Murray Was No Milton

by Don Boudreaux on July 28, 2011

in Monetary Policy, Myths and Fallacies

George Selgin weighs in wisely on the issue of Milton Friedman, Murray Rothbard, and monetary theory.

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Daniel Kuehn July 28, 2011 at 3:37 pm

Ah personality cults. They get people to say goofy things. I like the name that Hoppe has for you GMUers: “hermenuticians”. It has a nice ring to it :) In fact, I’m surprised DG Lesvic doesn’t fling it around more often.

Daniel Kuehn July 28, 2011 at 3:41 pm

Speaking of people Hoppe accused of being hermenuticians – you should link the McCloskey and Buchanan talks at the University of Richmond from last month – they’re quite good.

Rick Hull July 28, 2011 at 3:48 pm

Having seen the term ‘hermeneutics’ tossed around the economic blogosphere recently, I did some investigation. The wikipedia page is fairly useless, as the application of the term to economics is not covered.

Here is the best explanation I’ve found so far:

Daniel Kuehn July 28, 2011 at 3:55 pm

The Mises Institute people play it up ridiculously. It’s essentially anyone that isn’t a strict a priorist. Hoppe has specifically thrown it at McCloskey and (outside of econ) Rorty for talking about the role of rhetoric in science in general and economics specifically. He of course is as overblown about it as Gordon is in the link you provide: to him, if you’re not an a priorist you’re a relativist. Both McCloskey and Rorty (and a lot of others who think as clearly as they do about this stuff) have amply debunked the “relativist” label.

Anyway, this is getting away from the point of the post, so it’s worth bringing it back to why I thought it was relevant in the first place: this idea of non-a-priorists as heretics plays a big role in the personality cult that Selgin describes in his post. And Friedman’s positivism was always a big boogey-man to the Misesian a priorists.

Josh S July 28, 2011 at 8:51 pm

This idea of tarring *anyone* as a heretic is pretty essential to a personality cult. Without, it you just have a boring discipline, and what’s the fun in that?

Daniel Kuehn July 29, 2011 at 6:25 am


I mean… uhhh… I agree.

John Sullivan July 29, 2011 at 6:53 pm

Mises based his economic chain link reasoning on certain principles of human nature, that he admitted required ‘experience’ to establish, such as the disutility of labor and the law of diminishing marginal utility. I would suppose that these have to be experienced by ourseves in order for us to comprehend our nature. In other words, we must live to learn our nature. The innate apparatus of our nature needs outside stimulus in order to provide us with feedback and to engage our logic. The logic of his theories flow through these general assuptions. If one wants to attack Misean theories, then they should zero in on his premises of human nature, but that’s not easy either.
–man acts always to reduce a felt uneasiness, or he would not act
–thought and action are one and the same phenomenon
–we always choose our higest valuation that exists at the time of action-our valuations are the extent of our ” free will”, and we aren’t completely free to determine them without outside influences, behavioral or inherited, etc. We aren’t “free” to choose other than our highest vaulation of alternatives. What we ultimately do repesents are highest valuation, always.

I’ve never really seen a refutation of any of these premises, nor of the rational logic upon which he proceeds.

He was clearly one of the greatest geniuses of the past generation, or of all time.

Economic Freedom July 28, 2011 at 7:02 pm

Ah personality cults.

Yes, we never see that with Keynesians.

They get people to say goofy things.

An insightful bit of self-analysis. Thanks for the explanation.

Daniel Kuehn July 28, 2011 at 7:27 pm

re: “Yes, we never see that with Keynesians.”

It’s quite possible. What do you have in mind? None spring to mind that are at all comparable to the Mises/Rothbard phenomenon. I don’t rule out the possibility – I’m just not aware of such a situation.

Minsky or Wray or Davidson actually might be a good example of that. I’m not sure it’s quite to that level. You don’t have the same sort of massive and organized internet community. But it’s closer.

Economic Freedom July 30, 2011 at 7:17 am

I don’t rule out the possibility – I’m just not aware of such a situation.

Ha, haa, haaa, haa, heee, heeee!!!

DG Lesvic July 28, 2011 at 7:20 pm

I have my hands full flinging you around.

Besides, you’ll be happy to learn that I don’t even know what hermanettics means. I once knew a couple named Herman and Etta. Does it have anything to do with them?

DG Lesvic July 28, 2011 at 7:21 pm

That was directed to Daniel, who had said he was surprised I didn’t fling that term around more.

Economic Freedom July 30, 2011 at 7:22 am


It’s Yiddish and derives originally from the Seagate section of Coney Island. “Herman-knew-dis” “Herman-knew-dat” “Herman didn’t know nothin’”.

vikingvista July 29, 2011 at 2:06 am

One characteristic of a personality cult is deify the person, stripping him of mortal failings, or always minimizing them. So if we were to only recognize the virtues of an economist, and ignore substantial failings like advocacy for central banking, central government welfare systems, or income tax withholding, then I would think we were in a personality cult.

Slappy McFee July 28, 2011 at 4:14 pm

Yeah I was reading about this yesterday. Still can’t wrap my head around “Milton is a nobody”.

George Selgin July 28, 2011 at 4:22 pm

Hermeneutics was a fad at GMU when I was there–in the mid 1980s–that was almost entirely Don Lavoie’s “thing.” It never caught on except with a handful of his students, and it ceased to be an important part of GMU’s econ department after Don shifted from there to a new department of…whatever.

