===== PAGE 1 =====

Man, Economy, and Liberty: Essays in Honor of
Murray N. Rothbard. Edited by Walter Block

and Llewellyn H. Rockwell, Jr. Auburn, Alabama:
The Ludwig von Mises Institute, 1988.

Man, Economy, and Liberty, which grew out of a conference celebrat-
ing Murray Rothbard’s 60th birthday in 1986, is a collection of essays
by 30 contributors—economists, philosophers, historians, political
scientists, sociologists, and long-time friends and companions—hon-
oring one of the world’s foremost living champions of liberty.

Edited by Walter Block and Llewellyn H. Rockwell, Jr., Man,
Economy, and Liberty amply and yet incompletely attests to
Rothbard’s productivity and his achievements. Author of 16 books
and thousands of articles, scholarly and journalistic, ranging over the
-entire field of the humane studies, Rothbard ranks among the great
social thinkers. A system-builder, he is the architect of a rigorously
consistent social philosophy.

Economics and ethics are the cornerstones of the Rothbardian
system, strictly separated, but firmly grounded in the nature of man,
and complementing each other to form an integrated system of
rationalist philosophy.

Economics, and here Rothbard follows Ludwig von Mises, sets out
from the axiom that humans act, i.e., that they pursue their most
highly valued goals with scarce means. Combined with a few empir-
ical, and empirically testable assumptions (such as that labor implies
disutility), all of economic theory can be logically deduced from this
indisputable starting point, thus elevating its propositions to the
status of apodictic, a priori true laws and establishing economics as
a logic of action (praxeology). Modeled after Mises’s Human Action,
Man, Economy, and State, Rothbard’s first magnum opus, completed
while still in his mid-30s, develops the entire body of economic
theory—from the law of marginal utility to the business cycle the-
ory—along these lines, repairing in its course the few remaining
inconsistencies in the Misesian system (such as his theory of monop-
oly prices and of governmental security production), and presenting,
for the first time, a full case for a pure market economy as optimizing,
always and necessarily so, social utility.

Ethics is the second pillar of the Rothbardian system. Contrary to
the utilitarian Mises, who denies the possibility of a rational ethics,

The Review of Austrian Economics, Vol. 4, pp. 249-63
ISSN 0889-3047

249


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250 The Review of Austrian Economics, Volume 4

Rothbard recognizes the need for an ethic to complement a value-free
economics so as to make the case for the free market truly water-tight.
Drawing on the theory of natural rights, in particular the work of John
Locke, and the genuine American tradition of anarchistic thought of
Lysander Spooner and Benjamin Tucker, he provides also for its foun-
dation with the principles of self-ownership and original appropriation
of unowned resources through homesteading. Any other proposal,
Rothbard shows, either does not qualify as a human ethic applicable to
everyone qua human being; or is not viable in that following it would
literally imply death while obviously requiring a surviving proponent,
thus leading to performative contradictions. The former is the case with
all proposals which imply granting A ownership over B and/or resources
homesteaded by B, but not giving B the same right regarding A. The
latter is the case with all proposals advocating universal (communal)
co-ownership of everybody and everything by all (for then no one would
be allowed to do anything with anything before he had everyone elses’s
consent to do whatever he wanted to do). In The Ethics of Liberty, his
second magnum opus, Rothbard deduces the corpus of libertarian law—
from the law of contracts to the theory of punishment—from these
axiomatic principles, and along the way subjects the libertarianism of,
among others, James Buchanan, Friedrich A. Hayek, and Robert
Nozick, to criticisms.

Yet Rothbard’s anti-statism is by no means confined merely to
general theoretical considerations. Though first and foremost a theore-
tician, he is also a historian, and his work contains a wealth of empirical
information rarely matched by any “empiricist.” Moreover, it is precisely
his recognition of economics and ethics as pure, aprioristic theory, and
of such theoretical reasoning as logically anteceding and constraining
every empirical investigation, which makes his historical scholarship
superior to that of most standard historians (not to mention the pseudo-
historical research of the “cliometricians”), and that has established him
as one of today’s outstanding “revisionist” historians. Whether economic
or political history, from the American colonial history, the panic of 1819,
the Jacksonian period, the Progressive Era, World War I, America’s
Great Depression, Hoover, FDR and the New Deal, from U.S. monetary
history, the establishment of the Federal Reserve System, the destruc-
tion of the gold standard, the Bretton Woods agreement, to U.S. foreign
policy—Rothbard, with a detective’s eye for the minutest detail of
history’s by-ways, has time and again challenged common wisdom and
historical orthodoxy and has provided his readers with a vision of the
historical process as a permanent struggle between truth and falsehood,
economic wisdom and blundering, and between the forces of liberty and
of power elites exploiting and enriching themselves at the expense of
others and covering their tracks through lies and deceptions.

