ordinarily bc changcd only by rcgular lcgislativc and judicial proccsscs,
but in cxccptional and cxtrcmc cascs, to rcpcat, cthical considcrations
may propcrly lcad ordinary citizcns and pcrhaps cvcn judgcs to disobcy
thcm.
Tcsc truths should not bc pcrvcrtcd into supposing that actual com
mon law or statutory law is not actual law altcr all il it is dccmcd contrary
to somc natural or highcr law. For thc sakc ol clcar thinking, wc should
maintain thc distinctions bctwccn actual and idcal law and bctwccn law
and cthics.
Although, thcn, ! acccpt and insist on a distinction bctwccn law and
cthics, minc is not thc onc that Rothbard and 8lock makc. Tcy invokc
thcirs, it sccms to mc, in an unsucccsslul attcmpt to conlcr plausibility
on thcir highly qucstionablc positions conccrning crimc, blackmail, and
othcr topics mcntioncd abovc. Tcir crrors arc not so casily plastcrcd ovcr,
sincc thcy stcm lrom trying to dcducc all sorts ol dctailcd positions lrom
Chapter :: Mises and His Critics on Ethics, Fights, and La.
two supposcd axioms, and thcir crrors thrcatcn to sprcad lrom thcir lcgal
thcory to thcir cthical thcory.

! am tcmptcd to dclivcr a scrmon, particularly to Valtcr 8lock, author

ol Defending the Undefendable, who portraycd thc pimp, thc drug pushcr,
thc littcrbug, and othcr unsavory typcs as hcrocs (8lock .,6, also 8lock
.6 and 8lock and Gordon .). Much spcaks in support ol a socictys
prcvailing cthical norms, thc norms that support social coopcration. Accr
tain squarcncss is admirablc. To rccognizc this is not to want to dictatc
pcoplcs lilcstylcs. Still, honcsty and civility, including a dcccnt rcspcct lor
othcr pcoplcs rights and cvcn thcir lcclings, do dcscrvc cncouragcmcnt.
Tc morc gcncrally pcoplc bchavc dcccntly out ol rcspcct lor ingraincd
cthical prcccpts, thc lcss is thc nccd or apparcnt nccd lor applying thc
cocrcivc lorcc ol law. For thcsc rcasons, somconc who wishcs wcll lor
mankind should avoid writing in a stylc that appcars, though unintcn
tionally, to disparagc traditional cthical valucs.
u:iii:~vi~xis: ~c~ix
! havc rcvicwcd Rothbards natural rights approach bccausc it sccms to
bc thc lcading altcrnativc to utilitarianism as a philosophical basis lor pol
icy cspousal. (! do not rcgard thc contractarianism ol Jamcs 8uchanan
and his school as a gcnuinc altcrnativc, lor it sccms to mc to bc a vcrsion ol
utilitarianism disguiscd by ctions, scc my ..) !n rcjccting Rothbards
approach, ! do not at all ridiculc or dismiss thc conccpt ol rights. !t is
vital to a hcalthy socicty and thus to happincss that rights (vcry roughly,
thc oncs mcntioncd in thc U.S. cclaration ol !ndcpcndcncc and 8ill ol
Rights) bc rcspcctcd in public policy and privatc lilc. Conducting public
policy or living oncs own lilc according to what sccms narrowly cxpcdicnt
in cach particular casc would bc disastrous.
Tc qucstion that scparatcs utilitarians lrom othcr thcorists ol rights
is how to ground thcm philosophically. Rothbard (.a) obscrvcs that
Robcrt Nozick (.,) docs not givc rights any grounding, hc simply intu
its thcm. Rothbard docs attcmpt a grounding, which, howcvcr, lails, as
suggcstcd by thc pcculiar policy positions that his approach grinds out.
Tc utilitarian, in contrast, comparcs altcrnativc institutions, hc invcsti
gatcs what conccptions ol rights and justicc, what rulcs, what rcstraints

Rothbards .a, by thc way, is not rcally a book on cthics, it is a book advocating a
particular typc ol libcrtarian political philosophy.
c Part : Politics and Philosophy
on govcrnmcnt, and what othcr institutions arc most conducivc to a good
socicty and so to happincss.
bviously ! am rclcrring to socallcd rulcs or indircct utilitarian
ism. Tc supposcd utilitarian who gocs around looking lor opportuni
tics to lramc and cxccutc innoccnt mcn to pacily raging mobs, or to tor
turc rcdhcads lor thc amuscmcnt ol thc multitudc, or to approvc ol rapc
whcn thc rapists plcasurc outwcighs thc victims distrcss, is an invcntion
ol supcrcial critics. Tc shallow, actoricntcd vcrsions ol utilitarianism
occasionally cncountcrcd may oncc havc ocrcd critics a targct, but onc
must wondcr why anyonc still pursucs worthlcss triumphs ovcr doctrincs
that arc hardly bcttcr than straw mcn.
Ncvcrthclcss, chcap shots at utilitarianismcontinuc. Ycars ago, alrcady,
Miscs notcd thc phcnomcnon.
Hcdonism, cudacmonism, and utilitarianism wcrc condcmncd and out
lawcd, and whocvcr did not wish to run thc risk ol making thc wholc
world his cncmy had to bc scrupulously intcnt on avoiding thc suspicion
that hc inclincd toward thosc hcrctical doctrincs. Tis must bc kcpt in
mind il onc wants to undcrstand why many cconomists wcnt to grcat
pains to dcny thc conncctions bctwccn thcir tcachings and thosc ol util
itarianism. (Miscs ./.6c)
Miscs was lorthright, cvcn couragcous, in his utilitarianism. For this
his rcputation continucs to sucr cvcn among cmincnt cconomists and
social philosophcrs who in othcr rcspccts arc carrying on his work. ! urgc
thcm to rcconsidcr. ! am not saying that Miscs dcvclopcd thc distinction
bctwccn thc act and rulcs or indircct vcrsions ol utilitarianism and lully
articulatcd thc lattcr vcrsion. ! amnot saying that hc cxamincd and dcmol
ishcd thc axiomatic rights approach ocrcd as an altcrnativc by somc ol
his disciplcs. oing all this was not ncccssary lor his work in cconomics.
Howcvcr, a sophisticatcd utilitarianism docs t within and cxtcnd thc
philosophical lramcwork that Miscs adoptcd. Hazlitt, lor onc, cxtcndcd
it. Miscs was on thc right track.
vvvvvvxcvs
Alcxandcr, Sidncy S. Human \alucs and conomists \alucs. !n Human !alues
and Economic Policy, cditcd by Sidncy Hook. NcwYork: NcwYork Univcrsity
Prcss, .6,.
8lock, Valtcr. Defending the Undefendable. Ncw York: Flcct, .,6.
Chapter :: Mises and His Critics on Ethics, Fights, and La. .
. Trading Moncy lor Silcncc. Uni.ersity of Ha.aii La. Fe.ie.
(Spring .6): ,,.
8lock, Valtcr, and avid Gordon. 8lackmail, xtortion and Frcc Spccch. Loy-
ola of Los ngeles La. Fe.ie. . (Novcmbcr .): ,.
dwards, Paul. Te Logic of Moral Discourse. Ncw York: Frcc Prcss, .6.
Gray, John. Mill on Liberty: Defence. London and 8oston: Routlcdgc &Kcgan
Paul, ..
Hayck, Fricdrich A. Studies in Philosophy, Politics and Economics. Chicago: Uni
vcrsity ol Chicago Prcss, .6,.
. Te Mirage of Social Justice. Chicago: Univcrsity ol Chicago Prcss, .,6.
Hazlitt, Hcnry. Te Foundations of Morality. Princcton, N.J.: . \an Nostrand,
.6.
Mill, John Stuart. Utilitarianism. .6. !n Selected !ritings of John Stuart Mill,
cditcd by Mauricc Cowling. Ncw York: Ncw Amcrican Library, .6.
Miscs, Ludwig von. Socialism: n Economic and Sociological nalysis. .aa. Ncw
cnlargcd cd. Translatcd by J. Kahanc. Ncw Havcn, Conn.: Yalc Univcrsity
Prcss, ...
. Epistemological Problems of Economics. .. Translatcd by Gcorgc Rcis
man. Princcton, N.J.: . \an Nostrand, .6c.
. Human ction. .. a cd. Ncw Havcn, Conn.: Yalc Univcrsity Prcss,
.6.
. Nation, State, and Economy. ... Translatcd by Lcland 8. Ycagcr. Ncw
York: Ncw York Univcrsity Prcss, ..
. Teory and History. .,. Auburn, Ala.: Ludwig von Miscs !nstitutc,
..
Nozick, Robcrt. narchy, State, and Utopia. Ncw York: 8asic 8ooks, .,.
Rawls, John. Teory of Justice. Cambridgc, Mass.: 8clknap Prcss ol Harvard
Univcrsity Prcss, .,..
Rothbard, Murray N. For a Ne. Liberty. Ncw York: Macmillan, .,.
. Praxcology, \aluc Judgmcnts, and Public Policy. !n Te Foundations of
Modern ustrian Economics, cditcd by dwin G. olan. Kansas City, Kans.:
Shccd and Vard, .,6.
a Part : Politics and Philosophy
. Te Ethics of Liberty. Atlantic Highlands, N.J.: Humanitics Prcss, .a.
Scn, Amartya K. Collecti.e Choice and Social !elfare. San Francisco: Holdcnay,
.,c.
\aughn, Karcn !. Critical iscussion ol thc Four Papcrs. !n Te Economics of
Lud.ig .on Mises, cditcd by Laurcncc S. Moss. Kansas City, Kans.: Shccd
and Vard, .,6.
Ycagcr, Lcland 8. Rights, Contract, and Utility in Policy spousal. Cato Journal
(Spring/Summcr .): aa.
. Vhy Subjcctivism: Fe.ie. of ustrian Economics . (.,): .. Rc
printcd hcrc as chaptcr a.
cn~v:vv :6
Tc Moral lcmcnt in Miscss
Human ction

scivxcv ~xb v~iuvs

!sracl Kirzncr rcccntly askcd how Ludwig von Miscs could claim to bc
pursuing valuclrcc scicncc whilc at thc samc timc showing cnormous
passion to communicatc its truths (Kirzncr ., pp. a6). Passion
in that contcxt implics moral judgmcnt, a conccrn lor truth ovcr lalschood
and right ovcr wrong. ! will cmbroidcr a bit on how Kirzncr answcrcd his
own qucstion, which, by thc way, rccognizcs thc lact/valuc or is/ought dis
tinction. Furthcr, ! will rcvicw Miscss insights into thc basis ol morality.
As Kirzncr argucd, thc passionatc pursuit ol valuclrcc truths involvcs
no contradiction. Miscs wantcd pcoplc to havc thc opportunity to pur
suc happincss succcsslully. Tat opportunity prcsupposcs what hc callcd
social coopcration, mcaning a sccurc and pcacclul socicty in which pco
plc can intcract to thcir mutual bcnct whilc pursuing thcir own divcrsc
spccializations, projccts, and kinds ol cxccllcncc. Such a socicty prcsup
poscs policics that scrvc, rathcr than undcrcut, social coopcration, and
thcy in turn prcsupposc that policymakcrs and thc public havc somc undcr
standing ol cconomicsvaluclrcc scicncc. !t is too much to cxpcct that
most pcoplc should activcly undcrstand cconomics, pcrhaps it succs
il thcy havc thc humility to rccognizc thcir ignorancc and rclrain lrom
dcstructivcly imposing its conscqucnccs.
Still, it is important that cnough pcoplc do gct cconomics straight and
disscminatc its tcachings. Tat rcquircs subtlc insights and a pcrspcctivc
dicrcnt lrom thosc ol thc laypcrson. !ts conclusions arc countcrintuitivc,
and lallacics pcrvadc public opinion. Most do not undcrstand thc law ol

Tis lccturc was prcscntcd as onc in a scrics at Hillsdalc Collcgc and publishcd in
Human ction: c-Year Tribute, cd. Richard M. bcling (Hillsdalc, Mich.: Hillsdalc
Collcgc Prcss, accc).

