Rothbard on Interventionism: Writing the Last Chapter of Economic Theory | Joseph T. Salerno
Summary
Austrian Economics: The speaker outlines Rothbard’s praxeological method, emphasizing deductive reasoning from human action and the use of imaginary constructions to derive economic laws.
Free Market vs. Intervention: A redefined free market construct based on strict property rights is contrasted with coercive government interventions, classifying interventions into autistic, binary, and triangular types.
Business Cycle Theory: Rothbard’s monocausal view attributes cycles to bank credit expansion and fiduciary media, with the cure being an unhampered recession to liquidate malinvestment.
Utility and Welfare: The talk critiques mainstream welfare economics, arguing utility changes from intervention are individual and direct, rendering social welfare constructs superfluous.
Methodological Critique: Mainstream models like perfect competition and DSGE are criticized for misusing constructs, while praxeology is presented as superior for tracing real causal chains.
Policy Implications: Government taxation, spending, and monetary inflation are highlighted as key binary interventions with outsized economic effects often overlooked by economists.
No Stock Pitches: No specific companies, tickers, GICS sectors, or actionable investment themes were proposed; the focus is a theoretical framework for understanding macroeconomic dynamics.
Transcript
Um, I want to start by thanking my uh friends and generous sponsors, Steve and Cassandra Terrell. Um, it's really our sponsors and our donors that create the infrastructure that allows us to have these types of gettogethers of um, Austrian economists from all over the world. Let me begin with an autobiographical note. During my junior year in college, I read an article in New York Times magazine titled titled the new right crado libertarianism. It briefly referred to Murray Rothbart and Austrian economics. At a subsequent meeting of the Boston College chapter of the Young Americans for Freedom, I mentioned the article. The next week, a fellow member of the chapter handed me a book by Rothbart. It was really a mini book the size of an index card measuring 3 and 1 half x 5 in and comprising 30 pages. That is it the book there. I eager I eagerly devoured the book in one sitting and quickly realized that I had learned more on about inflation and recession in 45 minutes than I had learned in my introductory and intermediate macroeconomics courses. Rothbard wrote clearly and convincingly yet I was puzzled by what I then thought was the book's rather clumsy title. Economic depressions their cause and cure. Why was the main title pluralized while the nouns in the subtitle remained oddly in the singular case? Why not the more euphonious title, economic depressions, causes, and cures? Little did I realized then that Rothbard was very deliberate and precise in his choice of the title. During the summer break that followed, I scoured public libraries near and far for books written by Mises Hayek and Rothbart. I was finally able to locate and withdraw six or seven dusty volumes from a library in another county. To my recollection, none of the books had ever been checked out more than once. The book that I read first was Rothbard's America, America's Great Depression. I was working as a janitor at the time during summer break and usually finished my work by mid-afternoon. I would then retreat to the cramped janitor's closet illuminated by a single naked light bulb. There I sat uncomfortably among smelly cleaning supplies pouring over Rothbart's book until the end of my shift. By the end of the summer, and I know you know this is coming, I came out of the closet as a committed student of Austrian economics. Although I grasped Rothbart's exposition of the Austrian theory of the business cycle, I was still a neophite, especially with respect to his unique methodology. So I was again puzzled. This time I was perplexed by Rothbard's insistence both in the text of the book and especially in the introduction that Austrian business cycle theory was both monocausal and exogenous. In other words, all business cycles have a single cause and that cause is external to the market economy. It was not until much later that I realized that Rothbart's position derived from his pathbreaking theory of interventionism which he deduced and integrated into the body of pure economic theory by using the praxiological method. This realization also would resolve my confusion about the title of Rothbart's minibook economic depressions wherever and whenever they occur and despite their apparent complexity have a single cause and a single cure. But I will speak more about this later. Contributing to uh my early confusion or the early confusion I I experienced about Rothbart's comments on the nature of causation in business cycle theory was the fact that I unwittingly adopted an approach to learning Austrian economics that was completely backwards. For the praxiological research method Rothbart used dictated that the learning of economics start with the study of isolated action in the Robinson Crusoe economy and then proceed step by step through the analysis of barter and then of monetary exchange in a free market economy. Only a after grasping the laws governing the operation of a purely free market monetary economy is one prepared to deal with the explanation of the complex effects of government interference with the market economy. The point was emphatically stated by Ludvig van Mises's mentor Oyen von Bombav who wrote quote a theory of crisis can never be an inquiry into just one single phase of economic phenomena if it is to be more than an amateurish absurdity such an inquiry must be the last or the next to last chapter of a written or unwritten economic system. In other words, it is the final fruit of knowledge of all economic events and their interconnected relationships." Rothbart was the first economist, including Mises, to answer the challenge that Bombberg posed. Employing the praxiological method, which he adopted from Mises, Rothbart developed a theory of interventionism that was integrated with general economic theory. He was thus able to write the last chapters quote unquote of economic theory, a systematic theory of all types of interventions, including the business cycle that was deduced from and consistent with the action axiom. The striking originality of Rothbart's theory is is due to its foundation in praxiology. Before he had even read half of human action, Rothbard was converted to the praxiological approach to economics, a a mere um young very young man in graduate student, he wrote to Mises that quote, "Your development of the relationship between praxiology and economics is a tremendous contribution." He was telling Mises this um unquote. The method of of praxiology that Mises expounded involved logically deducing the entire system of economic theory from the undeniable facts that humans humans act plus a few other self-evident truths about reality. In unpublished notes reminiscing decades later about his state of mind as he embarked upon the writing of man economy and state Rothbard revealed the depth of his early conviction that praxiology was the proper research method for economic theory. So before he had written anything he already was convinced of praxiology. Quote how did I know it would all hang together in a deductive system? I knew it all hanged together. I could see the vision in human action. I never doubted the coherence of the system. Rothbart wielded the praxiological method ma masterly masterfully in his treatis for although not often recognized praxiology calls for more than a straightforward application of the logical deductive method to the action axiom. It also requires careful formulation and insertion of various sets of assumptions into the chain of praxiological reasoning. uh which becomes increasingly complex as it proceeds. Mises referred to these aids to reasoning as imaginary constructions and was the first to explicitly recognize that they were essential to economic analysis and the core of praxiological method. In Misa's words, quote, the specific method of economics is the method of imaginary constructions. It is the only method of praxiological and economic inquiry. unquote. The praxiological method Mises explains or explained involves abstracting from some of the actual conditions of action in order to logically deduce the hypothetical consequences of their absence. This allows the economist to quote conceive the effects of their existence unquote. For instance, we conceive the phenomenon of time preference as the sole source of interest by first imagining that all individuals are indifferent between satisfactions equal in intensity but differing in their remoteness from the moment of action. In other words, in the assumed absence of of time preference, people value the satisfaction from a present action equally whether it occurs to them at the instant of action or 10, 20, or 50 years after it occurs. Furthermore, abs absent time preference, the time horizon for which people provide is infinite and the consumption of the limited services of durable goods are postponed indefinitely. For example, someone contemplating consuming an an imperishable and probably inedible frozen pizza for dinner does not consider whether the preparation time is 20 minutes, 20 hours, or 20 years. The value of the satisfaction is equal no matter when the