Is All Action Rational?

ludwig-von-misesWell, Ludwig von Mises thought so. I quote from Human Action:

Human action is necessarily always rational. The term “rational action” is pleonastic and must be rejected as such (P. 21.).

In view of all the irrationality we observe around us, this statement sounds … well, not exactly rational. “Weird” or even “insane” would be good descriptive terms.

So what is so immensely rational about all human action that all human action is to be labeled rational? Well, all human action is about relating means to ends. Mises has some examples:

The very existence of ascetics and of men who renounce material gains for the sake of clinging to their convictions and of preserving their dignity and self-respect is evidence that the striving after more tangible amenities is not inevitable but rather the result of a choice. Of course, the immense majority prefer life to death and wealth to poverty. (P. 20.)

But nothing could be said against those who make the opposite choice and prefer death to life and poverty to wealth. They have a different end from the immense majority and choose means accordingly.

The doctors who a hundred years ago employed certain methods for the treatment of cancer whish our contemporary doctors reject were – from the point of view of present-day pathology – badly instructed and therefore inefficient. But they did not act irrationally; they did their best. (P. 20.)

In other words: people may be wrong in their choice of means; but being wrong is not the same as being irrational.

The opposite of action is not irrational behavior, but a reactive response to stimuli on the part of the bodily organs and instincts which cannot be controlled by the volition of the person concerned. (P. 20.)

So when a man acts “irrationally”, he actually does not act at all; he merely reacts, just the way animals do.

Conspicuously absent here is any attempt to analyze criminal behavior. But a criminal also relates means to ends. A bank robber has to use reason to plan and carry out his robbery – it is certainly not just a bodily reaction. Someone who wants to get rid of his rich grand-uncle in order to inherit his money has to carefully plan and perform the murder, and in a way that minimizes the risk of discovery. (He should, for example, abstain from the attempt if there is an Hercule Poirot or a Jane Marple in the vicinity.) According to Mises, he is as rational as anyone else. Only murders committed at the spur of the moment in a drunken brawl would classify as irrational, since the murderer then does not have time to consider his means or his ends.

So what makes Mises make such a statement and seriously mean it? It should come as no surprise that it is because of his idea that ultimate ends fall outside the realm of reason. Continuing the first quote above:

When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man. Since nobody is in a position to substitute his own value judgments for those of the acting individual, it is vain to pass judgment on other people’s aims and volitions. No man is qualified to declare what would make another man happier or less discontented. (P. 20.)

So we should not pass judgment on the bank robber or grand-uncle murderer mentioned above. Who are we to substitute our own value judgments for theirs? But it is even worse::

The critic either tells us what he would aim at if he were in the place of his fellow; or, in dictatorial arrogance blithely disposing of his fellow’s will and aspirations, declares what condition of this other man would better suit himself, the critic. (P. 20; italics mine.)

Passing judgment on the bank robber or the murderer would be dictatorial arrogance!

Of course, Mises did not mean this – he forgot to think about criminal action – but this is still what he says!

What, then, is the ultimate end of the bank robber/murderer? Is it – like for any honest worker or millionaire – to make money or to earn his living? Is it just the means that are somehow inappropriate? But the bank robber did not make the money – it was made by the persons who had deposited their money in the bank. The murdered grand-uncle, not his dishonest heir, made his money (provided he earned it honestly).[1] And, as for “earning a living”, this shows some confusion about the meaning of “earn”.

Or is it, more broadly, the pursuit of happiness? Well, most bank robbers (and murderers) get caught, and those who don’t have to live in constant fear of getting caught. It could only be called “pursuit of happiness”, if someone preferred living in jail than outside – or living in fear rather than in safety.

And what about suicide bombers? Those, too, are conspicuously absent in Mises’ reasoning – probably because he had no experience of them and could not even imagine this kind of evil. Otherwise, the existence of suicide bombers is as much proof as the existence of ascetics that some people do no not prefer life to death. And the suicide bomber can hardly be said to pursue happiness, at least not here, on earth. He would have to take the promise of paradise in the hereafter quite seriously. – But given this end – life and well-being when you are already dead – they, too, relate means to ends. But they are badly mistaken, both about the end and the means![2]

Ayn Rand made some harsh remarks in the margin of Human Action, of which I will quote just one:

Nobody can get anywhere with such a terminology! (Ayn Rand’s Merginalia, ed. by Robert Mayhew, p. 110.)

