Austrian Economics Newsletter

Summer 1991 • The Ludwig von Mises Institute

The Antitrust Economists'

Paradox

By Thomas J. DiLorenzo

Today regulation is generally recognized as amechanism by which special interests lobby the

government to create barriers to entry or other special privileges. Research has shown, for example,that the Civil Aeronautics Board cartelized the air

line industry, the Interstate Commerce Commissionhelped monopolize the railroad and the trucking industries, the Federal Deposit Insurance Corporationsharply limited entry into the banking business, andoccupational licensing created entry barriers intohundreds of occupations. Much of the history of regulation chronicles monopoly privileges procuredthrough the auspices of the state, as Adam Smithpointed out more than 200 years ago in The Wealth ofNations.

Oddly, antitrust regulation is still widely viewedas government's benevolent response to the "failures"and "imperfections" of the marketplace. Even economists who are usually skeptical of regulations enactedin the name of the public interest seem to lose theirperspective when it comes to antitrust. George Stigler,for example, has stated: "So far as I can tell, [theSherman Actl is a public-interest law ... in the samesense in which I think having private property, enforcement of contracts, and suppression of crime are public-interest phenomena. ... I like the Sherman Act."1

A 1984 survey of professional economists revealedthat 83 percent of the respondents believed that "antitrust laws should be used vigorously to reduce monopoly power from its current level."2 This opinion iswidespread despite common knowledge among antitrust scholars that in practice the antitrust lawsrestrain output and the growth of productivity havecontributed to a deterioration of the competitive position of U.S. industry, and are routinely used tosubvert competition.

Why then do the antitrust laws continue to command such powerful support among economists andlegal scholars when the pervasive failures are so wellknown? There are several possible explanations. Anti-

Thomas J. DiLorenzo

trust consultants and expert witnesses often stand tomake a good deal of money, so financial self-interestmay preclude criticism of antitrust. Many economistsare also unable to voice informed opinions on antitrust.If it is not their area of expertise, they may not havekept up with research over the past 30 years, or excessive concentration on mathematical models may haveleft some economists somewhat detached from economic reality. Finally, it is widely believed that therewas once a "golden age of antitrust" during whichthe public was protected from rapacious monopolistsby benevolent public servants. According to this perspective, although mistakes have been made, moreknowledgeable and public-spirited regulators can

INSIDE

An Interview with Leland B. Yeager 6Jack Wiseman (1919-1991) 10

Economics Rankings: A Survey 11Conferences and Conventions 13

Book Bite 16

successfully reform antitrust. Once reformed, antitrust policy can then perform its original purpose anddefend competition and free enterprise.

Unfortunately, the Sherman Act was never intended to protect competition. It was a blatantlyprotectionist act designed to shield smaller and lessefficient businesses from their larger competitors.There never was a golden age of antitrust. The standard account of the origins of antitrust is a myth.

Interest Group Politicsand the Sherman Act

In the late 1880s, widespread economic changeproduced myriad pleas from relatively small—butpolitically active—farmers who sought protectionfrom larger, corporate competitors. Historian SanfordGordon offered an example: "Perhaps the most violent reaction [against industrial combinations] of anysingle special interest group came from farmers. ...They singled out the jute bagging and alleged bindertwine trust, and sent petitions to both their statelegislators and to Congress demanding some relief.Cotton was suggested as a good substitute for jute tocover their cotton bales. In Georgia, Mississippi, andTennessee the [farmers'] alliances passed resolutionscondemning the jute bagging trust and recommendedthe use of cotton cloth."3

Southern farmers were annoyed that consumersincreasingly preferred jute to the cotton cloth theyproduced, and they sought antitrust legislation thatwould dissolve their competition. Such special-interest behavior was characteristic of the farm lobby.During the 51st Congress, Gordon notes that "64petitions and memorials were recorded in the Congressional Record, all calling for action against combinations. These were almost* exclusively from farmgroups The greatest vehemence was expressed byrepresentatives from the Midwest."4

Farmers complained to their national representatives that the products they bought from the trustwere increasingly expensive relative to the prices offarm products, but the facts do not support this contention. From 1865 to 1900 farm prices were falling,

Thomas J. DiLorenzo holds the Probasco Chair for

Free Enterprise at the University of Tennessee.Chattanooga.