pizza is consumed. In this world, future money cannot possibly trade at a discount against present money. And therefore, there is no interest return on loans or investment in time-consuming production processes. From the analysis of this fictitious and impossible world, we logically infer that time preference is the necessary and sufficient condition of interest in the real world. Now we use a similar method to isolate and identify the causes of profit and loss. In this case we imagine a world in which the economic data value scales technology available resources are eternally frozen and uncertainty is absent. Supply, demand and price in every market um recur unchanged period after period as does the allocation of resources. Since past, present and future prices are known to everyone. There is no room for pure profit. No gap larger than the pure interest rate can possibly emerge between prices and cost of production in any production process. Using this imaginary construction, which means it's called the evenly rotating economy, economists logically deduce several important theorems about the real world. Okay, out of this completely fictitious construction, first change and uncertainty are the source of profit and loss. Second, the primary function of the entrepreneur is to judge uncertain and continually changing future market conditions in order to efficiently allocate resources. And third, profit is a dynamic income separate and distinct from interest. For Mises, imaginary construct constructions are thus in his words indispensable for theorizing about the real economy, even though they depict worlds that are improbable or may never have existed. In some cases, these mental constructs may even be, in Mises's words, inconceivable, self-contradictory, and unrealizable," unquote. A world without time preference, as we saw, is inconceivable because it contradicts the action axiom. Without time preference, a preference for the present for present consumption, people would postpone action into the indefinite future. That is, they would never demonstrate a preference for present consumption. The evenly rotating economy is unrealizable because money would not be held in a world of perfect certainty and an economy deprived of the means of economic calculation which money is could never come into being. In addition, where the future is known with certainty, there would be no possibility of changing it and human action would be feudal. Rothbard was in full agreement with his mentor on the essence of the praxiological method and its necessity for economic inquiry. In an unpublished chapter from the original ma manuscript of man economy and state, Rothbart stated, "Economics employs the appraxiological method. It is a logical deductive science drawing out its conclusions from certain universally acceptable axioms. It proceeds on the basis of imaginary constructions permitting some factors to vary while others remain constant and deducing its consequent effect on other factors. Elsewhere he elaborates on this. The constructs are imaginary because their various elements never coexist in reality yet they are necessary in order to draw out by deductive reasoning and cedus parabus assumptions the tendencies and causal relations of the real world. Still quoting Rothport, the evenly rotating economy is unrealistic for it cannot actually be established and we cannot even conceive consistently of its establishment. But the idea of the evenly rotating economy is indispensable in analyzing the real economy. For Mises and Rothbour, then the use that the praxiological method makes of imaginary constructs or false assumptions has a single aim to deduce and elaborate a unified body of theory about the causes of economic phenomena in the world as we as it is, was or is likely to be. For example, theorems relating to economic judgment and profit never exclus refer exclusively to the real world and or rather refer exclusively to the real world and make no reference to the changeless construct of the evenly rotating economy. Once you have the theorems there you you don't need to talk about the er it was just a tool. This contrasts sharply with the use of models of perfect competition or dynamic stochastic general equilibrium used by mainstream economists. These constructs are used to directly generate testable propositions about cause and effect in the real world economy or worse to serve as standards by which to judge the real world economy. Rothbart's mastery of the praxiological method of imaginary constructions is manifested in perhaps the greatest advance in econom his greatest advance in economic theory the incorporation of the analysis of government intervention into the chain of praxiological reasoning that extends back through the theorems of the free market to the action axiom in private correspondence discussing the writing of his treatise Rothbard revealed his long-held desire to repair the gap in economic theory What I have always been searching for, and I'm quoting him, is some sort of integrating explanation which will permit me to do for the hampered market what I did for the free market, deducing everything step by step from the original axioms of action. Mises showed the way for the free market. But even he did not accomplish this for the analysis of intervention," unquote. Rothbart thus aspired to formulate a complete system of economic theory using Bomba's term in a slightly expanded sense. This meant he wished to write the last and next to last chapters of economics which pertain not only to the business cycle but to all government interventions. But to accomplish this feat, Rothbart needed to thoroughly rework the imaginary construct of the purely free market economy. As Rothport pointed out, this model imperfectly cons imperfectly considered perhaps has been the main object of study of economic analysis throughout the history of the discipline and that was Rothport speaking. The imperfections in this model as it is generally conceived is not that it rests on the unrealistic assumption of a complete absence of external interference with the market by government institutions or private criminals. a condition which has never existed in the past and will likely never exist in the future. The real problem with the market, the pure market construct as it was handed down from the earliest days of economics is precisely that it does not depict the market totally free from government intervention. In a sense, it is not unrealistic enough for it builds into the construct a lazy fair government exercising the coercive power to tax and endowed with a legal monopoly of of defense services to enforce property rights. Let us take the example of Mises, the economist who made the most explicit and consistent use of the praxiological method of imaginary constructions prior to Rothbart. According to Mises, the imaginary construction of a pure or unhampered market economy, assumes that the government, the social apparatus of compulsion and coercion, is intent upon preserving the operation of the market system, abstains from hindering its function, and protects protects it from encroachments on the part of other people. The market is free. There is no interference of factors foreign to the market with prices, wages, and interest rates." unquote. As a radical advocate of lazy fair capitalism, which is based on voluntary exchange and consumer choice, Mises surely understood that taxes involve a coercive exchange of money for government services. Indeed, Mises demolished the very idea of the neutral tax, which supposedly leaves the operation of the market economy undisturbed. Yet Mises then does an about face by bizarrely redefining taxes as part of the market economy as long as government refrains from intervening in the market and levies taxes low enough to leave the market undisturbed. Uh writes Mises quote and and this is really Mises talking taxation is a matter of the market economy. It is one of the characteristics of the market economy. Now he's talking about forced exchanges that the government does not interfere with the market phenomena and that its technical apparatus absorbs only a modest fraction of the total sum of individual citizens income. Then taxes are appropriate because they are low and do not perceptibly disarrange production and consumption. I.e. he's now saying that taxes are quai or completely neutral. If taxes grow beyond the moderate limit, they cease to be taxes. So if they're too high, he's not going to call them taxes any. He's going to define them out of existence because they're part of the market. The construct of an economy which consists of purely voluntary exchanges but includes an agency that is endowed with a compulsory monopoly on defense services and engages in coercive taxation is blatantly incoherent. By constru constructing a free market in this matter or construing a a free market in this manner, Rothbart argues lazair theorists quote are caught in an insoluble contradiction unquote. This inner contradiction is traceable to a deeper problem with the orthodox conception of the free market. for the concepts of a free for the concepts of free or voluntary and compulsory or coercive are only meaningful within the framework of property rights and just ownership. As Rothbart points out, although economists are routinely in routinely invoke the idea of a free market, they they have neglected quote the fact that free exchange means exchange of titles of ownership of property