Objectivism, as you all know, holds the preservation and enhancement of life as the ultimate end and claims that this can be objectively proven. (I will not attempt to present the proof, since both “Galt’s speech” and “The Objectivist Ethics” are available for anyone to read.) This does not mean that everyone automatically agrees about this end, merely that everyone should agree. Mises claims that the majority does agree, but that is not the same thing – it leaves the possibility open that the majority is wrong.

Saying that the ultimate end is “beyond reason” and can neither be proved or disproved makes it impossible to go anywhere!

Much as I admire Ludwig von Mises, on this issue he was dead wrong.

Earlier blog posts on Mises.


[1] Off topic, but worth mentioning: If you want to equivocate, you might claim that a counterfeiter “makes money”, but that money is just that: counterfeit. The same goes for the inflation money that governments and central banks pour on us and only makes us poorer. The only ones that could be said to “make money” in this sense are those who mine and mint the precious metals.

[2] I refer you to this article in The Onion.

Ludwig von Mises on Anarchism

This is a Facebook note I published in February 2011.

Anarchists (”free market anarchists” or ”anarcho-capitalists)” are flocking in and around the Ludwig von Mises Institute, both in the US and here in Sweden. So what did Mises himself think about anarchism and anarchists? He covers the subject in a section in The Ultimate Foundation of Economic Science, p. 98f, so let me quote:

Government as such is not only not an evil, but the most necessary and beneficial institution, as without it no lasting social cooperation and no civilization would be possible.

And a bit later on:

A shallow-minded school of social philosophers, the anarchists, chose to ignore the matter by suggesting a stateless organization of mankind. They simply passed over the fact that men are not angels. They were too dull to realize that in the short run an individual or a group of individuals can certainly further their own interests at the expense of their own and all other peoples’ long-run interests. A society that is not prepared to thwart the attacks of such asocial and short-sighted aggressors is helpless and at the mercy of its least intelligent and most brutal members. While Plato founded his utopia on the hope that a small group of perfectly wise and morally impeccable philosophers will be available for the supreme conduct of affairs, anarchists implied that all men without any exception will be endowed with perfect wisdom and moral impeccability. They failed to conceive that no system of social cooperation can remove the dilemma between a man’s or a group’s interests in the short run and those in the long run.

Note the insultory language here: anarchists are “shallow-minded” and “dull”. If I said that of an anarchist, I would probably be accused of making an ad hominem argument.

But that was an aside. The substantive thing here is that we have a group of social philosophers – “free market anarchists” – who believe that a government or a state is evil by its very nature (and sometimes even the source of all evil) – and yet are willing to accept as their mentor, master and dean someone who claims the exact opposite: that government is “the most necessary and beneficial institution”.

The main flaw of “free market anarchism” is that it refuses to make a distinction between initiatory and retaliatory force. They oppose any government, even the most limited government, one that only engages in retaliatory force against initiators of force (such as criminals and foreign invaders), on the grounds that it uses force. (And they are of course blind to the fact that those “protection agencies” with which they propose to replace government, would also use force.)

Mises is aware of this distinction. When he says that “men are not angels”, he refers to the fact that some men are criminals, and that criminal acts will have to be thwarted. Thwarting criminality and foreign aggression is certainly both necessary and beneficial.

Mises had a psychological explanation for the fact that some fairly intelligent people become anarchists: it was “a reaction to the deification of the state”. (I got this from Hülsmann’s Mises: The Last Knight of Liberalism, p. 1025.) I have said virtually the same thing myself: people become anarchists because they are fed up with the way governments conduct their affairs today; and they cannot conceive of a limited government that does nothing but protect our rights against domestic and foreign aggressors. But that there is a psychological explanation for anarchism does not make anarchism right.

Also, compare my Mises quotes to what Ayn Rand writes in her essay “The Nature of Government”:

In unthinking protest against this trend [the trend toward more and more statism], some people are raising the question of whether government as such is evil and whether anarchy is the ideal social system. Anarchy, as a political concept, is a naïve floating abstraction: for all the reasons discussed above, a society without an organized government would be at the mercy of the first criminal who came along and would precipitate it into the chaos of gang warfare.

I see no difference between Rand and Mises on this issue. And I’m neither shallow-minded nor dull.