Part : Politics and Philosophy

unintcndcd conscqucnccs. conomic ignorancc is so widcsprcad and its
conscqucnccs so lrightcning that, as Kirzncr said, rcducing it bccomcs a
goal invcstcd with indcpcndcnt moral worth. conomic cducation scrvcs
a human goal ol such importancc that passionatc conccrn bccomcs . . . a
morally natural phcnomcnon. Kirzncr insists on a lundamcntal dicr
cncc bctwccn cconomic cducation and promoting libcrtarian idcology
or rhctoric. Passion nccd not and darc not compromisc thc dctachmcnt
and objcctivity ol thc content ol . . . cconomic cducation (., pp. a6).
! will makc onc clarication. Vc cannot cxpcct thc wholc ol any sci
cncc to bc valuclrcc and cxpcct rcscarchcrs to pursuc thcir work with
no hccd to valucs. \alucs guidc scicntists toward qucstions that thcy nd
intcrcsting and worth invcstigating. \alucs guidc thc application ol scicn
tic ndings. Vhat can bc valuclrcc is thc content ol scicntic proposi
tions. Tc distinction bctwccn valuclrcc and valucloadcd pcrtains not to
wholc clds ol study or to prolcssional carccrs but to propositions, to scn
tcnccs. Somc valuclrcc propositions arc that snow is whitc, that dcmand
curvcs slopc downward, that cxpanding thc quantity ol moncy bcyond
what pcoplc arc willing to hold at cxisting priccs causcs pricc ination,
and that privatc propcrty and gcnuinc markcts arc ncccssary (as Miscs
and Hayck cxplaincd) lor cconomic calculation.
ocs insisting on a distinction bctwccn normativc and positivc propo
sitions disparagc cthics: No. Normativc propositions can bc argucd lor
and against. All valuc judgmcnts havc dcscriptivc as wcll as normativc con
tcnt, cxccpt only lor lundamcntal valuc judgmcnts. xamplcs ol rclativcly
spccic judgmcnts arc that lying, chcating, and stcaling arc wrong. A lun
damcntal judgmcnt, in contrast and by dcnition, is onc that onc cannot
arguc lor bccausc onc has rcachcd thc cnd ol arguing and must appcal to
dircct obscrvation or intuition instcad. Probably thc most lamiliar cxamplc
is thc judgmcnt that miscry is bad and happincss is good, scarccly anyonc
would try to demonstrate that judgmcnt.
u:iii:~vi~xis:
Utilitarianism rcsts on that onc lundamcntal intuition or, in othcr words,
on approval ol human ourishing, ol pcoplcs succcss in making good livcs
lor thcmsclvcs, and disapproval ol thc oppositc conditions. Tis is a tamc
valuc judgmcnt, to bc surc, but combincd with positivc knowlcdgc ol thc
world and human aairs, it gocs a long way in cthics. Vhat lundamcntal
valuc judgmcnt or critcrion could bc morc plausiblc:
Chapter :o: Te Moral Element in Misess Human Action
nc grcat insight ol Miscs, lollowing avid Humc and claboratcd by
Hcnry Hazlitt (.6), is that dircct appcal to thc critcrion ol happincss
ovcr miscry is scldom ncccssary. A surrogatc critcrion is morc tractablc.
Actions, institutions, rulcs, principlcs, customs, idcals, dispositions, and
charactcr traits count as good or bad according to whcthcr thcy support
or undcrcut social coopcration, which is prcrcquisitc to thc happincss ol
a socictys mcmbcrs. conomics and thc othcr social and natural scicnccs
havc much to say about what docs support or undcrcut it.
Hazlitt givcs powcrlul rcasons lor rcpudiating thc varicty ol utilitari
anism that calls lor whatcvcr action sccms most likcly, on cach particular
occasion, to contributc most to thc sum total ol happincss. Tat brand,
callcd actutilitarianism, has now sunk almost to thc status ol a mcrc
strawman. vcn so, it rcmains thc lavoritc targct ol supcrcial critics. Haz
litt advocatcs rulcsutilitarianism instcad, which might bcttcr bc namcd
indircct utilitarianism. ! wont spcll out his rcasons lor cspousing this
vcrsion ol utilitarianism hcrc. Succ it to say that hc rcjccts cascbycasc
cxpcdicncy and calls lor adhcrcncc, almost without cxccption, to tradi
tional prcccpts ol morality, cthical principlcs that do satisly thc utilitarian
critcrion. Utilitarian philosophcrs can givc rcasons, groundcd in rcality,
lor rcspccting chcrishcd valucs.
v:nics ix
Hcnry Hazlitt, and Miscs bclorc him, lorthrightly and couragcously
avowcd utilitarian cthics in a hostilc intcllcctual atmosphcrc. Lct us look
morc closcly at what Miscs wrotc. Hc idcntics cthical doctrincs as nor
mativc disciplincs conccrncd with what ought to bc. Praxcology and cco
nomics, in contrast, rccognizc that ultimatc cnds arc purcly subjcctivc.
Tcy judgc mcans by whcthcr or not thcy arc suitablc to attain thc dcsircd
cnds (Miscs ./.66).
ocs Miscs say that a widcly acccptcd cthical codc is csscntial to a
dcccntly lunctioning cconomy: ! do not nd that hc says so cxplicitly
pcrhaps bccausc thc point is almost too obvious to nccd saying. Hc says so
implicitly, howcvcr, whcn hc cmphasizcs that social coopcration, includ
ing markct rclations, is csscntial to prospcrity and happincss and whcn hc
cxpounds thc cthics ol social coopcration.
Chaptcr viii ol Human ction cxplains that thc moral rulcs ncccssary
lor social coopcration constitutc an autonomous, rationalistic, and volun
taristic cthic. Tcy stand in contrast with thc hctcronomous doctrincs both
6 Part : Politics and Philosophy
ol intuitionism and ol rcvcalcd commandmcnts (Miscs ./.66, p. ).
arlicr wc rcad, Socicty and thc statc arc . . . thc primary mcans lor all pco
plc to attain thc cnds that thcy aim at ol thcir own accord. Socicty is thc
grcat mcans lor attainmcnt ol all thc individuals cnds (pp. ., .6). Tc
division ol labor and thc cxchangc ol pcoplcs spccializcd outputs cnhancc
productivity. Tc principlc ol comparativc advantagc, which Miscs calls
thc Ricardian Law ol Association, gocs lar toward cxplaining how. !n a
world without this cnhanccmcnt ol productivity, thcrc would bc no scnti
mcnts ol bcncvolcncc and good will (pp. ., ..6).
Tc opcration ol thc markct coordinatcs individuals actions. No spc
cial ordcrs or prohibitions arc ncccssary. Noncoopcration pcnalizcs itscll.
Tc markct cconomy docs not ask anybody to dcviatc lrom thosc lincs ol
conduct that bcst scrvc his own intcrcsts (pp. ,,6).
8cyond thc sphcrc ol privatc propcrty and thc markct, organizcd soci
cty has built dams to protcct privatc propcrty and thc markct against vio
lcncc, malicc, and lraud (pp. ,,6). Such misbchavior docs occur bc
causc somc pcrsons arc too narrowmindcd or too wcak in moral strcngth
and willpowcr to adjust thcmsclvcs on thcir own to thc conditions ol social
lilc. Tcy yicld to tcmptations, thcy scck ccting advantagc by actions
harmlul to thc smooth lunctioning ol thc social systcm. Socicty could
not cxist il thc majority wcrc not rcady to apply or thrcatcn lorcc to kccp
thcsc othcrs lrom dcstroying thc social ordcr. Although anarchists ovcr
look this rcgrcttablc truth, thc statc is csscntial to crush thc onslaughts
ol pcaccbrcakcrs (p. .). |T|hc only purposc ol thc laws and thc social
apparatus ol cocrcion and compulsion is to salcguard thc smooth lunction
ing ol social coopcration (p. ,aa).
!n somc passagcs Miscs is quitc cxplicit about his utilitarianism. Tc
thcory ol social coopcration claboratcd by 8ritish political cconomy lrom
Humc to Ricardo cxtcndcd thc picurcan philosophy. !t substitutcd an
autonomous rational morality lor thc hctcronomous and intuitionist cthics
ol oldcr days. Tc only yardstick to bc applicd to law, thc moral codc,
and social institutions is cxpcdicncy with rcgard to human wcllarc. God
cndowcd his crcaturcs with rcason and thc urgc toward thc pursuit ol
happincss (p. .,).
Miscs prcscnts a utilitarian casc lor dcmocracy and classical libcral
ism. Libcralism is not itscll a thcory, hc says, but an application ol cco
nomic and othcr thcorics to policy. !t attachcs a concrctcnot purcly lor
malmcaning to happincss and rcmoval ol uncasincss. !t supposcs that
pcoplc prclcr lilc, hcalth, nourishmcnt, and abundancc to thcir oppositcs,
Chapter :o: Te Moral Element in Misess Human Action ,
and it tcachcs how to act in accordancc with thcsc valuations (pp. ..c,
..).
!l an cconomist statcs that a ccrtain policy mcasurc is bad, hc is not
pronouncing a valuc judgmcnt, hc is simply saying that it is inappropriatc
lor thc dcsircd goal (p. ).
Rclormcrs want to rcplacc what thcy call sclshncss, acquisitivcncss,
and protsccking, Miscs obscrvcs, with altruism, charity, and lcar ol
God. 8ut in urging pcoplc to substitutc considcrations ol public wcl
larc lor thosc ol privatc prot, onc docs not crcatc a working and satislac
tory social ordcr. . . . |H|ow should thc altruistic cntrcprcncur procccd:
(pp. ,a,a6).
Flcxibility ol priccs and wagcs is thc vchiclc ol adjustmcnt, improvc
mcnt, and progrcss. Tosc who condcmn pricc and wagc changcs as unjust
arc working against cndcavors to makc cconomic conditions morc satislac
tory (p. ,a).
!s prot to bc morally condcmncd: Tc marvclous cconomic improvc
mcnts ol thc last two hundrcd ycars wcrc an achicvcmcnt ol thc capitalists
who providcd thc capital goods rcquircd and ol thc clitc ol tcchnologists
and cntrcprcncurs. Tc masscs ol thc manual workcrs wcrc bcnctcd by
changcs which thcy not only did not gcncratc but which, morc oltcn than
not, thcy tricd to cut short (p. c.).
Miscs idcntics conncctions bctwccn intcrvcntionism and thc corrup
tion ol govcrnmcnt ocials. !n administcring many intcrvcntionist mca
surcs, lor cxamplc, import liccnscs, lavoritism simply cannot bc avoidcd.
Vhcthcr or not moncy changcs hands docs not mattcr, liccnscs can bc
awardcd to pcoplc who supply campaign hclp. Corruption is a rcgular
ccct ol intcrvcntionism. Miscs also idcntics thc mindsct ol rcdistribu
tionists. Tcy rcjcct all traditional notions ol law and lcgality in thc namc
ol a highcr and noblcr idca ol justicc. Vhatcvcr thcy thcmsclvcs do is
always right bccausc it hurts thosc who sclshly want to rctain lor thcm
sclvcs what, lrom thc point ol vicw ol this highcr conccpt ol justicc, ought
to bclong to othcrs (pp. ,,6).
v:nics ix :isvss o:nvv wvi:ixcs
8cyond Human ction, Miscs wrotc on cthics clscwhcrc. !n Teory and
History (.,/., pp. 6.) wc rcad:
Tc ultimatc yardstick ol justicc is conducivcncss to thc prcscrvation ol
social coopcration. . . . |S|ocial coopcration is lor man a mcans lor thc
Part : Politics and Philosophy
attainmcnt ol all his cnds. . . . As social coopcration is . . . a mcans and
not an cnd, no unanimity with rcgard to valuc judgmcnts is rcquircd to
makc it work. . . . Tc charactcristic lcaturc ol a lrcc socicty is that it can
lunction in spitc ol thc lact that its mcmbcrs disagrcc in many judgmcnts
ol valuc.
Utilitarianism dispcls thc notion that socicty, thc statc, thc nation,
or any othcr social cntity is an ultimatc cnd and that individual mcn arc
thc slavcs ol that cntity. !t rcjccts thc philosophics ol univcrsalism, collcc
tivism, and totalitarianism. !n this scnsc it is mcaninglul to call utilitari
anism a philosophy ol individualism (Miscs .,/., p. a).
!n an cssay ol .c Miscs wrotc:
Social coopcration undcr thc division ol labor is thc ultimatc and solc
sourcc ol mans succcss in his strugglc lor survival and his cndcavors to
improvc as much as possiblc thc matcrial conditions ol his wcllbcing.
8ut as human naturc is, socicty cannot cxist il thcrc is no provision
lor prcvcnting unruly pcoplc lrom actions incompatiblc with commu
nity lilc. !n ordcr to prcscrvc pcacclul coopcration, onc must bc rcady to
rcsort to violcnt supprcssion ol thosc disturbing thc pcacc. (.c, p. c)
Tc lollowing comcs lrom an cssay ol .:
Tc sacricc that a man or a group makcs in rcnouncing somc shortrun
gains, lcst thcy cndangcr thc pcacclul opcration ol thc apparatus ol social
coopcration, is mcrcly tcmporary. !t amounts to an abandonmcnt ol a
small immcdiatc prot lor thc sakc ol incomparably grcatcr advantagcs
in thc long run.
Such is thc corc ol thc moral tcachings ol ninctccnthccntury utilitari
anism. bscrvc thc moral law lor your own sakc, ncithcr out ol lcar ol
hcll nor lor thc sakc ol othcr groups, but lor your own bcnct. Rcnouncc
cconomic nationalism and conqucst, not lor thc sakc ol lorcigncrs and
alicns, but lor thc bcnct ol your own nation and statc.
!t was thc partial victory ol this philosophy that rcsultcd in thc marvclous
cconomic and political achicvcmcnts ol modcrn capitalism. . . .
Tc scicntic basis ol this utilitarian cthics was thc tcachings ol cco
nomics. Utilitarian cthics stands and lalls with cconomics.
|8ut our agc witncsscs a| rcvolt against rationalism, cconomics, and util
itarian social philosophy, it is at thc samc timc a rcvolt against lrccdom,
dcmocracy, and rcprcscntativc govcrnmcnt.
|Tc antilibcrals call thcir advcrsarics namcs.| Rationalism is callcd
supcrcial and unhistoric. Utilitarianism is brandcd as a mcan systcm
Chapter :o: Te Moral Element in Misess Human Action
ol stockjobbcr cthics . . . pcddlcr mcntality, dollar philosophy. |co
nomics is scorncd.| (.c, pp. aca.c)
Vriting probably in . or .c, Miscs rccognizcs that scicncc docs
not havc thc duty to tcll pcoplc what to scck as thcir chicl good. !n asscss
ing a doctrinc, wc havc to ask only whcthcr it is logically cohcrcnt or scll
contradictory and whcthcr its practical application will hclp pcoplc attain
thcir dcsircd cnds. Vc havc to considcr doctrincs as rccipcs lor action
and apply no othcr standard than that ol whcthcr thcy will work (.c,
pp. ccc.).
Utilitarianism has rcjcctcd all standards ol a hctcronomous moral law,
which has to bc acccptcd and obcycd rcgardlcss ol thc conscqucnccs aris
ing thcrclrom. For |sic| thc utilitarian point ol vicw a dccd is a crimc
bccausc its rcsults arc dctrimcntal to socicty and not bccausc somc pco
plc bclicvc that thcy hcar in thcir soul a mystical voicc which calls it a
crimc. Vc do not talk about problcms ol cthics. (.c, p. c.)
!n various writings Miscs disavows hcdonismin thc narrowscnsc. Not
withstanding supcrcial critics, happincss docs not mcan mcrc matc
rial, bodily plcasurcs. Advanccd utilitarians, hc says, intcrprct plcasurc and
pain, utility and disutility in purcly lormal scnscs, rclcrring to whatcvcr
individuals in lact try to achicvc or avoid (./.6c, pp. a, .., .,/.,
pp. .a., and ./.66, p. a.).
Miscs rccognizcs that many pcoplc, cspccially crcativc workcrs, arc not
drivcn by matcrial dcsircs or narrow scllintcrcst alonc. Tcy may also bc
cxprcssing compctcncc and strcngth and cvcn hcroism (../., pp. .,
a.). 8csidcs pcoplc conccrncd only with thcir own cgos, thcrc arc pcoplc
with whom awarcncss ol thc troublcs ol thcir lcllow mcn causcs as much
uncasincss as or cvcn morc uncasincss than thcir own wants (./.66,
p. .).
Miscs occasionally slippcd into rcpcating slogans about thc grcat
cst happincss lor thc grcatcst numbcr (../., p. .). Such a lor
mulation has no prccisc mcaning, ol coursc. All that Miscs prcsumably
mcant by it is that thc happincss to bc lurthcrcd by morality and othcr
social institutions and practiccs is thc happincss ol pcoplc in gcncralol
thc random mcmbcr ol socictyrathcr than thc dicrcntial happincss ol
spccic pcrsons or classcs at thc cxpcnsc ol othcrs. Miscs spccically rcpu
diatcd any idcasuch as critics cnjoy attackingol trying to maximizc
any numcrical aggrcgatc ol mcasurablc individual utilitics (./.66,
p. aa).
c Part : Politics and Philosophy
Somc passagcs lrom his Nation, State, and Economy documcnt Miscss
rcjcction ol slogans and intuitions as a basis lor policy and his locus on
likcly conscqucnccs.
Rationalist utilitarianism rulcs out ncithcr socialism nor impcrialism on
principlc. Acccpting it providcs only a standpoint lrom which onc can
comparc and cvaluatc thc advantagcs and disadvantagcs ol thc various
possibilitics ol social ordcr, onc could conccivably bccomc a socialist or
cvcn an impcrialist lromthc utilitarian standpoint. 8ut whocvcr has oncc
adoptcd this standpoint is compcllcd to prcscnt his program rationally.
(../., p. a..)
Utilitarianism has bccn rcproachcd lor aiming only to satisly matcrial
intcrcsts and lor ncglccting highcr human goals. !t is truc that libcralism
and utilitarianism aim at thc highcst possiblc productivity ol labor. 8ut
thcy know that human cxistcncc docs not cxhaust itscll in matcrial plca
surcs. Tcy strivc lor wcllarc and lor wcalth not bccausc thcy scc thc high
cst valuc in thcm but bccausc thcy know that all highcr and inncr culturc
prcsupposcs outward wcllarc. . . . Utilitarian policy is indccd policy lor this
carth. 8ut that is truc ol all policy (../., pp. a.a.).
!t is an absurd conlusion ol valucs and positivc knowlcdgc, Miscs
wrotc, whcn insistcncc on thc cconomics rclcvant to somc policy issuc
is criticizcd as inscnsitivc. !l dispclling cconomic lallacics is inhuman,
thcn so is cvcry cxprcssion ol truth. !l to say this is inhuman, thcn thc
physicians who cxplodcd thc myth ol thc hcaling powcr ol mandrakc wcrc
inhuman, too, bccausc thcy hurt thc pcoplc cmploycd in gathcring man
drakc (.c, p. a).
Miscs uscd to say that various intcrvcntionist mcasurcs could bc rc
jcctcd on thc basis ol cconomic analysis and thc valuc judgmcnts ol thcir
advocatcs.
|A|ll thc mcthods ol intcrvcntionism arc doomcd to lailurc. Tis mcans:
thc intcrvcntionist mcasurcs must nccds rcsult in conditions which from
the point of .ie. of their o.n ad.ocates arc morc unsatislactory than thc
prcvious statc ol aairs thcy wcrc dcsigncd to altcr. Tcsc policics arc
thcrclorc contrary to purposc. (.aa/.., p. 6)
cvi:icis: ov :isvss vosi:iox
For many dccadcs, utilitarian cthics has had a bad prcss, not lcast in libcr
tarian circlcs. !t draws scorn as thc mindsct ol crass, grasping, unprinciplcd
Chapter :o: Te Moral Element in Misess Human Action .
pcoplc. !t supposcdly invitcs govcrnmcnt hypcractivity aimcd at maxi
mizing somc misconccivcd aggrcgatc wcllarc. thics and policy must bc
groundcd instcad in noblc and intuitivcly obvious principlcs such as un
swcrving rcspcct lor human dignity and human rights.
Miscs thc utilitarian has drawn his sharc ol criticism, cvcn lrom somc
ol his own disciplcs. ! do not maintain that Miscs cxpoundcd thc subtlcst
vcrsion ol thc doctrinc, distinguishing bctwccn act utilitarianismand rulcs
or indircct utilitarianism. Hc wrotc mostly bclorc dctailcd philosophical
trcatmcnts ol thcsc subtlctics wcrc publishcd, and, anyway, thcy wcrc not
ccntral to his main conccrns. Still, his basic philosophical stancc is worth
dclcnding. Conlronting it with thc argumcnts ol critics and wouldbc rcin
tcrprctcrs hclps clarily it and, ! think, strcngthcn its appcal.
Murray Rothbard callcd Miscs an opponcnt ol objcctivc cthics (.,6,
p. .c). Tis chargc is scarccly lair. Ccrtainly Miscs was not an cthical rcl
ativist or nihilist, scorning all judgmcnts ol right and wrong and compla
ccnt cvcn whcn somc individuals violatc othcrs rights in pursuit ol nar
row and shortrun scllintcrcst. n thc contrary, hc was conccrncd with
whcthcr bchavior and prcccpts and charactcr traits tcnd to scrvc or subvcrt
social coopcration and pcoplcs happincss.
According to Rothbard, Miscs madc onc lundamcntal valuc judgmcnt:
Hc hopcd that thc bulk ol thc population would gct whatcvcr it wantcd
or thought it wantcd. 8ut what il thc grcat majority wants to murdcr rcd
hcads or wants to scc innoccnt pcrsons sucr lor its own amuscmcnt: A
utilitarian such as Miscs would includc such prclcrcnccs lully as much as
thc most innocuous or altruistic prclcrcnccs, . . . in thc quantitativc rcck
oning (.,6, pp. .c, .c, .a, a.c, a.). !nstcad ol citing spccic statc
mcnts by Miscs, Rothbard criticizcs what hc supposcs Miscs, as a utilitar
ian, must bclicvc.
Murray Rothbard has callcd Miscs an opponcnt ol objcctivc cthics
and has cvcn trottcd out his own standard rcmark about possibly murdcr
ing all thc rcdhcads to gratily a majority. !nstcad ol citing spccic statc
mcnts by Miscs, howcvcr, Rothbard criticizcs what hc thinks a utilitarian
must bclicvc. Also, likc Karcn \aughn, hc criticizcs Miscs on thc grounds
that hc could not bc trustcd to hcw to thc libcrtarian linc in absolutcly all
cascs. Actually, it sccms backward to criticizc cthical systcms according
to whcthcr thcy unswcrvingly support prcconccivcd policy positions. !t
is morc scnsiblc to appraisc policics according to how thcy accord with a
wcllgroundcd cthics. (n thcsc criticisms, rccall thc prcccding chaptcr,
numbcr a).
a Part : Politics and Philosophy
Rothbard implics that utilitarians hold prclcrcnccs and attitudcs and
charactcr traits immunc lrom appraisal. 8ut Miscs, to my knowlcdgc,
ncvcr said any such thing. A rulcs or indircct utilitarianism is indccd con
ccrncd with how attitudcs and charactcr traits, so lar as thcy arc opcn
to inucncc, tcnd to acct thc hcalth ol a socicty and thc happincss ol
its individual mcmbcrs. For lcar ol advcrsc sidc cccts and lor othcr rca
sons, a utilitarian docs not want to cnlist thc statcs cocrcivc powcrs in
supprcssing all unlortunatc prclcrcnccs and attitudcs and traits, but this
in no way mcans that hc considcrs all ol thcm cqually worthy ol rcspcct
and ol inucncc on policy.
thcr criticism is policyoricntcd. Rothbard objcctcd that thc utilitar
ian will rarcly apply an absolutc principlc to rcalworld situations. Tc util
itarian rcgards principlc as no morc than a vaguc and ovcrridablc guidclinc.
Hc cannot bc trustcd to maintain libcrtarian principlc in cvcry spccic
application (.,, p. a). Karcn \aughn rcgrcttcd that Miscs acccptcd thc
collcctivists andauthoritarians tcrms ol dcbatc by strcssing howccicntly
thc lrcc markct providcs wcllbcing. Such a dclcnsc ol lrccdom is doubly
dangcrous. First, it is opcnto cmpirical rclutation. Sccond, thc utilitarian
calculus might tip in lavor ol a nonlibcral systcm il it countcd thc burcau
crats cnjoymcnt lrom controlling and rcgulating. A lcss risky coursc sim
ply postulatcs lrccdom as suprcmcly dcsirablc lor its own sakc and as a
moral valuc that, as a bonus, also happcn|s| to lcad to thc wcllbcing ol
socicty (.,6, pp. .c.c).
8ut it sccms backward to criticizc cthical systcms according to whcthcr
thcy unswcrvingly support prcconccivcd policy positions. !t is morc scnsi
blc to appraisc policics according to howthcy accord with a wcllgroundcd
cthics. Furthcrmorc, such criticisms distinguish sharply, il somctimcs only
implicitly, bctwccn cthically principlcd and utilitarian approachcs to pol
icy. Tcy intcrprct thc lattcr as unprinciplcd, cascbycasc dircct calcula
tion ol gains and losscs ol utility. Actually, lar lrom rcjccting principlcs,
utilitarianism sccks thcir sound basis.
n thc chargc that utilitarians cannot bc trustcd to hcw to thc libcr
tarian linc in absolutcly all cascs, comparc Miscss rcmark:
!t may bc that socialismrcprcscnts a bcttcr lormol organization ol human
labor. Lct whocvcr asscrts this try to provc it rationally. !l thc prool
should succccd, thcn thc world, dcmocratically unitcd by libcralism, will
not hcsitatc to implcmcnt thc communist community. !n a dcmocratic
statc, who could opposc a rclormthat would bc bound to bring thc grcat
cst gain to by lar thc ovcrwhclming majority: Political rationalism docs
Chapter :o: Te Moral Element in Misess Human Action
not rcjcct socialism on principlc. 8ut it docs rcjcct in advancc thc social
ism that hingcs not on cool undcrstanding but rathcr on unclcar lcclings,
that works not with logic but rathcr with thc mysticism ol a gospcl ol
salvation, thc socialism that docs not procccd lrom thc lrcc will ol thc
majority ol thc pcoplc but rathcr lrom thc tcrrorism ol wild lanatics.
(../., p. aa.)
Miscs mcans that rationalism docs rcjcct socialism, ycs, but lrom thc
scicntic comparison ol altcrnativc systcms.
x~:uv~i i~w ~xb x~:uv~i vicn:s
nc widcly admircd doctrinc in supposcd rivalry with utilitarianism
insists on adhcrcncc to natural law and natural rights. Rothbard trics
to dcrivc many dctailcd propositions about cthics and law lrom his con
ccption ol rights, purportcdly dcrivcd in turn lrom John Lockcs axioms
ol scllowncrship and homcstcading (.,, .a). (Yct cvcn lor thcsc hc
ocrs utilitarian argumcnts, without acknowlcdging thc labcl.) John J.
Pidcrit (.), a Gcorgctown Univcrsity cconomist, argucs lor what hc
calls a naturallaw approach: corrcct rcason asccrtains what actions arc
natural and thcrclorc cthically acccptablc by rcccting on thc naturc
ol human bcings, thcir sharcd aspirations and lundamcntal valucs, and
thcir intcractions in community. Yct Pidcrit can scarccly mcan that what
cvcr is natural is right and good. Civilization is largcly an cxcrcisc in
taming natural bchavior. l coursc, any acccptablc doctrinc must con
lorm to naturc in thc scnsc ol not rcquiring impossiblc actions or bchav
ior cnlorccablc only at cxccssivc cost. Rcspccting thc lacts ol naturc and
human intcraction docs not distinguish thc naturallaw approach lrom
utilitarianism.
Naturallaw doctrinc docs makc scnsc il it mcans mcrcly that all sorts
ol bchavior and prcccpts, notably including laws madc by lcgislaturcs and
judgcs, arc opcn to appraisal on moral grounds. Nothing bccomcs cthically
acccptablc mcrcly by cnactmcnt into positivc law. Tat intcrprctation ol
natural law docs not rulc out a utilitarian grounding ol morality. 8ut il thc
doctrinc says that whatcvcr is morally right (or wrong) has all (or nonc) ol
thc lorcc ol positivc law, it latuously dcnics a livc distinction.
As lor natural (or human or individual) rights, thc mcaning that sccms
to t thc typical contcxt is this: A right is a pcrsons cntitlcmcnt to othcrs
trcatmcnt ol him that is binding on thosc othcrs with compclling moral
lorcc. Somc rights arc positivc cntitlcmcnts, likc a childs right to support
Part : Politics and Philosophy
by his parcnts or cach partys right to pcrlormancc by thc othcr party to
a contract. Tc rights mcntioncd in thc cclaration ol !ndcpcndcncc arc
ncgativc rights, rights to lorbcaranccs, rights not to bc cocrccd or victim
izcd by othcr pcrsons, notably including agcnts ol thc statc. nc rcason
why ncgativc rights arc cspccially stringcnt is that thcy arc rclativcly casy
to honorsimply by not intcrlcring.
Rights, bcing moral cntitlcmcnts, presuppose an cthical systcm or tra
dition and cannot providc its vcry grounding. n what principlcs or intu
itions providc thc basis ol rights, thc rhctoric ol rights shcds no light
whatcvcr (Harc ., chaps. ,, p. .). Richard pstcin nds a utili
tarian grounding lor natural law and natural rights, scnsibly intcrprctcd,
and cvcn lor thc Lockcan axioms ol scllowncrship or pcrsonal autonomy
and homcstcading or rst posscssion (., pp. ,.,., ,6,,, and .,
pp. c, , 6, ..., and passim).
Making natural rights thc vcry loundation ol cthics substitutcs intu
ition lor lactual rcscarch and rcasoning. Furthcrmorc, somc strands ol
rights talk dcbasc political discussion, making absolutistic and moralistic
dcmands, and subvcrting a crcativc scarch lor mutually bcnccial accom
modations.
!n thc words ol onald Livingston, intcrprcting avid Humc, cor
rupt modcs ol philosophizing arc undcrcutting whatcvcr lragmcnts ol
sensus communis could disciplinc radical sclldctcrmination. Philosophical
rcscntmcnt spawns
an cndlcss strcamol scllcrcatcd victims. Somconcs scll dctcrmination is
mct with thc violcnt protcst that somconc clscs rights havc bccn violatcd.
vcr morc numcrous rights arc gcncratcd to protcct cvcr morc numcr
ous dcsircs. . . . ! want. . . has bccomc an argumcnt ol practical rcason. . . .
Tus a lorm ol thc Hobbcsian statc ol naturc is rcncwcd in thc most
advanccd civilization, and socicty is hcld togcthcr not by thc cnjoymcnt
and cultivation ol an inhcritcd sensus communis but by legalism cnlorccd
by an incrcasingly consolidatcd and burcaucratic modcrn statc. Consoli
dation must occur as powcr is translcrrcd lrom dismantlcd, indcpcndcnt
social authoritics to thc ccntcr in ordcr to scrvicc an cvcrincrcasing num
bcr ol antinomic individual rights. (., pp. )
As Miscs says, dcclarations about disagrccmcnts hinging on irrccon
cilably and unncgotiably dicrcnt worldvicws
dcscribc thc antagonism as morc pointcd than it rcally is. !n lact, lor
all partics committcd to pursuit ol thc pcoplcs carthly wcllarc and thus
Chapter :o: Te Moral Element in Misess Human Action
approving social coopcration, qucstions ol social organization and thc
conduct ol social action arc not problcms ol ultimatc principlcs and ol
world vicws, but idcological issucs. Tcy arc tcchnical problcms with
rcgard to which somc arrangcmcnt is always possiblc. No party would
wittingly prclcr social disintcgration, anarchy, and a rcturn to primitivc
barbarismto a solution which must bc bought at thc pricc ol thc sacricc
ol somc idcological points. (./.66, p. ..)
:isvs ~xb x~:uv~i vicn:s
Miscss own position on natural law and rights is an cmbarrassmcnt lor
somc ol his disciplcs. Naturc is alicn to thc idca ol right and wrong,
hc obscrvcs, qucstioning thc notion ol an ctcrnally cstablishcd standard.
Right and wrong arc utilitarian judgmcnts. As lor natural law, pcoplc
dcducc clashing implications lrom thcir arbitrary notions ol it. De lege
ferenda thcrc is no such a thing as justicc. Tc notion ol justicc can log
ically only bc rcsortcd to de lege lata. !n cnacting or changing laws, thc
issuc is not justicc but social cxpcdicncy and social wcllarc. Tcrc is nci
thcr right nor wrong outsidc thc social ncxus. . . . Tc idca ol justicc always
rclcrs to social coopcration (Miscs ./.66, pp. ,ac,a.).
Utilitarian philosophy and classical cconomics havc nothing to do
with thc doctrinc ol natural rights, says Miscs. All that mattcrs lor thcm
is social utility. Miscs cvcn quotcs 8cntham on thc nonscnsc ol natu
ral rights. Utilitarians rccommcnd dcmocratic govcrnmcnt, privatc prop
crty, lrccdom, and cquality undcr thc law not on illusory grounds ol nat
ural law and human cquality but bccausc thcy arc bcnccial (./.66,
p. ,).
lscwhcrc,
.
Miscs insistcd, Utilitarian Libcralism had nothing to do
with thcsc natural rights ctions. Tc Utilitarians thcmsclvcs must bc crcd
itcd with thc mcrit ol having oncc and lor all rclutcd thcm (.c, p. aa).
To quotc Hcnry Hazlitt, who wrotc largcly undcr Miscss inspiration,
thc inviolability ol rights rcsts not . . . on somc mystical yct scllcvidcnt
law ol naturc. . . |but| ultimatcly (though it will shock many to hcar this)
on utilitarian considcrations (.6, p. a6).
Somc ol thc lormulations quotcd abovc arc sharpcr than ! myscll
would havc cxprcsscd thcm, but Miscs was nothing il not lorthright. Prc
ciscly bccausc human rights and human dignity arc important valucs, thcy
.
A . cssay commcnting on idcas not only ol natural law, but also ol govcrnmcnt
by social contract.
6 Part : Politics and Philosophy
dcscrvc a morc solid grounding than mcrc intuitions rcportcd in noblc
sounding languagc. Miscs ol coursc did not rcjcct natural law in thc
scicntic scnsc, and hc did not rcjcct natural law and human rights as cth
ical prcccpts il thcy arc intcrprctcd in thc tamc scnsc that ! skctchcd out
carlicr, thc scnsc compatiblc with utilitarianism. Vhat Miscs rcjcctcd was
thc cxaggcratcd, loundationalist, almost mystical status that somc writcrs
havc accordcd to thcm.
a
novvvs suvvosvbiv v~iuvvvvv ~vvvo~cn :o
iinvv:~vi~xis:
HansHcrmann Hoppc prcscnts a curious supposcd altcrnativc to utili
tarian cthics (.a, pp. 6,6, .b, pp. acaa, and contribution to a
symposium, Hoppcs Rights Tcory ., pp. , ). Hc purport
cdly dispcnscs with any appcal to valuc judgmcnts at all, cvcn such a tamc
onc as wishing pcoplc happy rathcr than miscrablc livcs. Hc docs not havc
to try to gct an ought lrom an is bccausc thc libcrtarian policy position
rcsts cntircly on logic and lacts and not at all on valuc judgmcnts.
Rcason, Hoppc says, can provc moral laws valid a priori. !t makcs
cxplicit what thc shccr lact ol discussion alrcady implics. Tc libcrtar
ian privatcpropcrty cthic can bc justicd morally and by argumcntation
and without invoking any valuc judgmcnts. Proposing any altcrnativc
cthic contradicts what inhcrcs in thc vcry act ol cngaging in argumcn
tation, nonlibcrtarian proposals arc lalsicd by thc vcry act ol making
thcm.
Argumcntationdiscussionrcquircs cmploying scarcc mcans, pri
vatcly owncd. Argumcntation prcsupposcs that thc participants rccog
nizc cach oncs cxclusivc control ovcr oncs own body. Furthcrmorc,
argumcntation could not bc sustaincd lor any lcngth ol timc without
privatc propcrty in things bcyond oncs own body, propcrty ultimatcly
tracing to Lockcan homcstcading. Vithout privatc propcrty dcncd in
objcctivc, physical tcrms, lilc, acting, and propositionmaking would bc
impossiblc. 8y bcing alivc and lormulating any proposition, thcn, onc
dcmonstratcs that any cthic cxccpt thc libcrtarian cthic is invalid. Hoppc
lurthcr says hc has provcd that it is impossiblc to propositionally jus
tily nonlibcrtarian propcrty principlcs without lalling into contradictions.
a
A scction is omittcd bclow bccausc it conlronts a rcintcrprctation ol Miscs too
straincd to bc worth thc spacc nccdcd to rclutc it. For thc omittcd matcrial, scc thc original
vcrsion ol this chaptcr.
Chapter :o: Te Moral Element in Misess Human Action ,
mpirical cvidcncc has absolutcly no bcaring on it. Hc cxplicitly rcjccts
utilitarianism, his approach is an altcrnativc (Hoppcs Rights Tcory
.).
Murray Rothbard had bccn prcaching lor ovcr thirty ycars that ccon
omists cannot arrivc at any policy conclusion in a strictly valuclrcc way,
thcy havc to comc up with somc kind ol cthical systcm. Tcn Rothbard
said that Hoppc had provcn him wrong. |H|c has dcduccd an anarcho
Lockcan rights cthic lrom scllcvidcnt axioms. . . . Hoppc has managcd
to cstablish thc casc lor anarchocapitalistLockcan rights in an unprccc
dcntcdly hardcorc manncr, onc that makcs my own natural law/natural
rights position sccm almost wimpy in comparison. . . . |!|t is impossiblc
to disagrcc with thc anarchoLockcan rights cthic without lalling immc
diatcly into scllcontradiction and scllrclutation. Hoppc appcals to thc
conccpt ol thc cthics ol argumcntation. [Jny argumcnt whatsocvcr . . .
must imply scllowncrship ol thc body ol both thc argucr and thc listcncrs,
as wcll as a homcstcading ol propcrty right so that thc argucrs and listcn
crs will bc alivc to listcn to thc argumcnt and carry it on (contribution to
thc symposium on Hoppcs Rights Tcory, .).
Hoppc sccms to say that cspousing nonlibcrtarian policy positions
commits scllrclutation in thc samc scnsc that ! would bc rcluting myscll
il ! wrotc a lcttcr saying that it is impossiblc to writc a lcttcr or madc
an oral statcmcnt saying it is impossiblc lor anybody to spcak. Tc scll
contradiction ol a nonlibcrtarian cthic may bc morc complicatcd and
rcquirc morc attcntion to cxposc, but it still is a scllcontradiction, and
ol thc samc gcncral typc. Tc cxposurc ol scllcontradiction is a ncat kind
ol argumcnt and has grcat appcalwhcn it works.
!n thc prcscnt casc, it just docs not work. Hoppc simply asscrts, but
docs not dcmonstratc, a logical contradiction. 8cing cmphatic and rcpcti
tious is not cnough. A slavcowncr and his slavc might conccivably cngagc
in an intcllcctual discussion, cvcn about thc moral status ol slavcry itscll,
without cithcr ncccssarily lalling into scllcontradiction.
:nv sicxivc~xcv ov viv~i boc:vixvs
nc rcason lor mcntioning Hoppcs and othcr altcrnativcs to Miscss
utilitarianism (and, morc broadly, to thc indircct utilitarianism ol avid
Humc, Miscs, and Hcnry Hazlitt) is to show that utilitarianism is not
so plastic and allcncompassing as to bc vacuous. Tc cxistcncc ol rival
positions dcluscs that chargc. nc cnvisagcs a just socicty in thc scnsc ol
Part : Politics and Philosophy
John Rawls (.,.), who rcjccts vicwing justicc as a mcrc mcans to happi
ncss. thcr rival doctrincs ccntcr on duty or rcligion. Still othcrs posit
conlormity to traditional cthical prcccpts, cvcn il only intuition, rathcr
than analysis ol conscqucnccs, has tcstcd thc prcccpts, or rcspcct lor indi
vidual rights that havc simply bccn postulatcd rathcr than argucd lor, or
conducivcncss to thc spccial ourishing ol thc lcw highcst and noblcst
spccimcns ol thc human racc. nc might also conccivably makc thc critc
rion thc happincss not ol pcoplc in gcncral but ol oncscll discriminatorily
or ol somc othcr spccic pcrson or class.
Somc ol thcsc ostcnsibly rival doctrincs, and pcrhaps othcrs that do
not now comc to mind, may turn out, on cxamination, not to bc truly
ri.al doctrincs. Tc critcria thcy appcal to cithcr may not bc as ultimatc as
happincss or may bc cquivalcnt to it altcr all. (!n putting lorth his axioms
ol scllowncrship and Lockcan homcstcading, cvcn Rothbard introduccs
utilitarian considcrations.) Somc ol thcsc doctrincs, on thc othcr hand,
rcally arc dicrcnt. Tcir vcry cxistcncc shows that utilitarianism is not
vacuous. !l thcy arc too unattractivc to bc rcalistic contcndcrs, that lact
lurthcr supports utilitarianism.
ix:ui:ioxis:
Tc most urgcd altcrnativcs to utilitarianism turn out to bc varictics ol
intuitionism, which Miscs quitc propcrly spokc out against. Lct mc quotc
and paraphrasc lromhis Socialism. (First ! should cxplain a tcrmthat Miscs
uscs. udacmonistic cthics is, looscly spcaking, a systcm that applics thc
critcrion ol happincss.) Philosophcrs had bccn arguing about thc ultimatc
Good lor a long timc, Miscs wrotc, bclorc modcrn invcstigation scttlcd
it. All thc argumcnts uscd in lavor ol an anticudacmonistic cthics wcrc
unablc to dissociatc thc conccpt ol Morality lrom that ol Happincss. Tc
vain corts ol thcsc philosophcrs
wcrc ncccssary to cxposc thc problcm in all its widc ramications and
so cnablc a conclusivc solution to bc rcachcd. . . . |T|hc tcncts ol intu
itionist cthics . . . arc irrcconcilablc with scicntic mcthod |and| havc
bccn dcprivcd ol thcir vcry loundations. . . . ||udacmonistic idcas lic
conccalcd in cvcry train ol aprioristicintuitivc cthical thought. . . . vcry
cthical systcm built upon thc idca ol duty . . . is nally obligcd to yicld so
much to udacmonism that its principlcs can no longcr bc maintaincd.
!n thc samc way cvcry singlc rcquircmcnt ol aprioristicintuitivc cthics
displays ultimatcly an cudacmonistic charactcr. (.aa/.., p. 6c)
Chapter :o: Te Moral Element in Misess Human Action
coxciusiox
Tc lact/valuc or is/ought distinction, which ! introduccd at thc bcgin
ning, is indccd a sound onc. Ncvcrthclcss, ought judgmcnts can bc dis
cusscd and soundly madc (cxccpt only lor lundamcntal valuc judgmcnts,
and cvcn lor thcm, considcrations can bc adduccd that inclinc pcoplc
to acccpt thcm, Mill .6/.6, chap. .). Tc soundcst, most appcaling
approach to valuc judgmcnts and to thcir usc, as in policy rccommcnda
tions, has bccn shown by Humc, Miscs, Hazlitt, and othcr writcrs in thcir
tradition (or in parallcl, as by R.M. Harc). Tis approach is indircct utili
tarianism.
Miscs was lorthright, cvcn couragcous, in cspousing utilitarianismand
rcpudiating intuitionist altcrnativcs. For this his rcputation continucs to
sucr cvcn among disciplcs who othcrwisc arc carrying on his work. ! urgc
thcm to rcconsidcr. ! am not saying that Miscs dcvclopcd thc distinction
bctwccn thc act vcrsion and thc rulcs or indircct vcrsion ol utilitarianism
and lully articulatcd thc lattcr. ! am not saying that hc anticipatcd and
dcmolishcd in advancc thc axiomatic or intuitionist rights approach that
somc ol his disciplcs would urgc. oing all that was not possiblc in his
timc and was not ncccssary lor his work in cconomics. Howcvcr, a sophis
ticatcd utilitarianism docs t in with and cxtcnd his philosophical lramc
work. Hcnry Hazlitt, lor onc, cxtcndcd it. Miscs was on thc right track.
vvvvvvxcvs
pstcin, Richard A. Tc Utilitarian Foundations ol Natural Law and Post
script: Subjcctivc Utilitarianism. Har.ard Journal of La. . Public Policy .a
(.): ,.,., ,6,,.
. Simple Fules for a Complex !orld. Cambridgc, Mass.: Harvard Univcr
sity Prcss, ..
Harc, R.M. Essays on Political Morality. xlord: Clarcndon Prcss, ..
Hazlitt, Hcnry. Te Foundations of Morality. Princcton, N.J.: . \an Nostrand,
.6.
Hoppc, HansHcrmann. From thc conomics ol Laisscz Fairc to thc thics
ol Libcrtarianism. !n Man, Economy, and Liberty: Essays in Honor of Murray
N. Fothbard, cditcd by Valtcr 8lock and Llcwcllyn H. Rockwcll, Jr., 6,6.
Auburn, Ala.: Ludwig von Miscs !nstitutc, .a.
6c Part : Politics and Philosophy
. Tc Ultimatc Justication ol thc Privatc Propcrty thic. Liberty a
(Scptcmbcr .b): acaa.
Hoppcs Rights Tcory: 8rcakthrough or 8uncombc: A symposium by various
authors, with a rcsponsc by Hoppc. Liberty a (Novcmbcr .): , .
Kirzncr, !sracl. Tc Naturc and Signicancc ol conomic ducation. Te Free-
man (ctobcr .): a6.
Livingston, onald V. Philosophical Melancholy and Delirium: Humes Pathology
of Philosophy. Chicago: Univcrsity ol Chicago Prcss, ..
Mill, John Stuart. Utilitarianism. .6. Rcprintcd in Selected !ritings, cditcd by
Mauricc Cowling, ac. Ncw York: Ncw Amcrican Library, .6.
Miscs, Ludwig von. Nation, State, and Economy. ... Translatcd by Lcland 8.
Ycagcr. Ncw York: Ncw York Univcrsity Prcss, ..
. Socialism: n Economic and Sociological nalysis. .aa. Translatcd by
J. Kahanc. !ndianapolis: Libcrty Classics, ...
. Epistemological Problems of Economics. .. Translatcd by Gcorgc Rcis
man. Princcton, N.J.: . \an Nostrand, .6c.
. Human ction. .. cd. Chicago: Rcgncry, .66.
. Te Ultimate Foundation of Economic Science. .6a. a cd. Kansas City,
Kans.: Shccd Andrcws and McMccl, .,,.
. Teory and History. .,. Rcprintcd Auburn, Ala.: Ludwig von Miscs
!nstitutc, ..
. Money, Method, and the Market Process. ssays sclcctcd by Margit von
Miscs. ditcd and with an introduction by Richard M. bcling. Norwcll,
Mass.: Kluwcr, .c.
Pidcrit, John J. Te Ethical Foundations of Economics. Vashington, .C.: Gcorgc
town Univcrsity Prcss, ..
Rawls, John. Teory of Justice. Cambridgc, Mass.: 8clknap Prcss ol Harvard
Univcrsity Prcss, .,..
Rothbard, Murray N. For a Ne. Liberty. Ncw York: Macmillan, .,.
. Praxcology, \aluc Judgmcnts, and Public Policy. !n Te Foundations
of Modern ustrian Economics, cditcd by .G. olan. Kansas City, Kans.:
Shccd and Vard, .,6.
Chapter :o: Te Moral Element in Misess Human Action 6.
. Te Ethics of Liberty. Atlantic Highlands, N.J.: Humanitics Prcss, .a.
\aughn, Karcn. Critical iscussion ol thc Four Papcrs. !n Te Economics of
Lud.ig .on Mises, cditcd by L.S. Moss, .c...c. Kansas City, Kans.: Shccd
and Vard, .,6.
cn~v:vv :
Can a Libcral 8c an
galitarian:

An answcr to thc qucstion poscd by my titlc dcpcnds, obviously, on how

its tcrms arc dcncd.
! shall dcny that a libcral can consistcntly advocatc govcrnmcnt action
to chop down high incomcs or cspccially lavorablc opportunitics out ol
zcal lor a closcr approach to matcrial cquality as a goal in its own right.
.
!nstcad ol using thc tcrm libcral as it is uscd in modcrn Amcrican
politics, ! usc it, as Prolcssor Miscs and thc Austrian and Chicago ccon
omists do, in thc traditional scnsc. Libcralism is a doctrinc that rcjccts any
supposcd social or national purposc transccnding thc purposcs ol indi
viduals. !nstcad, it sccks to allow cach individual a widc rangc ol lrcc
choicc among purposcs and pursuits. (Vhilc cmphasizing thc goals ol
cach individual, it in no way dcnics thc hcalthy lact that hc may largcly
rclatc his own intcrcsts and satislactions to thosc ol many pcoplc bcyond
himscll.) Libcralismcalls lor prcscrving, adopting, and dcvising thc social,
political, and cconomic institutions likclicst to minimizc thc lrictions that
incvitably arisc to somc cxtcnt among thc pursuits and thc spccic lrcc
doms ol dicrcnt individuals. Yct it cannot givc an cqual blcssing to what
cvcr goals individuals might havc. Malicious cnjoymcnt ol thc mislor
tuncs ol othcr pcoplc, or cnvy, or a shccr dclight in mcddlingall arc
hard to squarc with libcralism. Tis judgmcnt holds cvcn whcn such tastcs
arc graticd through voluntary transactions among all pcrsons conccrncd.
Morc about this latcr.