and that therefore the economist is obliged to inquire into the conditions and the nature of property ownership that would obtain the free market. Without a theory of property rights, Rothbart maintains, quote, an economist cannot fully analyze the exchange structure of the free market. To purge the free market construct of its flaws, Rothbart grounds it on a systematic theory, excuse me, of property rights. His theory is a natural rights theory of just ownership. This approach to property rights is founded on natural control of one's own body and of the previously unowned resources that one appropriates. It totally banishes violence from human affairs and is therefore the prop proper starting point for conceiving the purely free market for analytical purposes. In Rothbard's words, quote, "A firm property right in one's own self and in the resources that one finds, transforms, and gives or exchanges leads to the property structure that is found in free market capitalism." Rothbart's for reformulation of the free market construct draws a bright line between voluntary or free actions and aggressive or hegemonic actions. On one side of that line stands voluntary exchanges and giftgiving and on the other coercive government interventions and private criminality. As Rothport explains, quote, "This would imply a complete absence of a state apparatus or government. For the state, unlike all other persons and institutions in society, acquires its revenue not by exchanges freely contracted, but by a system of unilateral conver coercion called taxation. Defense in a free society would therefore have to be supplied by people or firms who gain revenues voluntarily rather than by coercion and did not arrogate to themselves a compulsory monopoly of police or judicial protection. In short, according to Rothbart, the praxiological conception of a free market, the correct construct that you have to analyze, assumes no in quote, no invasion of property takes place, either because everyone voluntarily refrains from aggression or because whatever method of forcible defense exists on the free market is sufficient to prevent any aggression. So there is no violent action in in in the free market construct. Rothbard recognized that his formulation of a coherent conception of the free market economy was an important step forward in positive economic analysis. Shortly after completing the section of his treatise in which he presented his perfect his perfected construct, Rothbart commented in a letter quote this purely free market of course is our purest system and so for the first time this system sees the light of print. All done very scientifically with no views of my own exhorting the reader. In other words, it wasn't a value judgment. It wasn't a normative construct. It just was the starting point for analysis. Note that in defining the free market in light of a systematic theory of property rights, Rothbard was not trying to import ethics into economics. Far from it. His intention was to rigorously depict for analytical purposes only the specific pattern of human interactions in which violence or the threat of violence is completely absent. It's the only way you can get the full system of of of economics of a free market is is to analyze that. Deducing the theorems applicable applicable to a purely free market economy is a necessary first step to a complete praxiological analysis of all conceivable economic systems, including those based on violence, namely interventionism and socialism. Rothbart explained what he called the path of analysis from free market to violent intervention in a section of the manuscript of man economy and state that did not appear in the abbreviated published version of the treatise. He writes, "It is most convenient to begin with a pure system, either purely free or purely slave, to analyze it at length and then to bring [snorts] into our analysis one after the other various types of violence or of free relations if you're starting from socialism. And so to analyze the consequences of these various mixed systems," unquote. The main reason that Rothbart begins with the analysis of the pure free market rather than pure socialism is because an advanced socialist economy could not calculate and thus would be able would be unable to quote rise above local self-sufficiency and pres preserve the market economy's division of labor calculation high standard of living and must not result in order or planning but in chaos. and it is obviously absurd to ground economics on an analysis of chaos." Rothbart therefore concludes, quote, "The effects of coercive intervention can be studied only after fully analyzing the construct of a purely free market and that construct must be purged of all elements of violence. Hence, it's being based on a systematic theory of property rights. Starting the analysis of a pure uh free market properly conceived, Rothbard was then able to proceed with a systematic investigation of violent interventions which had been lacking in economics from its inception as a science. As Rothbart lamented in a letter, quote, every treatment of intervention so far, and he was including Mises here, simply has taken isolated chapters, price controls, taxes, inflation, etc. with no systematic integration between them or logical deduction of one from the other," unquote. Rothbart's breakthrough in expuning all traces of violent action from the free market construct would allow him finally quote to complete the picture of our economic world by extending economic analysis to the nature and consequences of violent actions and inter relations in society including intervention in the market and violent abolition of the market through socialism. But Rothbar was not yet done forging the tools to analyze government intervention. He needed what he called an integrative handle to unify and systematize the the analysis of the large number and variety of violent interventions. He thus created a tripartite classification or typology of intervention. Autistic intervention refers to coercive interventions that involve the individual's person or property alone, such as the censorship of certain types of speech or the enforcement of a religious observance. It generally has no effect on market outcomes. Slavery, taxation, and conscription are classified as binary interventions because they entail a coerced exchange between two persons, the intervenor and the subject. Lastly, product prohibitions, price controls, and grants of monopoly privilege exemplify the tri triangular interventions which establish a coercive relationship between a government and a pair of of uh subjects. In the triangular type of intervention, government forcibly alters the terms of the contract between a buyer and seller or compels the buyer to refrain from contracting with anyone but a legally privileged group of sellers. Monopoly. This typology thus exposes and highlights the defining element of intervention. In Rothbart's words, quote, all three types of intervention are subdivisions of the hegemonic relationship, the relations of command and obedience, as contrasted with the contractual relation of voluntary mutual benefit," unquote. Rothbart's typology and his analysis, as we'll see, yields two further insights. First, it reveals a major flaw in mainstream economics which distorts the theory of interventionism and shunts it onto the wrong track. Most economists, including many free market economists, deal almost exclusively with triangular interventions like the minimum wage or rent controls. They overlook nearly entire class of binary interventions, especially taxation, government expenditure, and monetary inflation. Because these latter interventions are viewed as part of the necessary institutional framework of the free market, they are not treated as interventions at all. This is curious because binary interventions are the starkkest example of the hegemonic relationship between and historically have had the greatest effects on market outcomes. Nonetheless, they are cut off from general economic theory and relegated to separate compartments of economics like public finance um or monetary policy. Second, Rothbart's typology of intervention combined with his use of the praxiological method brings individualist utility theory to the forefront in the analysis of interventionism. And this is very important for Rothbart. All actions, whether non-violent or violent, private or governmental, are performed by individuals and therefore subject to praxiological analysis, both voluntary and hegemonic interactions affect the utility of the individuals involved. As Rothbart explains, when society is free and there is no intervention, everyone will act in a way that he believes will maximize his utility. That is will raise him to the highest possible level on his value scale or highest possible utility on his value scale. In short, everyone's utility exante will be maximized. Any exchange on the free market occurs because it is expected to benefit each party concerned. Coercive intervention on the other hand signifies per se that the individual or individuals coerced would not have voluntarily done what they are now being forced to do by the intervenor. The man being co coerced therefore always loses in utility as a result of the intervention for his actions has been has been forcibly changed by its impact. Who gains in utility? Exante clearly the intervenor otherwise he would not have made the intervention. Rothbard