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The response to this note was largely positive, although (of course) a couple of anarchists admonished me to wade through all the anarchocapitalist literature before I open my mouth. There was also some lively and friendly discussion. I will quote one of my own comments, because I think I am on to something important here:

There is one thing I think needs to be emphasized:

We have plenty of historical experience with various forms of government, or various forms of organizing society. We have primitive tribes, Greek city states, the Roman empire, feudalism, absolute monarchy. representative government, modern dictatorships (to name those that readily come to mind). We can study the historical evidence and draw conclusions from it, e.g. that representative government is a great step forward, or that there is a strong correlation between the degree of freedom in a society and the degree of wealth.

But we have absolutely no experience with a situation where a proper limited government (or “night watchman state” as I usually call it) is vying with anarchocapitalist protection agencies. So there is no historical evidence to point to and draw conclusions from. All we can do is imagine scenarios.

I think this is one reason it is so difficult to get the point across to the anarchocapitalists. They paint a rosy scenario of protection agencies peacefully competing with one another; and we paint a bleak scenario of protection agencies fighting it out in the streets. When we are fighting the anarchocapitalists, we are fighting against floating abstractions and fantasies.

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Addendum 2016: An objection one commonly hears from anarcho-capitalists is that Mises is merely referring to left-wing anarchism and that his view does not apply to right-wing capitalism or anarcho-capitalism. This was a development he simply did not know about and thus could not criticize.

But this objection does not hold water. Murray Rothbard, the father of modern anarcho-capitalism, first developed this idea as early as the late 40’s. Mises certainly was aware of this. (See on this Jörg Guido Hülsmann’s Mises: The Last Knight of Liberalism, the section “Last Skirmishes with the Anarchists”, p. 1023–1030.)

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PS. On Facebook I was asked this question:

Why is it so important that Rand and Mises were in agreement?

Yes, why on earth? Obviously, this whole blog post is a gross ad verecundiam or “argument from authority”. I just feel so much better having two great authorities behind me than just one.

However, it so happens that they are both right.

Irrational facts?

I suppose you all know what an irrational number is. And I trust you don’t take the existence of such numbers as an assault on rationality or an injunction against using reason when dealing with mathematics.

Now I came across this in Ludwig von Mises’ Theory and history:

The human search for knowledge cannot go on endlessly. Inevitably, sooner or later, it will reach a point beyond which it cannot proceed. It will then be faced with an ultimate given, a datum that man’s reason cannot trace back to other data. In the course of the evolution of knowledge science has succeeded in tracing back to other data some things and events which previously had been viewed as ultimate. We may expect that this will also occur in the future. But there will always remain something that is for the human mind an ultimate given, unanalyzable and irreducible. Human reason cannot even conceive a kind of knowledge that would not encounter such an insurmountable obstacle. There is for man no such thing as omniscience. […] It is customary, although not very expedient, to call the mental process by means of which a datum is traced back to other data rational. Then an ultimate datum is called irrational. No historical research can be thought of that would not ultimately meet such irrational facts. (P. 183f; italics mine.)

Now wait a minute. Facts are neither rational nor irrational. They are just facts. The terms “rational” and “irrational” pertain to what we do in our minds with the facts. It is a misnomer and an equivocation to call the facts rational or irrational.

Or does he mean that reason cannot deal with those “ultimate givens”, just because it cannot trace them back to something even more ultimate? But this is ridiculous. If reason encounters an ultimate given that cannot be traced further back, it simply accepts it as an ultimate given. There is nothing irrational about that.

Apart from this objection (and some others I may come to think of later),Theory and History is a book I heartily recommend.

Irrational ends?

(Added May 16.)

The following quote is more troublesome:

All ultimate ends aimed at by men are beyond the criticism of reason. Judgments of value can be neither justified nor refuted by reasoning. The terms “reasoning” and “rationality” always refer only to the suitability of means chosen for attaining ultimate ends. The choice of ultimate ends in this sense is always irrational. (P. 167.)

And if you know your Mises, you know that this idea is repeated over and over in his works.

Obviously, Mises never considered Ayn Rand’s explanation of the link between “life” and “value” (or if he did, he might have considered it “irrational” and “beyond reason”).

But her derivation is fact-based. To take some high-lights: That living organisms require a specific course of action to remain alive is a fact. For lower organisms this is automatic, but for man it involves deliberation and choice, and that is a fact. And it is a fact in the sense of an “ultimate given”, because it can hardly be traced back to even more basic facts. To choose life, and the preservation and enhancement of one’s life, is certainly the rational thing to do.

A couple of pages later Mises writes:

… there is a far-reaching unanimity among people with regard to the choice of ultimate ends. With almost negligible exceptions, all people want to preserve their lives and health and improve the material conditions of their existence. (P. 269f.)