There is no substitute for reading Rothbard himself, if for no other


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Book Reviews 251

reason than his ability as a writer, and the rigor of his reasoning. Now
however, for everyone concerned with Rothbard, Austrian economics,
libertarianism, and rationalist philosophy in general, Man, Economy,
and Liberty is required reading as well.

Sheldon Richman, in an especially noteworthy study, explores the
young Rothbard who wrote several hundred private reviews of books
on almost everything for the late Volker Fund between 1952 and 1962.
No one who reads his account can come away without being “im-
pressed at how steady [Rothbard] is in so many ways, a Rock of
Gibraltar—intellectually, philosophically, even stylistically.” Almost
everything that would later appear as the Rothbardian system is
already contained, in a programmatic form, in these reviews: his
vigorous opposition against empiricism-positivism; his untiring at-
tacks on historicism, and ethical skepticism and relativism; his rejec-
tion of conservatism and its preference for “classical” (Greek) as
opposed to modern (Lockean) natural rights theories; his anti-state
vigilance; his relentless defense, instead, of epistemological and eth-
ical rationalism, of praxeology, and of natural rights theory (as a
logical theory akin to praxeology), and of their implied extremism and
absolutism (truth can be discovered); as well as his revisionist histor-
ical outlook and his approbation of the pre-Marxist, classical liberal
class, or power elite analysis of Charles Comte and Charles Dunoyer.

Gary North, in a brilliant polemic, undertakes an explanation of
“Why Rothbard Will Never Win the Nobel Prize,” and why he, simi-
larly to Mises, has been treated most shabbily by academia through-
out his career. Not only has he been out of step with the spirit of times
from the 50s to the mid-70s as an advocate of laissez faire; he remains
so to this day, even with the tide of Keynesianism and intervention-
ism subsiding, because of his absolutism and apriorism when acade-
mia still, unchangingly, professes a confused pluralism (how can a
pluralism of values be said to be justified unless if can be shown to
rest on a non-pluralist, absolute value?). More importantly, “Murray
Rothbard has an addiction: clear, forthright writing. He says what he
thinks, and he explains why he thinks it, in easily followed logic. He
does not use equations, statistics, and the other paraphernalia of the
economic priesthood. He simply takes the reader step by step through
economic reasoning, selecting the relevant facts—relevant in terms
of the economic logic he sets forth—and drawing conclusions.” But
doing this is a no-no among today’s professional economists. “What
impresses them is an economics book which cannot be understood
even after three or four readings, and when its conclusions are at last
grasped, they prove to be utterly inapplicable to the real world.”
Worse still, Rothbard’s addiction to verbal logic, and his refusal to
employ mathematics, is not merely accidental, but principled: utility
is subjective and ordinal, and hence is unmeasurable; action takes


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252 | The Review of Austrian Economics, Volume 4

place in discrete steps, and hence calculus, which requires the as-
sumption of infinitely small steps, cannot be employed in economics;
and action is choosing, preferring one thing to another, and hence
indifference curve analysis is plain irrelevant.

While the lucidity of his writing has contributed to his neglect by
the academic establishment, it has been instrumental for Rothbard’s
success in creating a social movement. Barred froin all positions of
academic power and prestige, and prevented to this day from turning
out Ph.D. students, it has been the sheer power of his words that has
attracted a steadily growing, world-wide following, from all social
strata, of individuals dedicated to the perennial goal of independent
thinking, relentless logic, and intellectual courage.

Numerous contributors offer restatements of Rothbardian themes
and analyses, locating them in the context of past or present controver-
sies, and applying Rothbardian insights to new problem areas, or
replying to critics. Dominick Armentano restates Rothbard’s pathbreak-
ing monopoly. theory: while it is meaningful to define a monopolist as a
producer who, by virtue of a grant of privilege from government, is no
longer subject to a regime of unrestricted free entry, and while its prices
then can indeed be characterized as “too high” (as compared with free
market prices, i.e., those that would prevail if there were no legal
_ restrictions on entry), any attempt to distinguish between monopoly and
competitive prices within the framework of a free market, such as in
orthodox monopoly theory, is operationally meaningless. Either such
attempts rely on the “model of perfect competition” (criticized also in E.
C. Pasour’s contribution), which applies only to the never-never land of
equilibrium (and is false even there—among other reasons—because of
its assumption of a perfectly horizontal demand curve, which contra-
dicts the law of marginal utility as a proposition deductively derived
from the. incontestable axiom of action) and is thus entirely irrelevant
in helping to decide whether or not any real world prices are monopo-
listic ones. Or they define monopoly prices as higher prices reached
through restricting production so as to take advantage of an inelastic
demand and attain a higher total revenue. For one thing, however, every
seller always sets his price such that he expects any price higher than
the chosen one to encounter an.elastic demand and so to lead to a reduced
total revenue—and hence, under this definition, it would be impossible
not to be a monopolist. And secondly, any movement from a subcompeti-
tive price to a conipetitive one also involves a restriction and there exists
no criterion whatsoever to distinguish such a restriction from the
alleged monopoly price situation. Hence, to say anything more than that
prices are free-market prices (or not) is S ‘devoid of any grounding in
reality and thus meaningless.