describes utility effects of both voluntary and interventionary acts actions [clears throat] as direct effects because they are immediate consequences directly affecting individual participants in the exchange. The indirect effects refer to the longer run effects on prices and production of actions that affect the market. With respect to invasive or aggressive actions, particularly binary intervention, mainstream economists generally ignore the direct effects on individual actors and consequent and concentrate on the indirect effects on relative prices, the allocation of resources, and the distribution of income and wealth. Rather than assessing the individual utility effects of a particular tax or expenditure, they focus instead on estimating changes in the co holistic concept of social welfare which construdes society as a mythical entity that transcends its individual members. By extending utility analysis to coercive actions and relations between individuals, Rothbart exposes welfare economics as at best superfluous. In so doing, he purges economic theory of the value judgments implicit in the analytical apparatus of Samuelson Bergson social welfare functions, the Hicks Caldor compensation principle, and the Knight Buchanan criterion of agreement among reasonable people on rules of the game. Now, it is sometimes argued that Rothbart himself smuggles value judgments into economic theory when he asserts that the purely free market maximizes social utility. But Rothbard's claim about the maximization of social utility rests on a value-free analytical conclusion that the network of voluntary exchanges which constitutes the market benefits all participants in these exchanges. Hence the judgment that everyone in the market achieves gains in utility is not a value judgment by the observing economist as these social welfare uh judgments are but is demonstrated by voluntary participation of buyers and sellers themselves in the transactions. In contrast, coercive interventions which compel, prohibit or alter the forms of terms of exchanges demonstrabably do not improve social utility because some individuals including the interveners themselves gain the utility at the expense of other individuals who are forced into a lower position on the utility scales. So it's a completely positive analysis. It is worth noting that Rothbart emphasized his value-free individualist approach to evaluating government intervention by generally avoiding the use of the nebulous term welfare and opting for the term utility which has firm grounding and clear meaning in the analysis of action. I think in man economy and state he uses the word social utility to term social utility 30 times and social welfare twice and then only in relation to social welfare functions. um we don't have time. Indeed, Robert went further and this I learned in writing this paper and explicitly denied that the maximization of social utility even in his own individualist sense constituted a normative argument for the free market economy rather than a positive conclusion of praxiological analysis. In a tape recorded lecture, Rothbart revealed the strategic motivation underlying his use of the term social utility when analyzing voluntary exchange. Stated Rothbart, this is very interesting. I had a lot of fun with this myself in my first article that ever came out. If we want want to use the term society, which I do not really like anyway, then we can say that social utility is increased. When the government enters the picture, whatever whatever the government does is decrease someone's social utility. It unfortunately has been maintained that my whole basis for lazy fair rests on this social utility nonsense. Of course, it doesn't. It's all really a gimmick to show that if you really go along with the whole paro optimality, social utility, then you have to confine yourself to lazy fair. His last sentence is telling. It is not my major argument for lazy fair that is that social utility is maximized for Rothbart. Then welfare economics even his own individualist type fails to establish the normative case for free market. The evaluation of a market outcome or a government intervention as good or bad lies completely outside of economic theory in the realm of ethics. Rothbart defends the purely free market and condemns econom interventionism not because of the utility or welfare effects they have on people as consumers, entrepreneurs, laborers and capitalists but because of the effects they have on human persons as just owners of property. In Rothbartian political economy or what he called the science of liberty, natural rights to one's body of property are therefore both the existential foundation of the free market economy and the explicit normative standard by which all social and polit and economic relations are judged. Okay, coming full circle to where I started. The praxiological analysis of interventionism not only permitted Rothbart to expose welfare economics as a tissue of concealed and ad hoc ad hoc ethical judgments. His step-by-step deduction of the consequences of each particular intervention led him to challenge a view that has plagued economics since its infancy. I am referring to the general and seemingly sensible view among most economists that complex phenomena such as the business cycle have multiple causes which are deeply rooted in the market economy and difficult to identify. As I noted at the outside of outset of my lecture when discussing my early encounter with his work, Rothbart would have none of this. He insisted that the business cycle was monocausal and exogenous to the free market as indicated by the title of his minibook, all economic depressions have a single cause and a single cure. In Rothbart's version of Austrian business cycle theory, the only co cause of business cycles is bank credit expansion through the creation and lending of fiduciary media or unback notes and deposits. The cure is and the only cure is to permit the inevitable recession process to proceed unhampered by further interventions to liquidate the malinvestments of the inflationary boom and guide the readjustment of production and employment back to the genuine consumption saving preferences of consumers. Rothbard's rejection of the mainstream view that complex sequences of events like business cycles must have multiple endogenous causes causes from within the market economy is an implication of his rigorous praxiological analysis of interventionism. For as a praxiologist, Rothbar does not begin with observed regularities among aggregates and then seek for a causal explanation by testing hypotheses about their relationships. Rather, he starts out with an analysis of individual actions and builds up to a theory that renders visible the causal chain of interrelated events entwined with the complex facts of history. And Mises put this very well. Mises Mises said only theory business cycle theory permits us to detect the wavy outline of a cycle in the tangle confusion of events. So all these things are happening over time. How do we know what things are are interrelated? Okay, we know it through praxiological analysis, through the building up of a theorem about reality. In fact, it has occurred to me as I was writing this lecture that Rothbart's argument about the nature of causality of business cycles applies to the complex market outcomes caused by any intervention. It is a direct implication of the praxiological approach to interventionism developed by Rothbart. First, his reformulation of the construct of the purely free market to exclude all coercive actions logically implies that all government interventions are exogenous to the market. And that's not just trivial. Second, his analysis of the purely free market demonstrates that all prices, wages, rents, interest rates, and production processes are mutually interdependent and intricately intricately interconnected. It follows that any exogenous disturbance of one part to ofuh of one part to the market economy all other things equal will have a series of repercussions in all other parts of the economy and I'm not going to read it here but I have a laundry list of the very complex effects that result even from something simple like rent controls um let me conclude using the imaginary construction of the purely free market Purged of logical contradictions and inconsistencies, Rothbart was able to analytically isolate the economic system based on purely voluntary action from those systems containing elements of violent hegemonic act hegemonic action. This procedure allowed him to deduce economic laws applicable to real world economies past and present which are subject to varying ad mixtures of voluntary exchange and um coercive intervention. In the last chapter of the treatise of his of his treatis manic state, Rothbart sums up the conclusions and practical implications of an ethically neutral economic theory finally made whole by the praxiological analysis of interventionism. Now I'm quoting Rothbart. No one disputes the fact that historically polit historically political systems have differed in degree that there have never been pure examples of the market or of the hegemonic principle. But these mixtures can be analyzed only by breaking them down into their components. They're varying blends of the two polar principles. There are basically two types of interpersonal relationships or or exchanges. The the free or or the voluntary and the coerced or the hegemonic. There is no other type of social relation. All shadings of society are mixtures mixtures of these two primary elements. Rothbart continues, such are the laws that proxiology presents to the human race. They are binary set of consequences. The workings of the market principle and of the hegemonic principle. The former breeds harmony, freedom, prosperity, and order. The latter produces conflict, coercion, poverty, and chaos. Such are the consequences between which mankind must choose. At this point, the praxiologist as such retires from the scene. The citizen, the ethicist must now choose according to the set of values or ethical principles he holds dear. Thank you. [applause] [applause]
