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| Disputed term/author/ism | Author |
Entry |
Reference |
|---|---|---|---|
| Free Market | Economic Theories | Rothbard III 912 Free market/economic theories/Rothbard: There are many economists who regard the "free market" as only being free of triangular interference; such binary interference as taxation is not considered intervention in the purity of the "free market." For triangular interventions see >Price control/Rothbard, >Interventions/Rothbard. Chicago school/Knight/Rothbard: The economists of the Chicago School - headed by Frank H. Knight -- have been particularly adept at splitting man's economic activity and confining the "market" to a narrow compass. They can thus favor the "free market" (because they oppose such triangular interventions as price control), while advocating drastic binary interventions in taxes and subsidies to "redistribute" the income determined by that market. >Distribution/Rothbard, >Frank H. Knight, >Chicago School. RothbardVsChicago School: In short, the market is to be left "free" in one sphere, while being subject to perpetual harassment and reshuffling by outside coercion. This concept assumes that man is fragmented, that the "market man" is not concerned with what happens to himself as a "subject-to-government" man. Def Tax illusion/Rothbard: This is surely an impermissible myth, which we might call the "tax illusion" - the idea that people do not consider what they earn after taxes, but only before taxes. In short, if A earns $ 9,000 a year on the market, B $ 5,000, and C $ 1,000, and the government decides to keep redistributing the incomes so that each earns $ 5,000, the individuals, apprised of this, are not going to keep foolishly assuming that they are still earning what they did before. They are going to take the taxes and subsidies into account. >Government spending/Rothbard. Rothbard III 1035 Free market/Economic theories/Rothbard: There are two general lines of attack on the free market, using external benefits as the point of criticism. Taken together, these arguments against the market and for governmental intervention or enterprise cancel each other out, but each must, in all fairness, be examined separately. 1) The first type of criticism is to attack A for not doing enoughfor B. The benefactor is, in effect, denounced for taking his own selfish interests exclusively into account, and thereby neglecting the potential indirect recipient waiting silently in the wings.(1) 2) The second line of attack is to denounce B for accepting a benefit without payingA in return. The recipient is denounced as an ingrate and a virtual thief for accepting the free gift. The free market, then, is accused of injustice and distortion by both groups of attackers: a) the first believes that the selfishness of man is such that A will not act enough in ways to benefit B; b) the second that B will receive too much "unearned increment" without paying for it. Rothbard: Either way, the call is for remedial state action; on the one hand, to use violence in order to force or induce A to act more in ways which will aid B; on the other, to force B to pay A for his gift. Ethics/economics/Rothbard: Generally, these ethical views are clothed in the "scientific" opinion that, in these cases, free-market action is no longer optimal, but should be brought back into optimality by corrective State action. Such a view completely misconceives the way in which economic science asserts that free-market action is ever optimal. Rothbard III 1036 RothbardVsInterventions: It is optimal, not from the standpoint of the personal ethical views of an economist, but from the standpoint of the free, voluntary actions of all participants and in satisfying the freely expressed needs of the consumers. Government interference, therefore, will necessarily and always move away from such an optimum. Rothbard: It is amusing that while each line of attack is quite widespread, each can be rather successfully rebutted by using the essence of the other attack! RothbardVs 1): Take, for example, the first - the attack on the benefactor. To denounce the benefactor and implicitly call for state punishment for insuffcient good deeds is to advance a moral claim by the recipient upon the benefactor. We do not intend to argue ultimate values (…). But it should be clearly understood that to adopt this position is to say that B is entitled peremptorily to call on A to do something to benefit him, and for which B does not pay anything in return. We do not have to go all the way with the second line of attack (on the "free rider"), but we can say perhaps that it is presumptuous of the free rider to assert his right to a post of majesty and command. For what the first line of attack asserts is the moral right of B to exact gifts from A, by force if necessary. >Free rider. RothbardVs 2): The second line of attack is of the opposite form - a denunciation of the recipient of the "gift." The recipient is denounced as a "free rider," as a man who wickedly enjoys the "unearned increment" of the productive actions of others. This, too, is a curious line of attack. It is an argument which has cogency only when directed against the first line of attack, i.e., against the free rider Who wants compulsoryfree rides. But here we have a situation where A's actions, taken purely because they benefit himself, also have the happy effect of benefiting someone else. Are we to be indignant because happiness is being diffused throughout society? Are we to be critical because more than one person benefits from someone's actions? Free rider: After all, the free rider did not ask for his ride. He received it, unasked, as a boon because A benefits from his own action. To adopt the second line of attack is to call in the gendarmes to apply punishment because too many People in the society are happy. In short, am I to be taxed for enjoying the view of my neighbor's well-kept garden? Rothbard III 1037 Georgism/Henry George: One striking instance of this second line of attack is the nub of the Henry Georgist position: an attack on the "unearned increment" derived from a rise in the capital values of ground land. The argument of the Georgists is that the landowner is not morally responsible for this rise, which comes about from events external to his landholding; yet he reaps the benefit. The landowner is therefore a free rider, and his "unearned increment" rightfully belongs to "society." Setting aside the problem of the reality of society and whether "it" can own anything, we have here a moral attack on a free-rider situation. >Henry George, >Georgism/Rothbard. RothbardVs: The diffculty with this argument is that it proves far too much. For which one of us would earn anything like our present real income were it not for external benefits that we derive from the actions of others? Specifically, the great modern accumulation of capital goods is an inheritance from all the net savings of our ancestors. Without them, we would, regardless of the quality of our own moral character, be living in a primitive jungle. 