To most Americans, economists don’t leap instantly to mind as treasures, let alone national treasures.
Whether making arrogant and fallacious mathematical predictions, filling the minds of college students with the wrong-headed Keynesian and socialist ideas, or giving a theoretical cover to state inflation, taxation, regulation, and spending — the typical economist is not a friend of liberty.
But all this is a perversion of the pure science of economics as exemplified by the Austrian School and its greatest exponent, Ludwig von Mises. Professor Mises was not only the twentieth century’s greatest creative force in economics, he was also a radiant champion of liberty.
There is a Japanese custom naming great achievers as living national treasures. Scott Stanley of Conservative Digest asked me to name our three living national treasures in economics. I told him that three men stand out as great economists in the Misesian tradition: Henry Hazlitt, W.H. Hutt, and Murray N. Rothbard.
Henry Hazlitt’s career as an economist and journalist spans more than seven decades. An outstanding teacher of the economics of freedom, he did pathbreaking theoretical work, and made the ideas of Austrian, free-market economics accessible to everyone. One of the most quotable economists of all time, his writing sparkles. And his clear and sprightly style seems — like his commitment to freedom — only to grow stronger with the passing years.
One of his chief accomplishments is the masterful Economics in One Lesson written in 1946. This small volume has educated millions (in eight different languages) toward an understanding of the free market and Austrian economics. It destroys the arguments of socialists and interventionists as it explains the truth. Although it was written more than 40 years ago, there is still no better way to start learning good economics. But the book is shunned by most economists.
And no wonder. If Hazlitt were followed, interventionist politicians and their intellectual bodyguards in the academic world would be unemployed. If it’s not bad enough that he defied the economics establishment, his airtight case for the free market is accessible to the layman, and that’s anathema to the economics establishment. Thumb through any issue of a top economics journal and you’ll know why Hazlitt’s book is considered heretical. Not because it doesn’t make sense, but because it does; not because it isn’t logical, but because it is; not because it isn’t true to life, but because it is. Translate their jargon into English, and we find most economists beginning with such axioms as “let’s assume everybody knows everything” or “nobody knows anything” or “people never change their minds” or “all goods are identical.” Men and women are stripped of their individuality to make them fit into mechanistic models, and the economy is seen as static, or at best a series of shifting static states, without elaboration or the process of change. Deductions from such axioms must, of course, be false.
Hazlitt, like Mises, starts with the assumption that individuals act, that they do so with a purpose, and that as conditions change, their plans change. He makes no separation between “microeconomic” and “macroeconomic,” terms commonly used to give the impression that different principles and laws apply to the whole economy than apply to individuals. So that while it may be justified to talk about purposive action, decisions on the margin, and subjective valuations at the individual level, this is of no relevance for the macro-managers in government.
But Hazlitt is a methodological individualist, and thus recognizes that the economy must be analyzed from the standpoint of individual action. Most economists are notorious justifiers of special-interest legislation because they ignore what Hazlitt so eloquently charts in Economics in One Lesson: the unseen and long-run effects of government policy. To Hazlitt, as an Austrian school economist, “economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
Central bank inflation of the money supply, for example, lowers interest rates initially, but leads to higher interest rates and lower purchasing power in the long run, not to speak of the business cycle of booms and busts. Inflation may benefit the government and those who get the new money first, but it hurts everyone else.
Although a formidable scholar, Hazlitt did not spend his career in a university. He was a working journalist of whom H.L. Mencken once said, “He is one of the few economists in human history who could really write.” Born in 1894, Hazlitt went to work in 1913 as a reporter for the Wall Street Journal. He was also an editorial writer for the New York Times and a columnist for Newsweek.
As a very young man, Hazlitt read the Austrian economists Carl Menger, Eugen von Böhm-Bawerk, and Philip Wicksteed. But the main influence on him was Ludwig von Mises. And in 1940 Hazlitt helped — with the late Lawrence Fertig — to raise funds for a job for Mises at New York University. At a time when every second-rate European Marxist and historicist was getting a professorship at Harvard or Princeton, Mises was blackballed by US universities as “dogmatic,” “intransigent,” and “right-wing.” Eventually Hazlitt and Fertig were able to persuade NYU — where Fertig was a trustee — to allow Mises to teach as an unpaid visiting professor.
Mises and Hazlitt became close friends and he later arranged the publication of Mises’s Omnipotent Government, Theory and History, Bureaucracy, and the monumental Human Action by Yale University Press.
During Hazlitt’s years at the New York Times he wrote about the troubles that would flow from the Keynes-designed Bretton Woods monetary agreements. (His insightful editorials are collected in From Bretton Woods to World Inflation .) Bretton Woods, which Supply-Siders wrongly look back on with nostalgia, guaranteed — as Hazlitt predicted — a world of paper money inflation. It also gave us the International Monetary Fund (IMF) and the World Bank, still major funders of statism.