Peter G. Klein is a graduate student in economicsat the University of California, Berkeley, a Mlsesfellow, and assistant editor of the AEN.

Alexander Tabarrok is a graduate student in economics at George Mason University. Mises a fellow,and correspondent of the AEN.

but at a slower rate than the general price level. Thisproduced real income gains for farmers. In addition,the rapidly increasing quality of manufactured goodsfurther improved the farmers' standard of living. Thevolatility of farm prices caused the farmers to bepolitically active.

Many other groups joined the antitrust coalition—small business organizations, academics (though noteconomists), and journalists. They argued that the"giant monopolies" were creating a "dangerous concentration of wealth" among the capitalists of the day.Although the conspicuous wealth of entrepreneurssuch as Rockefeller, Vanderbilt, Mellon, and Morgan added fuel to this charge, it does not appear tobe true. In fact, economic historians have concludedthat from 1840 to 1900, the division of nationalincome between labor and property owners (capitaland natural resource suppliers) remained in a 70-to-30 ratio.5 Over the same time span, both capital anddeveloped natural resources increased faster thanthe labor force. This means that labor income per unitof labor rose compared with profit and interest perunit of property input.

Although there was no significant redistributionof wealth from labor to capital owners in the aggregate, competitive markets always alter the distribution of income in ways that some do not like. Therewas no "dangerous concentration of wealth," butmany supporters of antitrust legislation found thattheir own income had fallen (or not increased rapidlyenough). The push for antitrust legislation was anattempt to use the powers of the government to improve their economic status.

Economic conditions were changing rapidly in thelatter part of the nineteenth century. Expansion ofthe railroad and inland shipping industries greatlyreduced the cost of transportation. Technologicaldevelopments led to large-scale (and lower-cost) production of steel, cement, and other goods. Communications technology rapidly expanded, especially theuse of the telegraph. And the capital markets becamemore sophisticated. The United States also underwent a rapid transition from a predominantly agrarian to an industrial society. In 1810 the ration of farmto non-farm labor was approximately 4.0. This ratiofell to 1.6 by 1840, and by 1880 the labor force wasabout equally divided between farm and non-farmendeavors. Meanwhile, individuals and groups uncomfortable with rapid change were becoming increasingly adept at using the regulatory powers of thestate. In this increasingly mercantilist atmosphere,the Sherman Act was passed in 1890.

Were the Trusts Monopolistic?

In introducing federal "antitrust" legislation,Sen. Sherman and his congressional allies claimedthat combinations or trusts tended to restrict outputand thus drive up prices. If Sherman's claims were

true, then there should be evidence that those industries allegedly being monopolized by the trusts hadrestricted output. By contrast, if the trust movementwas part of the evolutionary process of competitivemarkets responding to technological change, onewould expect an expansion of trade or output. In fact,there is no evidence that trusts in the 1880s were

restricting output or artificially increasing prices.

The Congressional Record of the 51st Congressprovides a list of industries that were supposedlybeing monopolized by the trusts. Those industries forwhich data are available are salt, petroleum, zinc,steel, bituminous coal, steel rails, sugar, lead, liquor,twine, iron nuts and washers, jute, castor oil, cottonseed oil, leather, linseed oil, and matches. The available data are incomplete, but in all but two of the 17industries, output increased—not only from 1880 to1890,but also to the turn ofthe century.6Matches andcastor oil, the only exceptions to the general rule,hardly seem to be items that would cause a nationalfuror, even if they were monopolized.

As a general rule, output in these industries expanded more rapidly than GNP during the 10 yearspreceding the Sherman Act. In the nine industries forwhich nominal output data are available, output increased on average by 62 percent; nominal GNP increased by 16 percent over the same period. Severalof the industries expanded output by more than 10times the increase in nominal GNP. Among the morerapidly expanding industries were cottonseed oil (151percent), leather goods (133 percent), cordage andtwine (166 percent), and jute (57 percent).

Real GNP increased by approximately 24 percentfrom 1880 to 1890. Meanwhile, the allegedly monopolized industries for which a measure of real outputis available grew on average by 175 percent. The morerapidly expanding industries in real terms includedsteel (258 percent), zinc (156 percent), coal (153 percent), steel rails (142 percent), petroleum (79 percent), and sugar (75 percent).