From To.ard Liberty, vol. ii, Fcstschrilt lor Ludwig von Miscs (Mcnlo Park, Calil.:
!nstitutc lor Humanc Studics, .,.), aac. Hcrc, in thc articlcs titlc and throughout,
thc word cgalitarian rcplaccs thc original cqualitarian.
.
! shall obviously bc dcaling in valuc judgmcnts. Vhilc it is impossiblc to classily valuc
judgmcnts scicntically as right or wrong, it is possiblc to invcstigatc rclations among
thcm, rcvcaling compatibilitics and clashcs and striving lor a consistcnt and cconomical
articulation. Showing pcoplc that ccrtain ol thcir lcss lundamcntal valuc judgmcnts clash
dcmonstratcs thc nccd lor a morc carclul ranking and articulation ol thcir valucs.
6a
Chapter :,: Can a Liberal Be an Egalitarian? 6
As lor cgalitarianism, instcad ol dcning it cxplicitly, ! want to dis
tinguish bctwccn lcvcling up and lcvcling down. Considcr a minority ol
pcoplc whosc wcalth or incomc or opportunitics arc distrcssingly inlcrior
to thosc ol most pcoplc. Rcdistribution to hclp thcm, pcrhaps through
thc govcrnmcnt budgct, is lcvcling up. Vith that ! havc no quarrcl in
principlc. Such rclicl ol actual povcrtyol dcnitcly submodal circum
stanccsis not mcddlcsomcncss. Rathcr, it is an cort to rcmcdy a situ
ation almost univcrsally rccognizcd as bad. (Tis is not to say that monks
and nuns and othcr ascctics should bc barrcd lrom choosing a lilc ol
povcrty.) !nvoluntary but cradicablc povcrty is a blcmish, making a socicty
lcss attractivc lor practically cvcryonc who comcs in contact with or cvcn
is kccnly awarc ol it. !ts climination would bc in thc rccognizcd intcrcst
ol almost cvcryonc.
Rcdistribution to le.el do.n unusually grcat wcalth or incomcs or un
usually lavorablc opportunitics is quitc a dicrcnt thing. Grcat wcalth is
thc oppositc ol somcthing that almost cvcryonc would considcr bad lor
himscll. !t, or thc opportunity to achicvc it, broadcns thc rangc ol altcrna
tivcs opcn to pcoplc, as wc can rccognizc without supposing that matcrial
abundancc must lormthc vcry corc ol thc good lilc. !dcally, a libcral would
likc cach pcrson to havc thc opportunity lor it il that is what hc wants. A
policy aimcd at lcvcling down thc cxccptionally wcalthy lcwwould dcprivc
somc pcoplc ol thcir good lortunca good lortunc that a libcral would
wclcomc lor cvcryoncbccausc othcr pcoplc arc lcss lortunatc. !l cvcry
onc cannot bc vcry lucky, no onc shall bc. Tis attitudc may bc a human
onc, but it is an unlovcly onc, unworthy ol bcing sancticd in public
policy.
8ut do any pcoplc who considcr thcmsclvcs traditional libcrals rcally
advocatc lcvcling down as distinguishcd lrom lcvcling up: ocs any lib
cral rcally lavor tax progrcssion ol such a dcgrcc that dircct bcncts to
poor pcoplc arc doubtlul or trivial: !t is truc that this idca scldom appcars
uncquivocally in print. 8ut it crops up oltcn in discussions. And it sccms
to undcrlic thc ubiquitous slogan that quality is an cnd in its own right.
Hcnry Simons, who ranks as onc ol thc saints ol thc Chicago School, has
cxprcsscd his prclcrcncc
lor rathcr stccp progrcssion. Tc tax systcm should bc uscd systcmati
cally to corrcct cxccssivc cconomic incquality and to prccludc inordinatc,
cnduring dicrcnccs among lamilics or cconomic strata in wcalth, powcr,
and opportunitics. (.c, p. .)
6 Part : Politics and Philosophy
According to Simons,
Sound mcliorativc mcasurcs must yicld not mcrc lcvcling ol incomcs but
lcvcling accrctions ol capacity, capital, and posscsscd powcr.
quality ol opportunity is an idcal that lrcc socictics should constantly
pursuc, cvcn at much cost in tcrms ol othcr cnds. (., p. 6)
According to Allan T. Pcacock,
Libcral support lor such mcasurcs as progrcssivc taxation docs not rcst
on thc utilitarian bclicl that an cxtra pound is morc valuablc or will
aord a grcatcr utility to a poor man than to a rich man. !t rcsts on a
positivc dislikc ol gross incquality. (Quotcd in Hayck .6c, p. .)
Frank H. Knight has rcpcatcdly likcncd social lilc to a gamc or con
tcst, has talkcd about thc distribution ol prizcs, has muscd on what ar
rangcmcnts tcnd to makc thc contcst intcrcsting to participants and spcc
tators, and has considcrcd thc imposition ol handicaps.
a
His thought is
so rich and complcx that a rcadcr cannot bc surc whcthcr Knight rcally
lavors somc dcgrcc ol lcvcling down lor thc sakc ol cquality as an cnd
in its own right. Qualications can also bc lound in Simonss writings.
8ut whatcvcr thc corrcct intcrprctations may bc, Knight and Simons havc
lurnishcd intcllcctual stimulation lor somc ol thcir morc lorthrightly cgal
itarian Chicago School disciplcs. !dcas ol thc kind undcr considcration
abound, ol coursc, in thc works ol writcrs who do not cvcn claim to bc
traditional libcrals.
! wondcr whcthcr libcrals who spcak ol cquality as an cnd in its own
right havc rcally cxamincd thcir valucs thoroughly. !hy is cquality an cnd:
Pcrhaps somc pcoplc honcstly havc no idca ol howto answcr this qucstion
bccausc thcy considcr cquality as an ultimatc dcsidcratumthat thcy cannot
dcscribc as a mcans ol scrving any morc basic valucs. 8ut this position
must bc rarc. Most cgalitarians prcsumably considcr cquality a mcans to
morc basic valucs with which thc conncction is obvious.
Vhat might thcsc still morc basic valucs bc:

nc might bc thc avoid

ancc ol conccntratcd powcr. 8ut grcat wcalth is not grcat powcr. 8cing
a
For cxamplc, in Knight .6, pp. 6c66, aaa, cac.

Tc oncs to bc considcrcd hcrc still arc not absolutcly basic. An absolutc valuc
would prcsumably bc somcthing comprchcnsivc and vaguc such as human happincss
or human sclllulllmcnt. Not only cconomics but also political scicncc, sociology, psy
chology, philosophy, and othcr disciplincs prcsumably havc much to contributc to invcs
tigation ol which intermediate cnds, or thc policics and social and political and cconomic
Chapter :,: Can a Liberal Be an Egalitarian? 6
wcalthy docs not cnablc a pcrson to cocrcc othcrs or to rcstrict thc oppor
tunitics opcn to thcm. His ability to ocr thcm nancially attractivc dcals
is not thc samc as powcr to dcprivc thcm ol altcrnativcs thcy would havc
had anyway. Tc situation would bc dicrcnt il onc pcrson or group, or a
vcry lcwol thcsc, accountcd lor a largc cnough lraction ol national incomc
or wcalth to posscss monopoly powcr in dcaling with othcr pcoplc. Tcn,
howcvcr, thc unsatislactory condition would bc prcciscly this monopoly
powcr and it would conlusc thc issuc to talk about incquality instcad.
Vhcn a country has scvcral thousand scparatc individuals or lamilics ol
grcat wcalth, it is almost a contradiction in tcrms to spcak ol concentration
ol wcalth or powcr in thcir hands. n thc contrary, thc cxistcncc ol scv
cral thousand pillars ol cconomic strcngth, many ol thcm ablc and somc
ol thcm willing to support causcs and pcrsons that may bc unpopular with
thc gcncral public and with thc govcrnmcnt, may bc ol grcat valuc in prc
scrving a lrcc socicty.
Anothcr motivc lor cgalitarianism might bc thc bclicl that a marginal
dollar adds lcss to thc utility ol a rich pcrson than ol somconc clsc and
that rcdistribution might accordingly incrcasc total social utility. 8csidcs
taking somc oldlashioncd strands ol cconomic thcory too scriously, this
argumcnt blinks thc cthical qucstion whcthcr an involuntary translcr can
bc justicd by thc mcrc lact or conjccturc that thc gaincrs gain morc than
thc loscrs losc. Amorc plausiblc vcrsion ol thc argumcnt is that thc surplus
ol thc rich can bc takcn lor such socially important purposcs as building
and running schools and hospitals. !n considcring this argumcnt, wc must
distinguish bctwccn two cascs, though thc analysis docs not hingc on any
cxact dividing linc bctwccn thcm. First, supposc that thosc who bcnct
lrom thc schools and hospitals

arc so poor that thcy could not pay lor

thcm without trcnching painlully on consumption ol still morc urgcnt
ncccssitics: thcy could not pay by ordinary privatc purchasc ol schooling
and hospitalization, through prcmiums on privatc or govcrnmcntal insur
ancc, by taxcs, or in any othcr way. Tc problcm is thcn onc ol thcir actual
povcrty, and rhctoric about schools and hospitals in particular bcclouds
thc issuc. Most libcrals would lavor mcasurcs to rclicvc actual povcrty,
but prcciscly bccausc it is in almost cvcryoncs intcrcst to livc in a socicty
arrangcmcnts adoptcd in thcir pursuit, do and which do not conducc to thc irrcducibly
basic cnd ol human happincss.

Tcsc bcncciarics arc ol coursc likcly to includc pcoplc bcyond thosc who actually
usc thc schools and hospitalsthc cxtcrnalitics involvcd arc lamiliarand ! am not ncc
cssarily implying that thc cntirc cost should bc chargcd to thc actual uscrs alonc.
66 Part : Politics and Philosophy
lrcc ol actual povcrty, it is not clcarat lcast, not without lurthcr argu
mcntwhy thc cost should bc conccntratcd on a rich minority. Sccondly,
supposc that thc bcncciarics ol thc schools and hospitals arc not cspc
cially poor and could aord to pay lor thcir scrviccs in onc ol thc ways
mcntioncd. Vhy, thcn, should a rich minority havc to pay a sharc ol
thc costs out ol proportion to thcir sharc ol thc bcncts: So lar as thc
bcncciarics ol thc schools and hospitals cscapc thc cost, thcy havc moncy
lclt ovcr to spcnd on othcr things. Rcdistributivc taxation may thus in
ccct makc thc rich hclp pay lor thc clothing, automobilcs, cntcrtain
mcnt, and liquor ol pcoplc who arc not poor. Pcrhaps this is dclcnsi
blc, but what, thcn, bccomcs ol thc spccial cmotional aura ol schools and
hospitals:
Pcrhaps cgalitarianism is an cxtcnsion ol thc libcral casc lor rclicl
ol actual povcrty. For, rcdistributionists might arguc, thc dividing linc
bctwccn povcrty and adcquatc incomc is vaguc. vcn pcrsons in thc modal
or typical incomc brackcts may sucr relati.e povcrty, thcy may bc uncom
lortablc about not bcing ablc to livc on thc samc matcrial planc as thc
wcalthy minority. !l rclicving thc discomlort ol actual povcrty is urgcnt,
thcn rclicving thc mcntal discomlort ol rclativc povcrty may bc somcwhat
advantagcous.

!n rcply, it may bc pointcd out that whilc a linc bctwccn

povcrty and matcrial comlort cannot bc drawn prcciscly, a gcncral basis
lor thc distinction cxists. !n thc Unitcd Statcs, thc pcrsons to bc consid
crcd actually poor arc a lairly small minority in matcrial circumstanccs
wcll bclow what is typical. Rcdistribution to bcnct this poor minority
is dicrcnt in principlc lrom lcvcling down a rich minority in thc sup
poscd intcrcst ol a modal majority. Principlc, not dcnitc tax schcdulcs, is
what is at issuc hcrc. A lurthcr aspcct ol thc issuc is whcthcr public policy
should rccognizc thc notion ol relati.e povcrty and should dignily what
cvcr uncasincss somc pcoplc may lccl about thc bcttcr lortunc ol othcrs by
basing tax lcgislation upon it. !t is not cnough to considcr what attitudcs
may in lact prcvail, causing mcntal pain or plcasurc, social philosophcrs
also havc thc job ol considcring what sorts ol attitudcs should or should
not bc cncouragcd bccausc thcy do or do not tcnd to promotc a good soci
cty, cohcrcntly conccivcd.

Admittcdly ! cannot citc a clcar statcmcnt ol this position. Tc grounds lor cgalitar
ianism or rcdistributionism arc so gcncrally rcgardcd as scllcvidcnt that a critic must try
to gurc out lor himscll just how thc rcdistributionist casc might look il spcllcd out in
dctail in thc strongcst vcrsion hc can conccivc. Tis is what ! am trying to do, rathcr than
concocting and rcluting imsy argumcnts as a dcbating tactic.
Chapter :,: Can a Liberal Be an Egalitarian? 6,
Pcrhaps thc rcdistributionist casc rcsts lcss on any ol thc lorcgoing
argumcnts than on inchoatc notions about what makcs lor a hcalthy tonc
ol socictynotions about avoiding social distinctions and lcclings ol inlc
riority and about promoting solidarity and brothcrhood. Slogans about
cquality as part ol thc dcmocratic idcal support this conjccturc. ! admit
tcdly would considcr it a good thingthough ! would bc hard prcsscd to
cxplain just .hyil thc distributions ol physical and mcntal talcnt and
cncrgy, pcrsonal ambition and inclination, inhcritcd propcrty, advanta
gcous lamily backgrounds, and so lorth mcshcd with thc dcrivcd dcmands
lor matcrial and human lactors ol production in such a way that thc pcr
sonal incomcs crcatcd on thc lrcc markct wcrc not conspicuously uncqual.
Spontancous cquality ol this sort could pcrhaps bc lurthcrcd by mcasurcs
to brcak down any contrivcd rcstrictions on cconomic opportunity.
Spontancous cquality would still contrast sharply with dclibcratcly lcv
cling down thc rich. clibcratc lcvcling would bc likcly to do thc rcvcrsc
ol ovcrcoming inccntivcs to cnvy, cmbarrassmcnts to social intcrcoursc,
and obstaclcs to brothcrhood and mutual rcspcct. Tc dcgrcc ol cnvy and
so lorth would probably not corrclatc at all closcly with thc sizc ol incqual
itics rcmaining undcr an avowcd program ol cqualization, somctimcs thc
smallcst distinctions arc thc most kccnly rcscntcd. Morc important, thc
idca ol dclibcratc lcvcling sccms dangcrously akin to idcas that all mcn
arc not cqual in thosc rcspccts which conccrn thc Statc, that mcn with
dicrcnt incomcs arc dicrcnt in intolcrablc ways, and that dicrcnccs in
pcoplcs matcrial wcalth and lilcstylcdicrcnccs going bcyond thc dis
comlorts ol actual povcrtyarc conditions to cmphasizc, to bc suspicious
ol, and to takc action about. To work against povcrty is admirablc, but to
bc conccrncd about othcr pcoplcs cxccptional good lortunc and to want
to intcrlcrc strikcs mc as hardly compatiblc with a cohcrcnt libcralism.
Pcoplc arc all too rcady, anyway, to pass judgmcnt on thcir lcllows. Tcy
arc all too rcady to display intolcrancc, bittcrncss, Puritanism, a busybody
spirit, and suspicion ol othcr pcoplc and thcir pcrsonalitics and lilcstylcs.
Many rcdistributionists, it is truc, arc movcd by humanitarian motivcs,
thcy do not want to promotc suspiciousncss or pandcr to rcscntmcnt. 8ut
good intcntions arc not cnough. Tc spirit ol livcandlctlivc, so cru
cial to a lrcc socicty, is lragilc. Any policy that dignics and rcinlorccs thc
lcss lovcly traits ol human naturc, howcvcr unintcntionally, dcscrvcs bad
marks on this scorc.
Tc lcvclcr philosophy may rcst in part on thc lccling that cxtrcmcly
high incomcs arc undcscrvcd. l coursc not all largc incomcs dcrivc lrom
6 Part : Politics and Philosophy
hard work, ingcnuity, or alcrtncss in mccting consumcr tastcs. Largc in
comcs obtaincd by lorcc, lraud, rcstraint on compctition, or dishoncst
advcrtising and salcsmanship arc indccd opcn to qucstion. Morc prcciscly,
it is thc illcgal or immoral activitics thcmsclvcs that dcscrvc attcntion, to
locus on thc shccr sizc ol thc rcsulting incomcs bcclouds thc issuc. Largc
incomcs duc to inhcritancc ol talcnt or cncrgy or bcauty or conncctions
or wcalth, or to shccr luck, posc a trickicr qucstion: why should somc not
particularly virtuous pcoplc cnjoy luxury whilc millions ol hardcrworking
and worthicr pcoplc must scrapc to makc cnds mcct: !n partial rcply, onc
may ask anothcr qucstion: !l thc proccsscs ol allocating thc scrviccs ol
pcrsons and propcrty into thc lincs ol most intcnsc consumcr dcmand
yicld vcry largc incomcs lor somc not cspccially dcscrving pcrsons and lor
thcir hcirs, who is actually hurt and cntitlcd to complain: !n an innovat
ing, cntcrprising socicty, total rcal incomc is not a xcd pic, largcr sliccs
lor somc do not ncccssarily mcan smallcr sliccs lor othcrs. Pcrhaps pco
plc with lowcr incomcs arc harmcd in thc scnsc that thcir taxcs would
bc lowcr il thc rich paid still highcr taxcs. 8ut this harm is dicrcnt
lrom harm positivcly inictcd by thc rich. As lor rich pcrsons innoccnt
ol illcgal or immoral activitics, thc dcmand that thcy justily or lorgo thcir
cxccptional incomcs raiscs lundamcntal qucstions about what prcrogativcs
ol organizcd socicty arc compatiblc with libcralism. Likc busybodincss, it
is pcrhaps a human trait to bcgrudgc oncs lcllows whatcvcr cxccptional
good luck may comc thcir way! say pcrhaps bccausc thc gcncral pub
lic docs not sccm to bcar grudgcs against lottcry winncrs and against thc
cxccptionally glamorous richbut grudgcs about good luck arc unworthy
ol bcing dignicd as thc basis ol public policy.
Notc that ! am not acccptinginstcad, ! cxplicitly rcjcctthc mar
ginal productivity cthics ol John 8atcs Clark and his lollowcrs, a doctrinc
rightly disscctcd by Frank Knight and othcr libcral cconomists. Tc mcrc
lact that a mans own work or thc scrviccs ol his propcrty happcn to havc
an cxccptionally high markct valuc docs not mcan that hc is cspccially
dcscrving, in any cthical scnsc, ol an cxccptionally largc incomc. Markct
valuc is not a mcasurc ol cthical mcrit, and pcoplc in gcncral would bc
happicr il this lact wcrc cxplicitly rccognizcd.
6
My conccrn is with what
sort ol a politicocconomic systcm would rcplacc capitalism il productiv
ity and markctvaluc considcrations wcrc sct asidc as a basis ol incomc
distribution. Morc spccically, in this papcr, ! am conccrncd about thc
6
n this point, scc Hayck .6c, chap. 6.
Chapter :,: Can a Liberal Be an Egalitarian? 6
implicit rcdistributionist conccption ol thc Statc as an agcncy that, whilc
not allotting individuals thcir latcs outright, at lcast takcs a dccisivc hand
in rcadjusting that allotmcnt. ! am rathcr horricd at thc idca ol thc Statc
as a dispcnscr ol justicc in thc concrctc, matcrial scnsc, and as a God
that passcs judgmcnt on what pcoplc dcscrvc and stcps in not mcrcly to
allay thc unlortunatc conscqucnccs ol bad luck but also to strip pcoplc ol
thc lruits ol what it considcrs too much good luck.
8clorc rcturning to thc qucstion ol cquality ol opportunity, ! shilt
now lrom cxamining possiblc strands in a rationalc ol lcvcling down to
cxprcssing somc actual doubts. A muchdiscusscd problcm in political
cthics ariscs whcn pcoplc who cxpcct matcrial or psychological gain lrom
rcdistributionary taxation act as judgcs in thcir own causc. 8y imposing
highcr tax ratcs than thcy thcmsclvcs arc willing to pay, thc majority ol
votcrs ask a rich minority to work morc days out ol thc ycar lor thc govcrn
mcnt than thcy thcmsclvcs arc willing to do. As Hayck (.6c, p. .) has
said, Tat a majority, mcrcly bccausc it is a majority, should bc cntitlcd to
apply to a minority a rulc which docs not apply to itscll is an inlringcmcnt
ol a principlc much morc lundamcntal than dcmocracy itscll, a principlc
on which thc justication ol dcmocracy rcsts.
,
Tis discrimination argumcnt inluriatcs rcdistributionists, who sus
pcct that its uscrs hcart is blccding lor pcoplc who will havc morc incomc
and wcalth pcr hcad, cvcn altcr taxcs, than thcir allcgcd dcspoilcrs. Tc
critic has a hard timc proving that his rcal worry is ovcr thc attitudc that
might makcs rightthc shccr might ol numcrous votcs.
Tc discrimination argumcnt would losc much ol its lorcc il lcvcling
down wcrc cnactcd not mcrcly by an ovcrall majority but also by a major
ity ol cvcn thosc pcrsons who would havc to pay thc cxccptionally high
tax ratcs. 8ut thcn why not rcly on voluntary rcdistribution: nc rcason,
apparcntly, is thc publicgood charactcr ol rcdistribution: thc typical rich
pcrson might bc willing to rcdistributc only il all othcr rich pcrsons did thc
samc, only compulsion could achicvc thc gcncral rcdistribution assumcd
,
! am awarc that a casc ol sorts can bc madc out lor rcdistributivc taxation as a
kind ol mutual insurancc arrangcmcnt: not knowing how rich or poor thcy will bc in
thc luturc, individual votcrs may agrcc to a schcmc that will rcdistributc incomc away
lrom thcm il thcy turn out to bc rich but in thcir lavor il thcy turn out to bc poor.
nc troublc with this argumcnt is that votcrs do in lact havc a prctty good idca ol thcir
currcnt and luturc positions in thc national incomc distribution. Furthcrmorc, thc argu
mcnt hardly applics to thc philosophy ol lcvcling down lor its own sakc, lcvcling car
ricd to thc point whcrc additional tax rcvcnuc lor rcdistribution to thc poor is rclativcly
insignicant.
,c Part : Politics and Philosophy
to bc dcsircd by thc rich thcmsclvcs. 8ut il this cocrccd action would bc
noblc and praiscworthy, would it not bc still morc so lor cach rich pcrson
to rcdistributc indcpcndcntly: A gcncrous act is tarnishcd by bcing madc
compulsory and by satislaction in sccing othcr pcrsons cocrccd along with
oncscll. Tosc who lailcd to rcspond to a campaign lor voluntary rcdis
tribution! am sctting asidc, lor thc sakc ol argumcnt, doubts about thc
dcsirability ol cvcn such a campaigncould bc lclt unmolcstcd as monu
mcnts to thc tolcration ol ccccntricity so csscntial in a lrcc socicty. Apart
lrom thc mattcr ol voluntary action vcrsus cocrcion, much can bc said lor
distribution lrom numcrous individual sourccs and in lavor ol a grcat vari
cty ol indcpcndcnt purposcs rathcr than through thc monolithic agcncy
ol thc Statc.
Tc doctrinc ol cocrcivc rcdistribution has a subtlc anity with matc
rialism. Vhy should it disturb us that somc pcoplc arc vcry wcalthy: !l
wc arc unwilling to tolcratc grcat supcrioritics in incomc and wcalth, how
do wc lccl about supcrioritics in talcnt, physical and mcntal strcngth and
hcalth, inucncc through lamily conncctions and pcrsonal lricndships,
ability and timc to apprcciatc convcrsation and art and music and sports,
amount ol lormal cducation, cxpcricncc gaincd through travcl, and so
lorth: Pcoplcs circumstanccs can bc dicrcnt in innumcrablc ways. Vhy
do rcdistributionists singlc out matcrial incquality unlcss thcy think that
moncy isand should bcthc primc mcasurc ol a mans capacity to cnjoy
lilc and ol his worth to himscll and othcr pcoplc, his social status, and
his pcrsonal dignity: Tc rcason cannot bc that matcrial incquality is thc
only kind susccptiblc ol bcing lcvclcd down. Vc could partially lcvcl out
advantagcs ol carly training by rcquiring all childrcn to attcnd dcmocrati
cally standardizcd public schools. (vcn somc scllstylcd libcrals arc pcr
vcrsc cnough to rccommcnd compulsory military training lor similar rca
sons.) Vc could lcvcl down physical attractivcncss by rcquiring cvcrybody
to wcar masks and shapclcss unilorms, or wc could put cspccially hcavy
taxcs on bcauty as wcll as on brains.
Aurlc Kolnai has pcrccptivcly said:
thc truc Christian is inclincd to lccl a ccrtain disdain lor thc wcalthy
inasmuch as hc disdains wcalth, morc or lcss lactitious goods ol which
thc rich man is a slavc, whilc thc bclicvcr in thc social gospcl will call
lor thc climination ol thc wcalthy lor thc gain ol all bccausc wcalth sccms
to him to bc thc solc good that counts. (.6, p. ,)
!n thc old libcral dcmocratic conccption, a poor man sccmcd invcstcd
with human dignity, had a claim to honour and was cntitlcd to lrccdom
Chapter :,: Can a Liberal Be an Egalitarian? ,.
no lcss than a prospcrous onc, thc rclurbishcd idcology dcnics him thc
capacity lor lrccdom unlcss or until hc is also madc wcalthy.