As Hazlitt has argued, only a true gold standard, with the dollar redeemable in gold domestically as well as internationally, qualifies as sound money. And institutions like the IMF and World Bank only benefit governments and banking interests at the expense of the American taxpayer and the poor in other countries.
Another Hazlitt masterpiece is the Failure of the “New Economics” (1959, and newly in print from the Mises Institute). Here Hazlitt produced what no one else has ever attempted: a line-by-line refutation of Keynes’s General Theory. The book is a patient and meticulous shattering of Keynes’s fallacies, contradictions, and muddled thinking.
A Renaissance man in the Mises tradition, his output includes 25 books — on economics, philosophy, politics, history — plus a novel (also newly in print) and hundreds of persuasive columns and articles.
The Bretton Woods system did break down, of course, as Hazlitt had predicted. But when, many years before, the publisher of the New York Times asked him to reverse his position and endorse Keynes’s phony gold standard, he resigned rather than do so. That act of courage and principle exemplifies his whole life.
It’s possible for a student of economics to go all the way through graduate school without once hearing the name William H. Hutt. Yet his scholarship, bravery, and dogged adherence to economic truth make him a hero.
Hutt, now a visiting professor at the University of Dallas, has labored quietly and with little acclaim for more than 60 years. He is responsible for major breakthroughs in economic theory, a dozen books, and hundreds of articles. Among his most important works are the Theory of Collective Bargaining (1930), Economists and the Public (1936), Economics of the Colour Bar (1964), The Strike-Threat System (1973), and A Rehabilitation of Say’s Law (1975).
Born in 1899, Hutt graduated from the London School of Economics. He published his first major academic article in 1926, refuting the charge that the Industrial Revolution impoverished workers, when in fact it raised their standard of living dramatically. He went on to become the great defender of working people and scholarly opponent of their enemy: labor unions.
Many books had been written about labor unions, usually from a leftist perspective, yet no comprehensive theory of collective bargaining had ever been advanced. Hutt did this while teaching at South Africa’s University of Cape Town. In his The Theory of Collective Bargaining, which Ludwig von Mises called “brilliant,” Hutt exploded the still-common myth that the interests of labor and management naturally clash, a disguised version of Karl Marx’s theory of exploitation. On the contrary, Hutt said, the free market brings harmony. Only government intervention — such as laws favoring labor unions against employers and non-union workers — creates conflict.
Hutt also proved that collective bargaining and other union activities depress wages for non-union workers and the poor. He showed how much better off all countries would be if government-sponsored union activities were banned.
Unlike “liberals” and socialists, Hutt recognized that unionization’s equal wage structure is destructive. Paying everyone the same, regardless of contribution, destroys the incentive to improve. He is also an articulate opponent of the violence endemic to unions, and he has shown that it is necessarily an integral part of their functioning. These ideas, of course, did not sell well in the 1930s. But that never hindered Hutt. He took on another statist idol: J.M. Keynes. While Hazlitt was fighting Keynesianism in the United States, Hutt did the same in the British world.
Economists and the Public was published in the same year as Keynes’s General Theory 1936. Hutt’s book was already in page proofs when Keynes’s book appeared, but he inserted a warning about the dangers of Keynesianism. In the book, Hutt sought to explain why the obviously superior free market was under attack, and why economists were held in such disrepute. The problem, he stated, was that neither economists nor the public understood the nature and effect of competition, and that only unfettered competition protects the general interest against the government and its interests. In “An Interview with W.H. Hutt,” Hutt said that far from being a destructive force, competition is the “sole principle of coordination in a complex world” and the greatest liberator of the poor, a class which Marxists and Keynesians claim to love, but succeed only in increasing.
In the late 1930s Hutt also unveiled his concept of “consumer sovereignty,” which influenced Ludwig von Mises. In the free market, Hutt said, consumers have the right to buy or not to buy, and therefore producers play a subservient role. The only path to success in a free market is for the producer to serve the consumer. In a statist economy, consumers have no voice, producers don’t know what to produce, and pleasing politicians becomes the road to riches.
In 1939, Hutt delivered another blow to Keynesianism with the Theory of Idle Resources, which exploded Keynes’s theory of unemployment. Keynes had entirely misunderstood how economic resources are allocated. Hutt showed that a resource like labor can be idle only through government intervention that raises its price higher than the community can afford, in light of other demands. This is why minimum wages and unions are so destructive: they inhibit flexibility in the price of labor. With completely free labor markets (i.e., without government intervention or union control), all unemployment is voluntary.