Personally I thought the hermeneutical angle perfectly useless–hell, I was attracted to economics in the first place because it seemed free of the sort of pseudo-philosophical word spinning so prominent in the humanities, and so far as I could tell hermeneutics in is economic “applications,” whatever its merits in others, was mainly empty jargon. I still await evidence that I was mistaken.

Nor did I make any secret of my views–”I want nothing to do with that Godam’ermeneutics” was my standard response to anyone who asked (Hans Georg-Godamer was among Lavoie’s particular favorities). Come to think of it, I wonder if that’s why… .

But the past isn’t relevant here. What is is that Hoppe’s nickname for GMUers doesn’t fit at all any more, and never fit all that well.

Daniel Kuehn July 28, 2011 at 4:37 pm

What do you think of McCloskey?

I personally think there are more useful and less useful ways of doing this. Sure, if you’re just going to “deconstruct” everything like they do in the humanities that’s pretty useless. But I think it becomes useful more as a philosophy of science that offers a counter-argument to this idea that we can deduce the world from first principles. Given that the personality cult you (rightly) criticize is so caught up in these methodological questions, it’s important to challenge the extreme deductionist approach that’s really not very helpful for good science.

I hadn’t realized that Lavoie or others really did veer into more humanities type stuff. That would irk me too. I had just figured Hoppe and the rest of them were getting worked up over a crowd of people who weren’t convinced by their epistemological obsessions.

George Selgin July 28, 2011 at 5:09 pm

McCloskey, the pluralist rhetorician, was of course not inclined to dismiss it as I have been. On the contrary, she claimed that by invoking it Lavoie improved Austrian economics. McCloskey the economist and economic historian, on the other hand, never troubled herself with it, so far as I’m aware; but would probably say that her work was the worse for it.

We must be careful to distinguish claims to the effect that “good economics involves hermeneutics,” which is bound to be true given that we are all subjectivists and that hermeneutics can be taken to include any argument that makes any reference to how people interpret things, from the claim that there is much to be gained by becoming self-conscious “hermeneuticians,” or by resorting to jargon borrowed from Biblical exegesis. Mr. Jourdain ‘s discovery that he’d been speaking prose all along didn’t make him speak it any better.

George Selgin July 28, 2011 at 5:12 pm

Kindly read “which are bound” for “which is bound” in my 2nd paragraph above.

LowcountryJoe July 28, 2011 at 6:37 pm

I thought all economists did Phil Donahue while he was on. And I’m certain that most economists have their own television series talking up the ‘dismal science’.

If Dr. Friedman was “almost a nobody outside mainstream Economics”, then what economist ever will be a somebody outside the circle?

vikingvista July 29, 2011 at 1:56 am

He was, of course, a major mainstream figure. But he would not have been had he not been committed to mainstream doctrines like central banking. Whether he really thought placing the money and banking system in the able and responsible hands of the central government was a virtue, or he supported it so as not to lose his mainstream esteem, doesn’t really matter. Either way, he doesn’t look good.

He obviously did do much good. But central banking is no small matter. What libertarian or conservative leaning person would disagree with the great Milton Friedman? Not many. Thus central banking becomes cemented in the hearts even of those who would naturally oppose it.

LowcountryJoe July 29, 2011 at 9:11 am

Whether he really thought placing the money and banking system in the able and responsible hands of the central government was a virtue, or he supported it so as not to lose his mainstream esteem, doesn’t really matter. Either way, he doesn’t look good.

What would be your preference: see what emerges as money? What if it is multiple things that emerge? How would government be funded — what would it collect?

Ron H July 29, 2011 at 1:15 pm

What if it is multiple things that emerge? How would government be funded — what would it collect?

Gee, come to think of it, that’s one of the best arguments for free banking I’ve ever heard.

LowcountryJoe July 29, 2011 at 3:28 pm

That’s funny. Normally I would have a great laugh along with you. This time I just chuckled somewhat since I wrote it and dislike losing arguments. But on a serious note some amount of federal government — certainly far less than there is now — is necessary, correct? Assuming that you agree with this, what would the federal government collect?

Ron H July 29, 2011 at 6:59 pm


The tiny government we picture in our dreams could collect whatever emerged as sound money, or multiple sound moneys, just as international agencies and companies now deal with multiple currencies.

I haven’t given this problem much thought as we are so far away from it actually being a problem.

vikingvista July 29, 2011 at 10:56 pm

I’m talking about Friedman’s zest for central planning, by means of monetary policy, not the currency monopoly. The latter just happens to come with the former. I imagine if you were to ask MF about multiple currencies, as an isolated issue, he would simply answer that private multinational institutions solved any such problems ages ago.

John Sullivan July 28, 2011 at 7:10 pm

I don’t think the cult of Mises had anything to do with Mises himself. Rothbard certainly used Austrian economics to promote his radical “left-libertarianism”, while Mises sneered at the anarchist mentality and was a Benthamite utilitarian.

One thing is for sure, economists will either agree with or disagree with Mises, often on trivial matters, to attract attention to themselves, and to try to establish their own reputations.