True enough. Very few people, I would venture to guess, deliberately act to harm their lives, their health, their well-being. There are exceptions, but most people, when they harm themselves, do it because of some error in their reasoning. They find the wrong means, means not suitable the end sought, to use Mises’ way of expressing it.

But an appeal to majority is not a good argument. Majorities are sometimes wrong. And on Mises’ own reasoning and with his terminology, the majority here is as irrational as the small minority that does not take life and health as their ultimate goal.

There is a similar quote in the very beginning of the book:

Judgments of value […] express feelings, tastes or preferences of the individual who utters them. With regard to them there cannot be any question of truth and falsity. They are ultimate and not subject to any proof or evidence. (P. 19.)

That values or value judgments have no “truth value” and are just expressions of feelings or tastes is something we are taught by virtually every philosopher who is not an Objectivist. It is as common and ubiquitous as the closely connected idea that one cannot (and must not) try to derive an “ought” from an “is” – and as wrong.

Mises uses the example of someone preferring Beethoven to Lehar (or vice versa). This is a value judgment. The person who says it is saying that Beethoven, to him, is a higher value than Lehar (or vice versa). And here it is OK to talk about a difference in taste, and there is no point in trying to dispute it.

But there are so many issues where this would be nonsensical. If we prefer capitalism to socialism, this is not a matter of taste. Neither is it a matter of taste whether we prefer life to death, health to illness, happiness to misery or wealth to poverty. Such an issue can only come up when a man is so ill, or so disappointed, that he loses his taste for life. (Situations where Immanuel Kant would demand that he continues to live out of duty.)

Closely connected is the idea, so often repeated by Mises, that economics (and science in general) should be value-free (or wertfrei; for some reason Mises retains the German word). But this idea is contradictory on the face of it. It says that a theory should be “value-free” rather than “value-laden” – i.e. that such a theory is better than other theories – i.e. that is more valuable.

Now, I have not said anything about the very good things to be found in Theory and History. That will have to wait for another time.

(See also Is Action an A Priori Category?, Is Life Worth Living?, On the Objectivity of Values, and Objectivism versus “Austrian” Economics on Value. Also Ayn Rand and Böhm-Bawerk on Value.)


PS 2016: It would make some sense to call facts “pre-rational”, since all reasoning has to start with facts. And by the same token, it would make some sense to call the value of life a “pre-rational” value. We do not originally choose to be alive – that choice was made by out parents and all their ancestors before them: the choice to have children. But the bottom line of all other values we choose is remaining alive and make the best possible of our lives.

Murray Rothbard on the Soviet Union

My latest blog post, Murray Rothbard on Organized Crime, was shared by a couple of persons on Facebook – and in one comment, I was accused of “cherry picking”, because I chose only one article and took it as representative of Rothbard’s entire view.

Cherry picking” is an inductive fallacy which consists in taking the inductive generalization one wants to reach for granted and then only giving examples that support this generalization and ignoring or suppressing evidence that points in another direction. Proper induction, of course does not start with a generalization; the generalization is the end product of the induction. (This fallacy could also be called “inductive circularity”: it begs the question, just like deductive circularity does.)

As an aside, I was not accused of “cherry picking” for linking to several books and pamphlets by Rothbard, leading to the inductive generalization that he was a great economist. But if Rothbard has made major mistakes as an economist (as opposed to a political thinker), I have not discovered them; so I can hardly be accused of deliberately ignoring or suppressing them.

Anyway, I will now “cherry pick” some things that Rothbard has written about Communism and the Soviet Union in particular.

In his pamphlet Left, Right, & the Prospects for Liberty (first published in 1965) one can read the following:

Libertarians of the present day are accustomed to think of socialism as the polar opposite of the libertarian creed. But this is a grave mistake, responsible for a severe ideological disorientation of libertarians in the present world. […] Socialism, like Liberalism and against Conservatism, accepted the industrial system and the liberal goals of freedom, reason, mobility, progress, higher living standards [for] the masses, and an end to theocracy and war; but it tried to achieve these ends by the use of incompatible, Conservative means: statism, central planning, communitarianism, etc. Or rather, to be more precise, there were from the beginning two different strands within Socialism: one was the Right-wing, authoritarian strand, from Saint-Simon down, which glorified statism, hierarchy, and collectivism and which was thus a projection of Conservatism trying to accept and dominate the new industrial civilization. The other was the Left-wing, relatively libertarian strand, exemplified in their different ways by Marx and Bakunin, revolutionary and far more interested in achieving the libertarian goals of liberalism and socialism: but especially the smashing of the State apparatus to achieve the “withering away of the State” and the “end of the exploitation of man by man.” (P. 15f; italics mine.)

