Did Mises believe in a Tendency to Equilibrium?

This issue is relevant to debates in the comments section of Unlearningecon’s thought-provoking post “On The Similarities Between Austrian and Neoclassical Economics”.

The answer, in my view is, yes, and the Austrian school had its own serious debates from the 1970s to early 1990s when Lachmann’s ideas on the non-existence of any tendency to general equilibrium (or what he called the kaledic economy) were starting to be taken seriously. We need only think of George A. Selgin’s Praxeology and Understanding (1990) where Lachmann’s kaleidic view is opposed to most other Austrians like Kirzner, etc.:

“Central to the current controversy in Austrian economics is the debate concerning whether or not the market harbors a tendency toward equilibrium. The skeptical position, represented by Lachmann, is that no such tendency exists. It is opposed in particular by Kirzner, who attempts to defend the more traditional, praxeological position.” (Selgin 1990: 37).

A passage in Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises is also relevant:

“Commentators in the Austrian literature have emphasized and discussed the contrast between Hayek’s view that the tendency to equilibrium is an empirical matter and Mises’s view that it follows logically from the ‘activities of enterprising men.’” (Kirzner [ed.] 1982: 88).

The passage of Mises referred to here is in Human Action:

“Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease. But the logical economist knows much more than that. He shows how the activities of enterprising men, the promoters and speculators, eager to profit from discrepancies in the price structure, tend toward [p. 356] eradicating such discrepancies and thereby also toward blotting out the sources of entrepreneurial profit and loss. He shows how this process would finally result in the establishment of the evenly rotating economy. This is the task of economic theory. The mathematical description of various states of equilibrium is mere play. The problem is the analysis of the market process.” (Mises 1998: 352-353).

So I am going to say that Mises did indeed adhere to the view that there is a strong tendency to equilibrium in the real world, even if that state never comes about.

This is exactly what Ludwig Lachmann criticised Mises and Hayek for: the view that there is a tendency towards general equilibrium, while Lachmann himself concluded that the economy is an on-going, open-ended “market process” with subjective knowledge and subjective expectations:

“Professor Hayek and Mises both espouse the market process, but do not ignore equilibrium as its final stage. The former, whose early work was clearly under the influence of the general equilibrium model, at one time appeared to regard a strong tendency towards general equilibrium as a real phenomenon of the market economy. Mises, calling the Austrians ‘logical’ and neoclassicals ‘mathematical’ economists, wrote: ‘Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease’ … It is this view of the market process as at least potentially terminating in a state of long-run general equilibrium that now appears to require revision.” (Lachmann 1976: 60).

In this, Lachmann was entirely correct, and for that (and other reasons too) he has always struck me as Austrian economist worthy of respect, even if I do not agree with him on other issues. (It is not often I defend Austrians!)

There was a time when certain moderate subjectivist Austrians saw merit in constructive mutual dialogue with Post Keynesians. I am thinking here of Gerald P. O’Driscoll and Mario J. Rizzo’s book The Economics of Time and Ignorance (Oxford, UK, 1st edn., 1985; 2nd edn. 1996), where we read:

“[i]t is evident that there is much more common ground between post-Keynesian subjectivism and Austrian subjectivism …. the possibilities for mutually advantageous interchange seem significant” (O’Driscoll and Rizzo 1985: 9).

Of course, Paul Davidson, one of the leading Post Keynesians, was not especially impressed (Davidson 1989 and 1993). “Mutually advantageous interchange” does not seem to have progressed very far since then.

BIBLIOGRAPHY

Davidson, P. 1989. “The Economics of Ignorance or Ignorance of Economics?,” Critical Review 3.3/4: 467–487.

Davidson, P. 1993. “Austrians and Post Keynesians on Economic Reality: Rejoinder to Critics,” Critical Review 7.2/3: 423–444.

Kirzner, Israel M. (ed.). 1982. Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises, Lexington Books, Gower, Lexington, Mass.

Lachmann, Ludwig M. 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14.1: 54–62.