Rothbard on Interventionism: Writing the Last Chapter of Economic Theory | Joseph T. Salerno
Summary
Transcript
Um, I want to start by thanking my uh friends and generous sponsors, Steve and Cassandra Terrell. Um, it's really our sponsors and our donors that create the infrastructure that allows us to have these types of gettogethers of um, Austrian economists from all over the world. Let me begin with an autobiographical note. During my junior year in college, I read an article in New York Times magazine titled titled the new right crado libertarianism. It briefly referred to Murray Rothbart and Austrian economics. At a subsequent meeting of the Boston College chapter of the Young Americans for Freedom, I mentioned the article. The next week, a fellow member of the chapter handed me a book by Rothbart. It was really a mini book the size of an index card measuring 3 and 1 half x 5 in and comprising 30 pages. That is it the book there. I eager I eagerly devoured the book in one sitting and quickly realized that I had learned more on about inflation and recession in 45 minutes than I had learned in my introductory and intermediate macroeconomics courses. Rothbard wrote clearly and convincingly yet I was puzzled by what I then thought was the book's rather clumsy title. Economic depressions their cause and cure. Why was the main title pluralized while the nouns in the subtitle remained oddly in the singular case? Why not the more euphonious title, economic depressions, causes, and cures? Little did I realized then that Rothbard was very deliberate and precise in his choice of the title. During the summer break that followed, I scoured public libraries near and far for books written by Mises Hayek and Rothbart. I was finally able to locate and withdraw six or seven dusty volumes from a library in another county. To my recollection, none of the books had ever been checked out more than once. The book that I read first was Rothbard's America, America's Great Depression. I was working as a janitor at the time during summer break and usually finished my work by mid-afternoon. I would then retreat to the cramped janitor's closet illuminated by a single naked light bulb. There I sat uncomfortably among smelly cleaning supplies pouring over Rothbart's book until the end of my shift. By the end of the summer, and I know you know this is coming, I came out of the closet as a committed student of Austrian economics. Although I grasped Rothbart's exposition of the Austrian theory of the business cycle, I was still a neophite, especially with respect to his unique methodology. So I was again puzzled. This time I was perplexed by Rothbard's insistence both in the text of the book and especially in the introduction that Austrian business cycle theory was both monocausal and exogenous. In other words, all business cycles have a single cause and that cause is external to the market economy. It was not until much later that I realized that Rothbart's position derived from his pathbreaking theory of interventionism which he deduced and integrated into the body of pure economic theory by using the praxiological method. This realization also would resolve my confusion about the title of Rothbart's minibook economic depressions wherever and whenever they occur and despite their apparent complexity have a single cause and a single cure. But I will speak more about this later. Contributing to uh my early confusion or the early confusion I I experienced about Rothbart's comments on the nature of causation in business cycle theory was the fact that I unwittingly adopted an approach to learning Austrian economics that was completely backwards. For the praxiological research method Rothbart used dictated that the learning of economics start with the study of isolated action in the Robinson Crusoe economy and then proceed step by step through the analysis of barter and then of monetary exchange in a free market economy. Only a after grasping the laws governing the operation of a purely free market monetary economy is one prepared to deal with the explanation of the complex effects of government interference with the market economy. The point was emphatically stated by Ludvig van Mises's mentor Oyen von Bombav who wrote quote a theory of crisis can never be an inquiry into just one single phase of economic phenomena if it is to be more than an amateurish absurdity such an inquiry must be the last or the next to last chapter of a written or unwritten economic system. In other words, it is the final fruit of knowledge of all economic events and their interconnected relationships." Rothbart was the first economist, including Mises, to answer the challenge that Bombberg posed. Employing the praxiological method, which he adopted from Mises, Rothbart developed a theory of interventionism that was integrated with general economic theory. He was thus able to write the last chapters quote unquote of economic theory, a systematic theory of all types of interventions, including the business cycle that was deduced from and consistent with the action axiom. The striking originality of Rothbart's theory is is due to its foundation in praxiology. Before he had even read half of human action, Rothbard was converted to the praxiological approach to economics, a a mere um young very young man in graduate student, he wrote to Mises that quote, "Your development of the relationship between praxiology and economics is a tremendous contribution." He was telling Mises this um unquote. The method of of praxiology that Mises expounded involved logically deducing the entire system of economic theory from the undeniable facts that humans humans act plus a few other self-evident truths about reality. In unpublished notes reminiscing decades later about his state of mind as he embarked upon the writing of man economy and state Rothbard revealed the depth of his early conviction that praxiology was the proper research method for economic theory. So before he had written anything he already was convinced of praxiology. Quote how did I know it would all hang together in a deductive system? I knew it all hanged together. I could see the vision in human action. I never doubted the coherence of the system. Rothbart wielded the praxiological method ma masterly masterfully in his treatis for although not often recognized praxiology calls for more than a straightforward application of the logical deductive method to the action axiom. It also requires careful formulation and insertion of various sets of assumptions into the chain of praxiological reasoning. uh which becomes increasingly complex as it proceeds. Mises referred to these aids to reasoning as imaginary constructions and was the first to explicitly recognize that they were essential to economic analysis and the core of praxiological method. In Misa's words, quote, the specific method of economics is the method of imaginary constructions. It is the only method of praxiological and economic inquiry. unquote. The praxiological method Mises explains or explained involves abstracting from some of the actual conditions of action in order to logically deduce the hypothetical consequences of their absence. This allows the economist to quote conceive the effects of their existence unquote. For instance, we conceive the phenomenon of time preference as the sole source of interest by first imagining that all individuals are indifferent between satisfactions equal in intensity but differing in their remoteness from the moment of action. In other words, in the assumed absence of of time preference, people value the satisfaction from a present action equally whether it occurs to them at the instant of action or 10, 20, or 50 years after it occurs. Furthermore, abs absent time preference, the time horizon for which people provide is infinite and the consumption of the limited services of durable goods are postponed indefinitely. For example, someone contemplating consuming an an imperishable and probably inedible frozen pizza for dinner does not consider whether the preparation time is 20 minutes, 20 hours, or 20 years. The value of the satisfaction is equal no matter when the pizza is consumed. In this world, future money cannot possibly trade at a discount against present money. And therefore, there is no interest return on loans or investment in time-consuming production processes. From the analysis of this fictitious and impossible world, we logically infer that time preference is the necessary and sufficient condition of interest in the real world. Now we use a similar method to isolate and identify the causes of profit and loss. In this case we imagine a world in which the economic data value scales technology available resources are eternally frozen and uncertainty is absent. Supply, demand and price in every market um recur unchanged