So Libertarianism (of the Rothbardian variety) has the same ultimate goal as Bakunin and Marx: the smashing, or withering away, of the State. Bakunin and Marx are allies in this struggle. (While thinkers like Ludwig von Mises and Ayn Rand, who did not want to smash the State, only to reduce it to its proper functions, are not allies but rather enemies. Rothbard would not call Mises an enemy, but this is the clear implication.[1])

It was in reaction to this collapse that Lenin broke out of the Second International, to re-establish classic revolutionary Marxism in a revival of Left Socialism. […] In fact, Lenin, almost without knowing it, accomplished more than this. […] There were, indeed, marked “conservative” strains in the writings of Marx and Engels themselves which often justified the State, Western imperialism and aggressive nationalism […] Lenin’s camp turned more “left” than had Marx and Engels themselves. Lenin had a decidedly more revolutionary stance toward the State, and consistently defended and supported movements of national liberation against imperialism. The Leninist shift was more “leftist” in other important senses as well. For while Marx had centered his attack on market capitalism per se, the major focus of Lenin’s concerns was on what he conceives to be the highest stages of capitalism: imperialism and monopoly. Hence Lenin’s focus, centering as it did in practice on State monopoly and imperialism rather than on laissez-faire capitalism, was in that way far more congenial to the libertarian than that of Karl Marx. (P. 22f.)

In other words: Bakunin and Marx are regarded as allies, because they were against the State; but Lenin is even more of an ally, since he was even more against the State!

There is, of course, one big question that Rothbard should have had the sense to ask of himself: How come those state haters and would-be state-smashers, Marx and Lenin even more, founded what is probably the most totalitarian and most oppressive state in all of history? Rothbard has no explanation for this – unless you call this an “explanation”:

… the Communists did not attempt to impose socialism upon the economy for many years after taking power: in Soviet Russia until Stalin’s forced collectivization of the early 1930s reversed the wisdom of Lenin’s New Economic Policy, which Lenin’s favorite theoretician Bukharin would have extended onward towards a free market. (P. 45.)

What, then, does Rothbard have to say about Communism’s and the Soviet Union’s quest for world domination, about the fact that the whole of Eastern Europe were satellites to the Soviet Union from the end of World War II and until the late 1980’s, about its efforts to export Communism to Cuba and to Third World countries? Rothbard explains that those thing have never taken place. In his For a New Liberty: The Libertarian Manifesto there is a chapter on Libertarian foreign policy, in which he writes:

Any idea of “exporting” communism to other countries on the backs of the Soviet military is totally contradictory to Marxist-Leninist theory. […] When the Bolsheviks took power in Russia in1917, they had given little thought to a future Soviet foreign policy, for they were convinced that Communist revolution would soon follow in the advanced industrial countries of Western Europe. When such hopes were dashed after the end of World War I, Lenin and his fellow Bolsheviks adopted the theory of “peaceful coexistence” as the basic foreign policy for a Communist State. The idea was this: as the first successful Communist movement, Soviet Russia would serve as a beacon for and supporter of other Communist parties throughout the world. But the Soviet State qua State would devote itself to peaceful relations with all other countries, and would not attempt to export communism through inter-State warfare. The idea here was not just to follow Marxist-Leninist theory, but was the highly practical course of holding the survival of the existing Communist State as the foremost goal of foreign policy: that is, never to endanger the Soviet State by courting inter-State warfare. Other countries would be expected to become Communist by their own internal processes. Thus, fortuitously, from a mixture of theoretical and practical grounds of their own, the Soviets arrived early at what libertarians consider to be the only proper and principled foreign policy. As time went on, furthermore, this policy was reinforced by a “conservatism” that comes upon all movements after they have acquired and retained power for any length of time, in which the interests of keeping power over one’s nation-state begins to take more and more precedence over the initial ideal of world revolution. This increasing conservatism under Stalin and his successors strengthened and reinforced the nonaggressive, “peaceful coexistence” policy. (P. 290f.)

So Stalin was a man of peace, according to Rothbard. No explanation is given for the Molotov-Ribbentrop pact and the joint attack on Poland that inaugurated World War II; but he makes some fuss about the necessity for the Soviet Union to defend itself against the German attack later in the war. Another quote:

So unprepared was Stalin for the assault, so trusting was he in the rationality of the German-Russian accord for peace in Eastern Europe, that he had allowed the Russian army to fall into disrepair. So unwarlike was Stalin, in fact, that Germany was almost able to conquer Russia in the face of enormous odds. (P. 292.)