(., p. a)
!n doubting whcthcr thc pursuit ol matcrial cquality will achicvc any
ol thc morc dcccnt motivcs ol its proponcnts, ! can quotc Frank Knight
on my sidc:
thc signicancc ol consumption itscll is largcly symbolic, thc incquality
which rcally hurts is thc uncqual distribution ol dignity, prcstigc, and
powcr. Ncithcr abstract rcasoning nor thc cvidcncc ol cxpcricncc aords
ground lor bclicl that, givcn thc moral drivc toward such valucs as thc
dominant motivc in socicty, dcmocratic political proccss could lail to
distributc thcmcvcn morc uncqually still than docs compctitivc busincss.
(.6, pp. cc)
Furthcrmorc, pursuit ol an unattainablc matcrial cquality will lostcr
attitudcs and political bchavior incompatiblc with a quasicquality ol a
morc human and morc ncarly attainablc typc. !dcally, pcoplc should not
havc to bc rankcd abovc or bclow cach othcr according to thc clds in
which thcir accomplishmcnts lic. ach pcrson should havc a chancc to
cxccl in something, with thc dicrcnt typcs ol cxccllcncc rcgardcd as incom
mcnsurablc. Advcnturc, scholarship, conviviality, scllcacing scrvicc to
mankindall should bc as rcspcctablc as thc amassing ol lortuncs. Pco
plc ol modcst talcnts or ambitions who do routinc work and contcnt
thcmsclvcs with incxpcnsivc plcasurcs should bc rcgardcd as contribut
ing to a dcsirablc divcrsity in pcrsonalitics, modcs ol thinking, and stylcs
and goals ol lilc. A tcachcr could continuc associating without cmbar
rassmcnt with congcnial lormcr collcagucs or studcnts who had bccomc
busincss tycoons not bccausc progrcssivc taxation had loppcd o thcir
largcr monctary incomcs but bccausc scholarly valucs and monctary val
ucs wcrc rcgardcd as incommcnsuratc but ol cqual dignity. As Hcrbcrt
V. Schncidcr has notcd, thc cquality ol thc cgalitarians implics mcasurc
mcnt, hc cmphasizcs, instcad, what hc calls thc incommcnsurability ol
human bcings (.6, p. ,, cl. pp. .cc, ..).
All mcn arc crcatcd cqual and statcmcnts likc that arc obviously not
mcant litcrally. Tcy usc poctic languagc lcgitimatc in thcir contcxts. Tcy
arc mcant as normativc prcscriptions lor social actions and attitudcs. Tcy
cxprcss disapproval ol trying to classily individuals as morc or lcss worthy,
morc or lcss cntitlcd to pursuc happincss in thcir own ways, and morc or

My quoting thcsc passagcs is not mcant as an cndorscmcnt ol thc attitudc ol thc

truc Christian.
,a Part : Politics and Philosophy
lcss cntitlcd to havc thcir vicws or intcrcsts considcrcd in thc lorming ol
public policy.
Vc should not cxalt matcrialism, but ncithcr should wc dcspisc it.
Just as a hcalthy socicty nccds statcsmcn, humanitarians, csthctcs, and
cgghcads, so it also nccds moncymindcd Philistincs. !t takcs all kinds
ol (dcccnt) pcoplc to makc a world. ach pcrsons lrccdom to choosc thc
nichc in lilc that bcst accords with his own talcnts and inclinations gains
lrom thc willingncss ol othcr pcoplc to ll othcr nichcs.
rosion ol monctary inccntivcs unlcashcs prcssurcs toward conlor
mity. nc ol thc individuals bcst protcctions against thc arbitrary whims
ol thc busincss rm cmploying him is thc lact that his cmploycr and othcr
cmploycrs arc sccking prot in a compctitivc markct. Policy that wcakcns
thc prot motivc or thc compctitivcncss ol markcts is likcly to rcducc thc
cost to cmploycrs ol tyrannizing ovcr cmployccs. (Tis lact, in thc aca
dcmic world, lcads tcachcrs to dcmand othcr lorms ol protcction.) Fur
thcrmorc, to thc cxtcnt that thc tax structurc lcads companics to compcn
satc thcir cxccutivcs in kind rathcr than in lrccly spcndablc moncystock
options, club mcmbcrships, plcasurc travcl in thc guisc ol busincss travcl,
usc ol company cars, plancs, apartmcnts, vacation lodgcs, and cxpcnsc
accountsto this cxtcnt busincss and privatc livcs bccomc intcrminglcd.
Vc scc thc risc ol thc rganization Man. From thc libcral point ol vicw,
this statc ol aairs sccms qucstionablc not only or not cvcn cspccially
lor thc rganization Mcn thcmsclvcs but also lor mcmbcrs ol socicty in
gcncral.
! ocr as a mcrc conjccturc onc morc doubt about cgalitarianism. spc
cially il it is dignicd by scrving as a basis lor public policy, thc philosophy
that cncouragcs pcoplc to brood about whcthcr wcalthicr pcoplc dcscrvc
thcir matcrial abundancc, and whcthcr thcy thcmsclvcs arc not cntitlcd
to a largcr sharc, may wcll havc somcthing to do with crimc. vcn rcla
tivcly poor pcoplc arc likcly to sucr in thc long run lrom thc larrcaching
conscqucnccs ol a philosophy that undcrmincs rcspcct lor pcrsonal salcty
and propcrty rights.
Tc postponcd topic ol cquality ol opportunity scrvcs as a transition
to thc concluding scctions ol this papcr. !dcally, cvcryonc should havc
a dcccnt start in lilc, lrcc lrom thc cumulativc disadvantagcs ol initial
povcrty. 8ut should thc Statc go so lar as to try to dcprivc lortunatc
young pcoplc ol whatcvcr advantagcs thcy might cnjoy lrom bodily or
mcntal or nancial inhcritancc or lrom lamily background and contacts:
Much could bc donc, altcr all, towards osctting cvcn thc nonnancial
Chapter :,: Can a Liberal Be an Egalitarian? ,
aspccts ol cxccptionally lavorablc opportunity. Any rcally closc approach
to cquality ol opportunity is, howcvcr, impossiblc. Libcrals should shun
a slogancquality ol opportunitywhosc implcmcntation is impos
siblc, cspccially sincc cvcn an attcmpt to implcmcnt it approximatcly
would cntail totalitarianism. Furthcrmorc, it is hard to scc cquality ol
opportunity as a dcsidcratum distinct lrom cquality ol incomc or sta
tus, sincc uncqual attainmcnts in incomc or status must bc duc cithcr
to uncqual luck or to uncqual cndowmcnts ol thc abilitics and inclina
tions conducivc to achicving incomc or status. From an cgalitarian stand
point, incquality ol rcsults would show that uncqual luck had not bccn
propcrly compcnsatcd lor or that opportunitics had not bccn propcrly
cqualizcd.
From thc libcral standpoint, thc wholc discussion would bc simplicd
by calling lor adequacy rathcr than cquality ol opportunity. Rcmoval ol
actual povcrty and ol castc and racc rcstrictions that arbitrarily hampcr
pcoplc in thc pursuit ol thcir own goals is quitc dicrcnt lrom chopping
down advantagcs.
Vhy, incidcntally, might anyonc want to chop down advantagcs rathcr
than mcrcly rcmovc disadvantagcs: ! wondcr whcthcr onc ol thc objcctivcs
ol cgalitarians who considcr thcmsclvcs libcrals might not bc to makc thc
outcomc ol thc markct proccss a morc ncarly plausiblc indicator ol pcr
sonal worth. Tcir likcning ol lilc to a gamc or racc and thcir talk ol
imposing handicaps to makc thc gamc intcrcsting ccrtainly suggcsts so
(rccall Frank Knight, quotcd abovc). vcryonc is to havc thc samc purposc
in lilc, ovcrriding thc divcrsc purposcs that individuals might othcrwisc
havc, and this common purposc is to succccd in thc gamc. vcryonc is to
cngagc in it, il ncccssary bc draltcd into it. Tc scorc will bc kcpt, cspc
cially in moncy and status. No onc will havc an cxcusc lor not taking this
rivalry scriously, lor propcr handicaps will havc bccn imposcd. 8y pcrsuad
ing thcmsclvcs that thc gamc has bccn madc lair, thc scllstylcd libcral
cgalitarians will havc morc ol a supposcd basis than cvcr lor indulging a
propcnsity to pass judgmcnt on thcir lcllows, smugly dispcnsing praisc
and scorn.
Tis vicw ol socicty as an organizcd activity, with thc govcrnmcnt as
a busybody gamcmastcr or social dircctor imposing handicaps and oth
crwisc trying to drum up intcrcsting rivalry, strikcs mc as proloundly
antilibcral. !t is putting things backwards to rcgard thc gamcor thc
markct ol thc tcxtbooksas a suprcmc valuc in its own right, with thc
divcrsc valucs ol individuals taking sccond placc.
, Part : Politics and Philosophy
Hcrc ! havc admittcdly driltcd into considcring thc possiblc moti.es
ol thc cgalitarians. Qucstioning motivcs is oltcn bad lorm. !t is rank anti
intcllcctualism, in particular, to dismiss purportcdly lactual or logical prop
ositions by a mcrc snccr at thc allcgcd motivcs ol thcir propoundcrs. 8ut
whcn policy goals and conccptions ol thc good socicty arc at issuc, motivcs
arc at thc corc ol thc discussion. !l wc ask why somconc advocatcs ccr
tain policics, thc rcason is that wc arc trying to undcrstand his conccption
ol thc good socicty. Tc tastcs graticd by lcvcling policicsthc tastc
lor making a goal out ol thc social and cconomic gamc itscll, thc tastc
lor smugly passing judgmcnt on othcr pcrsons, thc tastc lor shccr mcd
dlingclash with thc spirit ol libcralism.
Am ! dcnying that libcralism accords cqual cstccm to all tastcs ol
individuals, rcgardlcss ol what thcy arc: Should libcralism discriminatc
bctwccn worthy and unworthy tastcs, oncs that ought and othcrs that
ought not to count in a libcral social ordcr: Ycs. As a conccption ol thc
good socicty, libcralism cannot, with consistcncy, givc its blcssing to all
kinds ol tastc, indicrcnt to thc kind ol socicty that cmcrgcs in rcsponsc. !l
social philosophy has any rolc at all, it is to invcstigatc and promotc conscn
sus about what social institutions and policics and attitudcs arc conducivc
to human happincss. !ts job is to paint a cohcrcnt picturc ol thc good
socicty. !t cannot just ocr a tickct instcad ol a picturc, a tickct rcading
that thc good socicty looks likc whatcvcr a substantially unanimous opin
ion thinks it looks likc. Tcrc may bc no substantially unanimous opin
ion. Prcvalcnt opinion may bc uncnlightcncd. Social philosophy shirks its
job whcn it ocrs no positivc guidancc. Quitc propcrly, dc Tocqucvillc
and John Stuart Mill invcighcd in thc namc ol libcralism not only against
govcrnmcntal tyranny but also against thc conlormist prcssurcs ol public
opinion.
Supposc onc man wcrc to buy thc lawning submissivcncss ol anothcr,
or cvcn thc othcrs submission to torturc, to gratily thc sadism ol thc rst.
Can libcralism blcss such transactions in thc namc ol thc lrcc markct: l
coursc not. \oluntary though thcy may bc, thcy gratily and cncouragc atti
tudcs subvcrsivc ol an cnduring libcral social ordcr. Practical rcasons, to
bc surc, tcll against making thcm illcgal. n thc othcr hand, public pol
icy should not providc cxamplcs that sanctily tyrannical and mcddlcsomc
privatc tastcs. Policymakcrs should rccognizc that Statc actions today may
wcll inucncc what privatc attitudcs prcvail tomorrow.
ocs libcralism sanctily illibcral practiccs lrccly agrccd upon: ocs
tolcrancc includc tolcration ol intolcrancc: ocs dcmocracy imply thc
Chapter :,: Can a Liberal Be an Egalitarian? ,
right ol thc pcoplc to votc dcmocracy out and dictatorship in: Such qucs
tions arc rcminisccnt ol ccrtain logical paradoxcs discusscd by 8crtrand
Russcll and untanglcd by his distinction bctwccn lcvcls ol discoursc. Vc
havc to bc clcar whcthcr wc arc talking in or about languagc, within
or about dcmocracy, within or about libcralism. An action or policy
that cmbodics or sanctics mcddlcsomcncss cannot propcrly bc callcd lib
cral mcrcly by postulating that it is lrccly agrccd to, pcrhaps in somc mar
kct transaction or by somc dcmocratic proccdurc. Libcralism is dcncd,
instcad, by thc naturc and motivation and probablc conscqucnccs ol poli
cics and institutions. For thc word to havc any contcnt, wc must rccognizc
thc possibility that pcoplc may lrccly choosc thc ncgation ol libcralism. To
dcnc libcral policics in tcrms ol ncgotiating proccdurcs or ol dcgrcc ol
agrccmcnt is to cmpty thc word ol mcaning. Tc choiccs that cmcrgc lrom
political or markct proccsscs may quitc conccivably not bc cohcrcnt, thcy
may not t in with a cohcrcnt picturc ol thc good socicty. nc rcason
among many is that thc choiccs may not bc sucicntly cnlightcncd.

A
dccisionmaking proccss is no substitutc lor a social philosophy. !l total
itarianism wcrc adoptcd by unanimous conscnt, would this dccision bc a
libcral onc: l coursc not, lor libcralism valucs arrangcmcnts that cnablc
individuals to pursuc thcir own divcrsc cnds with a minimum ol intcrlcr
cncc with cach othcr.
!n conclusion, ! rccognizc that somc wouldbc lcvclcrs ol incomc,
wcalth, and opportunity arc honorablc mcn. Tcy do not bclicvc that
numcrical might makcs right, thcy do not want to aggrandizc thc powcr
ol thc Statc, thcy do not pandcr to cnvy, thcy do not makc moncy thc mca
surc ol all things, thcy do not savor thc prospcct ol lccling supcrior to thc
loscrs in a suitably handicappcd contcst. 8ut in appraising a linc ol policy,
it is not cnough to satisly oncscll about thc motivcs ol thc morc honor
ablc among its proponcnts, onc must also considcr what typc ol socicty it
tcnds to promotc. nc must considcr that a policy may cxcrt somc ol its
cccts ovcr a long pcriod ol timc through its inucncc on what attitudcs
prcvail. !l ! am a good judgc ol my own motivcs, ! opposc scal lcvcling
bccausc ! want thc kind ol socicty that rcspccts but puts no spccial cmpha
sis on matcrial valucs, onc that allows nichcs lor pcoplc with divcrsc drivcs
and goals in lilc, onc charactcrizcd by tolcrant attitudcs, and onc whosc

Tis is onc among many rcasons lor rcjccting thc currcntly lashionablc conccpt ol
Parcto optimality as a touchstonc lor cconomic policy. Tcrc is no substitutc lor consid
cring how thc probablc conscqucnccs ol cach contcmplatcd policy will mcsh or will clash
with oncs conccption ol a good socicty.
,6 Part : Politics and Philosophy
institutions lacilitatc voluntary coopcration whilc minimizing thc scopc
lor clashcs among thc lrccdoms ol its mcmbcrs.
vvvvvvxcvs
Hayck, F.A. Te Constitution of Liberty. Chicago: Univcrsity ol Chicago Prcss,
.6c.
Knight, Frank H. Te Ethics of Competition. a cd. Ncw York: Harpcr, .6.
Kolnai, Aurlc. Lc cultc dc lhommc commun ct la gloirc dcs humblcs. La.al
Teologique et Philosophique a, no. . (.6).
. Privilcgc and Libcrty. La.al Teologique et Philosophique , no. . (.).
Schncidcr, Hcrbcrt V. Tree Dimensions of Public Morality. 8loomington: !ndi
ana Univcrsity Prcss, .6.
Simons, Hcnry. Economic Policy for a Free Society. Chicago: Univcrsity ol Chicago
Prcss, ..
. Federal Tax Feform. Chicago: Univcrsity ol Chicago Prcss, .c.
cn~v:vv :8
Rights, Contract, and Utility in
Policy spousal

viv~i cvi:vvi~
Tis papcr dclcnds onc vcrsion ol utilitarianism against supposcd altcrna
tivcs to it as a policy critcrion. First it rcvicws thc natural rights doctrinc,
contractarianism, and criticisms ol cach. Scvcral scctions statc and dclcnd
a broad vcrsion ol utilitarianism. xamplcs lollowol writings about rights
and contract that tacitly acccpt utilitarianism. A summary concludcs thc
papcr.
x~:uv~i vicn:s
Clcarcut cxamplcs ol thc antiutilitarian rights doctrinc arc rarc. nc rca
son, apparcntly, is that doctrincs ostcnsibly ol that kind arc in lact tacitly
utilitariana point dcvclopcd latcr. Murray Rothbard (.,, pp. aa)
obscrvcs that most libcrtarians havc adoptcd natural rights and rcjcctcd
both cmotivism and utilitarianism as thc loundation lor thcir nonaggrcs
sion principlc. Tcir basic axiom is thc right to scllowncrship, abso
lutc propcrty in oncs own body. Accordingly, cvcryonc has thc right to
pcrlorm actions ncccssary lor surviving and ourishing without cocrcivc
molcstation. Rothbard thcn dcvclops a thcory ol propcrty in nonhuman
objccts by appcaling to John Lockcs conccpt ol a pcrsons rightlul own
crship ol prcviously unuscd natural rcsourccs that hc rst translorms by
his labor (.,, pp. a6.). Tcsc two axioms, thc right ol scllowncrship
and right to homcstcad, cstablish thc complctc sct ol principlcs ol thc
libcrtarian systcm (p. c).