period after period as does the allocation of resources. Since past, present and future prices are known to everyone. There is no room for pure profit. No gap larger than the pure interest rate can possibly emerge between prices and cost of production in any production process. Using this imaginary construction, which means it's called the evenly rotating economy, economists logically deduce several important theorems about the real world. Okay, out of this completely fictitious construction, first change and uncertainty are the source of profit and loss. Second, the primary function of the entrepreneur is to judge uncertain and continually changing future market conditions in order to efficiently allocate resources. And third, profit is a dynamic income separate and distinct from interest. For Mises, imaginary construct constructions are thus in his words indispensable for theorizing about the real economy, even though they depict worlds that are improbable or may never have existed. In some cases, these mental constructs may even be, in Mises's words, inconceivable, self-contradictory, and unrealizable," unquote. A world without time preference, as we saw, is inconceivable because it contradicts the action axiom. Without time preference, a preference for the present for present consumption, people would postpone action into the indefinite future. That is, they would never demonstrate a preference for present consumption. The evenly rotating economy is unrealizable because money would not be held in a world of perfect certainty and an economy deprived of the means of economic calculation which money is could never come into being. In addition, where the future is known with certainty, there would be no possibility of changing it and human action would be feudal. Rothbard was in full agreement with his mentor on the essence of the praxiological method and its necessity for economic inquiry. In an unpublished chapter from the original ma manuscript of man economy and state, Rothbart stated, "Economics employs the appraxiological method. It is a logical deductive science drawing out its conclusions from certain universally acceptable axioms. It proceeds on the basis of imaginary constructions permitting some factors to vary while others remain constant and deducing its consequent effect on other factors. Elsewhere he elaborates on this. The constructs are imaginary because their various elements never coexist in reality yet they are necessary in order to draw out by deductive reasoning and cedus parabus assumptions the tendencies and causal relations of the real world. Still quoting Rothport, the evenly rotating economy is unrealistic for it cannot actually be established and we cannot even conceive consistently of its establishment. But the idea of the evenly rotating economy is indispensable in analyzing the real economy. For Mises and Rothbour, then the use that the praxiological method makes of imaginary constructs or false assumptions has a single aim to deduce and elaborate a unified body of theory about the causes of economic phenomena in the world as we as it is, was or is likely to be. For example, theorems relating to economic judgment and profit never exclus refer exclusively to the real world and or rather refer exclusively to the real world and make no reference to the changeless construct of the evenly rotating economy. Once you have the theorems there you you don't need to talk about the er it was just a tool. This contrasts sharply with the use of models of perfect competition or dynamic stochastic general equilibrium used by mainstream economists. These constructs are used to directly generate testable propositions about cause and effect in the real world economy or worse to serve as standards by which to judge the real world economy. Rothbart's mastery of the praxiological method of imaginary constructions is manifested in perhaps the greatest advance in econom his greatest advance in economic theory the incorporation of the analysis of government intervention into the chain of praxiological reasoning that extends back through the theorems of the free market to the action axiom in private correspondence discussing the writing of his treatise Rothbard revealed his long-held desire to repair the gap in economic theory What I have always been searching for, and I'm quoting him, is some sort of integrating explanation which will permit me to do for the hampered market what I did for the free market, deducing everything step by step from the original axioms of action. Mises showed the way for the free market. But even he did not accomplish this for the analysis of intervention," unquote. Rothbart thus aspired to formulate a complete system of economic theory using Bomba's term in a slightly expanded sense. This meant he wished to write the last and next to last chapters of economics which pertain not only to the business cycle but to all government interventions. But to accomplish this feat, Rothbart needed to thoroughly rework the imaginary construct of the purely free market economy. As Rothport pointed out, this model imperfectly cons imperfectly considered perhaps has been the main object of study of economic analysis throughout the history of the discipline and that was Rothport speaking. The imperfections in this model as it is generally conceived is not that it rests on the unrealistic assumption of a complete absence of external interference with the market by government institutions or private criminals. a condition which has never existed in the past and will likely never exist in the future. The real problem with the market, the pure market construct as it was handed down from the earliest days of economics is precisely that it does not depict the market totally free from government intervention. In a sense, it is not unrealistic enough for it builds into the construct a lazy fair government exercising the coercive power to tax and endowed with a legal monopoly of of defense services to enforce property rights. Let us take the example of Mises, the economist who made the most explicit and consistent use of the praxiological method of imaginary constructions prior to Rothbart. According to Mises, the imaginary construction of a pure or unhampered market economy, assumes that the government, the social apparatus of compulsion and coercion, is intent upon preserving the operation of the market system, abstains from hindering its function, and protects protects it from encroachments on the part of other people. The market is free. There is no interference of factors foreign to the market with prices, wages, and interest rates." unquote. As a radical advocate of lazy fair capitalism, which is based on voluntary exchange and consumer choice, Mises surely understood that taxes involve a coercive exchange of money for government services. Indeed, Mises demolished the very idea of the neutral tax, which supposedly leaves the operation of the market economy undisturbed. Yet Mises then does an about face by bizarrely redefining taxes as part of the market economy as long as government refrains from intervening in the market and levies taxes low enough to leave the market undisturbed. Uh writes Mises quote and and this is really Mises talking taxation is a matter of the market economy. It is one of the characteristics of the market economy. Now he's talking about forced exchanges that the government does not interfere with the market phenomena and that its technical apparatus absorbs only a modest fraction of the total sum of individual citizens income. Then taxes are appropriate because they are low and do not perceptibly disarrange production and consumption. I.e. he's now saying that taxes are quai or completely neutral. If taxes grow beyond the moderate limit, they cease to be taxes. So if they're too high, he's not going to call them taxes any. He's going to define them out of existence because they're part of the market. The construct of an economy which consists of purely voluntary exchanges but includes an agency that is endowed with a compulsory monopoly on defense services and engages in coercive taxation is blatantly incoherent. By constru constructing a free market in this matter or construing a a free market in this manner, Rothbart argues lazair theorists quote are caught in an insoluble contradiction unquote. This inner contradiction is traceable to a deeper problem with the orthodox conception of the free market. for the concepts of a free for the concepts of free or voluntary and compulsory or coercive are only meaningful within the framework of property rights and just ownership. As Rothbart points out, although economists are routinely in routinely invoke the idea of a free market, they they have neglected quote the fact that free exchange means exchange of titles of ownership of property and that therefore the economist is obliged to inquire into the conditions and the nature of property ownership that would obtain the free market. Without a theory of property rights, Rothbart maintains, quote, an economist cannot fully analyze the exchange structure of the free market. To purge the free market construct of its flaws, Rothbart grounds it on a systematic theory, excuse me, of property rights. His theory is a natural rights theory of just ownership. This approach to property rights is founded on natural control of one's own body and of the previously unowned resources that one appropriates. It totally banishes violence from human affairs and is