Walter Block offers a fresh look at the instituti on nof fractional reserve
(deposit) banking, the pillar of all of today’s banking systems, and


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Book Reviews 253

defends Rothbard’s claim—once, in the good old days, considered obvi-
ous—that anything but 100 percent reserve banking is fraud, plain and
simple; and that, if banks would not act fraudulently because they were
to admit openly that their instantaneous liabilities exceed their assets
on hand, then they would no longer be banks but lotteries, and their
notes would not qualify as money but as lottery tickets.

"Roger Garrison reexamines the pure time preference theory of
interest as espoused by Frank Fetter, Ludwig von Mises, and Rothbard,
and criticizes a number of rival theories (in particular those of Gustav
Cassel and Irving Fisher). In acting, man not only invariably aims to
substitute a more for a less satisfactory state of affairs and demonstrates
a preference for more rather than less goods; invariably he must also
consider when in the future his goals will be reached; hence, every action
also demonstrates a universal preference of earlier over later goods.
That is to say, every action requires time to attain its goal; and since
man must consume sometimes, time is always scarce for him. Thus,
ceteris paribus, present or earlier goods are, and must invariably be,
valued more highly than future or later ones; and an exchange of a
present good for a future one can only take place if the value of the future
good is expected to exceed that of the present one—the value difference
between present inputs and future outputs being interest. Contrary to
all kinds of productivity theories of interest, then, it is the universal
existence of a positive time preference, and of it alone, that accounts for,
and explains, the phenomenon of interest.

Roger Arnold applies Rothbardian insights in order to analyze,
and dispose of, attempts—particularly fashionable in public choice
circles—to justify the existence of the state on prisoners’ dilemma
(PD) and/or transaction costs (TC) grounds. While it may well be
admitted that prisoner’s dilemma settings (situations of strategic
game playing) and “high” transaction costs exist, it is a non-sequitur
to conclude that this would prove anything regarding the necessity
or desirability of state action. For one thing—a point not mentioned
by Arnold—because in order to come up with the conclusion that
something should be done about these alleged problems, one must
smuggle a norm into one’s chain of reasoning and hence would have
to offer a theory of ethics—something, however, for which one looks
in vain in the relevant literature. Nor is the economic case, to which
Arnold explicitly restricts his analysis, any more conclusive.

In order to show that state action provides an economic solution
to PD and TC problems, it must be demonstrated (and Arnold quotes
James Buchanan to this effect) that it is capable of increasing
everyone's utility level above what it otherwise would be. Yet this is
impossible: first, it has to be noted that there surely exist market
solutions to PD and TC problems. Reason and persuasion can be
employed; the adoption of a tit-for-tat strategy can help overcome PD;


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254 The Review of Austrian Economics, Volume 4

and the reduction of TC is just as much part of entrepreneurial activities
as is the reduction of any other kind of costs. If, in spite of this, PD and
TC problems still remain unresolved, why, then, not ask “So what?”
Maybe they do not deserve to be solved, or solving them would occur at
the expense of solving other more urgent problems. Furthermore, if no
market solution is available, then, by definition, any solution must be a
coercive one. Yet, Arnold writes, “if individuals are coerced it follows that
they are doing something they wouldn't be doing [and] one can not get
more utility from something he wouldn't be doing than doing something
he would want to do. We conclude that the State decreases utility
levels—if not for all persons, then at least for some. And as long as we
can not measure whether the ‘winners’ gain more in terms of utility than
the ‘losers’ lose, we cannot guarantee that there is even, at minimum, a
net gain to having the State.” (As regards the notion that all individuals
may “voluntarily agree to be coerced,” Arnold points out that such a
thing has never been actually observed; worse still, one should add, the
idea is patently absurd: for if the voluntarily accepted coercion is
voluntary, then it would have to be possible to revoke one’s subjection
to the state, and it would be no more than a voluntarily joined club. If,
however, one does not have this right—and such, of course, is the
characteristic mark of a state as compared to a club—then it would be
logically inadmissable to claim that one’s acceptance of coercion is a
voluntary one, and hence one’s utility level would be reduced if it were
continued.)