Hazlitt's Ghost July 28, 2011 at 7:42 pm

Mises was absolutely NOT a Benthamite utilitarian. I can’t imagine how anyone could possibly think that, unless they had never read a single word from either author on ethical philosophy. Suffice it to say, utilitarianism is an extremely broad and diverse philosophy, which includes many differing and opposing viewpoints. I suggest you read Hazlitt’s “Foundations of Morality” to see what moral philosophy Mises actually endorsed. I also suggest you forget about all the ridiculous strawmen Murray Rothbard erected with regard to utilitarianism, since in all of his writings it appears he is totally ignorant as regards any form of utilitarianism that wasn’t the ad-hoc Benthamite variety that had never even been popular with a majority of utilitarians in the first place, and certainly by the time Rothbard wrote on the subject, was totally abandoned. Rothbard never even came close to elucidating Mises’ moral philosophy, and the fact that his supporters repeat his dishonest and ignorant criticisms against a philosophy they know nothing about only goes to further make the case against Rothbard’s cult of personality.

Here’s a suggestion: read a book on moral philosophy written by a utilitarian (not an act utilitarian) after the 19′th century. Enlighten yourself and stop repeating criticisms about a school of thought which you know nothing whatsoever. Mises had a very interesting and fairly unique (praxeological) ethical philosophy, and it is sad it is so overlooked among philosophers, and even worse that people who are allegedly “Misesians” are so ignorant about his thoughts on ethical philosophy.

John Sullivan July 28, 2011 at 8:12 pm

I’ve read all of Mises philosophy and the Hazlitt book. I’ve read his “Theory and History” about 5 times and the philosophical chapters in “Human Action’ at least a dozen times.

It is you who doesn’t understand Mises thought on those matters. Utilitarianism was butchered by those who came after Bentham. It was hyjacked by socialists. Mises wrote in Human Action that he was a Utilitarian and he described its origins from epicureanism up through Bentham.

Mises never used a ‘natural law’ or any form or moral or ethical justification for his praxeological theories. Hazlitt didn’t write the Foundation of Morality based on Mises. It was his own thought. I know this because I have studied natural law theories and their evolution.

Mises a few times quoted Bentham as saying that natural rights were rubbish.

The reason that Mises approach was scientific and not ethical was that he didn’t want his worked based upon morals, but upon their actual utilitarian benefit for societies.

He demanded those intent on refuting him to do it scientifically, without resort to ideological methods.

He called his praxeology a ‘scientic method’. His book “The Ultimate Foundation of Economic Science” and his “Theory and History” are utilitarian, not moral arguments.

Is there anything else you want to debate? Do you know anything of epicureanism, or is your only knowledge of it as shallow as your mis-uderstanding of Benthamite utilitarianism, which was basically a philosophy about using practical reason to figure out what works best for society. Bentham was a free trade advocate because of the economic benefits of free trade for all, not because he thought property rights were handed down to mankind from God.

Sorry, I’ll think I’ll stay.

Hazlitt's Ghost July 28, 2011 at 8:36 pm

Don’t mistake my dismissal of Bentham’s utilitarianism as denying his instrumentality in developing and furthering utilitarian thought. However, The Foundations of Morality was absolutely written as a defense of Misesian ethics. Hazlitt obviously set out to defend Hume and especially Mises.

If you read FoM, you would know that Hazlitt also quotes Bentham extensively. So what? Mises also quotes Marx favorably when he writes on money, in Human Action. Does that make him a Marxist? So how does the fact that Mises quoted Bentham make him a Benthamite utilitarian?

I feel it’s important to define our terms here. What exactly do you mean by Benthamite? Because the most fundamental characteristic of Bentham’s moral philosophy as opposed to other utilitarians was the calculation, quantification and interpersonal commensuration of utility, all of which Mises opposed. Indeed, what is more Misesian than denying the possibility of comparisons of interpersonal utility, something Mises consistently insisted was impossible?

“Is there anything else you want to debate? Do you know anything of epicureanism, or is your only knowledge of it as shallow as your mis-uderstanding of Benthamite utilitarianism, which was basically a philosophy about using practical reason to figure out what works best for society. Bentham was a free trade advocate because of the economic benefits of free trade for all, not because he thought property rights were handed down to mankind from God.”

What exactly are you hoping to accomplish by bringing Epicureanism into this debate? Mises, Hazlitt and other rule utilitarians (or utilitists or cooperatists, as Hazlitt would say) are Epicureans only in the vaguest sense, applied as an adjective not a noun. Hazlitt explicitly makes this clear in FoM:

“Yet if we interpret happiness in this context as referring not merely to the short-run happiness of the agent but to the general long-run happiness of the community, then this “Epicurean” view is obviously the correct solution. The ultimate end is happiness. Virtue is a necessary long-run means to that end.”

Hazlitt extended the “Epicurean” view away from the short-run happiness (pleasure) of the individual, and instead focused on the long-term consequences of norms (rules) as regards the happiness (satisfaction) of everyone. But all of this is byplay to the issue at hand, namely Mises’ supposed “Benthamite” views. I’ll end with a quote from Jörg Guido Hülsmann’s biography of Mises,

“Mises’s rationalist utilitarianism must not be confused with the utilitarianism of Jeremy Bentham, a British philosopher of the late eighteenth-and early-nineteenth century. Bentham had given political utilitarianism its most famous expression, claiming that the purpose of politics should be to promote the greatest happiness of the greatest number of citizens (a normative claim). Although Mises was inspired by Bentham’s work, he was not primarily interested in justifying the application of utilitarianism in politics”.