And to the question why Stalin, after the end of World War II, took the opportunity to take over the whole of Eastern Europe, Rothbard does have an answer: It was to protect the Soviet Union from the threat of invasion from the West!

Since their victory over German and associated military aggression [from, e.g. Finland] in World War II, the Soviets have continued to be conservative in their military policy. Their only use of troops has been to defend their territory in the Communist bloc, rather than to extend it further. Thus, when Hungary threatened to leave the Soviet bloc in 1956, or Czechoslovakia in 1968, the Soviets intervened with troops—reprehensibly, to be sure, but still acting in a conservative and defensive rather than expansionist manner. (P. 295.)

And:

Russia, therefore, governed Eastern Europe as military occupier after winning a war launched against her. Russia’s initial goal was not to communize Eastern Europe on the backs of the Soviet army. Her goal was to gain assurances that Eastern Europe would not be the broad highway for an assault on Russia, as it had been three times in half a century—the last time in a war in which over twenty million Russians had been slaughtered. In short, Russia wanted countries on her border which would not be anti-Communist in a military sense, and which would not be used as a springboard for another invasion. Political conditions in Eastern Europe were such that only in more modernized Finland did non-Communist politicians exist whom Russia could trust to pursue a peaceful line in foreign affairs. And in Finland, this situation was the work of one far-seeing statesman, the agrarian leader Julio Paasikivi. It was because Finland, then and since, has firmly followed the “Paasikivi line” that Russia was willing to pull its troops out of Finland and not to insist on the communization of that country—even though it had fought two wars with Finland in the previous six years. (P. 294.)

Another word for the “Paasikivi line” is Finlandization. In short, Finland had to very carefully toe the line in its dealing with the Soviet Union.

If the Soviet Union and Communist states in general were so peaceful and never waged war except in self-defense, then what states are not that peaceful?

… empirically, taking the twentieth century as a whole, the single most warlike, most interventionist, most imperialist government has been the United States. (P. 277.)

If it is understood and expected, then, that the United States will try to impose its will on every crisis everywhere in the world, then this is clear indication that America is the great interventionary and imperial power. The one place where the United States does not now attempt to work its will is the Soviet Union and the Communist countries … (P. 278.)

One does not have to be an ardent admirer of US foreign policy to sense that there is something wrong here …[2]

Well, I think this is just about enough “cherry picking” for today.[3]

(For Scandinavian speaking readers: I said much the same in an article I wrote in 1993.)

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Update August 5 2014: Rothbard also admired Che Guevara. Why? Well …

… we all knew that his enemy was our enemy – that great Colossus that oppresses and threatens all the people of the world, U.S. imperialism.

The obituary is not signed, but it was published as an editorial in Rothbard’s own newsletter, so if he did not write is himself, he at least must have approved of it.

(Hat tip to Justin Templer.)

Back in the late 50’s, on the other hand, he admired Ayn Rand. (Hat tip to Stephen Hicks.)

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Update June 11 2015: With regard to Soviet foreign policy, Mises held the exact opposite view. I quote from Planned Chaos:

For the time being [1947], the ominous peril of the communist parties in the West lies in their stand on foreign affairs. The distinctive mark of all present-day communist parties is their devotion to the aggressive foreign policy of the Soviets. Whenever they must choose between Russia and their own country, they do not hesitate to prefer Russia. Their principle is: Right or wrong, my Russia. They strictly obey all orders issued from Moscow. When Russia was an ally of Hitler, the French communists sabotaged their own country’s war effort and American communists passionately opposed President Roosevelt’s plans to aid the democracies in their struggle against the Nazis. The communists all over the world branded all those who defended themselves against the German invaders as “imperialist warmongers”. But as soon as Hitler attacked Russia, the imperialistic war of the capitalists over night changed into a just war of defense. Whenever Stalin conquers one more country, the communists justify this aggression as an act of self-defense against “Fascists”. (P. 43f; or p. 504 in Socialism: An Economic and Sociological Analysis, where this short book is included as an epilogue.)

According to Rothbard, the Soviets foreign policy after World War II was not aggressive at all! It was all a matter of self-defense! Mises certainly was more realistic.


[1]) On Mises’ view, see my short piece Ludwig von Mises on Anarchism. – Rothbard did view Ayn Rand as an enemy, but that is beside the point in this context.