Finally, regarding transaction-cost justifications of the state in
particular, Arnold trenchantly notes, “all costs, no matter what
names we attach to them, are subjective; therefore they are unmea-
surable. Given this, it does not make sense to say that transaction
costs are high, or low, or somewhere in between. We conclude that the
argument that purports to justify the State’s existence, or State
interventions, on the grounds that transaction costs are high makes
as much sense as an argument that purports to justify the State on
the grounds that Tuesday follows Monday.”

David Osterfeld explains the Rothbardian concepts of freedom
(and markets) and of power (and government): freedom is defined as
a situation where each person has exclusive control (ownership,
property) over his physical body, over all nature-given resources
homesteaded with its help, over everything produced by such means,
and over all resources contractually acquired from previous owners.
On the other hand, the exercise of power is characterized by a person’s
invasion—or threat thereof—of the physical integrity of another’s
appropriated resources, and by non-contractual or fraudulent modes
of restricting or eliminating another’s control over his acquired prop-
erty. He then compares these Rothbardian categories with rival
definitions which have gained wide acceptance in the field of political


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Book Reviews 255

science. Robert Dahl, Harold Lasswell, and Morton Kaplan, for in-
stance, all very much alike, define power instead “as a special case of
the exercise of influence involving severe losses for non-compliance,”
as “affecting policies of others with the help of (actual or threatened)
severe deprivations for non-conformity with the policies intended.”
(One might add that a similar definition had also been proposed by
M. Weber and has since become highly influential in sociology.)
Osterfeld has little difficulty showing the inadequacy of this defini-
tion, and the advantage of employing the Rothbardian distinction:
given the fact that feelings are subjective and unmeasurable, there
is simply no way whatsoever to objectively determine whether or not
the losses or deprivations are “severe,” and hence whether or not
power is present or absent. The definition is strictly speaking non-
operational. In contrast, Rothbard’s definition clearly is operational.
(Osterfeld does not go so far as to say that Rothbard’s definitions,
therefore, are the correct ones.)

Osterfeld, in his wide-ranging essay, also contributes valuable
explanations regarding Rothbard’s conception of power elites and
power elite analysis. He relates it to similar approaches in political
science, in particular those following in the footsteps of G. Mosca and
R. Michels (“iron law of oligarchy”). He elaborates on the “logic” of the
connection between government and banking and business establish-
ments in forming a highly stable ruling class (or caste), explains the
nature of party competition in all this, and finally indicates the
success of the Rothbardian theory of power in explaining and predict-
ing empirical events and phenomena.

Jeffrey Paul takes issue with the property theories of Robert
Nozick and Hillel Steiner. Contrary to Rothbard, who argues in favor
of the unrestricted validity of the first-use-first-own-rule (i.e., the
homesteading principle) and, as implied by it, the equally unre-
stricted validity of a voluntary-title-transfer theory of property,
Nozick and Steiner accept the latter part of this theory yet, for
somewhat different reasons, take exception to the former. Paul, while
explicitly not engaged in the more ambitious task of demonstrating
the validity of the Rothbardian theory, undertakes to show it to at
least be consistent, and to expose the theories of Nozick and Steiner
as inconsistent and thus false: Nozick claims that once resources are
owned by someone, this person also acquires ownership in everything
produced in turn with their help, and that his property then can only
be legitimately acquired by someone else via voluntary, contractual
transfers. (It is this part of his theory that made Nozick appear as a
libertarian.) Yet how do resources come to be owned in the first place?
Nozick explicitly rejects the idea that “mixing one’s labor” with
unowned, virginal objects is sufficient for this to happen-—the central
idea of John Locke’s property theory—and, similar to Locke and


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256 : The Review of Austrian Economics, Volume 4

equally unfortunate, Nozick adds a “proviso.” According to him, un
owned objects become justly acquired if and only if a person's act o
appropriation (a) improves the value of the object, and (b) does no
worsen the position of others by depriving them of the liberty of using
this object, or by adequately compensating them if such a worsening
should occur. (He passes over in silence the all-decisive questions of how
one would objectively ascertain whether or not someone’s position hac
been worsened, and how much compensation would be adequate. No
does he seem to be aware of the absurd implications of this theory: what
for instance if I were to declare that Nozick’s ownership of his physica
body worsened my position, and that he, in order to compensate me fo:
this, would be required to shut up for ever or drop dead? Surely, on hi:
theory, there can be nothing wrong with such a request.)

Paul has no trouble showing the inconsistency of this theory. Wha

‘1s Nozick’s reason for adding the proviso (i.e., condition .b) on the leve
of original appropriation? Mixing one’s labor with a virginal resource
Nozick argues, does not imply that the resultant object is the exclusiv¢
result of one’s labor; thus it also cannot entitle one to exclusive contro
over the resultant object but, he claims, only to the value added to it
.and hence the welfarist proviso. But if this is correct, Paul notes, the:
there is no reason whatsoever why the proviso should ever be dropped
and the title-transfer theory of property should come into play a
subsequent stages of production, as Nozick claims. For obviously, re
gardless of how far the process of manufacturing objects is removed fron
the original act of appropriating. nature-given resources, invariabl
there remains a virginal component in each and every object, and henc
the welfare proviso would have to apply throughout. (One should not:
again the self-refuting character of this line of reasoning.)