DG Lesvic July 28, 2011 at 8:47 pm

Here are some of Mises’ actual words about morality.

“The abolition of slavery…is to be attributed neither to the teachings of theologians and moralists nor to weakness or generosity on the part of the masters. There were among the teachers of religion and ethics as many eloquent defenders of bondage as opponents. Servile labor disappeared because it could not stand the competition of free labor…in the market economy.”

“There is…no such thing as…an absolute notion of justice…It is not justice that determines the decision in favor of a definite social system…on the contrary, the social system which determines what should be deemed right and…wrong. There is neither right nor wrong outside the social nexus. For the hypothetical isolated and self-sufficient individual the notions of just and unjust are empty. Such an individual can merely distinguish between what is more…and…less expedient… The idea of justice refers always to social cooperation.”

Economics “presupposes that people prefer life to death, health to sickness, nourishment to starvation, abundance to poverty…It is customary to call these concerns materialistic and to charge liberalism (sic) with…a neglect of the ‘higher’ and ‘nobler’ pursuits of mankind. Man does not live by bread alone, say the critics, and they disparage the meanness and baseness of the utilitarian philosophy…The liberals do not assert that men ought to strive after the goals mentioned above. What they maintain is that the immense majority prefer a life of health and abundance to misery, starvation, and death. The correctness of this statement…is proved by the fact that all antiliberal doctrines — the theocratic tenets of the various religious, statist, nationalist, and socialist parties — adopt the same attitude with regard to these issues. They all promise their followers a life of plenty. They have never ventured to tell people that the realization of their program will impair their material well-being. They insist — on the contrary — that while the realization of the plans of their rival parties will result in indigence for the majority, they themselves want to provide their supporters with abundance. The Christian parties are no less eager in promising the masses a higher standard of living than the nationalist and the socialists. Present-day churches often speak more about raising wage rates and farm incomes than about the dogmas of the Christian doctrine.”

“It is true that some secluded intellectuals in their esoteric circles talk differently. They proclaim the priority of what they call eternal absolute values and feign in their declamations — not in their personal conduct — a disdain of things secular and transitory. But the public ignores such utterances. The main goal of present-day political action is to secure for the respective pressure group memberships the highest material well-being. The only way for a leader to succeed is to instill in people the conviction that his program best serves the attainment of this goal.”

“The essential problem of all varieties of universalistic, collectivistic, and holistic social philosophy is: By what mark do I recognize the true law, the authentic apostle of God’s word, and the legitimate authority. For many claim that Providence has sent them, and each of these prophets preaches another gospel. For the faithful believer there cannot be any doubt; he is fully confident that he has espoused the only true doctrine. But it is precisely the firmness of such beliefs that renders the antagonisms irreconcilable. Each party is prepared to make its own tenets prevail. But as logical argumentation cannot decide between various dissenting creeds, there is no means left for the settlement of such disputes other than armed conflict. The nonrationalist, nonutilitarian, and nonliberal social doctrines must beget wars and civil wars until one of the adversaries is annihilated or subdued. The history of the world’s great religions is a record of battles and wars, as is the history of the present-day counterfeit religions, socialism, statolatry, and nationalism.”
“Intolerance and propaganda by the executioner’s or the soldier’s sword are inherent in any system of heteronomous ethics. The laws of God or Destiny claim universal validity, and to the authorities which they declare legitimate all men by rights owe obedience. As long as the prestige of heteronomous codes of morality and of their philosophical corollary, conceptual realism, was intact, there could not be any question of tolerance or of lasting peace. When fighting ceased, it was only to gather new strength for further battling. The idea of tolerance with regard to other people’s dissenting views could take root only when the liberal doctrines had broken the spell of universalism. In the light of the utilitarian philosophy, society and state no longer appear as institutions for the maintenance of a world order that for considerations hidden to the human mind pleases the Deity although it manifestly hurts the secular interests of many or even of the immense majority of those living today. Society and state are on the contrary the primary means for all people to attain the ends they aim at of their own accord. They are created by human effort and their maintenance and most suitable organization are tasks not essentially different from all other concerns of human action. The supporters of a heteronomous morality and of the collectivistic doctrine cannot hope to demonstrate by ratiocination the correctness of their specific variety of ethical principles and the superiority and exclusive legitimacy of their particular social ideal. They are forced to ask people to accept credulously their ideological system and to surrender to the authority they consider the right one; they are intent upon silencing dissenters or upon beating them into submission.”

John Sullivan July 28, 2011 at 9:31 pm

Open “Human Action” and look up Bentham in the glossary and read the section in the chapter called “Human Society”, page 125 in my book, where he outlines his basic social philosophy. I was pretty accurate with my last post.

Like many, with some due respect because you’re apparently educated, you have read more of Mises than Mises. Nobody could possibly agree with everything thought by Bentham, not even Bentham, but the essential elements of Bentham’s utiltarian thinking were embraced by Mises.

Mises was extremely well read on philosophy and intergrated it extensively into his work, often in defense of his premises. Now, Hazlitt might have written a moral defense of Mises, but it wasn’t something that Mises would have been interested in. With due resepct to Hazlitt, his book offered nothing new that enlightenment philosophy hadn’t already exhausted in debate. The ethical foundations for classical liberalism (libertarianism) were understood hundreds of years before Hazlitt wrote of them. And of all people, David Hume didn’t need a moral assist from Hazlitt either. The value of Hazlitt is for younger people who need an introduction to libertarian values and economics based on those values. Like Bastiat a century earlier, Hazlitt simply repeated him.