From Cato Journal (Spring/Summcr .): aa. Somc scctions ovcrlap othcr
chaptcrs ol this book and havc bccn dclctcd or shortcncd hcrc.
,,
, Part : Politics and Philosophy
Rights thcorists rcjcct thc approach that would takc a stand on cach
spccic policy issuc, such as dcrcgulation ol a particular industry or imposi
tion ol wagc and pricc controls or govcrnmcnt crcdit allocation, according
to thc apparcnt mcrits ol thc individual casc, thcy rcjcct narrowly locuscd
costbcnct calculations. !nstcad ol bcing lramcd by cascbycasc cxpcdi
cncy, policy should conlorm to pcrsons rights.
And thosc rights should not bc dclcndcd on a utilitarian basis, lor
doing so supposcdly opcns thc door to all sorts ol pragmatic dcmands
lor govcrnmcnt intcrvcntion. Tc utilitarian, Rothbard complains (.,,
p. a), will rarcly adopt a principlc as an absolutc and consistcnt yardstick.
!nstcad, hc rcgards it as a vaguc guidclinc or aspiration or tcndcncy that
may wcll bc ovcrriddcn. Milton Fricdman, lor cxamplc, although dcvotcd
to thc lrcc markct as a gcncral tcndcncy, in practicc allows many dam
aging cxccptions to lrccdom against statc intcrvcntion (Rothbard .,,
p. a). Utilitarianismor rathcr, in my vicw, its cxaggcratcd pragmatist
vcrsioncontrasts sharply with a purc doctrinc ol rights. Rights thcorists
dcrivc positions cvcn on quitc spccic policy issucs lrom a vcry lcw propo
sitions takcn as axiomatic.
Unlortunatcly, thc door is opcn to intcrvcntionist dcmands anyway.
Libcrtarians cannot kccp it closcd by issuing mcthodological pronouncc
mcnts or by rcporting thcir intuitions about cndangcrcd rights. A purc
rights position, untaintcd by utilitarian aspccts, might scrvc lor warding
o illcgitimatc or undcsirablc intcrvcntions il it cnjoycd gcncral acccp
tancc. Although it might bc convcnicnt il a particular doctrinc wcrc truc
and gcncrally acccptcd, that convcnicncc alonc is no cvidcncc, unlortu
natcly, that thc doctrinc is in lact truc. To makc thc bcst ol rcality, which
oltcn is inconvcnicnt, wc must lacc it as it is.
!n rcality, no doctrinc will automatically protcct us lrom bad intcr
vcntions. Abusc ol utilitarian argumcnts cannot bc prcvcntcd by rcjcct
ing utilitarianism tout court. !nstcad, onc must cntcr into discussion with
oncs pragmatist opponcnts, dcmonstrating how acting on an cxccssivcly
narrow utilitarianism violatcs rights as intclligibly conccivcd and convinc
ingly dclcndcd and so impcdcs thc pursuit ol happincss.
vicn:s ~xb v~iuv ,ubc:vx:s
Vhat ! am rcjccting is a pure rights doctrinc scornlul ol any utilitarian
undcrpinning. ! acccpt a prorights doctrinc, providcd that propositions
about rights arc rccognizcd not as positivc propositions ol lact and logic
Chapter :8: Fights, Contract, and Utility in Policy Espousal ,
but rathcr as normativc propositions. Adcnitc list ol rights is unncccssary
hcrc. Succ to say that rights arc pcrsons cntitlcmcnts to lrccdom lrom
cocrcivc intcrlcrcncc by thcir lcllows and by govcrnmcnt, thcy conccrn
lilc, libcrty, propcrty, and thc pursuit ol happincss. (Vhcn cmbodicd in
constitutions or statutcs, ol coursc, normativc propositions likc that takc
on an additional, lcgal, status.)
To idcntily asscrtions ol rights as valuc judgmcnts is cmphatically not
to disparagc thcm as mcrc cxprcssions ol cmotion or whim. !t is instcad
thc claim ol imprcscriptiblc ontological status lor thcm that disparagcs
thcm by cxposing thcm to casy ridiculc, as in Jcrcmy 8cnthams rcmark
(./.,, p. a6) about nonscnsc upon stilts. Although thcy arc nor
mativc, asscrtions ol rights can bc supportcd by appcal to lacts ol human
naturc and othcr aspccts ol rcality and to thc ndings ol psychology, cco
nomics, and othcr disciplincs.
As thc philosophcr Paul dwards (.6) and thc cconomists Sid
ncy Alcxandcr (.6,, csp. pp. .c.c,, ....) and A.K. Scn (.,c,
csp. pp. 6a6) havc argucd cxplicitly and as many othcr writcrs havc
rccognizcd, lact and logic can bc brought to bcar in trying to clcar
up disagrccmcnt ovcr all but lundamcntal valuc judgmcnts. (Support
ing considcrations appcar in Adlcr .,c.) !t can bc a constructivc cntcr
prisc to try to clcar up disagrccmcnt ovcr spccic or nonlundamcntal
valucs. (xamplcs arc thc judgmcnts that Joncs should bc scnt to jail,
that lying, chcating, and stcaling arc wrong, that privatc propcrty is a
dcsirablc institution, and that spccicd rights should bc rccognizcd and
rcspcctcd.) !t is antiintcllcctual simply to chalk disagrccmcnt up to irrc
solvablc cmotional dicrcnccs. Vc can givc and discuss reasons lor valuc
judgmcnts.
Rcasons lor and against spccic valuc judgmcnts might includc pos
itivc analysis showing why acccpting somc tcnds to promotc and acccpt
ing othcrs to subvcrt a socicty ol a kind conducivc to its mcmbcrs suc
ccsslul pursuits ol happincss. An important objcctivc clcmcnt, utilitar
ian in a broad scnsc, thus cntcrs into thc vindication ol human rights.
nly whcn wc nally havc nothing lclt to appcal to bcyond somc such
lundamcntal valuc judgmcnt as onc lavoring happincss and abhorring
miscry havc wc cxhaustcd thc rclcvancc ol lacts and logic, invcstiga
tion and discussion. 8ut bona dc disagrccmcnts in thc rcal world scl
dom il cvcr ccntcr on lundamcntal valucs, opcnly avowcd. For prac
tical purposcs ol policymaking, thcn, thc lactvaluc distinction ladcs
away.
c Part : Politics and Philosophy
~ns:v~c: vv~soxixc ix v~vov ov vicn:s
Tc most immaculatcly antiutilitarian vcrsion ol thc rights doctrinc boils
down all too soon to simply promulgating rights and cvcn to anathcmatiz
ing disagrccmcnt as a sign ol moral dccicncy. Somc antiutilitarian pro
poncnts ol rights (Rothbard .,, Rothbard .a, Gcwirth .,, Mack
.,, Paul .,) do ocr argumcnts, altcr all, but argumcnts ol pcculiarly
abstract kindsappcaling (as alrcady notcd) to scllowncrship and Lock
can homcstcading or, altcrnativcly, to what onc must say about rights to
avoid logical crror.
Considcr, lor cxamplc, what Alan Gcwirth docs with his Principlc ol
Gcncric Consistcncy, which, unlikc utilitarian and matcrial dcontologi
cal thcorics, . . . contains within itscll thc ground ol its ncccssity, it is scll
justilying (.,, quotation lrom p. ac). Ccrtain rights must bc rcspcctcd
il cach pcrson, a purposivc bcing, is to strivc ccctivcly lor his purposcs.
Hc cannot consistcntly claim thcsc rights lor himscll whilc dcnying thcm
to pcrsons acctcd by his actions whcn thc vcry rcasons hc givcs lor claim
ing thc rights lor himscll also apply to thosc othcr pcrsons. Hc would bc
uttcring logically contradictory propositions. !n ccct hc would bc saying:
All pcrsons lor whom suchandsuch rcasons hold, including mc, havc
suchand such rights, yct hc would dcny, whcn cxpcdicnt lor himscll, that
othcr pcrsons havc thosc rights cvcn though thc statcd rcasons do hold lor
thcm also.
! qucstion thc supposcd logical contradiction. An cgoist might considcr
it cxpcdicnt to claim ccrtain rights lor himscll and dcny thcm to othcrs
whcn hc can gct away with it. He is not ncccssarily acccpting ccrtain statc
mcnts about rights as objcctivcly truc, he is not committing logical crror.
!nstcad, hc considcrs it cxpcdicnt to cncouragc othcr pcrsons to hold ccr
tain bclicls about rights, bclicls in which thosc othcrs might pcrccivc con
tradictions il thcy wcrc astutc cnough. !l hc can thcrcby lurthcr his own
purposcs, why should hc carc about thc contradictions in othcr pcrsons
bclicls: (!n taking up what hc calls thc Machiavcllian casc, pp. .6.,
Gcwirth docs try, but inccctually, to rcbut a countcrargumcnt similar to
but not thc samc as minc.) Vc might considcr thc pcrson a scoundrcl, but
that is not thc samc as his bcing a poor logician.
ric Mack (.,) trics to dcrivc thc cxistcncc ol rights lrom thc propo
sition that cocrcion is dcontically wrongwrong bccausc ol its vcry char
actcr and not just bccausc ol its conscqucnccs. 8ccausc cach pcrson is an
cnd in himscll, it is dcontically wrong lor othcrs to causc his actions to
Chapter :8: Fights, Contract, and Utility in Policy Espousal .
bc out ol accord with his own purposcs, which is what cocrcion docs. Tc
dcontic wrongncss ol cocrcion condcmns any dcstruction ol lrccdom by
it. Contractual rights and propcrty rights can also bc vindicatcd by rccog
nition ol thcir violation as csscntially cocrcivc. Mack rccognizcs that util
itarian rcasons lor rcspccting rights could bc graltcd onto his argumcnt
but maintains that his argumcnt docs not dcpcnd on thcm.
~vcu:vx:s, xo: ,us: ix:ui:iox
Tc cxamplcs alrcady givcnillustratc howantiutilitariancthicists stopshort,
bclorc a utilitarian would, with mcrc propounding or with appcal to irrc
duciblc intuition (cvcn il thcy do not usc thc tcrm). 8ut what is intuition
bascd on: Pcrhaps on an unarticulatcd rccognition ol conscqucnccstacit
utilitarianism. Conccivably humans havc an innatc propcnsity, claboratcd
by natural sclcction, to dcvclop such intuitions. !l so, thc conscqucnccs ol
having or not having thcm must havc gurcd in thc biological proccss.
Vhy not, thcn, strivc to clarily thosc intuitions by disciplincd obscrva
tion and rcasoning: !t sccms inadcquatc to rcst cvcrything on thc asscrtion,
lor cxamplc, that individuals, as cnds in thcmsclvcs, simply should not bc
cocrccd. Such a linc ol argumcnt docs not takc adcquatc account ol thc
social contcxt in which qucstions about rights arisc. Tc utilitarian, how
cvcr, docs prcss on with an cmpirically oricntcd invcstigation into what
sorts ol institutions and practiccs do and what sorts do not accord wcll
with human naturc and thc human condition.
Supposcd axioms about rights cannot scrvc as thc ultimatc lounda
tion ol oncs conccption ol dcsirablc social arrangcmcnts. !nstcad, propo
sitions about rights must bc argucd lor, along with othcr propositions
about what makcs lor a good socicty. John Gray (., csp. pp. 6c, 66,
6) maintains that John Stuart Mill in ccct soughtsucccsslully, Gray
implicsto providc a utilitarian undcrpinning lor rcspcct lor rights.
Anothcr cthicistcconomist who docs so is Hcnry Hazlitt (.6,
pp. a6a,). Vithin ncccssary qualications, hc says,
lcgal rights arc or ought to bc in.iolable. And so, ol coursc, should moral
rights bc.
Tis inviolability docs not rcst on somc mystical yct scllcvidcnt law ol
naturc. !t rcsts ultimatcly (though it will shock many to hcar this) on util
itarian considcrations. 8ut it rcsts, not on ad hoc utilitism |sic|, on cxpc
dicncy in any narrow scnsc, but on rule utilitism, on thc rccognition that
a Part : Politics and Philosophy
thc highcst and only pcrmancnt utility comcs lrom an unyiclding adhcr
cncc to principle. nly by thc most scrupulous rcspcct lor cach othcrs
imprcscriptiblc rights can wc maximizc social pcacc, ordcr, and coopcr
ation.
lscwhcrc Hazlitt (.,, pp. aaa) dcscribcs natural rights as simply
thc rights that pcoplc ought to havc. Hc notcs thc idca that rights gain in
sanctity and rcspcct by bcing callcd natural, as il thcy wcrc somcthing
built into thc univcrsc, prior to crcation, prior to cxistcncc. Actually, nat
ural rights is a mystical phrasc. !ts simply an unncccssary conccpt.
8clorc noting cxpositions ol thc rights doctrinc that arc tacitly util
itarian, wc must considcr thc lattcr doctrinc. First, though, a rcvicw ol
anothcr rival doctrinc is in ordcr.
cox:v~c:~vi~xis:
A contractarian approach or attitudc toward public policy has won rc
spcctlul attcntion. !ts most lorcclul and prolic advocatc has bccn Jamcs
M. 8uchanan. (Scc thc bibliography and, lor somc criticism, Gordon .,6
and Samucls .,6.) 8uchanan and othcr contractarians oltcn also citc John
Rawls (.,.) with approval.
Contractarians cxalt thc individual ovcr socicty, agrccmcnt ovcr cocr
cion, and application ol conscnt as thc ovcrriding critcrion ol dcsirability
not mcrcly to smallscalc intcrpcrsonal rclations but also in thc largcto
thc broad lramcwork ol social, political, and cconomic institutions. A
social contractil not an actual onc, at lcast a conccptual oncgurcs
promincntly in thcir vision.
Quotations lrom Jamcs 8uchanan will hclp convcy thc contractari
ans casc and thcir objcctions to thc allcgcdly opposcd truthjudgmcnt
approach.
To thc contractarian that law is lcgitimatc, and just, which might havc
cmcrgcd lrom a gcnuinc social contract in which hc might havc partici
patcd. Tat law is illcgitimatc, and unjust, which nds no such contrac
tual basis. (.,,, p. .a,)
My point is mainly that ol cmphasizing thc usc ol proccss, as opposcd
to cndstatc rcsults. . . . For Rawls, as lor contractarians gcncrally, that
which cmcrgcs lrom contractual agrccmcnt is just. (.,,, p. .)
Tat is good which tcnds to cmcrgc lrom thc lrcc choiccs ol thc indi
viduals who arc involvcd. !t is impossiblc lor an cxtcrnal obscrvcr to lay
Chapter :8: Fights, Contract, and Utility in Policy Espousal
down critcria lor goodncss indcpcndcnt ol thc process through which
rcsults or outcomcs arc attaincd. Tc cvaluation is applicd to thc mcans
ol attaining outcomcs, not to outcomcs as such. (.,a, p. 6)
Many morc passagcs ol similar import can bc lound in 8uchanans
writings. Hc would havc us approvc or disapprovc ol statcs ol aairs or
scts ol rulcs not primarily by considcring thcir substancc but ovcrridingly
by appraising thc proccss cmploycd to rcach dccisions about thcm.
so:v vvvii:ix~vv boun:s ~nou: cox:v~c:~vi~xis:
Tat idca sccms odd to mc. !t rcscmblcs thc idca that whatcvcr pcoplc
lrccly choosc is in lact good lor thcm. 8roomc (.,) cxposcs this lallacy.
nc ol his cxamplcs conccrns Janc, who, pcrhaps out ol a scnsc ol duty
somchow absorbcd lrom hcr surroundings, chooscs to sacricc an indc
pcndcnt lilc ol hcr own to carc lor hcr agcd mothcr. !t docs not ncccssar
ily lollow that Jancs lrcc choicc bcst scrvcs hcr own intcrcst or lulllmcnt
or happincss or cvcn that it maximizcs hcr and hcr mothcrs utilitics com
bincd. 8roomc is simply warning against an invalid inlcrcncc, ol coursc,
and not saying that somc authority should imposc on Janc thc lilcstylc it
thinks bcst lor hcr.
Pricc thcory and wcllarc cconomics may lcgitimatcly, as blackboard
cxcrciscs or lor othcr purposcs, assumc that pcoplc makc choiccs so as
to maximizc thcir utilitics on thc basis ol dcnitc utility lunctions. !t docs
not in thc lcast lollow, howcvcr, that lrccdomol choicc is thc vcry critcrion
ol what to choosc. A libcrtarian might dcplorc lorciblc intcrlcrcncc with
thc usc ol addictivc drugs. Yct this attitudc docs not commit him to thc
vicw that drugs scrvc thc happincss ol thosc who choosc to takc thcm. Hc
would not bc inconsistcnt in wanting to lcgalizc thcm whilc considcring
thcir usc harmlul and dcplorablc.
Similarly, voluntary agrccmcnt is not itscll thc critcrion ol what to
agrcc on. To valuc voluntary agrccmcnt and thc dcmocratic proccss in no
way commits an cconomist or social philosophcr to valuc whatcvcr institu
tions or policics such proccsscs may grind out. Vhy should hc lccl obligcd
to withhold any criticism: ccisionmaking proccdurc is itscll propcrly an
objcct ol approval or disapproval, but it cannot scnsibly bc takcn as thc
solc critcrion ol what to dccidc.
Rathcr than supposc that propcr proccdurc cxhausts thc contcnt ol thc
good socicty, it would sccm rcasonablc to cmphasizc propcr proccdurc as
an important part ol that conccption. 8ut it is hard to scc howa proccdurc
Part : Politics and Philosophy
can bc dccmcd good uttcrly apart lrom somc considcration ol its likcly
rcsults.
As Scott Gordon obscrvcd in rcvicwing Te Limits of Liberty, 8uchan
an was trying to dcrivc moral principlcs without thc aid ol any moral
prcmisc by carrying ovcr positivc analysis ol collcctivc dccisionmaking
into lundamcntal political philosophy. 8uchanan might rcply that hc docs
havc a moral prcmisc, a wcak onc lavoring individualism. Anyway, in
Gordons vicw (.,6, p. ), 8uchanans attcmpt to gct normativc con
clusions lrom analysis that is cntircly (or almost cntircly) positivc cannot
succccd. . . . |T|ry as onc will, that troublcsomc word ought cannot bc
cxciscd lrom political philosophy and no dcgrcc ol sophisticatcd is can
takc its placc.
Striving lor clarity may justily somc harshncss. xccpt in bricl and
untypical passagcs, 8uchanan obscurcs his cmploymcnt ol and shirks his
rcsponsibility lor valucs that hc, likc anyonc, must bc cmploying whcn
hc rccommcnds anything, cvcn whcn what hc rccommcnds is proccss
rathcr than substancc as thc critcrion lor appraising institutions and
policics.
\iktor \anbcrg (n.d.) also raiscs apt qucstions about a supposcdly
purcly proccdural critcrion. Can wc appraisc a proccss or a sct ol rulcs
solcly by thc proccdurc ol cstablishing and changing it, and so on: How
do wc avoid innitc rcgrcss: !snt somc substantivc critcrion nccdcd somc
whcrc: Furthcrmorc, docsnt an agrccmcnt tcst unavoidably muddlc
togcthcr obscrvations ol pcoplcs prclcrcnccs and ol thcir thcorics about
how altcrnativc institutions would work: (\anbcrg attributcs thc lattcr
point to Karcn \aughn. As \aughn has also said somcwhcrc, or so !
am told, choosing constitutional principlcs is not as casy as choosing a
toastcr.) nc implication, ! should think, is that cconomists and social
philosophcrs havc a lcgitimatc rolc cxplaining and prcaching what social
arrangcmcnts thcy considcr bcst, and why.
Contractarianism gcts its namc, says onc commcntator (Pcttit .c,
pp. .,.), lrom thc dcvicc which it uscs to ltcr out pcoplcs cnlight
cncd prclcrcnccs. !t idcntics just social arrangcmcnts as thosc that
answcr to pcoplcs prclcrcnccsnot thc sort rccordcd by ordinary voting,
howcvcr, but rathcr thc prclcrcnccs that pcoplc would havc il thcy wcrc
not inucnccd by narrow scllintcrcst and bias.
8ut on what grounds would pcoplcpcoplc in rcal lilc and cvcn
or cspccially pcoplc strippcd ol distinctivc scllintcrcsts, as by bcing
placcd bchind a Rawlsian vcil ol ignoranccprclcr onc sct ol social
Chapter :8: Fights, Contract, and Utility in Policy Espousal
arrangcmcnts ovcr othcrs: n what basis can a social philosophcr hopc to
distinguish bctwccn laws or constitutions that could and thosc that could
not havc bccn agrccd upon undcr cithcr actual or idcalizcd conditions:
Tc only plausiblc basis, ! submit, is that pcoplc strippcd ol narrow scll
intcrcst would considcr thc prclcrrcd arrangcmcnts as coming closcr to an
impartial conccption ol thc good socicty, that is, as bcing morc conducivc
to happincss, than thc altcrnativcs. A contractarian might say: No, impar
tial pcoplc would prclcr thosc arrangcmcnts bccausc thcy wcrc fair. 8ut
why is lairncss so dcsirablc: ithcr bccausc it just is, bccausc a compclling
intuition insists on it, bccausc thc qucstion is not lurthcr discussablc, or
clsc bccausc pcoplcs trcating cach othcr lairly is conducivc to thcir ccc
tivc pursuit ol happincss.
! asscrt not that contractarianismis atly wrong but that it disguiscs its
anitics with utilitarianism by rcpulsivc and unncccssary ctions (about
which ! shall havc morc to say).
:nv ~::~cx ox :vu:n ,ubc:vx:
Yct 8uchanan sharply contrasts his contractarian vision with thc truth
judgmcnt approach, as hc disparagingly labcls a position akin to thc util
itarianism dclcndcd hcrc. Tis scorncd approach tcnds to assumc that
thcrc is a uniquc cxplanation, a uniquc sct ol rulcs which dcncs thc clc
mcnts ol a good socicty and which, oncc discovcrcd, will comc to bc gcn
crally acccptcd by inlormcd and intcllcctually honcst mcn (.,,, p. ,, thc
words quotcd occur in intcrrogativc scntcnccs, but thc contcxt lcavcs littlc
doubt that 8uchanan is charactcrizing thc approach hc condcmns).
8uchanan distinguishcs lurthcr bctwccn his own approachand its rival.
His contractarian conccption is analogous to markct activity, a scarch lor
agrccmcnt to thc mutual bcnct ol thc participants. Tc truthjudgmcnt
approach is analogous to thc dclibcrations ol a jury (., pp. ac). ar
licr (.,a, p. .6) hc had distinguishcd, similarly, bctwccn thc politician
and thc judgc. Tc politician sccks conscnsus and acccptablc compromiscs.
Hc is not cngagcd in a scarch lor somc onc truc judgmcnt, and hc is not
propcrly bchaving il hc sccks to lurthcr somc wclldcncd idcal drawn
lrom thc brains ol his acadcmic mcntors. Tc judgc is in a distinctly
dicrcnt position. Hc docs scck truth, not compromisc.
As applicd to politics, 8uchanan dcplorcs thc judgc or jury conccption.
!t conduccs to intolcrancc by thosc who think thcy havc attaincd political
6 Part : Politics and Philosophy
truth. !mplicitly thcy claim thc right to imposc truth on pcrsons mircd in
crror (.,,, pp. ,6,,). Tcir vicw cntails
a dcmonstratcd willingncss to imposc nonvoluntary changcs on thc cxist
ing pattcrn ol cntitlcmcnts in social ordcr. . . . ncc truth is lound, thcrc
is no moral argumcnt to bc raiscd against its implcmcntation. Conscnt is
mcaninglcss in this contcxt. pposition can bc variously charactcrizcd as
stcmming lrom ignorancc, lolly, or thc cxcrcisc ol sclsh intcrcst. !n any
casc, thc vicws ol thosc who activcly opposc thc truthcarrying zcalots
arc not trcatcd as worthy ol rcspcct. And any rcquircmcnt to compro
misc with such vicws ariscs only bccausc thc rclormists might othcrwisc
lack thc powcr to imposc truth unilatcrally. (.,,, pp. ..)
8uchanan (.,a, p. .6,) sccs many social philosophcrs cxhibiting
intcllcctual and moral arrogancc. An attcmpt to dcscribc thc social good
in dctail sccms to carry with it an implicd willingncss to imposc this
good, indcpcndcntly ol obscrvcd or prospcctivc agrccmcnt among pcr
sons. 8y contrast, |his| natural proclivity as an cconomist is to placc
ultimatc valuc on proccss or proccdurc, and by implication to dcnc as
good that which cmcrgcs lrom agrccmcnt among lrcc mcn, indcpcn
dcntly ol intrinsic cvaluation ol thc outcomc itscll.
Passagcs abound in which 8uchanan dwclls on this thcmc ol thc arro
gancc, thc itch to play God, ol thosc who prcsumc to cmploy thcir own
valuc judgmcnts in trying to lramc a cohcrcnt conccption ol a good socicty.
For contractarians, proccss and conscnt, not outcomc or substancc,
lorm thc critcrion ol goodncss or dcsirability in human institutions and
rclations. Truth, in thc nal analysis, is tcstcd by agrccmcnt. And il mcn
disagrcc, thcrc is no truth (.,,, p. ..). A scicntist may advancc an
argumcnt to thc ccct that a proposition is truc. His argumcnt . . . may
succccd in cstablishing a conscnsus among his lcllow scicntists. 8ut thc
truth ol thc proposition cmcrgcs only lrom this agrccmcnt and not lrom
somc original objcctivc rcality (.,,, p. . n.).
~u:novi:~vi~xis:, vvi~:ivis:, v~iiiniiis:
Tis cxtrcmc rclativism is rcmarkablc, yct 8uchanan nds adopting it ncc
cssary to avoid authoritarianism with rcgard to truth. Actually, thcsc arc
not thc only altcrnativcs.
Harry avis (.6,.6) has dcscribcd a third position distinct lrom
thc two bctwccn which 8uchanan cvidcntly thinks thc choicc must lic.
Chapter :8: Fights, Contract, and Utility in Policy Espousal ,
Tc rst ol thosc is thc authoritarian position ol onc who bclicvcs hc pos
scsscs an inlalliblc pipclinc to objcctivc truth. Tat is thc position ol thc
bascball umpirc who insists that hc calls balls and strikcs as thcy objcctivcly
are. Tc sccond is a rclativistnominalist position ol rcjccting all absolutcs
and cmbracing a radical rclativism or skcpticism. An umpirc holding this
vicw says that pitchcs arc ncithcr balls nor strikcs until hc calls thcm. Tc
third position, lallibilism, combincs mctaphysical or cthical objcctivism
with cpistcmological rclativism. Tc lallibilist umpirc says, ! call cm as !
scc cm. n this vicw, it makcs scnsc to scck objcctivc truths about rcal
ity, cvcn including truths about what is morally valuablc and politically
dcsirablc. Yct no pcrson or group is cntitlcd to claim inlalliblc posscssion
ol such knowlcdgc. ach scarchcr contributcs what hc can, awarc that his
contribution is incomplctc and pcrhaps crroncous. !n scicncc, culturc, and
philosophy, lallibilism calls lor lrcc discussion opcn to thc compctition ol
all idcas, cvidcnccs, and argumcnts. (avis rccognizcs lallibilism as a ccn
tral conccpt in thc philosophy ol Charlcs Sandcrs Pcircc. Scc also Vicncr
.6 and Pcircc ..)
Far lrom bcing subvcrsivc ol constructivc discussion, a willingncss to
statc clcarly what onc bclicvcs and why, cxposing oncs vicws to inspcction
and possiblc rclutation, is csscntial to it.
Tc lallibilist position adopts thc scicntic attitudc and mcthod. 8clicl
in thc mcaninglulncss or at lcast thc hcuristic valuc ol thc conccpt ol
objcctivc truth to bc sought through rcscarch and discussion nccd not
cntail arrogancc, clitism, and an cagcrncss lorcibly to imposc oncs bclicls.
8clicl, lor cxamplc, that onc typc ol socicty is morc conducivc to human
happincss than anothcr in no way cntails an cagcrncss to implcmcnt
oncs vision by lorcc. A conccrn lor proccss and lor how dccisions arc
madc and implcmcntcd, an cxtrcmc avcrsion to having policics, cvcn good
oncs, rammcd down oncs own throat or down othcr pcoplcs throats,
may wcll bc a major clcmcnt in oncs conccption ol thc good soci
cty. An adhcrcnt ol thc truthjudgmcnt approach may wcll harbor this
strong conccrn lor duc proccss, it is not thc privatc propcrty ol thc con
tractarians.
Yct thc contractarians tcnd to supposc that a policy not commanding
a strong conscnsus in its lavor (or whosc adoption would not at lcast bc in
accordancc with an undcrlying constitution dccmcd to command unani
mous conscnt) is thcrcby rcvcalcd to bc bad or undcsirablc. (Passagcs to
this ccct in 8uchanan and Tullock .6a arc quotcd in Ycagcr .,, p. acc
and n. .,.)
Part : Politics and Philosophy
Tc contractarians ovcrlook a vital distinction: Vhat is undcsirablc in
such a casc is not ncccssarily thc policy itscll but rathcr its imposition by
antidcmocratic mcans. !t is not ncccssarily inconsistcnt or antidcmocratic
or clitist lor an cconomist or social philosophcr, whilc dcploring imposi
tion ol thc policy, to continuc advocating it and trying to cxplain its virtucs.
!n short, thc nihilistic rclativism ol thc contractarians is by no mcans thc
only altcrnativc to a rcpulsivc authoritarianism.
cox:v~c:~vi~x vc:ioxs
Contractarians undcrstand, ol coursc, that spccic policy mcasurcs can
not in practicc bc cnactcd only with unanimous conscnt. Tcy thcrclorc
try to nd constitutional authority lor nonunanimous cnactmcnts. Tc
constitution nccd not ncccssarily bc a writtcn documcnt, it may consist ol
thc lundamcntal lcaturcs ol thc cxisting socicty. Tat broad constitution
is dccmcd to command substantially unanimous conscnt by virtuc ol its
actual cxistcncc and pcoplcs living undcr it. (Scc, lor cxamplc, 8uchanan
and Tullock .6a, pp. a, a6ca6..) Yct avid Humc had long bclorc
mockcd such notions ol passivc, tacit conscnt with his muchquotcd cxam
plc ol thc shanghaicd sailor who, mcrcly by rclraining lrom jumping
ovcrboard, docs not thcrcby conscnt to thc captains supposcd author
ity ovcr him (l thc riginal Contract, rcprintcd in Humc .,a/.6,
p. a6).
8uchanan and Tullock (.6a, pp. a6ca6.) conccivcd ol thc social con
tract as
a dynamic onc. . . . Vc do not conccivc thc constitution as having bccn
cstablishcd oncc and lor all. Vc conccivc thc contractual aspccts to bc
continuous, and thc cxistcncc ol a sct ol organizational rulcs is assumcd
to cmbody conscnsus. Vc think ol thc individual as cngaging contin
uously both in cvcryday opcrational dccisions within thc conncs ol
cstablishcd organizational rulcs and in choiccs conccrncd with changcs
in thc rulcs thcmsclvcs, that is, constitutional choiccs. Tc implicit
rulc lor sccuring thc adoption ol changcs in thcsc organizational rulcs
(changcs in thc structurc ol thc social contract) must bc that ol una
nimity. Tis is bccausc only through thc sccuring ol unanimity can
any changc bc judgcd dcsirablc on thc acccptancc ol thc individualistic
cthic.
!n latcr writings 8uchanan also trcats a supposcd implicit social con
tract as il it had actual lorcc. Hc rclcrs (.,a, p. 6) to thc cxisting and
Chapter :8: Fights, Contract, and Utility in Policy Espousal
ongoing implicit social contract, cmbodicd and dcscribcd in thc institu
tions ol thc status quo. At grcatcr lcngth (.,a, pp. ), hc argucs that
thc status quo must bc cvaluatcd as il it wcrc lcgitimatc contractually, cvcn
whcn an original contract may ncvcr havc bccn madc, whcn currcnt
mcmbcrs ol thc community scnsc no moral or cthical obligation to ad
hcrc to thc tcrms that arc dcncd in thc status quo, and . . . whcn such
a contract, il it cvcr cxistcd, may havc bccn violatcd many timcs ovcr. . . .
ocs thc prcscncc ol any onc or all ol thcsc ncgations rcmovc lcgitimacy
lrom thc status quo:
Again it is ncccssary to rcpcat thc obvious. Tc status quo dcncs that
which cxists. Hcncc, rcgardlcss ol its history, it must bc cvaluatcd as il
it wcrc lcgitimatc contractually. Tings might havc bccn dicrcnt in
history, but things arc now as thcy arc.
Tc intcrprctation convcycd by thc lorcgoing quotations nds support
in a book by onc ol 8uchanans lormcr studcnts. Tc socialcontract thcory
ol thc statc, Randall Holcombc (.) cxplains, is an attcmpt to dcscribc
thc lcgitimacy ol thc govcrnmcnts powcr. !t vicws socicty as a typc ol club,
whcrc all individuals conccptually agrcc to bccomc mcmbcrs and adhcrc to
thc club rulcs. Actually, individuals arc born into socicty and must adhcrc