1. For some unexplained reason, the benefits worried over are only the indirect ones, where B benefits inadvertently from A's action. Direct gifts, or charity, where A simply donates money to B, are not attacked under the category of external benefit. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
| Interventions | Rothbard | Rothbard III 891 Interventions/Rothbard: (…) the free market always benefits every participant, and it maximizes social utility ex ante; it also tends to do so ex post, for it contains an effcient mechanism for speedily converting anticipations into realizations. >Free market/Rothbard; for ex ante/ex post see >Time/Rothbard. VsInterventions: With intervention, one group gains directly at the expense of another, and therefore social utility is not maximized or even increased; there is no mechanism for speedy translation of anticipation into fruition, but indeed the opposite; and finally (…) the indirect consequences of intervention will cause many interveners themselves to lose utility ex post. >Price control/Rothbard, >Minimum wage/Rothbard, >Gresham’s Law/Rothbard, >Bimetallism/Rothbard, >Taxation/Rothbard, >Government spending/Rothbard, >Government budget/Rothbard. Rothbard III 907 Intervention/Rothbard: Binary intervention occurs (…) when the intervener forces someone to transfer property to him. Binary intervention: All government rests on the coerced levy of taxation, which is therefore a prime example of binary intervention. Triangular intervention: Government intervention, consequently, is not only triangular, like price control; Binary intervention: it may also be binary, like taxation, and is therefore embedded into the very nature of government and governmental activity. >Taxation/Rothbard, >Government budget/Rothbard, >Government spending/Rothbard, >Free market/Economic theories. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
| Price Control | Rothbard | Rothbard III 891 Price control/Rothbard: A triangular intervention occurs when an intervener either compels a pair ofpeople to make an exchange or prohibits them from making an exchange. The coercion may be imposed on the terms of the exchange or on the nature of one or both of the products being exchanged or on the people doing the exchanging. The former type of triangular intervention is called a price control, because it deals specifically with the terms, i.e., the price, at which the exchange is made; Product control: the latter may be called product control, as dealing specifically with the nature of the product or of the producer. Rothbard III 892 Price control: An example of price control is a decree by the government that no one may buy or sell a certain product at more (or, alternatively, less) than X gold ounces per pound; Product control: an example of product control is the prohibition of the sale of this product or prohibition of the sale by any but certain persons selected by the government. Rothbard: Clearly both forms of control have various repercussions on both the price and the nature of the product. Efficiency: A price control may be effective or ineffective. It will be ineffective ifthe regulation has no influence on the market price.(1) (…) should a customer wish to order an unusual custom-built automobile for which the seller would charge over [the normal price], then the regulation now becomes effective and changes transactions from what they would have been on the free market. There are two types of effective price control: a maximum price control that prohibits all exchanges of a good above a certain price, with the controlled price being below the market equilibrium price; and a minimum price control prohibiting exchanges below a certain price, this fixed price being above market equilibrium. Rothbard III 892 Maximum price/Rothbard: In any shortage, consumers rush to buy goods which are not available at the price. Some must do without, others must patronize the market, revived as illegal or "black," paying a premium for the risk of punishment that sellers now undergo. The chief charac- teristic of a price maximum is the queue, the endless "lining up" for goods that are not suffcient to supply the People at the rear of the line. All sorts of subterfuges are invented by People desperately seeking to arrive at the clearance of supply and demand once provided by the market. "Under-the-table" deals, bribes, favoritism for older customers, etc., are inevitable features of a market shackled by the price maximum.