These trends continued from 1890 to 1900 asoutput expanded in every industry but one for whichwe have data. (Castor oil was the exception.) Onaverage, the allegedly monopolized industries continued to expand faster than the rest of the economy.Those industries for which nominal data are available expanded output by 99 percent, while nominalGNP increased by 43 percent. The industries forwhich we have data increased real output by 76 percent compared with a 46 percent increase in real GNPfrom 1890 to 1900.

As with measures of output, not all of the relevantprice data are available, but the information that isat hand indicates that falling prices accompanied therapid expansion ofoutput in the "monopolized" industries. In addition, although the consumer price indexfell by 7 percent from 1880 to 1890,prices in many ofthe suspect industries were falling even faster.

The average price of steel rails, for example, fellby 53 percent from $68 per ton in 1880 to $32 per tonin 1890. The price of refined sugar fell from 9 centsper pound in 1880, to 7 cents in 1890, to 4.5 cents in1900. The price oflead dropped 12 percent, from $5.04per pound in 1880 to $4.41 in 1890. The price of zincdeclined by 20 percent, from $5.51 to $4.40 per poundfrom 1880 to 1890.

One function of the Sherman Act wasto divert attention from a more certain

source of monopoly—government.

The sugar and petroleum trusts were among themost widely attacked, but there is evidence that thesetrusts actually reduced prices from what they otherwise would have been. Congress clearly recognizedthis. Duringthe House debates over the Sherman Act,Congressman William Mason stated, "Trusts havemade products cheaper, have reducedprices', but iftheprice of oil, for instance, were reduced to one cent abarrel, it would not right the wrong done to the peopleof this country by the 'trusts' which have destroyedlegitimate competition and driven honest men fromlegitimate business enterprises."7 Sen. Edwards, whoplayed a key role in the debate, added, "Although forthe time being the sugar trust has perhaps reducedthe price of sugar, and the oil trust certainly hasreduced the price ofoil immensely, that does not alterthe wrong of the principle of any trust."8 Perhaps itwould be more accurate to describe the Sherman Actas an anti-price-cutting law.

One final argument could be made that the trustswere practicing predatory pricing, that is, that theywere pricing below their costs to drive out competitors. But in more than a century of looking for aproven real-world monopoly actually created by predatory pricing, an example has yet to be found. Moreover, prices charged by the nineteenth-century trustscontinued to fall for more than a decade. What rational businessman would continue to price below costfor more than ten years?

In sum, the nineteenth-century trusts were notguilty of the charge levied against them by Sen.Sherman. There is no consistent evidence that theyrestricted output to raise prices.

Government:The True Source of Monopoly

It appears that one function ofthe Sherman Act wasto divert public attention from a more certain sourceof monopoly—government. In the late nineteenth

century, tariffs were a major source of trade restraints, but the Sherman Act made no provision forattacking tariffs or any other government-createdbarriers to competitive entry. In fact, evidence existsthat a major political function of the Sherman Act wasto serve as a smoke screen behind which politicianscould grant tariff protection to their big businessconstituents while assuring the public that something was being done about the monopoly problem.

In a particularly revealing statement during thedebates over the antitrust act, Sen. Sherman attacked the trusts on the ground that they "subvertedthe tariff system; they undermined the policy of government to protect... American industries by levyingduties on imported goods."9 This is certainly an oddstatement from the author of the "Magna Carta offree enterprise." But increased output and reducedprices in these increasingly efficient industries apparently dissipated the monopoly profits previouslygenerated by the tariffs. This worked against theobjectives of the protected industries and their legislative champions, including Sen. Sherman.

Even more damning is the fact that just threemonths after the Sherman Act was passed, Sen. Sherman, as chairman of the Senate Finance Committee,sponsored legislation popularly known as the "Campaign Contributors' Tariff Bill" that sharply raisedtariff rates. On October 1,1890, the New York Timesreported: "The Campaign Contributors' Tariff Billnow goes to the president for his signature, which willspeedily be affixed to it, and the favored manufacturers, many of whom ... proposed and made the [tariff]rates which affect their products, will begin to enjoythe profits of this legislation."