Perhaps a laborer wants to use time searching for another job, or he is holding out for a higher wage. To say that unemployment in free labor markets is not voluntary, Hutt conclusively showed, is to say that all human wants are satisfied, which is to deny that scarcity exists. With this observation, Hutt destroyed the rationale for macro-managing labor policy, and for any government programs to “save jobs.”
Not satisfied with attacking Keynesianism, in 1964 Hutt wrote the first detailed critique of South Africa’s racial apartheid in the Economics of the Colour Bar, criticizing the South African government’s pro-labor-union socialism and interventionism as giving an opening to Communism. Unless the market were freed from state intervention, he showed, there would be bloodshed and a destruction of freedom for everyone. He pleaded for blacks to be given a chance to own their own businesses, and to seek and hold any jobs they were capable of holding, without state discrimination.
Hutt showed that South Africa’s economic apartheid was designed largely to protect white labor union members from black competition. The free market, he said, offers the only hope to minorities and the disadvantaged, and for a free society in South Africa. Government controls benefit only loot-seeking special interests. The Economics of the Colour Bar — which anticipated Walter Williams’s analysis of race and government — is a triumph of the union of theory and policy. This is something most economists shun as “unscholarly.” But Hutt makes no secret of his desire to influence public opinion toward laissez-faire. For this, he was banned from working in South Africa.
As Ludwig von Mises wrote, W.H. Hutt “rank[s] among the outstanding economists of our age.” That he is not ranked as such by the mainstream shows only its deficiencies; it in no way detracts from his magnificent achievements and courage.
Murray N. Rothbard
Ludwig von Mises was the greatest economist and defender of liberty in the twentieth century. In scholarship and in passion for freedom, his rightful heir is Murray N. Rothbard.
Rothbard was born in New York City in 1926. He received his Ph.D. from Columbia University, and studied for more than 10 years under Mises at New York University. However, his degree was delayed for years, and he came close to not receiving it at all, because of the unprecedented intervention of a faculty member.
Rothbard’s dissertation — The Panic of 1819 — showed how the Bank of the United States, the Federal Reserve’s ancestor, caused the first American depression. This offended Professor Arthur Burns, later chairman of the Federal Reserve under Nixon, who was horrified by Rothbard’s anti-central bank and pro-gold standard position.
Rothbard eventually got his Ph.D., and he began writing for the libertarian Volker Fund in New York. Like his great teacher Mises, Rothbard’s views prevented him from getting a teaching position at a major American university. Finally he was hired by Brooklyn Polytechnic, an engineering school with no economics majors, where his department consisted of Keynesians and Marxists.
He worked there, in a dark and dingy basement office, until 1986, when — thanks to free-market businessman S.J. Hall — he was offered a distinguished professorship of economics at the University of Nevada, Las Vegas.
But this lack of a prestigious academic base did not prevent Rothbard, any more than it had Hazlitt, Hutt, or Mises, from reaching a wide audience of scholars, students, and the general public. Rothbard is the author of hundreds of pathbreaking scholarly articles and 16 books, including Man, Economy, and State (1962), America’s Great Depression (1963), Power and Market (1970), For a New Liberty (1973), Conceived in Liberty (1976), The Ethics of Liberty (1982), and The Mystery of Banking (1983) [PDF].
In America’s Great Depression, an authoritative revisionist history of that economic debacle, Rothbard uses Austrian trade-cycle theory to show that Federal Reserve inflation created the boom of the twenties and the bust of the thirties. Continued assaults on the market from Hoover and FDR — in the form of plant-closing laws, taxation, agricultural intervention, price controls, et al. — prevented a liquidation of malinvestments made during the boom, and prolonged and deepened the depression. This book also contains the clearest and most convincing explanation of the Austrian theory of the trade cycle for students. Both The Panic of 1819 and America’s Great Depression use theoretical tools drawn from the great tradition of Austrian economics, including Carl Menger’s theory of the development of monetary institutions, Eugen von Boeöhm-Bawerk’s theory of capital and the time-preference theory of interest, and Mises’s methodology and trade cycle theory. Rothbard solved several theoretical problems in each, and wove them together to create a formal praxeological model. He succeeded not only in explaining cyclical fluctuations caused by central bank intervention, but also in making the case for the gold coin standard, no central bank, 100% reserves, and laissez-faire.
After Rothbard’s masterful integration, economists can no longer dismiss recessions and depressions as an “inevitable” part of the market economy. Instead, it is clear, they are caused by central bank inflation, and the corresponding distortion of interest rates, malinvestment of capital, theft of savings, and price increases that go with it. Government, of which the central bank is only an arm, is the real source of business cycles.