therefore the prop proper starting point for conceiving the purely free market for analytical purposes. In Rothbard's words, quote, "A firm property right in one's own self and in the resources that one finds, transforms, and gives or exchanges leads to the property structure that is found in free market capitalism." Rothbart's for reformulation of the free market construct draws a bright line between voluntary or free actions and aggressive or hegemonic actions. On one side of that line stands voluntary exchanges and giftgiving and on the other coercive government interventions and private criminality. As Rothport explains, quote, "This would imply a complete absence of a state apparatus or government. For the state, unlike all other persons and institutions in society, acquires its revenue not by exchanges freely contracted, but by a system of unilateral conver coercion called taxation. Defense in a free society would therefore have to be supplied by people or firms who gain revenues voluntarily rather than by coercion and did not arrogate to themselves a compulsory monopoly of police or judicial protection. In short, according to Rothbart, the praxiological conception of a free market, the correct construct that you have to analyze, assumes no in quote, no invasion of property takes place, either because everyone voluntarily refrains from aggression or because whatever method of forcible defense exists on the free market is sufficient to prevent any aggression. So there is no violent action in in in the free market construct. Rothbard recognized that his formulation of a coherent conception of the free market economy was an important step forward in positive economic analysis. Shortly after completing the section of his treatise in which he presented his perfect his perfected construct, Rothbart commented in a letter quote this purely free market of course is our purest system and so for the first time this system sees the light of print. All done very scientifically with no views of my own exhorting the reader. In other words, it wasn't a value judgment. It wasn't a normative construct. It just was the starting point for analysis. Note that in defining the free market in light of a systematic theory of property rights, Rothbard was not trying to import ethics into economics. Far from it. His intention was to rigorously depict for analytical purposes only the specific pattern of human interactions in which violence or the threat of violence is completely absent. It's the only way you can get the full system of of of economics of a free market is is to analyze that. Deducing the theorems applicable applicable to a purely free market economy is a necessary first step to a complete praxiological analysis of all conceivable economic systems, including those based on violence, namely interventionism and socialism. Rothbart explained what he called the path of analysis from free market to violent intervention in a section of the manuscript of man economy and state that did not appear in the abbreviated published version of the treatise. He writes, "It is most convenient to begin with a pure system, either purely free or purely slave, to analyze it at length and then to bring [snorts] into our analysis one after the other various types of violence or of free relations if you're starting from socialism. And so to analyze the consequences of these various mixed systems," unquote. The main reason that Rothbart begins with the analysis of the pure free market rather than pure socialism is because an advanced socialist economy could not calculate and thus would be able would be unable to quote rise above local self-sufficiency and pres preserve the market economy's division of labor calculation high standard of living and must not result in order or planning but in chaos. and it is obviously absurd to ground economics on an analysis of chaos." Rothbart therefore concludes, quote, "The effects of coercive intervention can be studied only after fully analyzing the construct of a purely free market and that construct must be purged of all elements of violence. Hence, it's being based on a systematic theory of property rights. Starting the analysis of a pure uh free market properly conceived, Rothbard was then able to proceed with a systematic investigation of violent interventions which had been lacking in economics from its inception as a science. As Rothbart lamented in a letter, quote, every treatment of intervention so far, and he was including Mises here, simply has taken isolated chapters, price controls, taxes, inflation, etc. with no systematic integration between them or logical deduction of one from the other," unquote. Rothbart's breakthrough in expuning all traces of violent action from the free market construct would allow him finally quote to complete the picture of our economic world by extending economic analysis to the nature and consequences of violent actions and inter relations in society including intervention in the market and violent abolition of the market through socialism. But Rothbar was not yet done forging the tools to analyze government intervention. He needed what he called an integrative handle to unify and systematize the the analysis of the large number and variety of violent interventions. He thus created a tripartite classification or typology of intervention. Autistic intervention refers to coercive interventions that involve the individual's person or property alone, such as the censorship of certain types of speech or the enforcement of a religious observance. It generally has no effect on market outcomes. Slavery, taxation, and conscription are classified as binary interventions because they entail a coerced exchange between two persons, the intervenor and the subject. Lastly, product prohibitions, price controls, and grants of monopoly privilege exemplify the tri triangular interventions which establish a coercive relationship between a government and a pair of of uh subjects. In the triangular type of intervention, government forcibly alters the terms of the contract between a buyer and seller or compels the buyer to refrain from contracting with anyone but a legally privileged group of sellers. Monopoly. This typology thus exposes and highlights the defining element of intervention. In Rothbart's words, quote, all three types of intervention are subdivisions of the hegemonic relationship, the relations of command and obedience, as contrasted with the contractual relation of voluntary mutual benefit," unquote. Rothbart's typology and his analysis, as we'll see, yields two further insights. First, it reveals a major flaw in mainstream economics which distorts the theory of interventionism and shunts it onto the wrong track. Most economists, including many free market economists, deal almost exclusively with triangular interventions like the minimum wage or rent controls. They overlook nearly entire class of binary interventions, especially taxation, government expenditure, and monetary inflation. Because these latter interventions are viewed as part of the necessary institutional framework of the free market, they are not treated as interventions at all. This is curious because binary interventions are the starkkest example of the hegemonic relationship between and historically have had the greatest effects on market outcomes. Nonetheless, they are cut off from general economic theory and relegated to separate compartments of economics like public finance um or monetary policy. Second, Rothbart's typology of intervention combined with his use of the praxiological method brings individualist utility theory to the forefront in the analysis of interventionism. And this is very important for Rothbart. All actions, whether non-violent or violent, private or governmental, are performed by individuals and therefore subject to praxiological analysis, both voluntary and hegemonic interactions affect the utility of the individuals involved. As Rothbart explains, when society is free and there is no intervention, everyone will act in a way that he believes will maximize his utility. That is will raise him to the highest possible level on his value scale or highest possible utility on his value scale. In short, everyone's utility exante will be maximized. Any exchange on the free market occurs because it is expected to benefit each party concerned. Coercive intervention on the other hand signifies per se that the individual or individuals coerced would not have voluntarily done what they are now being forced to do by the intervenor. The man being co coerced therefore always loses in utility as a result of the intervention for his actions has been has been forcibly changed by its impact. Who gains in utility? Exante clearly the intervenor otherwise he would not have made the intervention. Rothbard describes utility effects of both voluntary and interventionary acts actions [clears throat] as direct effects because they are immediate consequences directly affecting individual participants in the exchange. The indirect effects refer to the longer run effects on prices and production of actions that affect the market. With respect to invasive or aggressive actions, particularly binary intervention, mainstream economists generally ignore the direct effects on individual actors and consequent and concentrate on the indirect effects on relative prices, the allocation of resources, and the distribution of income and wealth. Rather than assessing the individual utility