I mentioned epicureanism because Mises wrote of it when he explained the roots of his social philosophy. Epicureanism was based on individualism, not on a collective approach to seeking happiness. If you go back to the Greeks, Mises wouldn’t choose Plato or Aristotle as a guide; he’d side with the Sophists. There’s a good book called “The Liberal Temper in Greek Politics” that shows the proper light upon which the sophists should be understood–as utilitarians. It was Plato and Aristotle’s moral absolutes that led to tyranny, whereas the sophists stood for science, trial and error, and scepticism.

The utiliatrian philosophy that Mises held was Benthamite in type, as to distinguish it from its meaning that it came to be known for after Bentham’s death–a more collectivist meaning. But that didn’t mean Mises was a diciple of Bentham or that because he described his own thinking as similar to Bentham’s, that he would agree on everything Bentham advocated. The main point is that Mises was pragmatic to the core. He may have held strong libertarian values, but he never used them in argument to justify his ideas.

The first third of “Human Action” delves into his philosophical outlook that serves as a foundation for his theories. Please read it. He goes out of his way to dismiss Natural Law theory, however applicable and in agreement they may appear to be. In his other works, he repeats the same theme, over and over, that his theories are based on their utility.

My post that distinguished Rothbard from Mises, by calling Mises a Benthamite utiltarian, was not to be interpreted that Mises was politically active in that tradition. It was more that he subscribed to the underlying ‘mindset’ of that school of thinking. If you had read Mises yourself, you would have understood and not have replied as you did.

Most people don’t read Mises in depth because he bores people with what they think is too much philosophy. He’s actually very funny and has some really good quips on many philosophers–such as Hegal and Nietzsche, among others.

Mises wasn’t the ideological type. He understood the human condition and why his theories were politically unlikely to be adopted. His main point was that the science of human action operated in spite of what politically prevailed and his greatest hope was that the democratic majorities would eventually learn it.

Hazlitt's Ghost July 28, 2011 at 10:23 pm

@DG Lesvic:
I’m not sure why you posted all those quotes. Do you have something to actually say?


I maintain my defintion of “Benthamite utilitarianism”, in opposition to your more vague definition. The thing that separated Bentham’s views from other utilitarians more than anything were his attempts to quantify pleasure.

With some due respect, the views of Hazlitt were not as antiquated as you have portrayed. The philosophy of both Epicurus and Mises was eudaemonic, but so was Aristotle’s, et al. Regardless, I may have used too many words to convey such a simple idea; Jeremy Bentham was an act utilitarian, Mises (and Hazlitt) were not. But the difference between Mises’ and Bentham’s ethics is deeper than that. From Human Action:

“The notion of right and wrong is a human device, a utilitarian precept designed to make social cooperation under the division of labor possible. All moral rules and human laws are means for the realization of definite ends. There is no method available for the appreciation of their goodness or badness other than to scrutinize their usefulness for the attainment of the ends chosen and aimed at.”

This is a truly praxeological view of ethics, and is not found anywhere in the writings of Bentham.

Also, I’m not sure why you keep mentioning natural law and natural rights. I haven’t brought them up, nor do I subscribe to any theory of natural law or natural rights, and I don’t see how it is at all relevant to this discussion. We are discussing the utilitarianism of Mises.

John Sullivan July 29, 2011 at 5:44 pm

Hazlitt’s ghost,

I couldn’t respond under your last email. hopefully, you’ll see this post.

I brought up Natural Law theory because that is what Hazlitt’s moral argument is based on. Natural Law theories culminated in libertarian ethical principles. From the 19th century, see Lysander Spooner’s essay on Natural Law, and Herbert Spencer’s “Social Statics”. I also mentioned Bastiat who wrote an essay called “The Law”. These were natural law arguments that preceded Hazlitt. Like I said, Hazlitt’s book wasn’t that original.

Next, your quotation from “Human Action” only reinforces my original post on the fact that Mises was a utilitarian, and not interested in defending his theories on moral grounds–as you suggested in your response to me.

The differences you are trying to make regarding the particulars of Mises’s utiliarianism aren’t relevant to what we are here talking about. I said Mises was a utilitarian and you disagreed. Now, anybody reading your own quotation from Human Action would agree with me, not you.

There may be economists on this site who have a better grasp of Austrian economics than I do, and of Mises’s theories, but I don’t think they have studied his philosophical writings as much as I have.

What you don’t understand is that the moral arguments for a libertarian rule of law are deficient. By themselves, they are inadequate as a defense for the type of political economy that Mises advocated. Whether or not Mises shared the same moral values that Hazlitt eloquently expressed in his book aren’t an issue here, and nowhere in the entire opus of Mises will you encounter him framing the principles of his theories in ethical terms.

To DG Lesvic,

I recall those quotations. As you surely know, Mises grinded his philosophical outlook into his readers using repitition and historical examples after examples. Those quotes serve to fully reinforce my assertion that Mises came to advocate classical liberlaism though a utilitarian, rather than through an ethical or moral, approach.

Thank you for contributing those.

One can argue for property rights from a moral perspective and from a utilitarian perspective, Mises chose the latter.