to its rulcs whcthcr thcy agrcc to or not. Hcrc, thc social contract thcory
ol thc statc must lall back upon thc conccptual agrccmcnt ol all mcmbcrs
ol socicty. Tc statc opcratcs as il all mcmbcrs ol socicty had agrccd to its
rulcsas il thcrc is unanimous approval ol thc constitution (Holcombc
., pp. .a.a, comparc passagcs ol similar import on pp. , .a, .a.a6,
.).
Holcombc docs not acccpt 8uchanans lormulations wholly without
rcscrvation. Sincc all ol thc mcmbcrs ol thc socicty did not actually agrcc
to a social contract, . . . somc typc ol conccptual agrccmcnt must bc lab
ricatcd il thc thcory is to havc any conncction with rcality (., p. .).
Tc words must bc labricatcd dcscrvc cmphasis.
Tc writings ol 8uchanan and othcr contractarians (including Hol
combc ., csp. chap. ) bristlc with words likc conccptual and conccp
tuallyconccptually agrcc, conccptual agrccmcnt, conccptual social
contract, conccptual unanimous approval, and thc likc. Tc vcry usc ol
thc words indicatcs that a conccptual agrccmcnt is not an actual onc, that
a conccptually truc proposition is not actually truc. !t is no mcrc jokc to
say that conccptually is an advcrb stuck into contractarians scntcnccs to
immunizc thcm lrom challcngc on thc grounds ol thcir not bcing truc.
c Part : Politics and Philosophy
8uchanan (.,b, pp. .a, .a) distinguishcs bctwccn constitutional
and postconstitutional stagcs ol dccisionmaking and cnvisagcs agrcc
mcnt or conccptual agrccmcnt at thc constitutional stagc as authorizing
apparcnt cocrcion and apparcnt rcdistribution at thc postconstitutional
stagc. 8y such ctions, rcalitics likc actual cocrcion and actual rcdistribu
tion arc intcrprctcd away. Tcy vanish into thc rcalm ol thc mcrcly appar
cnt by bcing dccmcd in accordancc with somc agrccmcnt that may itscll
bc mcrcly conccptual.
vcn punishmcnt, in 8uchanans vicw (.,a, p. .a n.) implcmcnts
a contract. !n a gcnuinc contractarian thcory, thcrc is no problcm raiscd
conccrning thc right ol somc pcrsons to punish othcrs, sincc, in ccct,
individuals who nd thcmsclvcs in thc implicit social contract that any
social ordcr prcsupposcs havc prcsumably choscn to bc punishcd as thc
law dirccts whcn thcy violatc law. Hcrc thc word prcsumably sccms to
mcan conccptually in 8uchanans scnsc.
Furthcr cvidcncc ol thc contractarians rcliancc on ctions is that
8uchanan and many othcr commcntators acccpt John Rawlss (.,.) char
actcrization ol his own mcthod as contractarian. Actually, no social con
tract at all is involvcd in Rawlss dcrivation ol his principlcs ol justicc.
!nstcad, Rawls cmploys claboratc ctions (about dclibcrations bchind a
vcil ol ignorancc) in morc or lcss disguisingpcrhaps cvcn lrom him
scllhis total rcliancc on his own intuitions. (!t astonishcs mc how many
cmincnt scholars swallow Rawlss own charactcrization ol his approach.
Among thc apparcnt minority who do idcntily what Rawls actually docs
arc Harc n.d., and Gray .,.)
No onc nccd objcct to ctions il thcy arc hcuristically usclulil thcy
stimulatc thc ow ol idcas. Nor is it ncccssarily objcctionablc to cmploy
ctions and gurcs ol spccch lor cxpository and stylistic purposcs. 8ut
a doctrinc should not depend on thcm. !dcas that dcly cxprcssion in
straightlorward, nonmctaphorical languagc incur dcscrvcd doubt by that
vcry lact.
Contractarians might strcngthcn thcir casc by occasionally prcscnt
ing it, il thcy can, without rcsort to thcir lavoritc ctions. !n doing so,
howcvcr, thcy would bc bound to crasc sharp distinctions bctwccn thcir
approach and thc supposcdly dcspicablc truthjudgmcnt approach. Tc
vcrsion ol thc lattcr advocatcd in this papcr docs lcad to much thc samc
individualistic valucs as contractarianism, but its conccptual apparatus and
cxpository stylc arc quitc dicrcntmorc straightlorward, and charicr ol
ctions.
Chapter :8: Fights, Contract, and Utility in Policy Espousal .
u:iii:~vi~xis: uxbvv ~::~cx
Utilitarianism is routincly caricaturcd and scorncd nowadays, and somc
vcrsions do dcscrvc scorn. !t is said to bc lowbrow, crass, and subvcrsivc ol
pcrsonal rights. Tc 8cnthamitcs, says Joscph Schumpctcr (., pp. .,
c,c), crcatcd thc shallowcst ol all conccivablc philosophics ol lilc.
Tat asscssmcnt might wcll apply il utilitarianism rcally did rccom
mcnd that pcoplc spcnd thcir livcs pursuing immcdiatc plcasurc. Tc util
itarianismdclcndcd in this papcr, howcvcr, conccrns thc appraisal ol social
arrangcmcntspolicy cspousal, as Philbrook (.) would say.
Jcric G. Murphy (.,,, p. aa) criticizcd a vcrsion that hc attributcd,
wrongly, to John Stuart Mill:
Tis thcory is so obviously morally bankrupt that vcry lcw contcmporary
moral philosophcrs takc it at all scriously. . . . |!t| lails to pay attcntion to
. . . important autonomy valucs . . . and thus lails to articulatc a satislactory
conccption ol justice or respect for persons. !t docs not . . . rulc out thc
sacricc ol pcrsons for thc gcncral good.
Valtcr Grindcr (.,, pp. .c) bcwails thc tircd and woclully prag
matic doctrincs ol cndstatc utilitarianismthc curscd 8cnthamismin all
its pcrmutations, that has provcd thc banc ol libcrtys cxistcncc lor almost
acc ycars. uring thc .th ccntury, utilitarianism almost singlc handcdly
shortcircuitcd thc grcat classical libcral rcvolution. Frank S. Mcycr (.6a,
pp. .a, a) pcrccivcd a latal aw in thc philosophical undcrpinnings
ol utilitarianism. Ninctccnthccntury libcralism dcscrtcd its hcritagc ol
dclcnsc ol lrccdom ol thc pcrson and dcnicd thc validity ol moral cnds
rmly bascd on thc constitution ol bcing. Tcrcby, with this dcnial ol an
ultimatc sanction lor thc inviolability ol thc pcrson, libcralism dcstroycd
thc vcry loundations ol its dclcnsc ol thc pcrson as primary in political and
social mattcrs. To utilitarians, Human bcings considcrcd as thc objccts ol
opcrations arc no morc nor lcss than objccts. Kants impcrativc is rcvcrscd.
ur humanitarians ol thc wcllarc socicty takc as thcir maxim: trcat no
pcrson as an cnd, but only as a mcans to arrivc at a gcncral good.
Tc critcrion ol thc grcatcst sum ol thc utilitics ol individuals is collcc
tivistic, as John Rawls says, it rcgards individuals as proccssing stations lor
convcrting goods and scrviccs and cxpcricnccs into incrcmcnts to aggrc
gatc social utility. Tc idcal utilitarian lcgislator, in allocating rights and
dutics and scarcc mcans ol satislaction, makcs dccisions similar to thosc ol
a maximizing cntrcprcncur or consumcr, his corrcct dccision is csscntially
a Part : Politics and Philosophy
a mattcr ol ccicnt administration. Tis vicw ol social coopcration is thc
conscqucncc ol cxtcnding to socicty thc principlc ol choicc lor onc man,
and thcn, to makc this cxtcnsion work, conating all pcrsons into onc
through thc imaginativc acts ol thc impartial sympathctic spcctator. Utili
tarianism docs not takc scriously thc distinction bctwccn pcrsons (Rawls
.,., p. a,, cl. pp. .,.a, , c, ,a,).
Tis last objcction tics up with rclcrcncc to thc nonopcrationality ol
thc aggrcgatcutility critcrion. Can onc conccivc ol opcrationally mcan
inglul rulcs lor sacricing individuals lor thc grcatcr good ol socicty:
How good, how conducivc to thc pursuit ol happincss, would a socicty
with such rulcs bc: And how would thc utilitics ol dicrcnt pcrsons bc
mcasurcd and comparcd and addcd anyway: (Pcrhaps thc clcarcst cxam
plc ol acccpting thc maximumaggrcgatc utility critcrion is dgcworth
../.6.. dgcworth alrcady pointcd out, p. .6, as Rawls did latcr, that
this vcrsion ol utilitarianism rcquircs cxtrcmc altruism, it connotcs !i.re
pour autrui.)
Actutilitarianism, as distinguishcd lrom rulcsutilitarianism, is par
ticularly objcctionablc. !t calls on thc individual to choosc, in cach scpa
ratc casc, thc action appcaring likcly to contributc to thc grcatcst cxccss
ol plcasurc or happincss or good ovcr thc oppositc. No notion ol rights
or principlcs should bar such a calculation, lor rcspccting thcm is not an
indcpcndcnt objcctivc. Rcspccting thcm is nc whcn it happcns in thc
individual casc to scrvc thc grcatcst total cxccss ol plcasurc ovcr pain, but
that cxccss alonc rcmains thc nal critcrion.
Pcrhaps thc clcarcst rcccnt cxamplc ol wanting cachcasc handlcdonits
own mcrits, with no prcsumption in lavor ol rcspccting rights or principlcs,
occurs in Joscph Flctchcrs Situation Ethics (.66). Flctchcr dcparts lrom
actutilitarianismas ordinarily conccivcd only in making lovc rathcr than
happincss thc critcrion and in making thc altruismit calls lor morc blatant
and cloying. vcn this substitution makcs littlc dicrcncc, sincc Flctchcr
intcrprcts lovc as conducivcncss to wcllbcing, cspccially ol pcrsons othcr
than oncscll. !n thc coalition that hc rccommcnds bctwccn thc lovc cthic
and thc utilitarianism hc attributcs to 8cntham and Mill, thc hcdonistic
calculus bccomcs thc agapcic calculus, thc grcatcst amount ol ncighbor
wcllarc lor thc largcst numbcr ol ncighbors possiblc. Flctchcr holds atly
that thcrc is only onc principlc, lovc, without any prclabricatcd rccipcs lor
what it mcans in practicc, and that all other so callcd principlcs or maxims
arc rclativc to particular, concrctc situations! !l it has any rulcs, thcy arc
only rulcs ol thumb. Tc situationist holds that whatcvcr is thc most
Chapter :8: Fights, Contract, and Utility in Policy Espousal
loving thing in thc situation is thc right and good thing (quotations lrom
pp. , 6, 6 rcspcctivcly).
No wondcr critics rcjcct utilitarianism undcrstood as somcthing likc
that. !t bctrays rcmarkablc arrogancc to takc it lor grantcd that thc actor
in thc individual casc, tacitly cndowcd with thc omniscicncc ol thc act
utilitarian or actagapcic philosophcr himscll, can lorcscc all thc immcdi
atc and rcmotc and all thc dircct and indircct conscqucnccs ol his actions,
cvcn including thosc working through rcinlorcing or undcrmining princi
plcs and habits and through accting pcrsons moral charactcrs, and can
asscss thc good and bad valucs ol all thcsc conscqucnccs and strikc a bal
ancc. As Pctcr S. Prcscott (.,) has said, what was rcccntly callcd situa
tion cthics can bc dcncd as action bascd on invinciblc trust in oncs own
moral pcrspcctivc.
An cxtrcmc actutilitarianism or situation cthics might indccd coun
tcnancc lraming and cxccuting an innoccnt man to pacily an angry mob
and so avoid worsc outragcsto mcntion thc cxamplc so routincly trot
tcd out (lor cxamplc, by McCloskcy .6, p. .., comparc Rothbard .,,
pp. aa, on thc cxccution ol all rcdhcads to dclight thc rcst ol thc popu
lation).
so:v ~xswvvs :o :nv cvi:ics
John Rawls commcnts pcrccptivcly on this sort ol attack on a strawman
vcrsion ol utilitarianism. Rawls (./.6), writing bclorc McCloskcy
(.6) and bclorc his own book ol .,., attributcd thc standard horriblc
cxamplc to .F. Carritt. Rawls (./.6, pp. ,6,) also answcrcd thc
qucstion, raiscd in a similar vcin, whcthcr it is acccptablc to brcak oncs
promisc whcn thc conscqucnccs ol doing so appcar good on balancc. Tc
vcry point ol promising is to abdicatc oncs titlc to act in accordancc with
utilitarian and prudcntial considcrations in ordcr that thc luturc may bc
ticd down and plans coordinatcd in advancc. . . . Tc promisor is bound
bccausc hc promiscd: wcighing thc casc on its mcrits is not opcn to him.
Tc institution ol promising and promisckccping itscll has obvious util
itarian advantagcs. Tat thc promisors obligation may bc ovcrriddcn in
cxccptional hard cascs docs not mcan that thc obligation docs not cxist
at all.
How conducivc to happincss would a socicty bc, Rawls (./.6)
asks in ccct, in which truth and rights wcrc trcatcd as contcmptuously
as in thc hackncycd horriblc cxamplc: Morc spccically, in what contcxt
Part : Politics and Philosophy
might a judgmcnt bc madc in lavor ol sacricing thc innoccnt victim to
pacily thc mob: !t is vaguc to say that it would bc a good idca il somc
body did somcthing to savc many innoccnt livcs by sacricing onc. How
could such acts bc institutionalizcd: Just who would bc authorizcd, and
in what circumstanccs and undcr what rulcs, to inict tclishmcnt (by
which Rawls apparcntly mcans ostcnsiblc punishmcnt inictcd lor ultc
rior purposcs): Scvcral rcasons arc obvious, and Rawls suggcsts somc,
why an institution ol tclishmcnt could hardly bc justicd on utilitarian
grounds.
ocs this dismissal ol thc tclishmcnt casc simply postulatc out ol cxis
tcncc thc dicultics that it is mcant to illustratc: Am ! dcnying that any
singlc casc could cvcr arisc in which sacricing an innoccnt pcrson might
appcar to promisc grcatcr good on thc wholc: Vcll, can onc cvcr bc con
dcnt that such a casc has in lact ariscn: Tc conscqucnccs ol supposing
so and acting accordingly arc unlathomablc. Approving thc violation ol
rights whcncvcr thc dccisionmakcr thinks it would bc bcnccial on thc
wholc would rcinlorcc unhcalthy tcmptations and undcrcut thc vcry con
ccpt ol rights. A socicty tolcrating such violations would hardly bc onc
in which pcoplc cnjoycd rclativcly lavorablc opportunitics to makc good
livcs lor thcmsclvcs. Taking account ol thc associatcd institutions, habits,
attitudcs, and pcrsonality traits, as wcll as thc lact that cach pcrson has a
lilc and consciousncss and purposcs ol his own, rcquircs rcjccting such a
socicty. ndorscmcnt ol pcrsonal rights instcad lollows prcciscly on utili
tarian grounds.
!n thc abstract, though hardly in convincing dctail, onc can contrivc a
casc in which an act ordinarily dccmcd wronglul would havc a nct balancc
ol good conscqucnccs, cvcn with any undcrmining ol rcspcct lor rulcs and
rights countcd on thc ncgativc sidc in thc asscssmcnt. Pcrhaps thc wrong
lul act can bc kcpt sccrct, and its victimwould havc dicd soon ol agonizing
discasc anyway. Tc contrivcd assumptions would rulc out such advcrsc
conscqucnccs as impairmcnt ol thc agcnts attitudcs and moral charactcr.
Tc assumptions would rcndcr thc proposition about thc acccptability ol
thc othcrwisc wrong act an cmpty tautology. If thc act rcally would lcad
to thc grcatcst nct utility, absolutcly all things accuratcly considcrcd, and
if thc grcatcst nct utility is oncs critcrion ol what ought to bc donc, thcn
thc act ought to bc donc. 8ut in what actual contcxt could thcsc if s bc
mct: Vhcn could onc havc absolutcly all thc rclcvant knowlcdgc ol con
scqucnccs, including thc conscqucnccs ol violation ol valucd principlcs,
ccrtainty that oncs knowlcdgc was accuratc and complctc, and ccrtainty
Chapter :8: Fights, Contract, and Utility in Policy Espousal
ol oncs accuracy in wcighing opposing considcrations: Tc assumptions
rcquircd ncgatc thc rcalworld contcxt that in lact rccommcnds rulcsutil
itarianism ovcr actutilitarianism.
Supposc lor thc sakc ol argumcnt, ncvcrthclcss, and quitc implausibly,
that a clcar casc ol thc postulatcd kind did arisc. Supposc, lurthcr, that
arranging compcnsation acccptablc to thc prospcctivc victim or victims
was lor somc rcason impossiblc and that thc burdcn ol dccision lcll on
mc. Tcn ! would havc to lacc up to that casc. ! cannot commit myscll in
advancc, ignorant ol thc spccic lacts, to insisting on obscrvancc ol rulcs
and rights cvcn though thc hcavcns should crumblc. And ncithcr could a
scllstylcd antiutilitarian champion ol rights.
~ bvvvxsiniv u:iii:~vi~xis:
A soundcr vcrsion ol utilitarianism than thc onc routincly pilloricd has
bccn callcd rulcsutilitarianismor indircct utilitarianism. ( John Gray, .,
csp. pp. ..., .a, , 6,, attributcs an indircct utilitarianism to
John Stuart Mill and trics to distinguish it lrom rulcsutilitarianism, lor
prcscnt purposcs thc distinction is incsscntial.)
According to McCloskcy, howcvcr, rulcsutilitarianism ariscs lrom
awarcncss that thc act vcrsion will not do, yct it is only pscudoutilitari
anism. !t opts lor irrational conlormity to rulcs cvcn though no intrinsic
moral signicancc attachcs to thcm and cvcn whcn conlorming to thcm
brings grcatcr total cvil. Tc rulcsutilitarian prclcrs conlormity to a rulc to
maximization ol good. !l hc rcplics that his is thc bcst way ol promoting
thc grcatcst good, hc is abandoning rulc lor act utilitarianism (McCloskcy
.6, p. .).
Vhy, though, docs McCloskcy spcak ol irrational conlormity to rulcs:
Rulcs scrvc human wcllarc. Utilitarianism ol coursc rccognizcs dilcmma
cascsthcy gurc in thc human prcdicamcntin which applicablc rulcs
clash and in which somc must bc ovcrriddcn to pcrmit conlorming to oth
crs morc dcmanding in thc particular casc. To rccognizc such cascs is not
to lapsc back into actutilitarianism or situation cthics. Tc rulcs vcrsion
docs strcss thc advantagcs ol habituation to rulcs and docs caution against
cxccssivc rcadincss to ovcrridc a rulc (cspccially against thc tcmptation to
makc an cxccption in oncs own lavor). !l thc idca ol lraming thc inno
ccnt man to pacily thc mob so shocks us, it is bccausc wc rightly nd it so
hard to imaginc cascs in which thc rulc ol justicc should bc thc onc to bc
ovcrriddcn. Tc quality ol McCloskcys dcbating tactics is cvidcnt in his
6 Part : Politics and Philosophy
cxamplc (p. ..) ol choosing bctwccn abiding by Australias drivconthc
lclt rulc and colliding with a car in thc wrong lanc.
As lor rulcs having no intrinsic moral signicancc, wcll, what is so
suspcct about thcrc not bcing irrcduciblc ultimatcs lor which no argu
mcnts can bc ocrcd: l coursc utilitarianism docs not and cannot insist
that rulcs bc lollowcd lor thcir own sakcs. n thc contrary, rulcs arc instru-
mental to a good socicty and thcrcby to pcoplcs happincss. To trcat rulcs
as absolutc ultimatcs would undcrminc rcspcct lor thcm by making thcm
appcar ridiculous.
Lct us considcr thc qucstion ol justicc and injusticc a bit lurthcr. \ic
timizing an innoccnt pcrson or minority lor thc supposcd grcatcr gain ol
othcrs is indccd unjust. 8ut wc nccd not stop short with rcporting our
intuition to that ccct, wc can givc rcasons lor our judgmcnt. Vc do not
downgradc justicc by not rcgarding it as an undiscussablc ultimatc. !njus
ticc subvcrts social coopcration and thc pursuit ol happincss. Sir Jamcs
Mac!ntosh argucd (!indiciae Gallicae, quotcd in Halvy ., p. .) that
thc cxtrcmc usclulncss ol gcncral principlcs ol justicc makcs thcm morally
obligatory.
Justicc is cxpcdicncy, but it is cxpcdicncy, spcaking by gcncral maxims,
into which rcason has conccntratcd thc cxpcricncc ol man kind. . . . Vhcn
! asscrt that a man has a right to lilc, libcrty, &c. ! only mcan to annunci
atc a moral maxim loundcd on general interest, which prohibits any attack
on thcsc posscssions. . . . |Acclaration ol Rights is an cxpcdicnt| to kccp
alivc thc Public vigilancc against thc usurpation ol partial intcrcsts, by
pcrpctually prcscnting thc gcncral right and thc gcncral intcrcst to thc
Public cyc.
John Stuart Mill (Mill .6, p. a) said: Justicc is a namc lor ccrtain
classcs ol moral rulcs which conccrn thc csscntials ol human wcllbcing
morc ncarly, and arc thcrclorc ol morc absolutc obligation, than any othcr
rulcs lor thc guidancc ol lilc.
soci~i coovvv~:iox ~xb co:v~v~:ivv ixs:i:u:ioxs
As an approach to undcrstanding what sorts ol individual conduct and
cspccially what institutions and policics arc dcsirablc, rulcs or indircct
utilitarianism amounts to much thc samc thing as thc comparativcinsti
tutions or goodsocicty approach. Tcsc all havc an anity with thc truth
judgmcnt approach disparagcd by Jamcs 8uchanan.
Chapter :8: Fights, Contract, and Utility in Policy Espousal ,
For prcscnt purposcs it mattcrs littlc whcthcr thcsc dicrcnt labcls
apply to cxactly thc samc doctrinc, il not idcntical, thc doctrincs do sharc a
common oricntation. Tcir adhcrcnts try to lorma conccption ol thc good
socicty by contcmplating and comparing altcrnativc scts ol mutually com
patiblc social institutions. Tcir idcal is whatcvcr arrangcmcnts bcst lacil
itatc thc succcss ol individuals sccking to makc good livcs lor thcmsclvcs
in thcir own divcrsc ways. (Strictly spcaking, thcir ultimatc critcrion is
human happincss, howcvcr bcst scrvcd. !t is a rcscarchablc and discussablc
cmpirical judgmcnt that happincss is scrvcd by institutions that lacilitatc
voluntary coopcration, including oncs that sccurc thc rights mcntioncd in
thc U.S. cclaration ol !ndcpcndcncc.)
Tis approach rccognizcs thc importancc ol mutually bcnccial coop
cration among individualsthrough pcacc and sccurity and through thc
gains lrom spccialization and cxchangc. (Adam Smith pointcd out that
man is a social animal: hc makcs contracts. As Scott Gordon, .,6, p. 6,
notcs pcrccptivcly, thc most important lcaturc ol that word is thc nal
lcttcr, which makcs it plural. Tcrc is a world ol dicrcncc bctwccn thc
conccption ol socicty as consisting ol contracts and thc conccption ol it as
bascd upon a contract.)
Tc approach rccommcndcd hcrc appraiscs particular principlcs, rulcs,
institutions, and policics according to whcthcr thcy arc likcly to scrvc
or subvcrt social coopcration in thc scnsc just indicatcd. (Tc conccpt il
not thc tcrm is promincnt in thc philosophics ol Tomas Hobbcs and,
as F.A. Hayck has cmphasizcd, ol avid Humc. Scc Hobbcs, Le.iathan,
.6./.a, chap. ., and Kcmp .,c. Tc tcrmsocial coopcration is promi
ncnt in thc writings ol Hcrbcrt Spcnccr, Ludwig von Miscs, and Hcnry
Hazlitt.)
Social coopcration counts as a ncarultimatc critcrion, sincc it is an
indispcnsablc mcans to individuals ccctivc pursuit ol thcir own happi
ncss in thcir own divcrsc ways (Hazlitt .6, csp. p. 6). Coopcration is
lacilitatcd by rulcs that improvc pcoplcs chanccs ol prcdicting cach othcrs
bchavior and achicving coordination. \oluntary coopcration accords bct
tcr than cocrcion with cach pcrsons having purposcs and idcals ol his
own and with his having only onc lilc to livc. mphasis on voluntary
coopcration warns against authorizing any agcncy to imposc unlair sac
riccs on individuals lor thc supposcd grcatcr good ol a grcatcr num
bcr. 8ut this approach docs not simply postulatc voluntary coopcration
and dcplorc cocrcion. !t invcstigatcs and comparcs thc typcs ol socicty
likcly to cmcrgc lrom having altcrnativc scts ol institutions and rulcs and,
Part : Politics and Philosophy
in particular, lrom whcthcr or not pcrsonal rights arc rccognizcd and
rcspcctcd.
Tc tcrm utilitarianism as uscd hcrc applics to any critical cxamina
tion ol social rulcs and institutions, thcir lunctioning, and thcir implica
tions lor happincss. !n this widc scnsc, F.A. Hayck says (.,6, pp. .,.),
anyonc prcparcd to cxaminc cxisting valucs rathcr than acccpt thcm
unqucstioningly is a utilitarian, Aristotlc, Tomas Aquinas, and avid
Humc would so count.
!n rcjccting actutilitarianism lor rulcsutilitarianismbut thc tcrms
arc not hisHayck cxplains (.6, pp. 6) why it may bc rational to dis
rcgard known particular circumstanccs whcn making dccisions. Accidcn
tal and partial bits ol inlormation might not changc thc probability that il
wc kncw and could proccss all inlormation about thc circumstanccs, thc
nct advantagc would lic on thc sidc ol lollowing thc applicablc rulc. Vc
should not dccidc cach casc on thc basis ol thc limitcd numbcr ol individ
ual lacts that wc happcn to know.
nc rcason lor abiding by rulcs, thcn, is that wc simply cannot asscss
all thc conscqucnccs and costs and bcnctsdircct and rcmotc, immcdi
atc and dclaycdol altcrnativc actions in cach particular casc. nc might
objcct that this position is antiintcllcctual, making a virtuc ol ignorancc.
How can wc know that advanccs in thcory and tcchnology may not makc
possiblc thosc allcgcdly impossiblc asscssmcnts: Part ol thc answcr, ! con
jccturc, is that thc critic has not rcally sccn thc point. Rulcsutilitarianism
docs not glorily ignorancc. Rathcr, it pcrccivcs thc rationality ol acting,
in ccrtain cascs and aspccts ol lilc, on gcncrally applicablc abstract prin
ciplcs instcad ol on thc lragmcntary and probably accidcntally biascd bits
ol concrctc inlormation that onc may happcn to posscss. Furthcrmorc,
complcxity and ignorancc by no mcans lorm thc cntirc casc lor rulcs
utilitarianism. Acting by rulc or on principlc oltcn contributcs to o.ercom-
ing ignorancc, namcly pcoplcs ignorancc ol cach othcrs probablc bchav
ior. Gcncral acccptancc ol principlcs contributcs to prcdictability in thc
world and thus to pcoplcs chanccs ol coordinating thcir activitics to thcir
mutual bcnct.
As a utilitarian in thc tradition ol Humc rathcr than 8cntham, Hayck
docs not cnvision maximization ol somc aggrcgatc ol numcrical mcasurcs.
Hc says (.,6, pp. .a.c) that thc aim in dcvcloping or altcring rulcs
ol just conduct should bc to improvc as much as possiblc thc chanccs ol
anyonc sclcctcd at random. Hc spcaks ol chances rathcr than probabilities
bccausc thc lattcr tcrm suggcsts numcrical magnitudcs which will not bc
Chapter :8: Fights, Contract, and Utility in Policy Espousal
known. quivalcntly, thc bcst socicty would bc that in which wc would
prclcr to placc our childrcn il wc kncw that thcir position in it would bc
dctcrmincd by lot (.,6, p. .a, similar passagcs occur in .6,, p. .6, .,,
pp. 6a6, .,6, p. ..).
Haycks lormulations arc similar to thosc ol John C. Harsanyi, an
avowcd utilitarian, who considcrs a pcrson contcmplating altcrnativc so
cial arrangcmcnts in ignorancc or at lcast in disrcgard ol what his pcr
sonal situation would bc. n Harsanyis thcory, that pcrson would
havc to choosc thc social situation yiclding him a highcr cxpcctcd util
ity, which in this casc would mcan choosing thc situation providing a
highcr a.erage utility le.el to thc individual mcmbcrs ol thc socicty.
(Harsanyi .,6, chap. , p. 6,, cl. Harsanyi ./.,, pp. a,6a,,. !l
Harsanyis mcthod rcscmblcs Rawlss .,. notion ol choicc bchind a
vcil ol ignorancc, thc similarity gocs to show that such a conccption ol
impartiality nccd not bc a distinctivcly contractarian onc, as Rawls sccms
to think.)
Tc vcrsion ol utilitarianism hcrc attributcd to Hayck, among oth
crs, might also, as alrcady suggcstcd, bc callcd a comparativcinstitutions
or goodsocicty approach. Although Hayck rcpcatcdly cmphasizcs how
spontancously cvolvcd rulcs and institutions may scrvc an ordcr that tcnds
to rcducc conicts and casc coopcration among pcrsons pursuing thcir
own divcrsc cnds, hc docs not discouragc looking critically at thosc rulcs
and institutions and somctimcs dclibcratcly modilying thcm.
Consciously dcsigning a socicty lrom scratch, howcvcr, is not a livc
option. No onc knows cnough lor such an undcrtaking. Trough trial and
crror and survival ol what works, our cxisting socicty incorporatcs much
unarticulatcd knowlcdgc. Trowing that knowlcdgc away mcrcly bccausc
ol its bcing unarticulatcd and thcrclorc unapprcciatcd would bc rccklcss.
Vc should havc a ccrtain humility in undcrtaking rclormso Hayck in
ccct argucsbut not rcjcct all thought ol rclorm.
u:iii:~vi~xis: ~xb voii:ic~i oniic~:iox
Tc comparativcinstitutions strandol utilitarianismdocs not try toground
govcrnmcnt and political obligation in contractarian ctions. Tc notion
ol conscnttacit conscntmay havc hcuristic valuc, admittcdly, but argu
mcnts using it should, il sound, bc amcnablc to translation into straight
lorward nglish. !n such argumcnts, tacit conscnt alludcs to considcratc
ncss, rcciprocity, and scllcstccm, all ol which arc valuablc on broadly
cc Part : Politics and Philosophy
utilitarian grounds. Most ol us bclicvc that wc should ordinarily practicc
thc cvcryday littlc courtcsics toward onc anothcr, acccpting trivial incon
vcnicnccs lor oursclvcs to sparc othcrs substantial oncs. rdinarily, lor
cxamplc, wc do not complain about rcasonablc noisc incidcntal to usclul
activity (rcasonablc is admittcdly a wcascl word hcrc), lor wc oursclvcs
bcnct lrom a socicty in which such noisc is tolcratcd. Tc point is not
that wc and othcrs havc agrccd, or arc dccmcd to havc agrccd, to sucr
noisc. Such a ction is unncccssary. Rathcr, cach ol us rclrains lrom com
plaining about rcasonablc noisc in thc cxpcctation ol othcrs similar lor
bcarancc and in thc intcrcst ol thc social coopcration lrom which wc all
bcnct.
ach ol us would bc uncasy constantly and bclligcrcntly insisting on
our rights, rclusing considcration ol othcrs at thc cost ol cvcn thc slight
cst momcntary inconvcnicncc, and insisting that othcrs cithcr rclrain lrom
activitics cxcrting thc slightcst advcrsc cxtcrnality or clsc pay compcnsa
tion. Tat would bc a ncrvcwracking way to livc. Vc would bc inconsis
tcnt in bcing intolcrant and inconsidcratc ol othcrs whilc cxpccting thcm
to bc tolcrant and considcratc ol us. Such bchavior would cmit mcssagcs
to othcrs about our own charactcr.
For most ol us, lurthcrmorc, it scrvcs our scllcstccm to think ol our
sclvcs as consistcnt, considcratc pcrsons who play lair and who support
rathcr than subvcrt a dcccnt socicty. ach ol us bcncts lrom courtcsy
and casc in rclations with our lcllows. !t docs not scrvc our scllcstccm or
intcrcst to undcrcut that spirit. Tus, wc nccd not intcrprct tolcrant and
considcratc bchavior toward othcrs as compliancc with a contract.
Much thc samc considcrations arguc lor rcspccting thc lcgitimacy
ol govcrnmcnt and an obligation to obcy its laws. Tc argumcnt also
cxplains why thc lcgitimacy and obligation arc not total. Most ol us
lccl obligcd to obcy a rcasonably dcccnt govcrnmcnt on thc grounds
that doing so contributcs to our own and our lcllows wcllarcin vicw