Moreover, as Paul points out, Nozick, in shifting his argument fron
the level of physical phenomena to that of values, may not have provide
a reason for the introduction of the welfare proviso at all. For while it i
true that no physical object can ever be regarded as the exclusive resul
of one’s labor, the entire value or utility of an object surely can. Fo
without being at least discovered by someone, objects are obvious}
without any value whatsoever to anyone. Discovering something, how
ever, writes Paul, “is the product of human efforts, not of natura
circumstance”; and hence the discoverer can be said to have created th
entire value of a discovered resource and thus would be entitled to it
full ownership even on Nozick’s own added-value theory.

Steiner’s theory is similar to Nozick’s and breaks down for essen
tially the same reasons. Instead of the Lockean proviso, Steiner, a
the level of original appropriation, advocates a principle of equa

. distribution of virginal resources, his reason for rejecting the home
steading principle being, like’ Nozick’s, that virginal resources ar:
produced by no one, and hence cannot be owned by anyone in particular


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300k Reviews 257

Accepting this reasoning, however, leads to an all-out egalitarianism
i.e., it would be impossible to restrict it to the level of original
ippropriations, as Steiner would have it). Moreover, on this theory
1s on Nozick’s, it would be impossible to justify each person’s owner-
ship of his own physical body (which Steiner takes for granted). His
ygalitarianism would also have to apply to bodies. But, as I have
ready shown regarding Nozick’s case, such a position leads to
yerformative contradictions and is thus self-defeating.

While the majority of the contributors to Man, Economy, and
Liberty would probably describe themselves as Rothbardians of some
sort, not all would accept this label. In fact, though invariably sym-
rathetic to Rothbard, several contributors advance ideas incompati-
le with, or critical of, his work. Israel M. Kirzner’s essay on welfare
rconomics is a case in point. Kirzner sets out with a restatement of
some basic tenets, uncontroversial at least among Austrian econo-
nists, such as (a) methodological individualism: only individuals act
ind have values; talk about society is meaningless unless it can be
imambiguously translated into statements concerning individuals;
b) subjectivism: utility, welfare, etc., refer to unmeasurable states of
iffairs, demonstrated through actual choices and capable only of
rrdinal ranking; and (c) an emphasis on process: decisive for judging
welfare implications is not so much the outcome of actions but rather
he process, or the rules generating the outcome. He then correctly
rriticizes traditional welfare economics by pointing out that “to at-
empt to aggregate utility is not merely to violate the tenets of
nethodological individualism and subjectivism (by treating the sen-
sations of different individuals as being able to be added up); it is to
’ngage in an entirely meaningless exercise.”

Much less convincing is his following critique of the idea of
2areto-optimality. Kirzner claims that this notion “reflects a supra-
ndividual conception of society and its well-being,” and he regards
his as its main defect. Because he merely reiterates this claim and
oes not explain it, I fail to grasp it and would still contend that the
dea of Pareto-optimality is fully compatible with methodological
ndividualism because of its unanimity requirement. The problem
vith Pareto-optimality as a welfare criterion, as Rothbard has repeat-
:dly explained, is a completely different one. According to its orthodox
rersion, it does not provide any criterion for selecting the starting
yoint from which we are to begin making Pareto-optimal changes and
hus boils down to an unprincipled advocacy of the status quo. Based
yn this criterion, slavery, minimum wage laws, or rent controls, once
n place, could never be justifiably abolished, because surely there
vill always be someone whose situation is thereby worsened. If,
iowever, the Pareto criterion is firmly wedded to the notion of
jemonstrated preference, it in fact can be employed to yield such a


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258 The Review of Austrian Economics, Volume 4

starting point and serve, then, as a perfectly unobjectionable welfare
criterion: a person’s original appropriation of unowned resources, as
demonstrated by this very action, increases his utility (at least ex ante)
At the same time, it makes no one worse off, because in appropriating
them he takes nothing away from others. For obviously, others coul¢
have homesteaded these resources, too, if only they had perceived ther
as scarce. But they did not actually do so, which demonstrates that they
attached no value to them whatsoever, and hence they cannot be said tc
have lost any utility on account of this act. Proceeding from this Pareto
optimal basis, then, any further act of production, utilizing homesteadec
resources, is equally Pareto-optimal on demonstrated preference
grounds, provided only that it does not uninvitedly impair the physica
integrity of the resources homesteaded, or produced with homesteadec
means by others. And finally, every voluntary exchange starting from
this basis must also be regarded as a Pareto-optimal change, because i
can only take place if both parties expect to benefit from it. Thus
contrary to Kirzner, Pareto-optimality is not only compatible witl
methodological individualism; together with the notion of demonstratec
preference, it also provides the key to (Austrian) welfare economics anc
its proof that the free market, operating according to the rules jus
described, always, and invariably so, increases social utility, while eact
deviation from it decreases it.