(2) >Interventions/Rothbard. Elasticity: (…) even if the stock of a good is frozen for the foreseeable future and the supply line is vertical, this artificial shortage will still develop and all these consequences ensue. The more "elastic" the supply, i.e., the more resources shift out of production, the more aggravated, ceteris paribus, the shortage will be. The firms that leave production are the ones nearest the margin. Selective price control: If the price control is "selective," i.e., is imposed on one or a few products, the economy will not be as universally dislocated as under general maxima, but the artificial shortage created in the particular line will be even more pronounced, since entrepreneurs and factors can shift to the production and sale of other products (preferably substitutes). Substitutes: The prices of the substitutes will go up as the "excess" demand is channeled off in their direction. RothbardvsPrice control: In the light of this fact, the typical governmental reason for selective price control - "We must impose controls on this necessary product so long as it continues in short supply" - is revealed to be an almost ludicrous error. For the truth is the reverse: price control creates an artificial shortage of the product, which continues as long as the control is in existence - in fact, becomes ever worse as resources have time to shift to other products. Rothbard III 894 Minimum price control: (…) while the effect of a maximum price is to create an artificial shortage, a minimum price creates an artificial unsold surplus (…). The unsold surplus exists (…) but a more elastic supply will, ceteris paribus, aggravate the surplus. Once again, the market is not cleared. The artificially high price at first attracts resources into the field, while, at the same time, discouraging buyer demand. Rothbard III 895 Selective price control: Under selective price control, resources will leave other fields where they benefit themselves and consumers better, and transfer to this field, where they overproduce and suffer losses as a result. >Overproduction. Entrepreneurship: This offers an interesting example of intervention tampering with the market and causing entrepreneurial losses. Entrepreneurs operate on the basis of certain criteria: prices, interest rate, etc., established by the free market. EntrepreneursVsInterventions: Interventionary tampering with these signals destroys the continual market tendency to adjustment and brings about losses and misallocation of resources in satisfying consumer wants. Economy/price maxima: General, overall price maxima dislocate the entire economy and deny consumers the enjoyment of substitutes. Inflation: General price maxima are usually imposed for the announced purpose of "preventing inflation" - invariably while the government is inflating the money supply by a large amount. Overall price maxima are equivalent to imposing a minimum on the PPM (purchasing power of the monetary unit). >Inflation. Rothbard III 896 The principles of maximum and minimum price control apply to any prices, whatever they may be: of consumers' goods, capital goods, land or labor services, or, (…) the "price" of money in terms of other goods. Minimum wage: They apply, for example, to minimum wage laws. When a minimum wage law is effective, i.e., where it imposes a wage above the market value of a grade of labor (above the laborer's discounted marginal value product), the supply of labor services exceeds the demand, and the "unsold surplus" of labor services means involuntary mass unemployment. Selective, as opposed to general, minimum wage rates, create unemployment in particular industries and tend to perpetuate these pockets by attracting labor to the higher rates. Labor is eventually forced to enter less remunerative, less value-productive lines. This analysis applies whether the minimum wage is imposed by the State or by a labor union. >Trade Unions/Rothbard, >Wages/Rothbard, >Minimum wage/Rothbard, >Unemployment/Rothbard. Rothbard III 897 Relative prices: Our analysis of the effects of price control applies also, as Mises has brilliantly shown, to control over the price ("exchange rate") of one money in terms of another.(3) This was partially seen in Gresham's Law, one of the first economic laws to be discovered. Few have realized that this law is merely a specific instance of the general consequences of price controls. Perhaps this failure is due to the misleading formulation of Gresham's Law. >Gresham's Law/Rothbard. Rothbard III 899 Bimetallism: suppose that a country used gold and silver as moneys, and the government set the ratio between them at 16 ounces of silver : 1 ounce of gold. The market price, perhaps 16:1 at the time of the price control, then changes to 15:1. What is the result? Silver is now being arbitrarily undervalued by the government and gold arbitrarily overvalued. In other words, silver is fixed cheaper than it really is in terms of gold on the market, and gold is forced to be more expensive than it really is in terms of silver. The government has imposed a price maximum on silver and a price minimum on gold, in terms of each other. The same consequences now follow as from any effective price control. With a price maximum on silver, the gold demand for silver in exchange now exceeds the silver demand for gold (conversely, With a price minimum on gold, the silver demand for gold is less than the gold demand for silver). Problem: Gresham’s Law: Gold goes begging for silver in unsold surplus, while silver becomes scarce and disappears from circulation. Silver disappears to another country or area where it can be exchanged at the free-market price, and gold, in turn, flows into the country. World: If the bimetallism is worldwide, then silver disappears into the "black market," and offcial or open exchanges are made only with gold. VsBimetallism: No country, therefore, can maintain a bimetallic system in practice, since one money will always be undervalued or overvalued in terms of the other. The overvalued always displaces the other from circulation, the latter being scarce. >Bimetallism. Rothbard III 900 Consequences of price controls: (…) the price controls inevitably distort the production and allocation of resources and factors in the economy, thereby injuring again the bulk of consumers. Bureaucracy: And we must not overlook the army of bureaucrats who must be financed by the binary intervention of taxation and who must administer and enforce the myriad of regulations. This army, in itself, withdraws a mass of workers from productive labor and saddles them onto the remaining producers - thereby benefiting the bureaucrats, but injuring the rest of the people. 1. Of course, even a completely ineffective triangular control is likely to increase the government bureaucracy dealing With the matter and therefore increase the total amount of binary intervention over the taxpayer. 2. A "bribe" is only payment of the market price by a buyer. 3. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 432 n., 447, 469, 776. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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