[2]) Murray Rothbard was not personally oppressed by the Soviet Union, since he did not live there. He was, no doubt, oppressed by the government of the United States. But I am oppressed by the Swedish government, and it does not make me an apologist for the Soviet Union.

[3]) Just one epistemological note: If one has reached an inductive generalization from observing a few instances, one would expect future observations to fall into line – just as one expects all future tables to be pretty much similar to the few tables from which one originally formed the concept. This is not “cherry picking”.

One may find exceptions – and then one will have to look into what explains those exceptions. A simple example: One has formed the inductive generalization that paper quickly starts burning, when it comes into contact with fire. Then one finds a counter-example: paper that does not catch fire or does so only slowly. Looking into the matter, one finds that this particular paper bundle is soaked with water. The exception is explained.

And it might just happen that one finds some instance of Rothbard making sense, even when he writes about politics; and then one has to look for an explanation …

Ludwig von Mises on Bureaucracy

(Plus a couple of thoughts of my own.)

There is one book by Ludwig von Mises that I think is slightly neglected, namely Bureaucracy, first published in 1962. (I may be wrong, but I have never seen any discussion of it.) It deals with the difference between profit-and-loss management and bureaucratic management, and I think it is important for our understanding of the difference between market and government. I just want to give some illustrative quotes:

In public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive.

Now we are in a position to provide a definition of bureaucratic management: Bureaucratic management is the method applied in the conduct of administrative affairs the result of which has no cash value on the market. Remember: we do not say that a successful handling of public affairs has no value, but that it has no price on the market, that its value cannot be realized in a market transaction and consequently cannot be expressed in terms of money. […] Bureaucratic management is management of affairs which cannot be checked by economic calculation. (P. 47f.)

And:

The conduct of government affairs is as different from the industrial processes as is prosecuting, convicting, and sentencing a murderer from the growing of crops or the manufacturing of shoes. Government efficiency and industrial efficiency are entirely different things. A factory’s management cannot be improved by taking a police department as its model, and a tax collector’s office cannot become more efficient by adopting the methods of a motor-car plant. (P. 52.)

And:

In the field of profit-seeking enterprise the objective of the management engineer’s activity is clearly determined by the primacy of the profit motive. His task is to reduce costs without impairing the market value of the result or to reduce costs more than the ensuing reduction of the market value of the result or to raise the market value of the result more than the required rise in costs. But in the field of government the result has no price on the market. It can neither be bought nor sold. (P. 49f.)

And so, governments and government agencies simply cannot be run by profit-and-loss management; and neither could private enterprises be run by bureaucratic management. The spheres are entirely different. (This is also an implicit criticism of anarcho-capitalism.)

The later chapters of the book deal with what happens when governments take over what should properly be run by private enterprises, i.e. the dangers of bureaucratization.

Bureaucratization is especially dangerous in the field of education. Here is an illustrative quote:

After the old professors [in 19th century Germany] who had got their chairs in the short flowering of German liberalism had died, it became impossible to hear anything about economics at the universities of the Reich. There were no longer any German economists, and the books of foreign economists could not be found in the libraries of the university seminars. […] All that the students of the social sciences learned from their teachers was that economics is a spurious subject and that the so-called economists are, as Marx said, sycophantic apologists or the unfair class interests of bourgeois exploiters, ready to sell the people to big business and finance capital. The graduates left the universities convinced advocates of totalitarianism either of the Nazi variety or of the Marxian brand. […]

European totalitarianism is an upshot of bureaucracy’s preëminence in the field of education. The universities paved the way for the dictators.

Is the situation much different today? Is it an exaggeration to say that Marxism may be dead in the former Communist countries, but alive and well at our universities?

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It might be objected (and I am sure many will object) that such fields as education and health care should not be run by profit-and-loss management, since the primary purpose here is not to make money but to educate students and make people well. But in a free economy there would be no such conflict of purposes: the best schools and universities and the best hospitals would also be the ones who make the most money.

But I do see a problem with such institutions as libraries and archives. (I myself worked at the Swedish Royal Library before I retired, and it is certainly not managed by profit and loss; it is subsidized by the tax payers.) Such institutions provide a valuable service: they are “a country’s memory” and are necessary for historical research. But would they be able to survive, if they were suddenly privatized? Well, they may be taken over by private foundations; but are there such foundations today that are rich enough and interested enough to take them over? Privatizing such institutions will have to be a goal for a more distant future.