Despite his initial emphasis on the importance of the consideratior
of processes for welfare economics, there is no systematic mention by
Kirzner of any rules: of how to acquire resources, or change, or exchange
them, of markets, or market interventions. Instead, what follows his
critique of Pareto-optimality, is the suggestion of another welfare crite
rion—inspired by Hayek and open to more severe criticisms thar
Pareto’s—and a murky, non-operational distinction.

Kirzner’s new, as he claims genuinely Austrian, criterion is that o
“coordination—permitting each agent to achieve his goals through the
simultaneous satisfaction of the goals of the other agent.” Regarding
this proposal one might first note that while each individual can judge
on his own whether or not some act of his or of others makes him bette
or worse off, or leaves his welfare unaffected, judging whether or no
one’s act simultaneously satisfies the goals of others would require
knowing what their goals are, and it is this criterion, then, whicl
actually suffers from a “supra-individual conception” incompatible witl
methodological individualism. Second, the coordination criterion is un
duly restrictive in eliminating an entire class of actions which have
clear-cut welfare implications from consideration altogether. If I plan
a flower in my garden, my welfare is increased, no one is thereby mads
worse off, and hence one might say that social welfare has increased
Yet obviously, there is no question of coordination here, and it thus woul
seem plainly false to say that coordination is a universal desideratum


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Book Reviews 259

of action. Third, the coordination criterion suffers from precisely the
same problem as the Pareto-criterion in its orthodox version, i.e., it
boils down to an unprincipled defense of the status quo. Kirzner, too,
would have to address the all-decisive question of how to assign
property rights initially so as to have a justified starting point from
which to begin to achieve better coordination. For surely, he would
not want to argue that social welfare in any meaningful sense is
increased if my actions and those of an IRS agent are coordinated as
rompared to a situation where I would try to obstruct his plans.

One may now admit that the last problem possibly can be overcome,
and that the coordination criterion can be employed to reconstruct
welfare economics along lines similar to those sketched above by utiliz-
ing the idea of Pareto-optimality, so as to reach the conclusion that the
free market is not only always Pareto-optimal but always optimally
coordinated as well—taking into account, of course, the facts of uncer-
tainty and imperfect knowledge, the dispersal of knowledge among
different individuals, the costs associated with the acquisition and
communication of knowledge and of learning, etc. But the idea “that in
a world of dispersed knowledge ... sub-optimality or states of dis-
zoordinatedness cannot be postulated to exist (if one properly includes
the costs of information-acquisition)” Kirzner curiously holds to be false.
Why? Because, he writes, the “dispersal of knowledge necessarily in-
volves not merely new costs (of learning and communication) but also
the very real possibility of what we may call ‘genuine error’. ... Genuine
arror occurs where a decision maker’s ignorance is not attributable to
the costs of search, or of learning or of communication—i.e., it is the
result of his ignorance of available, cost-worthy, avenues to needed
information. ... At the level of the individual decision-maker we may
describe his activity as having been sub-optimal when he subsequently
discovers himself to have inexplicably overlooked available opportuni-
ties that were in fact worthwhile. He cannot ‘condone’ his faulty deci-
sion-making on the grounds of the cost of acquiring information, since
the information was in fact costlessly available to him. He can account
for his failure only by acknowledging his utter ignorance of the true
circumstances (i.e., of his ignorance of the availability of relevant
information at worthwhile low cost).”

I must confess that I consider this notion of utter ignorance
meaningless. First, it is incompatible with the idea that costs are
subjective and incurred at the point of decision making, which Kirz-
ner elsewhere has done so much to explain, and rather represents a
relapse into the presubjectivist era of economics. For how can he
claim that knowledge was in fact “costlessly available,” or available
at a “worthwhile low cost” even though it was demonstrably not
available to the actor—unless he were to claim that he had an
objective measure of cost at hand. The fact that in retrospect, after