effects of a particular tax or expenditure, they focus instead on estimating changes in the co holistic concept of social welfare which construdes society as a mythical entity that transcends its individual members. By extending utility analysis to coercive actions and relations between individuals, Rothbart exposes welfare economics as at best superfluous. In so doing, he purges economic theory of the value judgments implicit in the analytical apparatus of Samuelson Bergson social welfare functions, the Hicks Caldor compensation principle, and the Knight Buchanan criterion of agreement among reasonable people on rules of the game. Now, it is sometimes argued that Rothbart himself smuggles value judgments into economic theory when he asserts that the purely free market maximizes social utility. But Rothbard's claim about the maximization of social utility rests on a value-free analytical conclusion that the network of voluntary exchanges which constitutes the market benefits all participants in these exchanges. Hence the judgment that everyone in the market achieves gains in utility is not a value judgment by the observing economist as these social welfare uh judgments are but is demonstrated by voluntary participation of buyers and sellers themselves in the transactions. In contrast, coercive interventions which compel, prohibit or alter the forms of terms of exchanges demonstrabably do not improve social utility because some individuals including the interveners themselves gain the utility at the expense of other individuals who are forced into a lower position on the utility scales. So it's a completely positive analysis. It is worth noting that Rothbart emphasized his value-free individualist approach to evaluating government intervention by generally avoiding the use of the nebulous term welfare and opting for the term utility which has firm grounding and clear meaning in the analysis of action. I think in man economy and state he uses the word social utility to term social utility 30 times and social welfare twice and then only in relation to social welfare functions. um we don't have time. Indeed, Robert went further and this I learned in writing this paper and explicitly denied that the maximization of social utility even in his own individualist sense constituted a normative argument for the free market economy rather than a positive conclusion of praxiological analysis. In a tape recorded lecture, Rothbart revealed the strategic motivation underlying his use of the term social utility when analyzing voluntary exchange. Stated Rothbart, this is very interesting. I had a lot of fun with this myself in my first article that ever came out. If we want want to use the term society, which I do not really like anyway, then we can say that social utility is increased. When the government enters the picture, whatever whatever the government does is decrease someone's social utility. It unfortunately has been maintained that my whole basis for lazy fair rests on this social utility nonsense. Of course, it doesn't. It's all really a gimmick to show that if you really go along with the whole paro optimality, social utility, then you have to confine yourself to lazy fair. His last sentence is telling. It is not my major argument for lazy fair that is that social utility is maximized for Rothbart. Then welfare economics even his own individualist type fails to establish the normative case for free market. The evaluation of a market outcome or a government intervention as good or bad lies completely outside of economic theory in the realm of ethics. Rothbart defends the purely free market and condemns econom interventionism not because of the utility or welfare effects they have on people as consumers, entrepreneurs, laborers and capitalists but because of the effects they have on human persons as just owners of property. In Rothbartian political economy or what he called the science of liberty, natural rights to one's body of property are therefore both the existential foundation of the free market economy and the explicit normative standard by which all social and polit and economic relations are judged. Okay, coming full circle to where I started. The praxiological analysis of interventionism not only permitted Rothbart to expose welfare economics as a tissue of concealed and ad hoc ad hoc ethical judgments. His step-by-step deduction of the consequences of each particular intervention led him to challenge a view that has plagued economics since its infancy. I am referring to the general and seemingly sensible view among most economists that complex phenomena such as the business cycle have multiple causes which are deeply rooted in the market economy and difficult to identify. As I noted at the outside of outset of my lecture when discussing my early encounter with his work, Rothbart would have none of this. He insisted that the business cycle was monocausal and exogenous to the free market as indicated by the title of his minibook, all economic depressions have a single cause and a single cure. In Rothbart's version of Austrian business cycle theory, the only co cause of business cycles is bank credit expansion through the creation and lending of fiduciary media or unback notes and deposits. The cure is and the only cure is to permit the inevitable recession process to proceed unhampered by further interventions to liquidate the malinvestments of the inflationary boom and guide the readjustment of production and employment back to the genuine consumption saving preferences of consumers. Rothbard's rejection of the mainstream view that complex sequences of events like business cycles must have multiple endogenous causes causes from within the market economy is an implication of his rigorous praxiological analysis of interventionism. For as a praxiologist, Rothbar does not begin with observed regularities among aggregates and then seek for a causal explanation by testing hypotheses about their relationships. Rather, he starts out with an analysis of individual actions and builds up to a theory that renders visible the causal chain of interrelated events entwined with the complex facts of history. And Mises put this very well. Mises Mises said only theory business cycle theory permits us to detect the wavy outline of a cycle in the tangle confusion of events. So all these things are happening over time. How do we know what things are are interrelated? Okay, we know it through praxiological analysis, through the building up of a theorem about reality. In fact, it has occurred to me as I was writing this lecture that Rothbart's argument about the nature of causality of business cycles applies to the complex market outcomes caused by any intervention. It is a direct implication of the praxiological approach to interventionism developed by Rothbart. First, his reformulation of the construct of the purely free market to exclude all coercive actions logically implies that all government interventions are exogenous to the market. And that's not just trivial. Second, his analysis of the purely free market demonstrates that all prices, wages, rents, interest rates, and production processes are mutually interdependent and intricately intricately interconnected. It follows that any exogenous disturbance of one part to ofuh of one part to the market economy all other things equal will have a series of repercussions in all other parts of the economy and I'm not going to read it here but I have a laundry list of the very complex effects that result even from something simple like rent controls um let me conclude using the imaginary construction of the purely free market Purged of logical contradictions and inconsistencies, Rothbart was able to analytically isolate the economic system based on purely voluntary action from those systems containing elements of violent hegemonic act hegemonic action. This procedure allowed him to deduce economic laws applicable to real world economies past and present which are subject to varying ad mixtures of voluntary exchange and um coercive intervention. In the last chapter of the treatise of his of his treatis manic state, Rothbart sums up the conclusions and practical implications of an ethically neutral economic theory finally made whole by the praxiological analysis of interventionism. Now I'm quoting Rothbart. No one disputes the fact that historically polit historically political systems have differed in degree that there have never been pure examples of the market or of the hegemonic principle. But these mixtures can be analyzed only by breaking them down into their components. They're varying blends of the two polar principles. There are basically two types of interpersonal relationships or or exchanges. The the free or or the voluntary and the coerced or the hegemonic. There is no other type of social relation. All shadings of society are mixtures mixtures of these two primary elements. Rothbart continues, such are the laws that proxiology presents to the human race. They are binary set of consequences. The workings of the market principle and of the hegemonic principle. The former breeds harmony, freedom, prosperity, and order. The latter produces conflict, coercion, poverty, and chaos. Such are the consequences between which mankind must choose. At this point, the praxiologist as such retires from the scene. The citizen, the ethicist must now choose according to the set of values or ethical principles he holds dear. Thank you. [applause] [applause]