Mises, Ludwig von. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition, Ludwig von Mises Institute, Auburn, Ala.

O’Driscoll, G. P. and M. J. Rizzo, 1996. The Economics of Time and Ignorance (2nd edn), Routledge, Oxford, UK.

Selgin, George A. 1990. Praxeology and Understanding. Ludwig von Mises Institute, Auburn, Ala.

The Horror of Rothbardian Natural Rights

Murray Rothbard adopted a natural rights ethics to justify his system of anarcho-capitalism. I have already written a post here showing the logical foundations of his ethical system are incoherent and unconvincing.

John Maynard Keynes once wrote of Hayek’s book Prices and Production:

“The book, as it stands, seems to me to be one of the most frightful muddles I have ever read, with scarcely a sound proposition in it beginning with page 45 … It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam.” (Keynes 1931: 394).

With the requisite changes, one can say that same thing about Rothbard’s ethical theory.

When judged by the standards of most other ethical theories (whose starting propositions and arguments are at least not so obviously false as natural rights), the logic of Rothbard’s theory takes him to conclusions that can only be described as moral insanity.

This can be illustrated in Rothbard’s argument for why parents should actually have the legal right not to feed their children and even kill them by starvation or neglect:

“Suppose now that the baby has been born. Then what? First, we may say that the parents-or rather the mother, who is the only certain and visible parent-as the creators of the baby become its owners. A newborn baby cannot be an existent self-owner in any sense. Therefore, either the mother or some other party or parties may be the baby’s owner, but to assert that a third party can claim his ‘ownership’ over the baby would give that person the right to seize the baby by force from its natural or ‘homesteading’ owner, its mother. The mother, then, is the natural and rightful owner of the baby, and any attempt to seize the baby by force is an invasion of her property right.

But surely the mother or parents may not receive the ownership of the child in absolute fee simple, because that would imply the bizarre state of affairs that a fifty-year old adult would be subject to the absolute and unquestioned jurisdiction of his seventy-year-old parent. So the parental property right must be limited in time. But it also must be limited in kind, for it surely would be grotesque for a libertarian who believes in the right of self-ownership to advocate the right of a parent to murder or torture his or her children. We must therefore state that, even from birth, the parental ownership is not absolute but of a ‘trustee’ or guardianship kind. In short, every baby as soon as it is born and is therefore no longer contained within his
mother’s body possesses the right of self-ownership by virtue of being a separate entity and a potential adult. It must therefore be illegal and a violation of the child’s rights for a parent to aggress against his person by mutilating, torturing, murdering him, etc. On the other hand, the very concept of ‘rights’ is a ‘negative’ one, demarcating the areas of a person’s action that no man may properly interfere with. No man can therefore have a ‘right’ to compel someone to do a positive act, for in that case the compulsion violates the right of person or property of the individual being coerced. Thus, we may say that a man has a right to his property (i.e., a right not to have his property invaded), but we cannot say that anyone has a ‘right’ to a ‘living wage,’ for that would mean that someone would be coerced into providing him with such a wage, and that would violate the property rights of the people being coerced. As a corollary this means that, in the free society, no man may be saddled with the legal obligation to do anything for another, since that would invade the former’s rights; the only legal obligation one man has to another is to respect the other man’s rights.

Applying our theory to parents and children, this means that a parent does not have the right to aggress against his children, but also that the parent should not have a legal obligation to feed, clothe, or educate his children, since such obligations would entail positive acts coerced upon the parent and depriving the parent of his rights. The parent therefore may not murder or mutilate his child, and the law properly outlaws a parent from doing so. But the parent should have the legal right not to feed the child, i.e., to allow it to die. The law, therefore, may not properly compel the parent to feed a child or to keep it alive. (Again, whether or not a parent has a moral rather than a legally enforceable obligation to keep his child alive is a completely separate question.) This rule allows us to solve such vexing questions as: should a parent have the right to allow a deformed baby to die (e.g. by not feeding it)? The answer is of course yes, following a fortiori from the larger right to allow any baby, whether deformed or not, to die. (Though, as we shall see below, in a libertarian society the existence of a free baby market will bring such ‘neglect’ down to a minimum.)” (Rothbard 1998: 99–101).