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260 The Review of Austrian Economics, Volume 4

discovering an error, one might say “wow, I could have known this for
nothing,” does not prove anything about the costs incurred at the point
of decision making. Second, the concept is non-operational. No one car
distinguish between errors stemming from utter ignorance and those
“normal” ones resulting from the costs of learning, information acquisi-
tion, and general uncertainty. Obviously, no one can know ex ante what
kind of error it is that he is going to make—otherwise he would not make
it. And ex post considerations of what it would have cost to have avoidec
certain mistakes if only one had known better earlier are just that
retrospective speculations which may or may not have any impact or
current or future decision making. Third, the concept of entrepreneur
ship does not require the assumption of utter ignorance, as Kirznei
implies, but rather only the clear-cut and indisputable fact of uncer
tainty. Uncertainty explains entrepreneurship and pure profits. Utte:
ignorance, even if it existed, is neither a necessary nor a sufficient
condition for it. Finally, “So what if utter ignorance exists?” What has
this to do with welfare economics? Economics in general and welfare
economics in particular deal with action and interaction, with scarce
means and goals, and with choices. Economic theory requires no specifi
assumption about possible types of knowledge and error. It merely
requires that there be knowledge and error, i.e., that actors pursue goal:
employing knowledge—act intentionally-—can tell the difference be
tween success and failure, and can recognize intellectual errors of an;
sort as accountable for specific outcomes. Any discovery of new oi
different types of errors is thus plainly irrelévant for economics anc
economic theory.

| Kirzner promises a “modern Austrian perspective on welfare eco
nomics.” I am inclined to think that it is not an Austrian perspective
at all. It appears to violate the principle of methodological individu
alism; it contradicts the principle of subjectivism; and no consider
ation is given to rules and processes of acting, and of employing scarce
physical resources in the pursuit of scarce goals, and all attention i
shifted to economically irrelevant problems in the psychology 0
knowledge.

Leland B. Yeager’s stimulating paper also deals with welfare eco
nomics. His approach is different from Kirzner’s. Despite his hope
however, that it may be “compatible with or complementary to wha
[Rothbard] has written,” it suffers from equally grave deficiencies anc
is just as incompatible with the Rothbardian “Reconstruction of Utilit,
and Welfare Economics.” Following John Harsanyi, Yeager suggest:
“maximum expected average utility” as a welfare criterion. The idea i
roughly as follows: assume the position of an “impartial spectator” whe
considers and must choose between “alternative types of society, in eacl
of which he would be a person selected at random, enjoying or suffering
his fate in accordance with that person’s utility function and position i1


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Book Reviews 261

life.” Harsanyi and Yeager both argue that under these circumstances
one would rationally choose the social order which maximizes aver-
age utility. For the sake of argument I am willing to accept this as
plausible enough; and I am also prepared to go along with their, in
particular Harsanyi’s, critique of rival, more egalitarian welfare
criteria as proposed by John Rawls or Amartya Sen. The average
utility criterion does “already take account of risk aversion in cases
of dispersed possible outcomes expressed in utility terms.” All egali-
tarian sentiments, as they may exist, are already reflected in the
impartial spectator’s social welfare function. To propose a more
egalitarian criterion would amount to double counting. Hence, ac-
cording to Harsanyi’s von Neumann-Morgenstern conception of util-
ity, in any case the impartial spectator would rationally prefer to
maximize expected average utility rather than choosing any other
criterion. So far so good. But then, “So what?”

What is this but mental gymnastics, non-operational, and without
any praxeological foundation—in this respect not at all different from
the conceptions of the majority of contemporary political economists and
theorists, whether they are utilitarians (like Yeager), or contractarians
like Rawls), right (like Hayek), or left (like Sen)? Asked what the basic
rules regarding the appropriation, allocation, transformation and trans-
fer of scarce resources are, that would be recommended on the grounds
of the Rawlsian difference principle, or Yeagers maximum average
utility criterion, or whatever, there is simply no definite answer forth-
coming. This should be sufficient evidencing that something is wrong
with the theory at hand. In academia, however, the opposite has oc-
curred. If a theory yields no specific conclusions at all concerning the
foremost practical question to be answered (i.e., how I am to employ
scarce physical resources so as to act correctly, optimally, or justly);
and/or if it allows us to reach any conclusion whatsoever, including
incompatible ones (Hayek, it might be recalled, in Law, Legislation, and
Liberty, characterizes his welfare criterion as essentially—John
Rawls’s), the more serious is the attention that it receives. Rawls,
indeed, with a theory that is the most painful example of this species of
operational meaninglessness, has come to be accorded the rank of the
preeminent practical philosopher of our age.

The systematic explanation for this disturbing phenomenon is a
fatal error on the level of theory construction committed by Yeager as
well as by Rawls. Any welfare criterion must be praxeologically,
sonstructively realizable, i.e., it must be possible for us, who invari-
ably must act and employ resources, to actually implement such a
criterion and to consistently act upon it, otherwise it would be no
welfare criterion at all but a praxeologically irrelevant chimera.
Yeager’s criterion, like Rawls’s or Hayek's, is such a chimera, because
it cannot be constructively realized.