John Sullivan July 29, 2011 at 7:55 pm

Hazlitt’s ghost,

Would you like me to elaborate on why an ethical defense of private property and a libertarian rule of law are inadequate?

Mises was aware of the moral and ethical contradictions in the various competing conceptions of justice, including the one you mentioned–FOM by Hazlitt.

I think I outlined some of the points several months ago here.It’s not that hard to argue against a libertarian society in trying to establish the validity of what would constitute man’s “natural rights”.

DG Lesvic July 28, 2011 at 7:17 pm

Prof. Selgin,

You wrote that Rothbard’s “version of the Austrian business cycle theory was naive–in essence it equated behavior of M consistent with keeping interest rates at their ‘natural’ levels with the elimination of fractional-reserve banking, an equation that holds only with the help of about a dozen auxilliary assumptions, all of which are patently false.”

I couldn’t make heads or tails out of that.

Could you help me with that?

John Sullivan July 28, 2011 at 7:52 pm

I second that question.

Like I said in my earlier post, the economists will distance themselves mainly over trivia–such as the unreliablity of the supply of commodity types of money, and how ‘natural interest rates’ would would work.

The boom-bust cycle is caused mainly by credit expansion and credit expansion is perpetuated mainly by the multiplier effect caused by fractional reserve banking. Is he asserting that the same boom-bust cycles that we experience would happen without fractional reserve banking?

Is he saying that artifically low interest rates don’t send false signals to entrepreneurs regarding the potential demand for their products, and thus stimulating a capital mal-investment?

The case for hard money is that the only way for economic calculation to be accurate as far as a forecast of demand to justify possible plant expansions would be if the money has been put into savings by the consumers. An shortage of savings would cause rates to be higher than needed by the entrpreneur to justify his expansion. Also, the shortage of savings is a measure of the natural time preferences of the consumers. In order for the division of labor to intensify, consumers must first change their time preferences and reduce their consumption in order for them to save more. This is the critical signal required for the entrepeneur to make his capital investment. All this is destroyed with credit expansion and artificial interest rates, which are the main causes of the boom-bust cycle.

Is this what you are saying is patently false? Is it your opinion that Rothbard/Mises were ignorant of what caused the business cycles?

DG Lesvic July 28, 2011 at 11:07 pm

John L

Don’t think I’ve seen you here before, but hope to see more of you.

You’re one of the few who really knows Mises, and that means, really knows what economics is all about.

vikingvista July 29, 2011 at 1:59 am

I tend to agree with Selgin on monetary theory, not that I’m any kind of expert. But Selgin misses the big picture. Selgin’s vision of banking could exist in Rothbard’s world, but never in Friedman’s.

david nh July 31, 2011 at 5:08 pm

That expresses it very well.

Economic Freedom July 28, 2011 at 7:22 pm

If he [Friedman] took longer to become almost as radically libertarian as Rothbard, the fact was merely a measure of his desire to form his own ideas gradually rather than receive them en bloc from someone else.

With all due respect to MF, that he obviously moved away from his own earlier interventionist ideas and toward more consistently libertarian notions was a measure of his desire to shed the former; not reinvent the latter. He knew perfectly well that by moving away from his own earlier ideas, he was moving toward those of Mises and the Austrian school.

Who knows? Maybe Mises’s angry outburst at Mont Pelerin when guests were discussion the negative income tax — “You’re all socialists!!” — stuck in MF’s craw and began to make some sense.

Kirby July 28, 2011 at 7:33 pm

What are the criticisms of a gold standard? Besides the fact that gold is difficult to carry around in large amounts.

LowcountryJoe July 28, 2011 at 8:41 pm

I’m only answering for myself on this one. Why have a currency linked to gold? Why not just use gold if it is more desired? By having a currency linked to gold, it adds another unnecessary layer — one that could lead to arbitrage. It can also have it’s own purchasing power erosion if there’s a mining find.

However, fiat currencies are easier to convert with one another and get an exchange price. On the down side, discoveries of major gold deposits occur far less often than the institutions responsible for increasing the (fiat) money supply.

Josh S July 28, 2011 at 9:01 pm

The simple answer is that the demand for credit fluctuates a lot more than the gold supply.

vikingvista July 29, 2011 at 2:12 am

Are you confusing a gold base currency with a 100% reserve banking? Fractional reserve banking off of gold would be both a gold standard and allow a flexible money supply based on market conditions.

Don Lloyd July 28, 2011 at 10:07 pm

Even just sampling Mises about gold and money, it seems that everything can be distilled down to two simple ideas :

1. Given an actual monetary economy, neither more money nor less will provide a general overall benefit to society. Nor will either necessarily produce a detriment, depending on specifics.

2. The gold standard is one possible means to an end. The primary virtue of a gold standard is the cost and difficulty that it places in the way of politicians, or anyone else, who wishes to expand the money supply for their own purposes and interests.

Other ideas, anyone?

Regards, Don

SheetWise July 29, 2011 at 1:19 am

“The primary virtue of a gold standard is the cost and difficulty that it places in the way of politicians, or anyone else, who wishes to expand the money supply for their own purposes and interests.”

In the same way the primary virtue of “modern” economics is the ease it offers politicians who wishes to expand the money supply for their own purposes and interests.

Pick one.

vikingvista July 29, 2011 at 2:14 am

“The primary virtue of a gold standard is the cost and difficulty that it places in the way of politician”

Since a government monopoly gold standard got us where we are today, this would seem to be wrong.