Even as it stands the argument is blatantly unsound:

(1) Rothbard contradicts himself by asserting that a newborn “cannot be an existent self-owner in any sense,” yet arguing in the very next paragraph that every newborn “is therefore no longer contained within his mother’s body possesses the right of self-ownership by virtue of being a separate entity and a potential adult.” Thus the parents’ “ownership is not absolute.” It beggars belief that Rothbard can accept that no child can be killed by active attack, but at the same time can be killed by passive neglect.

(2) According to Rothbard, even though the parents “own” their children in some limited way, they have the legal right to not feed it, and hence kill it by starvation. Rothbard attempts to justify this by appealing to negative rights:

“the very concept of ‘rights’ is a ‘negative’ one, demarcating the areas of a person’s action that no man may properly interfere with. No man can therefore have a ‘right’ to compel someone to do a positive act, for in that case the compulsion violates the right of person or property of the individual being coerced. Thus, we may say that a man has a right to his property (i.e., a right not to have his property invaded), but we cannot say that anyone has a ‘right’ to a ‘living wage,’ for that would mean that someone would be coerced into providing him with such a wage, and that would violate the property rights of the people being coerced. As a corollary this means that, in the free society, no man may be saddled with the legal obligation to do anything for another, since that would invade the former's rights; the only legal obligation one man has to another is to respect the other man’s rights.”

Yet this argument blatantly contradicts Rothbard’s argument elsewhere that creation of fiduciary media (debt money such as fractional reserve banknotes) and use of this as money is not moral, because others suffer the effects of inflation and loss of purchasing power. Yet private transactions in which parties freely and voluntary create and use debt money must be regarded as moral by Rothbard’s own argument here: whatever effects free transactions using debt money have on others’ through inflation is not an argument for banning debt money, for “no man may be saddled with the legal obligation to do anything for another, since that would invade the former’s rights.” Thus Rothbard’s contention that only negative rights must be respected is not even a consistent position in his own work.

It is quite apparent that the Rothbardian moral world is a grotesque, vile and cruel landscape, affording no protection to the most helpless human beings from irresponsible parents. This is a world where parents who are mentally ill, psychopathic or pathologically cruel can kill their children at will, albeit passively by withdrawal of care.

It also raises other issues: if parents have a legal right to withhold food from a newborn child in Rothbard’s mad world, then what about a crippled adult child? If my 40 year old son is a quadriplegic, lives with me and is dependent on me, with no other person to support him, do I as a parent have the legal right to kill him by withholding food or care? Even when he is capable of clearly saying he does not wish to die? If not, why not?

Logically, it appears Rothbard is equally committed to the legal right of parents to kill mentally or physically disabled adult children as well: and, at that point, Rothbard’s world would allow “private sector” groups of humans who, as in Nazi Germany, practise euthanasia of the disabled, even when the disabled vehemently object to being killed.

For most people this is proof enough of the moral bankruptcy both of Rothbard and his natural rights theory, and it is difficult not to agree. (I also direct readers to a fine article by Gene Callahan called “Liberty versus Libertarianism” [2012] that discusses this passage on pp. 8–9.)

As Keynes said of Hayek, one could also say that this is also a perfect example of how Rothbard, starting with flawed assumptions, himself ends up in utter Bedlam.

UPDATE
I also recommend another post on this blog on Rothbard’s family ethics:

“Libertarian Ethics in a Family Way,” February 24, 2012.

BIBLIOGRAPHY

Callahan, G. 2012. “Liberty versus Libertarianism,” Politics, Philosophy, and Economics (published online before print February 5, 2012): 1–20.

Keynes, J. M. 1931. “The Pure Theory of Money. A Reply to Dr. Hayek,” Economica 34 (November): 387–397.

Rothbard, M. N. 1998. The Ethics of Liberty, New York University Press, New York, N.Y. and London.