ol thc Hobbcsian altcrnativc. Considcration ol our lcllows, which ordi
narily scrvcs our scllcstccm, rcquircs our not contributing to thc sub
vcrsion ol a gcncrally usclul institution (which govcrnmcnt is, cvcn
though a ncccssary cvil). Unlairly arrogating spccial privilcgc to onc
scll, picking and choosing which laws to obcy, and making cxccptions
in oncs own lavor docs somcthing toward undcrmining thc lcgitimacy
and authority ol a govcrnmcnt lrom which wc oursclvcs dcrivc nct advan
tagcs. (! distinguish, ol coursc, bctwccn a govcrnmcnt that is dcccnt
on thc wholc and, on thc othcr hand, a tyrannical onc that ought, on
Chapter :8: Fights, Contract, and Utility in Policy Espousal c.
thc samc grounds ol conccrn lor oursclvcs and our lcllows, to bc ovcr
thrown.)
ngrounds involving oncs ownandothcr pcrsons happincss as scrvcd
through social coopcration, thcn, onc can makc a casc lor pcoplcs (r) ac
cording cvcryday courtcsics to onc anothcr, and (a) practicing considcr
atcncss and rcciprocity in yct anothcr way, through rcspccting political
obligation toward a rcasonably dcccnt govcrnmcnt.
Much ol thc lollowing tics in with possiblc answcrs to what 8rand
8lanshard calls thc lundamcntal qucstion ol political thcory: Vhy should
! obcy thc law: An adcquatc answcr to that qucstion would carry with it
thc answcr to such qucstions as, Vhy should thcrc bc a govcrnmcnt at all:
Vhat arc thc grounds ol its rights against mc and my rights against it and
how in principlc arc thosc rights to bc limitcd: (8lanshard .6., chap. .,
Rcason and Politics, quotation lrom p. ,6).
According to thc rst thcory that 8lanshard rcvicws, political rights
and dutics arc bascd on nothing. Tis anarchist vicw is doctrinairc idcal
ism ol a pathctically irrcsponsiblc sort (.6., p. ,). Sccond is thc doc
trinc that might makcs right, it scts cthics asidc. Tc third appcals to divinc
authority, thc lourth, thc doctrinc ol Hobbcs and Rousscau, to a social
contract.
Contractarianism bcgs thc qucstion, 8lanshard cxplains. !l, bclorc cn
tcring into thc social contract, ! do not havc an obligation to kccp con
tracts, thcn thc social contract to kccp luturc contracts is not binding, nor
arc luturc contracts supposcdly madc undcr it. 8ut il ! do havc an obliga
tion in thc rst placc to kccp contracts or to honor ccrtain othcr dutics,
thcn thc thcory is supcruous.
Filth is thc doctrinc ol thc cclaration ol !ndcpcndcncc: thc scll
cvidcnt truths that mcn havc ccrtain unalicnablc rights, that govcrnmcnts
arc institutcd to sccurc thcsc rights, and that il a govcrnmcnt bccomcs
dcstructivc ol thcm, thc pcoplc havc thc right to altcr or abolish it. Tis
doctrinc, says 8lanshard, comcs closc to thc corrcct onc. Hc docs not dcny
thc cxistcncc ol natural rights rcsting on no govcrnmcnt and no convcn
tion and idcntiablc by rcason, but hc doubts that thc doctrinc ol scll
cvidcncc statcs thcir truc ground. Natural rights can brcak down: cascs
arc conccivablc in which thc community can lcgitimatcly cxcrcisc cocr
cion. All sorts ol rights would bc dcsirablchcrc ! am cmbroidcring on
8lanshard a bitil rccognizing thcm did not cost too much in various
ways. Now, considcring costs mcans going bcyond what is supposcdly scll
cvidcnt.
ca Part : Politics and Philosophy
Sixth comcs 8lanshards doctrinc ol rational will:
that mcn havc a common moral cnd which is thc objcct ol thcir rational
will, that thc statc is a contrivancc that thcy havc workcd out |that has
cvolvcd, Hayck would probably say| to hclp thcm rcalizc that cnd, and
that its authority ovcr thcm rcsts on its bcing ncccssary lor that cnd. !l
it is politically obligatory at timcs to obcy a law that onc rcgards as bad,
that is bccausc thc statc could not bc run at all il thc citizcns could pick
and choosc which laws thcy would obcy. Ultimatcly, thcrclorc, political
obligation, cvcn that ol obcying a morally bad law, is a moral obligation,
and whcn, as occasionally happcns, it bccomc |sic| a duty to disobcy, thc
ground is still thc samc. (.6., p. )
Four propositions claboratc this doctrinc:
First wc can distinguish within our own minds bctwccn thc cnd ol our
actual or immcdiatc will, and thc cnd ol our rational will, which is what
on rccction would commcnd itscll as thc grcatcst good. Sccondly, this
rational cnd is thc samc lor all mcn. Tirdly, this cnd, bccausc a common
cnd, is thc basis ol our rights against cach othcr. Fourthly, thc justica
tion ol thc statc, and its truc occ, lic in lurthcring thc rcalization ol
this cnd. . . . |T|hc thcory ol a rational will providcs a natural and intcl
ligiblc ground both lor obcdicncc in normal cascs and lor disobcdicncc
in abnormal cascs. (pp. , ca)
8ricy intcrprctcd, 8lanshards rationalwill doctrinc says that thc ob
ligation to support govcrnmcnt is binding bccauscand to thc cxtcnt
thatit scrvcs social coopcration. Tc obligation to support rathcr than
subvcrt social coopcration rcsts, in turn, on ordinary cthical prcccpts. (!
do not maintain, howcvcr, that 8lanshard would himscll acccpt thc utili
tarian labcl.)
Vc havc no nccd lor contractarian ctions. ! might wcll obcy thc laws
ol an absolutc monarchy, and cvcn considcr such obcdicncc in thc gcncral
intcrcst and morally obligatory, whilc disapproving ol that govcrnmcnts
nondcmocratic charactcr and ol somc ol its actions.
~ u:iii:~vi~x coxcvv:iox ov covvvx:vx:
A rcstatcmcnt is worth attcmpting. Vc go along with thc cxisting lorm ol
govcrnmcnt and gcncrally obcy its laws bccausc, rst, wc havc no rcal altcr
nativc. For an individual, rcvolt would bc lruitlcss and moving abroad too
Chapter :8: Fights, Contract, and Utility in Policy Espousal c
costly. (8csidcs, whcrc would wc go:) Vc individuals havc not agrccd cvcn
to having a govcrnmcnt at all, much lcss to thc particular constitution in
lorcc. Vc havc not cvcn bccn askcd whcthcr wc agrcc (and asking us now
would bc a mockcry). Rathcr, wc ol thc currcnt gcncration nd oursclvcs
living undcr a lorm ol govcrnmcnt and undcr laws that havc cvolvcd ovcr
timc without our individually having had any ccctivc say. Govcrnmcnt
and laws arc not primarily rcsults ol an organizcd and dclibcratc proccss
ol collcctivc dccisionmaking, ccrtainly not ol onc in which wc thc living
havc takcn dccisivc part.
A sccond rcason lor acquicsccncc is that wc nd thc cxisting systcm
prclcrablc to gcncral lawlcssncss. Pcacc and sccurity and a stablc lcgal
lramcwork scrvc social coopcration and thus happincss. Vc individuals
bcnct lrom othcrs abiding by thc law and lccl that wc in turn should
do thc samc. Vc lccl that it would bc morally wrong to makc cxccp
tions in our own lavor at othcrs cxpcnsc. !n sclldclcnsc wc apply lorcc
against criminals who out such ol thc moral codc as has bccn rcinlorccd
by law.
Tc mostwhich is pcrhaps too muchthat can bc said lor a social
contract thcory is that most ol us abidc by thc law and rclrain lrom uncon
stitutional subvcrsion ol cxisting govcrnmcnt in cxpcctation or in consid
cration ol othcrs doing thc samc. 8ut this vcry ncbulous contract, il it is
a contract at all, is ol thc samc sort as thc onc in accordancc with which
wc gcncrally obscrvc ordinary cthical prcccpts. Vc ordinarily show somc
considcration lor othcr pcoplc and thcir rights bccausc wc cxpcct thcm to
show similar considcration lor us and bccausc bchaving with this consis
tcncy and dcccncy scrvcs our own scllcstccm. Considcratcncss lor cach
othcr yiclds gains lrom tradc.
!t would rcally bc rcaching, howcvcr, to intcrprct this sort ol implicit
trading as a social contract, and particularly as a contract whcrcby cach ol
us has conscntcd to thc cxisting constitution and is thus dccmcd to havc
conscntcd to govcrnmcnt dccisions madc in accordancc with thc consti
tution. !t is an cxaggcration to call thc govcrnmcnts laws and actions thc
rcsult ol collcctivc dccisionmaking in any litcral scnsc. Lcts lacc it: gov
crnmcnt dccisions arc madc by govcrnmcnt ocials (and thc compositc ol
thosc dccisions undcrgocs somc unintcndcd drilt ovcr timc), wc ordinary
citizcns arc not thc govcrnmcnt.
Undcr dcmocracy, it is truc, wc havc somc inucncc on thosc dcci
sions through voting, through hclping shapc public opinion, and thus
through inucncing what dccisions public ocials will considcr in thcir
c Part : Politics and Philosophy
own intcrcst. 8ut our control ovcr govcrnmcnt is lcss prccisc and ccc
tivc than our control ovcr cconomic activity through our voting in thc
markctplacc. Somc analogy docs hold bctwccn political and cconomic
dccisions, but wc should not dcludc oursclvcs about how closcly it holds.
!s thc statc a product ol its citizcns voluntary conscnt, a mcchanism
voluntarily cstablishcd to attcnd to thcir common conccrns: Nonscnsc. !
havc no choicc about bcing subjcctcd to its laws. Truc cnough, ! am glad
that thc statc cxists, ! prclcr it to anarchy, but thc statc is thcrc whcthcr
! want it or not. My wclcoming ccrtain arrangcmcnts docs not mcan that
thcy arc not compulsory. ! am glad to havc scat bclts in my car and would
probably havc bought thcmwillingly il ! had had a lrcc choicc, but thc lact
rcmains that ! did not havc a lrcc choicc and that thc bclts wcrc installcd
undcr compulsion ol law.
Far lrom thc statcs bcing a voluntary arrangcmcnt, thcn, its csscncc is
compulsion. !t rclics as a last rcsort on its powcr to scizc goods and pcrsons,
to imprison, and to cxccutc. !l obcdicncc to govcrnmcnt is not compulsory,
thcn what is: Vhat docs thc word compulsory mcan: Vhat happcns to
thc distinction bctwccn thc voluntary and thc compulsory:
To say this is not to glorily thc compulsory aspccts ol govcrnmcnt.
! conccdc thcir ncccssity only with rcgrct. ! want to kccp thcm tightly
rcstraincd, as thc causc ol human libcrty rcquircs. nc scrvcs that causc
poorly il onc dcludcs oncscll into thinking that govcrnmcnt cmbodics lrcc
cxchangc and that compliancc with its ordcrs is voluntary. Hardhcadcd
ncss or toughmindcdncss bcttcr scrvcs oncs valucs.
Vhilc libcrtarians want to cxtcnd thc voluntary aspccts ol socicty
and govcrnmcnt, thcy should not dcludc thcmsclvcs about rcality and
thc human condition. Socicty and govcrnmcnt arc not and cannot bc
thc rcsults ol a social contract. Tcir justication rcsts on othcr consid
crations.
Tc kcy clcmcnt in thc casc lor dcmocracy, as ! scc it, is that dcmoc
racy lcsscns thc ncccssity or dcsirability ol violcnt rcbcllion. !t makcs thc
altcrnativc, discussion, rclcvant. !l a policy or a law rcally is opprcssivcly
bad, citizcns and thcir political rcprcscntativcs may comc to undcrstand
why and may changc it pcacclully. Tis casc lor dcmocracy is a lar cry lrom
asscrting that all dccisions madc undcr dcmocratic govcrnmcnt arc thcrc
lorc madc in accordancc with cach citizcns will, or his rcal will, or arc to
bc considcrcd as having bccn so madc. Vc nccd not appcal to any ction
about unanimous constitution agrccmcnt to waivc unanimous agrccmcnt
on spccic issucs.
Chapter :8: Fights, Contract, and Utility in Policy Espousal c
:~ci: u:iii:~vi~xis: ~:oxc vicn:s :nvovis:s
vcn scvcral rights thcorists who disavow utilitarianism do tacitly cmploy
a vcrsion similar to thc onc rccommcndcd in this papcr. ! ask thcm to
conduct a mcntal cxpcrimcnt. Supposc, just lor thc sakc ol argumcnt, it
could bc dcmonstratcd that insistcncc on thc inviolability ol human rights
as thcy conccivc ol thcm would lcad to gcncral miscry, whcrcas a prag
matic policy ol rcspccting rights or not as conditions sccmcd to rccom
mcnd would lcad to gcncral happincss. Vould thosc thcorists still insist
on thc inviolability ol rights as thc suprcmc goal to bc uphcld cvcn at thc
cost ol prcvalcnt human miscry:
Pcrhaps thcy would rcply that this is a prcpostcrous supposition and
that rcspcct lor rights promotcs human lulllmcnt and happincss, whcrcas
a pragmatic attitudc toward rights is an obstaclc. Vcll, ! think so too. 8ut
unlcss thc rights advocatcs do answcr ycs to thc qucstion, insisting on
rights cvcn at thc cost ol gcncral miscry, thcy arc taking a broadly utilitar
ian stancc. !l thcy answcr as ! think thcy must, thcy arc insisting on rights
bccausc ol thc good conscqucnccs ol upholding thcm and thc bad consc
qucnccs ol disrcgarding or ovcrriding thcm. At thc back ol thcir minds, at
lcast, thcy must havc somc notion ol a workablc social ordcr as an indis
pcnsablc mcans to happincss.
Vhy do ! carc about thc word utilitarian: Vhy am ! anxious to pin
that labcl onto cvcryonc: Vcll, ! do not carc about thc word as such. (And
! do distinguish bctwccn vcrsions ol utilitarianism, although ! do not nd
thc supposcd distinction bctwccn utilitarianism and conscqucntialism ol
much importancc.) Howcvcr, whcn a doctrinc that plausibly and in accord
with cstablishcd usagc bcars thc labcl utilitarian comcs undcr attack, it
scrvcs clcar thinking and communication to dclcnd that doctrinc undcr its
own namc rathcr than cast about lor a ncw onc. Playing thc lattcr gamc is
likc trying to dclcnd capitalism by invcnting a ncw namc lor it. Tc gamc
sccms to admit that thc doctrinc or systcm dclcndcd rcally is so odious
that it must bc rclcrrcd to only by cuphcmisms.
Robcrt Nozick, who avowcdly just postulatcs rights without dcvclop
ing an argumcnt lor thcm, providcs an cxamplc ol tacit utilitarianism in
thc way hc handlcs thc qucstion ol blackmail. Murray Rothbard, anothcr
rights thcorist, had put blackmail on a par with any othcr cconomic trans
action, it would not bc illcgal in a lrcc socicty (.6a, vol. .: p. n. ).
Nozick countcrs that blackmail is wrong, akin to thc protcction rackct.
Hc takcs a stcp toward asscssing its ccct on thc charactcr ol socicty by
c6 Part : Politics and Philosophy
noting that it, likc thc rackct, is an unproductivc activity, whcrcas bona
dc protcctivc scrviccs arc productivc (Nozick .,, pp. 6). (Rothbard
.,,, pp. , rcjccts Nozicks distinction, but with argumcnts that strikc
mc as lccblc, cvcn though thcy too arc in part, unavowcdly, utilitarian.)
Tacit utilitarianism crccps into thc discussion ol risky activitics also.
Supposc that your ncighbor handlcs cxplosivcs rccklcssly or plays Russian
roulcttc with a cannon mountcd on a turntablc. vcn il hc has liability
insurancc, hc harms you, probably by raising your own insurancc ratcs,
lowcring thc valuc ol your propcrty, and striking lcar and apprchcnsion
into you. You might plausibly arguc that your ncighbor is inlringing on
your rights, cvcn though no cxplosion or cannon ball happcns to damagc
your housc. Rothbard appcars to brush asidc such problcms by asking, in
ccct: !l lcar ol othcrs risky activitics is allowcd to justily action against
thcm, wont any tyranny bccomc justicd: Vhat about thc grcatcr risk ol
having a statc cmpowcrcd to control activitics it dccms risky: (Rothbard
.,,, csp. pp. c. Tc particular cxamplc uscd hcrc is minc, not Roth
bards or Nozicks, but it suits thc gcncral tcnor ol thcir discussion.)
Nozick (.,, pp. ,,, ,), on thc othcr hand, candidly rccognizcs
that Actions that risk crossing anothcrs boundary posc scrious problcms
lor a naturalrights position. . . . !mposing how slight a probability ol a
harmthat violatcs somconcs rights also violatcs his rights: . . . !t is dicult
to imaginc a principlcd way in which thc naturalrights tradition can draw
thc linc to x which probabilitics imposc unacccptably grcat risks upon
othcrs. Many kinds ol actions do imposc somc dcgrcc ol risk on othcrs.
Asocicty that prohibitcd thcmall unlcss thc actors had adcquatc mcans or
adcquatc insurancc to pay lor possiblc harmwould ill t a picturc ol a lrcc
socicty as onc cmbodying a prcsumption in lavor ol libcrty, undcr which
pcoplc pcrmissibly could pcrlorm actions so long as thcy didnt harm oth
crs in spccicd ways.Again, thc goodsocicty approach, utilitarianism!
thcr utilitarian strands arc cvidcnt in Nozicks book. His cxibility
about propcrty rights is an cxamplc. Hc supposcs that a natural disastcr
dcstroys thc cntirc supply ol watcr cxccpt onc mans, which is sucicnt lor
cvcryonc. Undcr thcsc circumstanccs, othcr pcrsons may takc thc watcr
or at lcast arc not obligcd to pay whatcvcr cxorbitant pricc its owncr may
dcmand. Nozick appcals to thc Lockcan proviso that onc mans appropri
ation ol a rcsourcc is justicd only il it lcavcs cnough and as good ol that
rcsourcc lor othcrs. Hc is not, in his own vicw, saying that rccognizcd
propcrty rights may bc ovcrriddcn. !nstcad, Considcrations intcrnal to
thc thcory ol propcrty itscll, to its thcory ol acquisition and appropriation,
Chapter :8: Fights, Contract, and Utility in Policy Espousal c,
providc thc mcans lor handling such cascs (.,, pp. .c..). Nozick
adds anothcr cxamplc: Similarly, an owncrs propcrty right in thc only
island in an arca docs not allow him to ordcr a castaway lrom a shipwrcck
o his island as a trcspasscr, lor this would violatc thc Lockcan proviso.
!t is mcrc word play, howcvcr, to wondcr whcthcr rights arc ovcrrid
dcn or arc dcncd in thc rst placc to bc appropriatc cvcn lor thc catas
trophc casc. Nozick misapplics thc Lockcan proviso anyway, sincc it con
ccrns somconcs original acquisition ol propcrty, not its rctcntion in thc
lacc ol changcd circumstanccs ol othcr pcrsons (Hodson .,,, csp. pp. aa.,
aaaa,).
Nozick tacitly appcals to utilitarian considcrations in lraming his con
ccption ol propcrty rights in a sucicntly complicatcd and cxiblc way to
allow thc actions that intuition and utility would suggcst in thc catastro
phc casc. Hc would havc us pcrmit acts that thrcatcn to cross our bound
aricslooscly spcaking, violatc our propcrty rightswhcn ccrtain con
ditions arc satiscd, including thosc ol thc casc in which thc bcncts in
harm prcvcntcd or good produccd lar outwcigh thc costs ol lully compcn
sating thc pcrson whosc boundarics arc crosscd (Rabinowitz .,,, p. ).
Lawrcncc A. Sca (.,,, p. aca) looks bchind Nozicks asscrtion that
moral thcory has priority in political discussions and nds his languagc
ol moral thcory consisting ol cconomic tcrms, calculations, catcgorics,
and assumptions. Moral discoursc is suuscd with costbcnct analysis.
Tus, cvcn in thc rcalm ol morality, all valucs carry a pricc tag.
Nozick (p. ,) adduccs similar considcrations in rccommcnding cost
bcnct analysis and thc tcst ol compcnsation (actual or mcrcly potcntial:)
in dccisions on which polluting activitics to lorbid and which to pcrmit.
Hc rccognizcs (p. .a) that hc cannot dcrivc a dcnitc position on patcnts
lrom considcrations ol rights alonc. Although a patcnt docs not dcprivc
othcrs ol what would not cxist il not lor thc invcntors work, knowlcdgc
ol thc patcntcd invcntion docs tcnd to discouragc indcpcndcnt corts to
rcinvcnt it. Yct . . . in thc abscncc ol thc original invcntion, somctimc latcr
somconc clsc would havc comc up with it. Tis suggcsts placing a timc
limit on patcnts, as a rough rulc ol thumb to approximatc how long it
would havc takcn, in thc abscncc ol knowlcdgc ol thc invcntion, lor indc
pcndcnt discovcry.
Tibor Machan, avowcdly a rights thcorist, is anothcr tacit utilitarian.
!nstcad ol simply postulating or intuiting rights, hc inquircs into thc polit
ical principlcs ol a good socictygood lor mans pursuit ol happincss or
pcrhaps cxccllcncc, givcn his naturc and his charactcr as a moral agcnt.
c Part : Politics and Philosophy
Machan sccks to dcmonstratc that sincc cach pcrson is rcsponsiblc to
achicvc his own happincss, that socicty that is suitcd lor him is onc in
which his individual libcrty is lully sccurcd. . . . |!|t is only in such a lrcc
socicty that thc moral agcncy, thc lrccdom and thc dignity, ol cach pcr
son can bc rcspcctcd. Tus only in that kind ol community can thc moral
lilc ourish (.,, p. .cc).
Machan asks why somconc who has thc option ol cithcr taking lrom
anothcr pcrson or producing and trading on his own should support thc
institution ol privatc propcrty. Hc suggcsts csscntially utilitarian answcrs,
rcasons why rcspccting thc institution ol owncrship is gcncrally advan
tagcous cvcn lor thc pcrson in qucstion. Hc concludcs that owncrship
is a morally appropriatc institution lor human bcings in gcncral. . . . |T|o
rcly on his own work (and/or tradc, crcativity, ingcnuity, ctc.) is bcttcr
lor thc pcrson than to livc o thc work ol othcrs by stcaling or cons
cating (pp. ..). Finally, Machans approving charactcrization ol Ayn
Rands doctrinc is tacitly utilitarian. Rand, hc says, dclcnds capitalism
as morally right bccausc human bcings can work (tradc, crcatc, risk) lor
thcir own good only whcn and whcrc it prcvails. Shc advocatcs it as a
systcm that is good lor human bcings, morally good lor thcm, to choosc
lor thcmsclvcs (Machan .,, p. .6).
vcn Murray Rothbard has at lcast oncc (.,, pp. aa) lapscd into
a tacit utilitarianism, sccing it as vitally ncccssary lor cach mans survival
and prospcrity that hc bc lrcc to lcarn, choosc, dcvclop his lacultics, and
act upon his knowlcdgc and valucs. . . . |T|o intcrlcrc with and cripplc this
proccss by using violcncc gocs proloundly against what is ncccssary by
mans naturc lor his lilc and prospcrity.
:~ci: u:iii:~vi~xis: ~:oxc cox:v~c:~vi~xs
!n thc contractarian camp, John Rawls in ccct says wc should ask: !l a
group ol idcally rational bcings camc togcthcr in ordcr to pick rulcs to gov
crn thcir mutual rclations, which rulcs would thcy bc compcllcd (by thc
powcr ol thcir rationality) to pick: (rcstatcmcnt by Murphy .,,, p. a).
Vcll, what do thosc bcings rationally takc into account: Facts ol rcality
and applicablc cconomic and othcr thcorics, prcsumably, togcthcr with a
valuc judgmcnt in lavor ol happincss, cspccially thcir own. Rawls assumcs
that thc partics ncgotiating in thc original position alrcady acccpt a thin
thcory ol thc good, according to which libcrty and opportunity, incomc
and wcalth, and abovc all scllrcspcct arc primary goods, goods conducivc
Chapter :8: Fights, Contract, and Utility in Policy Espousal c
to happincss lor pcrsons almost rcgardlcss ol thcir spccic pcrsonality
traits and plans ol lilc. Tis list ol primary goods is onc ol thc prcmiscs
lrom which thc choicc ol thc principlcs ol right is dcrivcd (Rawls .,.,
pp. ,, , and passim).
Vhcn Rawls considcrs what principlcs would hclp makc primary
goods availablc and so scrvc pcrsons pursuit ol thcir lilc plans, hc is appcal
ing to broadly utilitarian considcrations. Tc samc is truc whcn hc rhap
sodizcs ovcr thc bcncts ol public commitmcnt to avowcd principlcs ol
justicc: dclibcratc injusticc invitcs submission or rcsistancc. Submission
arouscs thc contcmpt ol thosc who pcrpctuatc injusticc and conrms thcir
intcntion, whcrcas rcsistancc cuts thc tics ol community (p. ). !n dis
cussing thc problcm ol cnvy, Rawls notcs thc advantagcs ol having a plu
rality ol associations and many noncomparing groups. His principlcs ol
justicc arc not likcly to arousc . . . cnvy . . . to a troublcsomc cxtcnt. . . . Vhat
a social systcm must not do clcarly is to cncouragc propcnsitics and aspi
rations it is bound to rcprcss and disappoint. So long as thc pattcrn ol
spccial psychologics clicitcd by socicty cithcr supports its arrangcmcnts
or can bc rcasonably accommodatcd by thcm, thcrc is no nccd to rccon
sidcr thc choicc ol a conccption ol justicc. . . . |T|hc principlcs ol justicc
as lairncss pass this tcst (.,., pp. 6,, ., Rawlss discussion ol cnvy
covcrs pp. c.). Furthcrmorc, Rawlss wholc mcthod ol rccctivc cqui
libriumtcsting tcntativc principlcs by how thcy arc likcly to work out
in practicc and adjusting both principlcs and judgmcnts about particular
cascs to achicvc consistcncy bctwccn thcmis a kind ol utilitarianism.
Rawls himscll rcjccts this labcl. Hc rccognizcs that thc partics in thc
original position might adopt somc lorm ol utility principlc in dcning
thc principlcs ol social coopcration. Still, hc says, it would bc a mistakc
to call thcsc principlcsand thc thcory in which thcy appcarutilitarian.
!n lact, thc casc lor thc principlcs ol justicc is strcngthcncd il thcy would
bc choscn undcr dicrcnt motivation assumptions. Contract thcory could
cvcntually lcad to a dccpcr and morc roundabout justication ol utilitari
anism (.,., pp. ...a). !n saying so, Rawls is lorgctting that his notion
ol a contract ncgotiatcd in an original position is uttcr ction.
8uchanans wing ol contractarianism has alrcady bccn dcscribcd su
cicntly to suggcst how it is tacitly utilitarian. According to its tcncts, an
cconomist is cntitlcd to rccommcnd a policy only tcntativcly, only as a
hypothcsis that it is in accord with a unanimously madc contract, or that it
conccptually commands agrccmcnt, or that it could command agrccmcnt,
prcsumably altcr a sucicnt amount ol sucicntly cnlightcning public
.c Part : Politics and Philosophy
discussion. Vcll, on what basis could thc cconomist cxpcct or hopc lor
thc ncccssary dcgrcc ol agrccmcnt: Tc probablc cccts ol thc contcm
platcd policy must surcly gurc promincntly in thc answcr.
Contractarians likc 8uchanan distinguish bctwccn propounding hy
pothcscs about what policics could idcally command agrccmcnt and rcc
ommcnding policics bccausc thcy arc cxpcctcd to cnhancc social coopcr
ation and so scrvc human happincss. Tc distinction sccms opcrationally
cmpty to mc.
coxciusiox
Tc purc doctrinc ol natural or human rights cuts analysis short cithcr
by mcrcly postulating rights as axioms or by qucstionably dcriving rights
lrom supposcdly axiomatic propositions that in lact rcquirc lurthcr cxam
ination thcmsclvcs. !n truth wc cannot inlcr onc inlallibly bcst sct ol insti
tutions and policics lrom onc or morc rst principlcs whosc implications
arc guarantccd ncvcr to clash. !t is a grcat illusion in political philosophy
to scck solutions to insolublc problcms. . . . |T|hcrc is morc than onc basic
principlc that appcals to moral scnsc and lor which good argumcnt can bc
madc. . . . Vc livc in a morally mcssy world. 8ut it is thc onc wc arc stuck
with (Gordon .,6, p. ).
Contractarianism rcsts on larlctchcd ctions. r il it docs not cxactly
rcst on thcm, its rhctoric docs abound in thcm, and il it is strippcd ol
its ctions and translatcd into straightlorward languagc, contractarianism
turns out to bc not much dicrcnt lrom a lorm ol utilitarianism.
Vc can hardly makc progrcss in social philosophy or policy analysis by
adopting ctions as our rst principlcs. Vhilc wishing to cnhancc thc vol
untary and markctlikc aspccts ol govcrnmcnt, lor cxamplc, wc must not
blind oursclvcs to its csscntially cocrcivc charactcr. !nstcad ol bcguiling
oursclvcs with attractivc myths, wc can bcttcr scrvc our lundamcntal val
ucs by trying to comparc altcrnativc scts ol institutions, altcrnativc big pic
turcs, avoiding cxccssivcly narrowand shortrun locus. !nvcstigation, anal
ysis, and discussion ol thc lcaturcs and probablc conscqucnccs ol contcm
platcd institutions and policics all arc indispcnsablc aspccts ol thc scarch
lor agrccmcntassuming, lor thc sakc ol argumcnt, that agrccmcnt wcrc
thc touchstonc ol policy. Actually, agrccmcnt itscll cannot lorm thc dcci
sivcly appcaling substancc ol a statc ol aairs capablc ol commanding it.
iscussion in scarch ol agrccmcnt rclics idcally on invcstigation, rca
soning, and chccking and comparisonthc ordinary scicntic proccss.
Chapter :8: Fights, Contract, and Utility in Policy Espousal ..
Tis proccss is polcs apart lrom dictatorship and lrom appcals to inlal
liblc insight. !n this proccss, wc can communicatc bcttcr and guard bcttcr
against misundcrstandings il wc cmploy straightlorward languagc.
Conccivably thc rights doctrinc and contractarianism arc not thc only
altcrnativcs to thc approach to policy cspousal that ! rccommcnd. !l
so, thosc othcr altcrnativcs dcscrvc lurthcr invcstigation and discussion.
Mcanwhilc, ! submit, a rulcsutilitarianism or indircct utilitarianismin
othcr words, a goodsocicty/comparativcinstitutions approachturns
out to bc thc only onc that stands up undcr critical inspcction.
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...
!ndcx
A
Abortion issuc, cxamplc ol spccial
intcrcsts, c
Absorption approach, balanccol
paymcnts, a,6
Acadcmic gamc
cconomics, a.a
mcthodology and rigor, a
Activism. See also Rcgulation
and dcmocracy, a
hobbyists, .
judicial activism, 6
Alcxandcr, Sidncy S., clasticitics,
a,6
Allais, Mauricc
acadcmic inccntivcs and gamcs,
aa
changcs in tastcs, taxcs or poli
cics, a., a.6
ination, aac
land: divcrsion and willingncss to
wait, a.aa.
savcrs and moncy, a.
Allocation cccts, ination, aac
Amcrica. See Unitcd Statcs ol
Amcrica
AnarchocapitalistLockcan rights,
,
Andcrson, 8cnjamin M., gold
standard, aca
Appropriation. See ntitlcmcnts,
Social justicc, Taxation
Armchair thcorizing, Gcorgc, 6
Arts, public lunding ol, a
Austria, gold standard, .., .
Austrian School ol conomics,
.cc..
attcntion to proccss, .,
busincss cyclc, .
complcmcntary schools, ..
coordination, ..
criticisms ol, .c.c
Gcorgc, .,
macrocconomics, .a
markctplacc ol idcas, .c,..
ncoclassical cconomics, .c.c,
strcngths, .cc.c
Authoritarianism, rclativism, lallibil
ism, 6
Axioms
rights, .
Rothbard: rights, c
B
8alanccolpaymcnts, tautology,
a,a,,
8artlcy, Villiam Varrcn, !!!,
justicationism, a
8cllamy, dward, uchronia,
8iology, tautologics, a,.
8lackmail, Rothbard: propcrty
rights,
8lanshard, 8rand, political rights
and dutics, c.
8lock, Valtcr, morality and law,