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262 The Review of Austrian Economics, Volume 4

In Rawls this constructive unrealizability is particularly acute
Rawls supposedly gets his criteria from know-nothing epistemologi:
cal zombies sitting behind a “veil of ignorance,” engaged in uncon.
strained considerations of alternative social orders for actual, non
zombie persons. For one thing, “Who cares?” What has this to do witt
our, human problems? But secondly, even if we wanted to know, we
- could not even try finding out, because we are not zombies behind ¢
veil, but individuals who must continuously act in order to make ¢
living. Rawls’s contribution is thus irrelevant, non-operational, anc
self-contradictory on top.

The impartial spectator model adopted by Harsanyi and Yeager i:
somewhat more realistic. Individual actors can indeed assume the role
of a “neutral” spectator and evaluate alternative societies; and they maj
well use maximum average utility as their decision criterion. Yet wha
if Yeager, Harsanyi, Rawls, and I, as hard as we try to be as impartia
as we can be, do not choose the same but incompatible societies as
maximizing average utility, as is likely to happen? It is here that the
theory breaks down again as inoperable and praxeologically impossible
For it would be impossible to realize incompatible societies simulta
neously; only one can be realized at a time. But which one? The criteriox
of maximum average utility has already done its work—but still ther
is disagreement as to which arrangement maximizes average utility
Aggregating is inadmissible, as Yeager agrees, and would lead to arbi
trary results. But then there is nothing left to go on. Faced witl
incompatible alternatives one is actually told not to do anything, be
cause one’s criterion does not yield a conclusion.

Obviously, however, such advice is impossible to follow. We canno
stop acting; we always must either do one thing or another, anc
through our actions we contribute to the construction of one society
or another. The utilitarian maximum average utility criterion doe:
not give us a clue as to what to do in this situation; it is impossible
for us to actively apply it; and whatever its relevance otherwise migh
be, from the point of view of economic theory it is pure moonshine
without any importance for our human quest to know how we are tc
act with scarce resources here and now so as to act correctly in term:
of either social utility or justice.

The Rothbardian welfare theory, in terms of a theory of propert;
rights, provides a definite answer—in the form of praxeologicall;
meaningful criteria—to this inescapable problem. If impartial spec
tators cannot come to an agreement, or constitutional contractor:
cannot reach a contract, obviously this cannot mean that they woulc
then have to suspend acting, nor can it imply that any further action
is as correct as any other one. The fact merely shows that it it
irrelevant to welfare economics what impartial spectators think o
believe. It is not what one says about social welfare that counts, bu


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300k Reviews 263

vhat one demonstrates about utility through one’s actions: in playing
‘he intellectual game of considering alternative social models for
heir capability of maximizing average utility, or of designing consti-
;utions, one is still acting and employing scarce physical resources,
and hence, prior to even beginning these intellectual plays, as their
very own praxeological foundation, there must be an acting man,
lefined in terms of physical resources. Utility considerations a la
Yeager, or agreements, or contracts already presuppose the existence
)f physically independent decision making units and a description of
heir existence in terms of a person’s property relations regarding
lefinite physical resources—otherwise there is no one to agree on
anything, and nothing on which to agree about which to contract.
More specifically, by engaging in discussions about welfare criteria
hat may or may not end up in agreement, and instead result in a
nere agreement on the fact of continuing disagreements—as in any
intellectual enterprise—an actor invariably demonstrates a specific
sreference for the first-use-first-own rule of property acquisition as
nis ultimate welfare criterion: without it no one could independently
act and say anything at any time, and no one else could act indepen-
Jently at the same time and agree or disagree independently with
whatever had been initially said or proposed. It is the recognition of
he homesteading principle which makes intellectual pursuits, i.e.,
:he independent evaluation of propositions and truth claims, possi-
cle. And by virtue of engaging in such pursuits, i.e., by virtue of being
an “intellectual” one demonstrates the validity of the homesteading
orinciple as the ultimate rational welfare criterion.

There are other notable contributions in this volume of generally
high-quality essays, such as David Gordon’s perceptive observations
yn the claims of the theory of natural, or human rights; Antony Flew’s
rritique—as the collectivist counterpart to the tradition of Locke and
Rothbard—of Rousseau and his political philosophy; and Ralph
Raico’s article on the radical Free-Trade-Movement in nineteenth
sentury Germany and John Prince Smith, its leader from the 1840s
antil his death in 1874—a tradition almost completely unknown to
sontemporary Germany.

Finally, the collection also offers a glimpse of Murray Rothbard as
a movie critic (by Justus Doenecke), as a critic of music and culture
by Neil McCaffrey), and his principles of aesthetic judgment. The
volume appropriately concludes with personal notes by Margit von
Mises and Joey Rothbard.

Hans-Hermann Hoppe
University of Nevada, Las Vegas


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