Don Lloyd July 29, 2011 at 4:15 am

You’re overlooking fractional reserve banking.

Regards, Don

vikingvista July 29, 2011 at 11:11 pm

You think fractional reserve banking–the only kind of banking mankind has ever known–is the reason America descended from individualists to serfs on a leviathan plantation. I say it is violent monopoly. Monopoly FR banking is much newer. And monopoly LOVES to have its own monopoly fractional reserve banking system.

No. Liberty can survive with competing FR banks. It cannot–it does not–long survive under a too big to fail Monopoly extorter.

MTB July 29, 2011 at 9:21 am

R.I.P. to the Rizzo peace.

david nh July 29, 2011 at 12:46 pm

I think in some way Gary North captures a libertarian perspective on Friedman that is hard to refute:

” Friedman … believed in free market liberty, but not where it is really important: education (vouchers based on state-confiscated money) and money itself (central banking based on a grant of state power: a monopoly).”

I would add the following.

Favouring more liberty doesn’t automatically render someone a libertarian, particularly given the current size of the state.

Arguing for elimination of rent control or the minimum wage doesn’t require that you be a libertarian either, simply a good economist.

Advocating the end of that form of slavery known as the military draft likewise doesn’t prove that you are libertarian, just that you recognize that humans aren’t livestock.

The difficulty from a libertarian perspective is that it is state control of the money supply which has enabled the expansion of the state to its modern scope. Arguing piece-meal against this or that policy is not bad but it really is like rearranging the deck chairs on the Titanic or closing the barn door after the horses have bolted (insert your favourite cliché here). It’s a losing proposition. You may, after years of effort, defeat one or two programs but the state will just grow some new appendages to replace those you’ve hacked off.

As someone who has been exposed to Austrianish ideas only after many years as a mainstreamer, one thing that strikes me, and I’m sure many others, is the extent of professional price paid by Mises, Hayek and their followers such as Rothbard, as a result of their views of economics and liberty. Some of this may have been due to bad economics, but let’s be honest, most was due to ideology and their defiance of the prevailing orthodoxy. It lends them, in the eyes of many and legitimately so in my view, something of an heroic character. My impression is that Friedman did not pay such a professional price for his views.

Friedman may well have been the better monetary economist. To be honest, the obsession of some Austrians with 100% reserves makes absolutely no sense to me. However, it doesn’t make any more sense to me when James Buchanan argues for it either, as he recently did. No one’s calling Buchanan a Rothbardian. I also vaguely recall at one point in the deep distant past Friedman supporting the idea of 100% reserves. Further, Friedman failed to appreciate fully (or at all?) the negative real effects (via malinvestment) of excess money supply even though he may have appreciated the consequences of monetary disequilibrium in the opposite direction. That’s strikes me as a pretty fundamental flaw. Aside from monetary economics, Rothbard seems to have had the broader range, including not only theory but the history of economic thought.

The attack on Friedman was silly and needlessly provocative perhaps. But how many silly, vicious and uninformed attacks on Austrians have there been over the last 60 years? Which is particularly odd, given that many “modern” innovations in mainstream economics were present in Austrian economics many decades ago. Of course, few, if any, have given the Austrians any credit for that.

While Milton may have been the greater economist, Murray was perhaps the greater libertarian. In the long run, what will matter more in securing liberty and improving people’s lives? I throw in my lot with Murray.

vikingvista July 29, 2011 at 11:39 pm

Murray was certainly the more fearless of the two. I’m not talking about just in his profession. I’m talking about MR’s complete lack of resistance to following logic where its consistency must take him. Most people fear bucking tradition, family views, the pronouncements of giants, or, in the case of MF, his mainstream appeal. Even if they do find their own reasoning leading them far off the reservation, most people tend to keep it to themselves. That meant nothing to MR compared to the validity of an argument. It must’ve been important to MF, since there is no way in hell a mind like his could’ve found anything but inconsistency between some of his policy prescriptions and his advocacy for liberty.

david nh July 31, 2011 at 6:31 pm

Excellent comment. It seems as if logical consistency marks one as an extremist whereas accepting multiple contradictory statements as all being true passes for moderation or, even more oddly, “being reasonable”.

Chad July 29, 2011 at 2:28 pm

Rothbard’s criticism of Friedman in the article that Lew Rockwell links to is pretty devestating. That’s not to say that Friedman wasn’t brilliant. He certainly was. But I’d also throw in my lot with Murray as well, given the totality of their work (that I’ve read and watched).

DG Lesvic July 29, 2011 at 2:38 pm

Haven’t read every word here but have come away from with one very firm conclusion.

This newcomer, John Sullivan, the Great John L, is the best interpreter of Mises if not the best economist I have seen in a very very long time.

What a welcome addition.

John, please stay with us. Oh, how we need you.

John Sullivan July 29, 2011 at 6:09 pm

I’m not an economist. It’s a hobby.

As an aside, regarding MF and his monetarism, and their general intent on keeping prices stable, Mises considered that an inflationary distortion. It was inflationary because in a free market, prices would be going down.

As the division of labor progresses, the goods and services avaiable for consumption increase. With the money supply stable, prices will drop and the purchasing power of the currency will rise. Keeping prices stable will entail the creation of new money.