Though it is still practiced almost universally within neoclassical industrial organization and price theory, Rothbard refuted the fallacy of separating monopoly prices from competitive prices. The distinction between the two only exists in the world of neoclassical pricing models, where businessmen charge higher and higher prices in the inelastic portion of the consumers’ demand curve. But these static models have nothing to do with the dynamic market process. Rothbard showed that a free economy has only one kind of price: the free-market price, thus destroying the entire neo-classical and Keynesian justification of anti-trust policy.
Monopolies do exist, Rothbard shows, but only when government erects a barrier to entry into the market by granting some firm or industry a special privilege. The real monopolies included are admitted ones like the Post Office, somewhat obscured ones like electric power companies, and worst of all, the least-questioned one, the Federal Reserve.
In 1956, Rothbard made the first formidable advance in the field of utility and welfare since the marginal revolution in the 1870s with his article “Toward a Reconstruction of Utility and Welfare.” Building on Menger’s work, he showed that utility is something that we can know only by observing individual preferences revealed through human action. Utility, a strictly ordinal and subjective concept, cannot be aggregated, and thus there can be no total utility. This insight removes the foundation from most modern utility and social welfare theory, which, although disguised, usually relies on interpersonal comparisons of subjective utility.
Not only does Rothbard’s advance affect the pure theory of utility and welfare, but also the policies so often justified by neoclassical welfare models: redistribution of wealth, progressive taxation, and state planning. When individuals are free to trade and demonstrate their subjective preferences without interference from government, each party expects to benefit from the exchange or else they would not exchange in the first place. Rothbard thus deduces that free markets maximize utility and welfare, whereas government intervention, by the very fact that it is forcing people to behave in ways in which they otherwise would not, can do nothing but diminish utility and welfare.
It was this foundation that allowed Rothbard to integrate a rigorous theory of property rights with a scientific theory of economics. Today, others within the Chicago School are trying to do the same through studies in rights, ethics, and the means to utility optimization. But until they accept the theory of utility and welfare as taught by Rothbard, and ground their analysis in the pure logic of action, they will not succeed.
In his great work Man, Economy, and State, Rothbard provides a rigorous defense of economic science. It is a treatise covering the whole subject, and is the last such magnum opus. In it, clearly and logically, Rothbard deduces the whole of economics from its first principles. It is a tour-de-force unmatched in modern economics.
In his Power and Market — originally part of Man, Economy, and State — he develops a comprehensive critique of government coercion. He developed three useful categories of intervention: autistic, binary, and triangular. Autistic intervention prevents a person from exercising control over his own person or property, as with homicide or infringements on free speech. Binary intervention forces an exchange between two parties, as in highway robbery or income taxes. Finally there is triangular, in which the government forces two people to make an exchange or prohibits from doing so, as in rent control or minimum wages. He carefully outlines the bad effects of every possible intervention in the economy, refutes moral objections to the market, and develops the first and only praxeological critique of all types of taxation, showing that taxes are never neutral.
Rothbard also broke new ground in attacking government statistics. Because the government lacks the knowledge generated by the market, it must collect millions of statistics to plan the economy, which of course it is ultimately unable to do. Among Rothbard’s least favorite statistics is the “trade deficit,” which is only considered a problem because government keeps the figures. Thank goodness, he has noted, that trade statistics aren’t kept on Manhattan and Brooklyn. “Otherwise we’d hear cries from Brooklyn politicians about the dangerous trade deficit with Manhattan.”
Another statistic he dislikes is GNP. This number counts welfare payments and all other government spending as “productivity.” His own alternative, PPR or Private Product Remaining (for producers), shows a much clearer picture by subtracting government spending from the economy. He has also — with Professor Joseph Salerno — constructed an Austrian alternative to the Federal Reserve’s money supply statistics, which are constructed without regard for theoretical consistency. Not only is he a brilliant economist, he is also a master of narrative political history, as his four-volume colonial history of the United States, Conceived in Liberty, shows; and a great philosopher in the individualist tradition, as demonstrated in the Ethics of Liberty. His current project is a massive history of economic thought from an Austrian perspective that covers the ancient Greeks to the present. Judging by the chapters so far, this will be the greatest study of its kind ever written.
Rothbard is a writer of singular power, whose words fairly glisten on the page. Like Mises, he has inspired millions with his vision of the free society. In the academic world, where devotion to principle is as popular as it is in Washington, he has carried the torch of pure Misesianism.
Like Mises, these three giants exhibit extraordinary ability, courage, personal gentleness, and an unbending adherence to principle. In an age when loot-seeking is the norm among politicians — governmental and academic — Hazlitt, Hutt, and Rothbard have held high the banner of truth and freedom. They have faced immense pressure to retreat, but never wavered. Today they are still at work extending the scholarship of freedom. Despite the barriers they have faced in the past, today their influence is spreading. And it will continue to do so. In their fight for liberty and the free market, they have one asset the other side cannot match: the truth.