8ohr, Nicls, principlc ol complc

mcntarity, a,
.6
Index .,
8ooms. See 8usincss cyclc
8oylc, Joscph M., dctcrminism:
scllrclcrcntial problcm ol,
a,
8ritain, Hutt on postwar 8ritain,
.,
8rockway, Gcorgc, Kcyncs, .6.
8roomc, John, contractarianism,
8rown, .H. Phclps, gcncral cqui
librium thcory cquation
systcms, .
8uchanan, Jamcs
acadcmic inccntivcs and gamcs,
a.a
contractarianism, a, c
ncoclassical cconomics, .c6
social contract, c
truth judgmcnt,
8udgct constraints
limits on govcrnmcnt cxpcndi
turcs,
as tautologics, a,
8urcaucracy
and govcrnmcnt rcgulation,
political cconomy, .,
8usincss cyclc
cconomctrics, a.
macrocconomics, ..a, .
moncy: Hutt, ..
C
Cagan, Philip, moncy: cconomct
rics, aa
Calculation
knowlcdgc,
Miscs and Hayck, ..
socialism, 6
Campbcll, C.A., dcscriptivc and
prcscriptivc laws, a
Capital
capital lormation: moncy and,
a.,aaa
and intcrcst thcory: subjcctivism,
6
land and intcrnational capital
movcmcnts, a..
macrocconomics, .
willingncss to wait, a.a
Capitalimportandcxport argu
mcnts lor tradc intcrvcntion,
gcncral cquilibrium thcory, .a
Capitalism, Kirzncr: morality ol
capitalism and prot, c,a.
Casscl, Gustav
gcncral cquilibrium thcory
cquation systcms, .
subjcctivism, 6
Causality
dctcrminism, a.
gcncral cquilibrium thcory, .c
Chambcrlin, T.C., compcting
hypothcscs, a6
Chancc, cthics, aaa
Churchill, Vinston, on votcrs and
dcmocracy, ,6
Citation indcxcs, mcasuring aca
dcmic cxccllcncc, ..., ..
Classical school. See also Ncw
Classical school
Classication, tautologics, a,.
Clowcr, Robcrt
coordination, .c
on gcncral cquilibrium thcory,
Kcyncs, ., .,,, .c
mcthodology, aa
Coasc8uchanan conccpt ol cost, a
Coasc, R.H., pricing and socialism,
,
Cognitivc dissonancc,
Collatcral cccts, gcncral cquilib
rium thcory, .a
Collcctiblcs, a.,
Comparablc worth lallacy, subjcc
tivism, a
Compcting hypothcscs, mcthodol
ogy, a6a
Complcmcntarily, principlc ol, a,
. Index
Complcxity
cthics, aaa
gcncral cquilibrium thcory, ,
Conccpts, rolc in cconomics,
Constitutional monarchy, vcrsus
dcmocracy, ,,
Consumcrs
consumcrsurplus: gcncral
cquilibrium thcory, ..
consumcrs sovcrcignty: subjcc
tivism, a
knowlcdgc and coordination, a
Contagion. See 8usincss cyclc
Contractarianism
about, a
ctions, c
tacit utilitarianism, c.c
Contracts, utilitarianism: rights,
contract and utility in policy
cspousal, ,,.
Convcntions, scicncc, a6
Coopcration, political cconomy,
c..
Coordination
Gcorgc, 6a
intcrtcmporal, .
macrocconomics, .c.
and subjcctivism, a,c
Costs. See also pportunity cost
Coasc8uchanan conccpt ol, a
gcncral cquilibrium thcory, ,
ol govcrnmcnt rcgulation, a
Courts. See Judicial proccss
Crcdit, and moncy, .
Crcditallocation, subjcctivism, a6
Crcditdclault swaps, ..
Crowding out, govcrnmcnt rcgula
tion and, .
Crypticism, subjcctivism, .
Custom unions, tradc, a.
Customcr scrvicc, Klcin: how to
cnsurc hotcl rcscrvations arc
honorcd,

arrow, Clarcncc, dctcrminism as

latalism, a
avcnport, H.J., monctary ol
dcprcssion, .6
cccntralization, Austrian co
nomics, .c.
ccrcasingcost, gcncral cquilib
rium thcory, ..
ccit nancing, subjcctivism,
cmocracy. See also Unitcd Statcs ol
Amcrica
and libcrty, .a.
proccss, .
vcrsus constitutional monarchy,
,,
cmocratic markcts, Vitmann,
6,,
cpcndcncc ccct, Galbraith, cc
cscriptivc and prcscriptivc laws,
a
ctcrminism
about, a
cxtrcmc positions and partial
dctcrminism, aca
irrclutability ol, a,a
Schlick, aa6
scllrclcrcntial problcm ol, a,
iscrimination argumcnt, rcdistri
bution, 6
iscquilibrium
mcthodology, ac
monctary thcory, .a, ., .6
thcorics: Hutt, .,6.,
ivcrsion, land and willingncss to
wait, a..a.
ralt, military dralt and subjcc
tivism, a
uhcm, Picrrc, modcls, a
ynamic subjcctivism, Lachmann,

ynastics. See Constitutional

monarchy
Index .
I
conomctrics, mcthodology,
a.a
conomics
and principlcs, 6c
tautologics, a,aa,
conomicsolscalc, gcncral cquilib
rium thcory, ..
cicncy
socialism, ,aa
subjcctivism, a,
galitarianism, and libcralism,
6a,6
hrcnhalt, Alan, U.S. political
systcm, 6.66
lasticitics, balanccolpaymcnts
and cxchangc ratcs, a,6
ndogcncity, moncy, a
ncrgy crisis ol ., and .,,
subjcctivism and, aa
ncrgy industry, cxamplc ol crowd
ing out, c
nthovcn, Alain, gcncral cquilib
rium thcory cquation systcms,
.
ntitlcmcnts, Kirzncr, c.6
ntrcprcncurship
Austrian conomics on, .c
Kirzncr: morality ol capitalism
and prot, c,a.
quation ol cxchangc, a6a6
quation systcms
cquilibrium and socialism, ,,,
gcncral cquilibrium thcory, ..6
quilibrium. See also iscquilib
rium, Gcncral cquilibrium
thcory
Kcyncs, .6c, .6
mcthodology, aa, a.
ncoclassical cconomics, .c
simultancous cquations and
socialism, ,,,
rsatz standards, ...a.
sscntialism, about, a
thics, ac6
chancc, aaa
complcxity, aaa
dctcrminism, a, a,ca
cthical judgmcnts and dctcrmin
ism: Slotc, a,
lrcc will, a6a, aa,
Kirzncr: morality ol capitalism
and prot, c,a.
Miscs: cthics, rights and law,
aaa
political cconomy, c
Rothbard and 8lock: cthics and
law,
Schlick on, aa6
ukcn, Valtcr, thcory, a
xchangc ratcs
clasticitics, a,6
uctuating, .
xpcctations, subjcctivism, a, ,
xports, vcrsus imports, a.
xtcrnalcconomy argumcnts lor
protcction, gcncral cquilib
rium thcory, .a
xtortion, Rothbard: propcrty
rights,
I
Fallacymongcring, mcthodology,
ac
Fallibilism, authoritarianism, rcla
tivism, 6
Fatalism, dctcrminism as, a
Fluctuating cxchangc ratcs, .
Fragmcntation
govcrnmcnt rcgulation, aa
policy drilt and govcrnmcnt
rcgulation,
Francc, altcrnativc historics, a
Frank, Robcrt, intcrscction ol
cconomics, psychology and
cthics, a,
Frcc will
about, a
ac Index
dctcrminism and lrcc will:
Schlick, aa6
cthics, aa,
Frccdom. See also Libcrty
Hayck, ,c6
Fry, Maxwcll J., land: changcs in
tastcs, taxcs or policics, a.6
Fundamcntalist Kcyncsianism
about, .a
savings, invcstmcnt and moncy,
.6
G
Galbraith, J.K., dcpcndcncc ccct,
cc
Gcncral cquilibrium thcory, ..
See also quilibrium
about,
argumcnts in lavor, 6
criticism, 6
cquation systcms, ..6
lallacics claricd by, .
Miscs, .,
Valrass Law, a6
General Teory (Kcyncs), .6c.6,
.6,, .,
Gcncric Consistcncy, Principlc ol,
c
Gcorgc, Hcnry, .,.
Austrian School ol cconomics,
.
indcpcndcncc ol,
knowlcdgc, coordination and
unplanncd ordcr, 6a
mcthodology, 666
social philosophy, 666
socialism, 6
valuc thcory,
Gcrmany, altcrnativc historics,
Gcrwirth, Alan, Principlc ol
Gcncric Consistcncy, c
Gicrc, Ronald, modcls, a
Glazcr, Nathan, judicial activism,
6
Gold standard, ..ac
appcal ol, ac.ac
argumcnts pro and con, .a.6
attitudcs, acac6
climatcs ol opinion, .6.
Hutt, .
noncconomic motivcs, .ac.
Govcrnmcnt. See also ccit nanc
ing, Policy, Rcgulation
budgct constraints, a,
growth ol, .
Hutt, .,
utilitarian conccption ol, cac
Grangcrcausality tcsts, a
Grcat 8ritain, altcrnativc historics,

Grindcr, Valtcr, utilitarianism, .

Griscz, Gcrmain, dctcrminism:
scllrclcrcntial problcm ol,
a,
H
Halmos, Paul, writing stylc, a6
Hanscn, Gary ., busincss cyclc:
cconomctrics, aa
Hardin, Garrctt, inlormation glut,
aa
Hayck, F.A.
busincss cyclc, .
calculation, , ,, ..
coopcration and rcciprocation,
.c
dcpcndcncc ccct: Galbraith,
cc
lrccmarkct valucs, .
moncy, .
social justicc, .
on socialism and lrccdom,
,c6
subjcctivism, a
utilitarianism,
Hazlitt, Hcnry
dctcrminism and lrcc will,
aa6
Index a.
cthics in Human ction,
lrcc will and rcsponsibility,
a6a
natural rights, a
Hcalth and salcty, govcrnmcnt
rcgulations, .
High, Jack, on gcncral cquilibrium
thcory,
History. See Narrativcs
Hobart, R.., cxtrcmc positions and
partial dctcrminism, a
Hobbcs, Tomas, govcrnmcnt and
public policy, ..
Hobbyists, govcrnmcnt rcgulation
and, .
Hoppc, HansHcrmann, libcrtari
anism and utilitarian cthics,
6
Hotcl rcscrvations, Klcin: how to
cnsurc hotcl rcscrvations arc
honorcd,
HotcllingLcrncr pricing, socialism,
,
Hucrta dc Soto, Jsus, on gcncral
cquilibrium thcory,
Human ction (Miscs), 6.
Human capital, subjcctivism, a
Humc, avid, govcrnmcnt and
public policy, ..
Hungary, gold standard, ., .,
.6ac.
Hutt, Villiam H., .,.c
discquilibrium thcorics, .,6.,
cnduring valuc ol mcssagc, .,
Kcyncs: dcmand thcory, .,
Kcyncs: sclling idcas, .6
markct proccsscs, .,
micro oricntation, .,
moncy, .c.
stylc ol argumcnt, ..6
Hypothcscs, compcting, a6a
I
!dcntication problcm, gcncral
cquilibrium thcory, .c
!mports, vcrsus cxports, a.
!nccntivcs, lor protcsting poor
injusticcs and poor customcr
scrvicc,
!ncomc distribution, marginal
productivity thcory: Gcorgc,
,
!ncomcs, gcncral cquilibrium thcory,
,
!ndividualism, govcrnmcnt rcgu
lation and mcthodological
individualism, a
!nation, Allais: allocation cccts,
aac
!nsidcr inlormation, Kirncr, .a
!nstitutions
Austrian conomics and, .c.
macrocconomics, .c
monctary systcm, .,
priccs, .
social coopcration, 6
!ntcrdcpcndcncc, gcncral cquilib
rium thcory, 6
!ntcrcst
capital thcory: subjcctivism,
6
willingncss to wait, a.a
!ntcrvcntionism. See also Rcgulation
psychological roots ol, a
!ntuitionism
Kirzncr and Hayck on, .6
Miscs,
!nvcstmcnt, macrocconomics,
.6.
!rcland, Pctcr N., modcls, a6
]
Jobs, rationing and subjcctivism, a
Judicial proccss
and govcrnmcnt rcgulation,

aa Index
Miscs: cthics, rights and law,
aaa
Rothbard: axioms, rights and
natural law, c
and voluntary cconomic bchavior,
c
Justicationism, 8artlcy, a
K
Kant, !mmanucl, lrcc will and thc
laws ol naturc, a
Kcyncs, John Maynard, .,.,a
appraisal, .6
crowding out othcr intcllcctual
dcvclopmcnts, .
Hutt on, .,.c
invcstmcnt, .
a Kcyncsian:, .6c.6
lasting appcal, .6,
lingcring Kcyncsianism, .6
a monctarist:, .6
ovcrrcaction and labclshilting,
.6.6,
rcintcrprctation ol, .
thc salcsman, .,
Kcyncsianism. See also Fundamcn
talist Kcyncsianism, Ncw
Kcyncsian school
about, .a
King, Robcrt G., attitudcs and
prcssurcs in macrocconomics,
a.
Kings. See Constitutional monarchy
Kirzncr, !sracl, on morality ol cap
italism and prot, c,a.,

Klcin, avid, how to cnsurc good

customcr scrvicc,
Knight, Frank H., rcdistribution,
6
Knowlcdgc
calculation,
Gcorgc, 6a
and subjcctivism, a,c
Krugman, Paul, mcthodology, aa
I
Laband, avid, markct tcst ol idcas,
..6.a6
Lachmann, Ludwig, dynamic
subjcctivism,
Land, aca.
changcs in tastcs or policics,
a.a.,
divcrsion and willingncss to wait,
a..a.
Gcorgc: rcnt,
intcrnational capital movcmcnts,
a..
owncrship ol, aca.., aa
Landcsbcrgcr, Julius, gold standard,
.
LangcTaylor solution, socialism, .
Laws. See Judicial proccss
Lcadcrship, U.S. political systcm,
6.66
Lcijonhulvud, Axcl, Kcyncs, .,
.,,, .c
Lcrncr, Abba P.
moncy and pricc stickincss, .6
socialism,
Libcralism
attitudcs to gold standard, ac
and cgalitarianism, 6a,6
Libcrtarians
constitutional monarchy vcrsus
dcmocracy, ,,
Hoppc and utilitarian cthics, 6
utilitarian conccption ol, c
Libcrty. See also Frccdom
cocxistcncc with dcmocracy, ,,
and dcmocracy, .a.
Liquidity prclcrcncc
Hutt, .,6
Kcyncs, .6.
Loan guarantccs, gcncral cquilib
rium thcory, .a
Lucas Projcct, aa
Index a
Lucas, Robcrt ., Jr., modcls, a.
Lucas supply lunction, aa
M
Machan, Tibor, utilitarianism, c,
Macrocconomics, .a.6
about, .a.c
appraisal and opportunitics,
...
attitudcs and prcssurcs, ac
busincss cyclc, ..a, .
capital and intcrcst, .
coordination, .c.
crcdit and moncy, .
impcrlcctions ol rcality, ..6
institutions, .c
macrocconomic disordcr: Hutt,
.a
mcthodology, aaaa
monctary disordcr, .a.
moncy and pricc stickincss,
.6.
savings, invcstmcnt and moncy,
.6.
timc clcmcnt, .
Marginalcostpricing
gcncral cquilibrium thcory, ..
socialism, ,, ,
Marginalproductivity thcory ol
lunctional incomc distribu
tion, Gcorgc, ,
Markct valuc, lor propcrty scizcd
undcr cmincnt domain:
subjcctivism, a
Markctplacc ol idcas, ..6.a,
about, ..6
Austrian School ol conomics,
.c,..
inucncc ol Labandand
Tollisontypc thinking,
.a
mcthodology, a
standards and crsatz standards,
...a.
stylc ol argumcnt, .a
truth and gamcs, ..,
worrics about, .a.
Marshall, Allrcd, socialism, ,
Matcrialism, vcrsus subjcctivism in
policy, .a,
Mathcmatical physics, convcntions
in scicncc, a6
Mathcmatics
mcthodology and rigor, a
tautologics, a,a
McCloskcy, onald
clarity vcrsus obscurantism, a
lallacymongcring, a
mcthodology, aa6
modcls, a6
utilitarianism,
Mcltzcr, Allan, Kcyncs, .6.
Mcngcr, Anton, gold standard, ..,
., .
Mcngcr, Carl, gold standard, .a,
acc
Mcrit, Hayck, .
Mcthodology, aaa6a
acadcmic inccntivcs and gamcs,
a.a
attitudcs and prcssurcs, ac
Austrian conomics, .ca
clarity vcrsus obscurantism,
aa
compcting hypothcscs, a6a
cconomctrics, a.a
lallacymongcring, aac
Gcorgc, , 666
macrocconomics, aaaa
markct analogy, a
modcls, aa.
othcr cvidcncc, a
prcaching and countcrmcthodol
ogy, aaaa
rigor, aa
Micro oricntation, Hutt, .,
Military dralt, subjcctivism, a
a Index
Miscs, Ludwig von
busincss cyclc, .c, .
calculation and socialism, 6
calculation dcbatcs, ..
cconomic thcory as an a priori
scicncc, .c, .
cthics, rights and law, aaa,
6.
gcncral cquilibrium thcory, .,
priccs, ., .6, .,
propositions, ac
socialism, ,a,
Modcls
Lucas, a.
mcthodology, aa.
Modigliani, Franco, socialism, ,
Monarchy, constitutional monarchy
vcrsus dcmocracy, ,,
Monctary systcm, Unitcd Statcs ol
Amcrica, .,
Monctary thcory
balanccolpaymcnts, a,6
capital and invcstmcnt, .
disordcr, .a.
gcncral cquilibrium thcory,
monctary discquilibrium thcory,
.a, ., .6
narrativc and statistical history,
.
Moncy
busincss cyclc: cconomctrics, a.
capital lormation and, a.,aaa
costs: subjcctivism,
and crcdit, .
cconomctrics, aa
cndogcncity, a
Hayck, .
Hutt, .c.
macrocconomics, .6.
pricc stickincss, .6.
Moncy priccs, gcncral cquilibrium
thcory, ,
Morality. See thics
N
Narrativcs
and statistical history: monc
tarists, .
urchronia and altcrnativc history,
6
Natural law, c, , ,
Natural rights, Rothbard, ,,
Natural scicnccs, tautologics,
a,ca,a
Ncoclassical school ol cconomics,
Roscn on, .ca
Ncw Classical school
about, .a
coordination, .
Ncw Kcyncsian school
about, .c
attitudcs and prcssurcs, ac
coordination, .
Nihilism, subjcctivism,
Noncmpiricism, Austrian co
nomics, .c
Normativc and positivc propositions,
c,
Nozick, Robcrt
cntitlcmcnts, c
utilitarianism, cc,
O
bjcctivc cthics, Rothbard and
Miscs on, .
bscurantism vcrsus clarity, aa
pportunity cost, gcncral cquilib
rium thcory,
ptimum conditions, socialism, ,
vcrrcgulation. See Rcgulation
P
Partial dctcrminism, cxtrcmc posi
tions and, aca
Partialcquilibrium thcory, gcncral
cquilibrium thcory, ..
Pigou ccct, a.,
Index a
Platt, John R., compcting hypothc
scs, a6
Poincar, Hcnri
convcntions in scicncc, a6
scicncc comparcd to a library,
a6
Policy
govcrnmcnt and public policy,
..,
landowncrship, a.a.,
policy drilt and govcrnmcnt
rcgulation,
subjcctivism,
utilitarianism: rights, contract
and utility in policy cspousal,
,,.
Political cconomy, c,ac. See also
Rcgulation
burcaucracy, .,
coopcration and rcciprocation,
c..
dcmocratic proccss, .
cthics, c
govcrnmcnt and public policy,
.., .
libcrty and dcmocracy, .a.
political proccss, .6
positivc and normativc proposi
tions, c,
voting and spccial intcrcsts, .
Political obligation, utilitarianism,
ca
Political philosophy. See also Social
philosophy
8lanchard: political rights and
dutics, c.
socialism,
Political systcm. See also Unitcd
Statcs ol Amcrica
politicians and govcrnmcnt
rcgulation, .
Vittman: dcmocratic markcts,
6,,
Poppcr, Karl
chancc and cthics, a
on csscntialism, a
cthics and complcxity, aa
Population control, a
Positivc and normativc propositions,
c,
Prcaching and mcthodology,
aaaa
Prcdictions, Austrian conomics on,
.c
Prcscott, dward C., busincss cyclc:
cconomctrics, aa
Prcscriptivc and dcscriptivc laws, a
Priccs. See also Moncy priccs
calculation,
Hayck on lrccmarkct valucs, .
Hutt, .,
institutions, .
Kirzncr and Nozick on, .a
Miscs, .
priccs systcm and subjcctivism, .
socialism, ,6, ,6
stickincss, .6.
subjcctivism, a
Principlc ol complcmcntarity, 8ohr,
a,
Principlc ol Gcncric Consistcncy,
Gcrwirth, c
Principlcs, cconomics and, 6c
Prioritics, subjcctivism, aa
Proccss, Austrian School ol co
nomics attcntion to, .,
Productivity, Gcorgc,
Prot, Kirzncr: morality ol capital
ism and prot, c,a.
Propcrty, subjcctivism and markct
valuc whcn scizcd undcr
cmincnt domain, a
Propcrty rights
crowding out and govcrnmcnt
rcgulation, c
Gcorgc, 6
a6 Index
Rothbard: axiomatic approach,
.
subjcctivism,
Propositions
Miscs, ac
positivc and normativc proposi
tions, c,
Protcction, gcncral cquilibrium
thcory, .a
Prowsc, Michacl, constitutional
monarchy,
Publication ol articlcs
Austrian School ol conomics,
.c,
markct tcst ol idcas, .a.
Purchasingpowcr argumcnt, gcn
cral cquilibrium thcory, ..
R
Rand, Ayn, markct tcst ol idcas, ..c
Randomncss, cthics, aaa
Rational cxpcctations
Hutt, .
mcthodology, aa
Rational ignorancc, ,6
Rawls, John, utilitarianism, ., ,
c.c
Rcalbalancc ccct, a.,
Rcalbills doctrinc, gcncral cquilib
rium thcory, .a
Rcalbusincsscyclc school, .a
Rcal disturbanccs, .
Rccoordination, .
Rcdistribution
discrimination argumcnt, 6
cgalitarianism and libcralism, 6
Rcgulation, a.
burcaucracy and,
costs, a
courts rolc in,
crowding out, .
aw in political systcm, aa
lragmcntcd dccisions and
agglomcratcd activitics, aa
hobbyists and, .
mcthodological individualism,
a
policy drilt,
policy implications,
politicians, .
spccial intcrcsts and synthctic
majoritics, a
votcrs, a6a
Rclativc povcrty, 66
Rclativism, lallibilism, authoritarian
ism, 6
Rights
Miscs: cthics, rights and law,
aaa
Rothbard: axioms, c
Rothbard: natural law and
natural rights,
utilitarianism: rights, contract
and utility in policy cspousal,
,,.
valuc judgmcnts, ,
Te Foad to Serfdom (Hayck), ,,
c.c6
Robbins, Lioncl, socialism, ,
Rocko, Hugh, gold standard, aca
Roscn, Shcrwin, Austrian co
nomics, .cc..a
Rothbard, Murray
axioms about rights, c
Hoppc and anarchoLockcan
rights, ,
landowncrship, ac
Miscs and objcctivc cthics, .
Miscs and utilitarianism,
a,c, a
morality and law,
natural law and natural rights,
, ,,
on subjcctivism,
Russia, gold standard, ., .,, acc
Index a,
S
Salcrno, Joscph T.
calculation,
priccs and calculation,
Samuclson, Paul, tautologics, a,
Sargcnt, Tomas, on gcncral cquilib
rium thcory,
Savings
land and willingncss to wait, a.
macrocconomics, .6.
rcal capital lormation, a.
saving prclcrcncc: Hutt, .,6
Says Law, Hutt on, .,
Scarcity
applicd to mcthodology, a6
Sowcll: politics and cconomics ol
scarcity, .
Schlick, Moritz
dctcrminism and lrcc will,
aa6
cxtrcmc positions and partial
dctcrminism, c.
Schmidtz, avid, cntitlcmcnts, c
Schocck, Hclmut, inccntivcs lor
protcsting poor injusticcs and
poor customcr scrvicc,
Schumpctcr, Joscph
Gcorgc, 6
libcrty and dcmocracy, .
Scicncc, convcntions in, a6
Scicntism, subjcctivism, a
Scott, Anthony, land: changcs in
tastcs, taxcs or policics, a.6
Sccondary cccts, gcncral cquilib
rium thcory, .a
Sccondhandism, .a
Scparation ol powcrs, ,
Shock ccct, gcncral cquilibrium
thcory, ..
Simultancous cquations. See qua
tion systcms
Slotc, Michacl, cthical judgmcnts
and dctcrminism, a,
Slumps. See 8usincss cyclc
Social contract, 8uchanan, c
Social coopcration
about, .,
comparativc institutions,
6
markct tcst ol idcas, ..6
Social justicc, Hayck, .
Social philosophy. See also Political
philosophy
Gcorgc, 666
socialism,
Socialism
calculation, 6
ccicncy, ,aa
Gcorgc, 6
Hayck, ,c6
subjcctivism,
Sowcll, Tomas, politics and cco
nomics ol scarcity, .
Spccial intcrcsts, and govcrnmcnt
rcgulation, a
Standards and crsatz standards,
...a.
Subjcctivism, .c
about, .
capital and intcrcst thcory, 6
concluding thoughts, 6
dcgrccs ol, 6
cconomic thcory, c
Gcorgc,
knowlcdgc and coordination,
a,c
matcrialism vcrsus subjcctivism
in policy, .a,
policy,
Subsidics, gcncral cquilibrium
thcory, ..
T
Taris, gcncral cquilibrium thcory,
.a
Tastcs, landowncrship, a.a.,
Tautologics, a6a,
about, a6a6
a Index
balanccolpaymcnts, a,a,,
convcntions in scicncc, a6
cconomics, a,aa,
cxamplcs in thc natural scicnccs,
a,ca,a
Valrass Law, a6a6
Taxation
land, a.
link to cxpcnditurcs, a
tax cuts and budgct limits,
Tcory, ukcn, a
Trilt, landowncrship, a.c
Timc
Austrian conomics and, .c.
Gcorgc,
macrocconomics, .
Tollclscn, lal, dctcrminism: scll
rclcrcntial problcm ol, a,
Tollison, Robcrt, markct tcst ol
idcas, ..6.a6
Tradc, custom unions, a.
Tradc intcrvcntions, gcncral cquilib
rium thcory, .a
Truth. See Markctplacc ol idcas
Truth judgmcnt, 8uchanan,
U
Uchronia, 6
Ultrasubjcctivists,
Unitcd Statcs ol Amcrica
altcrnativc historics, a
dcmocratic proccss, ., 6.66
monctary systcm, .,
political proccss, .6
Unplanncd ordcr, Gcorgc, 6a
Utilitarianism
Miscs, aa, , c
political obligation, ca
rights, contract and utility in
policy cspousal, ,,.
Rothbard and natural rights,
V
\aluc judgmcnts
rights, ,
and valuclrcc propositions:
Austrian conomics, .ca
\aluc thcory
Gcorgc,
Hayck, .
\andbcrg, \iktor, contractarianism,

\AR tcchniquc, a
\aughn, Karcn
contractarianism,
Miscs and utilitarianism, a6
\ickrcy, Villiam, multipart pricing
and socialism, c
\oluntary compliancc, a
\oting
and spccial intcrcsts, .
votctrading proccss, c
votcrs and govcrnmcnt rcgula
tion, a6a
Vinston Churchill on votcrs and
dcmocracy, ,6
W
Vaiting, land and thc willingncss to
wait, a..a.
Valrass Law, a6, a6a6, a,
Varburton, Clark, Kcyncs, .
Vcalth ccct, a.,
Vcllarc propcrtics, subjcctivism,
Villiamson, Stcvc, modcls, a,
Vinks, Robin, historical cvidcncc,
a6
Vittmann, onald, dcmocratic
markcts, 6,,
Vorkcrs sovcrcignty, subjcctivism,
a
Vorld Var ! and !!, altcrnativc
historics,
Vright, Randall, modcls, a,
Vriting stylc, Halmos, a6