This new money always enters the economy in ways that favor certain groups at the general expense of consumers. I have not studied the exact ways upon which it is accomplished, but you can bet your ass that checks weren’t mailed out to the nations consumers. Rather huge corporations and financial institutions were the first recipients of the new money and profitted accordingly. They received it before the new addition of money caused the factors of prodcution that they purchased with it to go up.

The consumers, on the other hand, never received the increase of wealth, through an enhanced purchasing power of their money, that their further division of labor should have provided them.

Without a doubt, Monetarism is a subtle form of theft. It transfers wealth from the masses of consumers to the poltically connected industrial and financial elites. Further, it is accomplished using the false argument that the price stability it aims for is good for the consumers, and the economy in general.

DG Lesvic July 29, 2011 at 7:38 pm


You are an economist, and among the best.

Hayek agreed with everything you said above, and was therefore opposed to any tinkering with the money supply. But he committed one serious error. While he disagreed with the Keynesian notion that saving was the primary cause of the recession, he agreed that it could be a secondary cause, in other words, aggravate it.

For it was not just increasing productivity that caused prices to fall but the withdrawal of money from circulation, the flight to safety, and saving money in a mattress.

And that could snowball, and aggravate the recession.

To counteract it, Selgin would replace the money lost to circulation by the injection of a fresh supply of it into the circulatory stream.

And while Hayek was opposed to that, he opened the door to it.

In fact the flight to safety was not harmful to the market but just what it needed. Hayek’s failure to see that made his job harder than it needed to be.

kyle8 July 29, 2011 at 4:26 pm

Murray Rothbard went off the deep end and said some embarrassing things in his last years, Still I learned a lot by reading his basic book on Economics. Some of his books are still worthwhile.

Pingry July 29, 2011 at 8:58 pm

And let’s be clear: This is the same Milton Friedman who dismissed Austrian Business Cycle Theory.

So yeah, ABCT lost in the market of ideas.


Paul Marks August 1, 2011 at 5:38 am

I have replied to Dr Selgin (if he allows the reply – which was perfectly polite, but in deep disagreement with him).

Basically my reply defended two basic principles – of basic logic (in the old sense of rationality) as well as economics.

That 100 Dollars (or whatever) of real savings can not lead to more than 100 Dollars of lending.

And that when a person or persons lends out their real savings (i.e. the money they have earned – but have chosen not to consume) they DO NOT HAVE THE MONEY ANYMORE till when and IF they are paid back.

This applies whether people lend out money directly or via the professional money lenders known as “bankers”.

No matter how complex the schemes of bankers (or others) are, if they violate the above principles (i.e. the principles of logic in a rational universe) they MUST be brought down to the ground eventully.

Central Banking may make basic problem (the expansion of lending beyond real savings) worse – but it does NOT create the basic problem.

There have been many boom/busts in American history (and the history of other nations) before the creation of the Federal Reserve system in 1913, indeed even before the National Banking Acts of the Civil War.

In the end there can be no “short cut” to prosperity (no matter how complex and clever the credit expansion schemes are). Prosperity can only be won by hard work and saving – “thrift, hardwork and self denial” as the old “Gods of the Copybook Headings” would put it.

Credit expansion “get rich quick” schemes (of the “finance economy”) that hold (in their ultra complex ways) that one can have more than 100 Dollars of lending for a 100 Dollars of real savings MUST (in the end) fail – the “boom” MUST turn to “bust”.

For that is the nature of an objective universe (of basic rationality itself) and no scheme (no matter how complex and clever) can “get round” this.

Paul Marks August 1, 2011 at 5:54 am

Talk of a “market place of ideas” confuses economic value, which is indeed subjective, with truth – which is most certainly not subjective (Oslo murderer to the contrary Wiliam James was wrong about there being no such thing as objective truth).

For example, it is simply not relevant that the “Austrian” account of the economic cycle, that the boom/bust is caused by an expansion of credit (lending) beyond real savings, is not popular in the (mostly government subsidized) universities.

Milton Friedman defended the 1920s polices of New York Federal Reserve Bank head Ben Strong – but the FACT remains that the expansion of bank credit supported by Strong was the cause of the boom/bust.

In short Fisher of Yale (in the 1920s) with his stress that an expansion of the money supply (via an expansion of bank credit) did not matter as long as the “price level” remained stable was just WRONG.

Just as Alan Greenspan was wrong in the 1990s and 2000s.

A “marketplace of ideas” has nothing to do with this – as it is not about subjective tastes (what coat we choose to buy – or what we would LIKE to be true) it is about a matter of objective reality. One can no more escape it than one can escape 1+1=2.

To prevent the “bust” one must prevent the (credit expansion) “boom” – one can not have the “boom” for ever (that would be like a perpetual motion machine). A credit expansion based “finance economy” is like a fairy castle in the air – it may be wonderful in a fantasy, but it can not work in objective reality.

Of course Milton Friedman (towards the end of his life) came to the conclusion that the monetary base should be frozen (not increased in line with production to keep the “price level” stable) and (many times at different times in his life) declared that the United States would have been better off if the Federal Reserve system had never been created.

Sadly Miton Friedman never made the final step – the final step of rejecting the whole “get rich quick” Ponzi scheme, of lending being greater than real savings, and/or lenders still having the money they lend – after they have lent it.

david nh August 1, 2011 at 9:06 pm


MF was the reason Hayek was shut out at Chicago? Really? Doesn’t sound very gracious, if true.

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