Meanwhile, bureaucratization just goes on and on and on …

Ludwig von Mises on Buying Soap

I haven’t blogged in English for almost two months (there is more activity on my Swedish blog), so I will write a short post just to show I am still alive.

I found this Mises quote while looking for something about catallactic theorems being valid under the “ceteris paribus” or “everything else being equal” assumption – and what to do about the fact that it is very seldom that everything else is equal. After a discussion of “Gresham’s law” and an apparent counter-example to it,  I found the following:

If I simply want buy soap, I will inquire about the price in many stores and then buy in the cheapest one. If I consider the trouble and loss of time which such shopping requires so bothersome that I would rather pay a few cents more, then I will go into the nearest store without making any further inquiries. If I also want to combine the support of a poor disabled veteran with the purchase of soap, then I will buy from the invalid peddler, though this may be more expensive. In these cases, if I wanted to enter my expenditures accurately in my household account book, I should have to set down the cost of the soap at its common selling price and make a separate entry of the overpayment, in the one instance as “for my convenience”, and in the other as “for charity”. (Epistemological Problems of Economics, p. 95; translated by no less a person than George Reisman.)

This is of course a very simple catallactic theorem: Everything else being equal, one buys in the cheaper market and sells in the dearer market. And here are just two examples of everything else not being quite equal.

Not the most ambitious blog post I have written…

Precious Metals Inflation?

In the past, I have written extensively on the evil of inflation and of fractional reserve banking; and I have pointed out, time and again, that newly created money reaches some people before prices have risen and others after prices have risen; and that this is a way of defrauding the latter category. Nobody has been intelligent enough to ask me the question: “Would this not also be true with an increase in the precious metals? If a vast new gold and silver mine were to be discovered and mined, would this not have the same effects?” Since I am intelligent enough to ask this question, I will also answer it.

First, this is what Ludwig von Mises has to say:

If the supply of caviar were as plentiful as the supply of potatoes, the price of caviar—that is, the exchange ratio between caviar and money or caviar and other commodities—would change considerably. In that case, one could obtain caviar at a much smaller sacrifice than is required today. Likewise, if the quantity of money is increased, the purchasing power of the monetary unit decreases, and the quantity of goods that can be obtained for one unit of this money decreases also.

When, in the sixteenth century, American resources of gold and silver were discovered and exploited, enormous quantities of the precious metals were transported to Europe. The result of this increase in the quantity of money was a general tendency toward an upward movement of prices in Europe. In the same way, today, when a government increases the quantity of paper money, the result is that the purchasing power of the monetary unit begins to drop, and so prices rise. This is called inflation. (Economic Policy: Thoughts for Today and Tomorrow, p. 55.)

So, yes: An increase in the amount of precious metals will have this inflationary effect; and it is also true that also in this case the money would reach some people first and others only later. But there are some important differences between this and paper money and/fractional reserve inflation.

First of all: Who will be the first ones to receive this new money? The persons who mine the metals and those who then mint it. But this is eminently just: It is simply their payment for the work they have done. This cannot be compared with the “work” of a counterfeiter, be he a private criminal or a central bank.

Second: Fiat paper money and fractional reserve money pretend to be real money, although they are not. But a new gold or silver coin does not pretend to be anything else than it really is.

Thus, there can be no moral objection to this kind of increase of the money supply. But there is a more practical point that needs to be stressed – if only to show, once again, that the moral is the practical.

Both fiat money and fractional reserve money (fiduciary media) will eventually disappear. They are created “out of thin air” and will eventually disappear into the same thin air. Fiat paper money will inevitably someday lead to hyperinflation, and the paper currency will collapse. As for fiduciary media, they will disappear the day the inflation bubble bursts and we get a depression.

By contrast, gold and silver once mined remains in existence, and so do gold and silver coins once coined. They cannot disappear. (Even the gold and silver occasionally lost in ship wrecks may one day be retrieved.) For this reason – and this one of the important things one can learn from George Reisman, in particular – it is not just inflation proof, it is also deflation proof.

Earlier on this subject:

Debating Fractional Reserve Banking
A Belated Open Letter to Ayn Rand on Fractional Reserve Banking
More on Fractional Reserve Banking
Fractional Reserve Banking Yesterday and Today
Should Pick-Pocketing Be Legalized?
Is “Fractional Reserve Banking” Compatible with Objectivism?

And, in Swedish:
Varför “fractional reserve banking” bör förbjudas
“Fraktionella reserver” än en gång