The New York Times further reported that "thespeech of Mr. Sherman on Monday [September 29,1890] should not be overlooked, for it was one ofconfession." Apparently, Sen. Sherman withdrew hisspeech from the Congressional Record for "revision,"but a reporter obtained an unabridged copy of theoriginal. The New York Times reported: "We direct attention to those passages [of Sherman's speech] relating to combinations of protected manufacturersdesigned to take full advantage of high tariff dutiesby exacting from consumers prices fixed by agreement after competition has been suppressed.... Mr.Sherman closed his speech with some words ofwarning and advice to the beneficiaries of the new tariff.He was earnest enough in his manner to indicatethat he is not at all confident as to the outcome ofthe law. The great thing that stood in the way of thesuccess of the bill, he said, was whether or not themanufacturers of this country would permit free competition in the American market. The danger was thatthe beneficiaries ofthe bill would combine and cheat thepeople out of the benefits of the law. They were nowgiven reasonable and ample protection, and if theywould resist the temptation attaching to great aggre

gations of capital to combine and advance prices, theymight hope for a season of great prosperity.... He didhope, the Senator concluded, that the manufacturerswould open the doors to fair competition and give itsbenefits to the people.... He hoped the manufacturers would agree to compete one with another andwould refuse to take the high prices that are so easilyobtained."

It was absurd, of course, for Sen. Sherman to saythat a protective tariffwould actually help consumersifonly manufacturers could be trusted to refrain fromraising prices. The whole purpose of tariff protectionis to allow domestic manufacturers to raise prices, orat least to avoid reducing them. Such hypocrisy ledthe New York Times to withdraw its support of antitrust legislation. The Times concluded: "That so-called Anti-Trust law was passed to deceive thepeople and to clear the way for the enactment of this... law relating to the tariff. It was projected in orderthat the parly organs might say to the opponents oftariff extortion and protected combinations, 'Behold!We have attacked the Trusts. The Republican party isthe enemy of all such rings.' And now the author of itcan only Tiope' that the rings will dissolve of their ownaccord." Thus, the Sherman Act seems to have beenpassed to help draw public attention away from theprocess of monopolization through tariff protection.

The Sherman Act won legislators votes and campaign contributions from farmers and small businessmen who thought antitrust regulation would protectthem from their more efficient competitors, and thetariff bill was supported by all U.S. manufacturers,both large and small. In a political sense, then, theSherman Act was very efficient. Congress itselfseemsto have been one of the principal special-interestgroups to benefit from antitrust legislation.

Economists and the Emergenceof Antitrust

Although most economists today favor stricterantitrust regulation, from the 1880s until the 1920sthe economics profession expressed nearly unanimous opposition to antitrust. When Sanford Gordonsurveyed professional journals in the social sciencesand articles and books written by economists before1890, he found, "A big majority of the economistsconceded that the combination movement was to beexpected, that high fixed costs made large-scale enterprises economical, that competition under thesenew circumstances frequently resulted in cut-throatcompetition, that agreements among producers wasa natural consequence, and the stability of pricesusually brought more benefit than harm to the society. They seemed to reject the idea that competitionwas declining,or showed no fear of decline."10

George Stigler has also noted economists' initialdisapproval of antitrust: "For much too long a timestudents of the history of antitrust policy have been

at least mildly perplexed by the coolness with whichAmerican economists greeted the Sherman Act. Wasnot the nineteenth century the period in which thebenevolent effects of competition were most widelyextolled? Should not a profession praise a Congresswhich seeks to legislate its textbook assumptions intopractice?"11 Stigler offered three possible explanations.First, economists did not appreciate the importance oftacit collusion. Second, they had too much confidence inother forms of regulation as a means of dealing withmonopoly. Third, they underestimated the incomethey would receive as antitrust consultants.

Once the economics professionembraced the "perfect" competi

tion theory, it also embraced antitrust regulation.

These explanations are plausible, but there maybe an even more important reason for the transformation of economists' attitudes toward antitrust. Inthe late nineteenth century most economists viewedcompetition as a dynamic, rivalrous process, similarto the theory of competition embodied in the work ofAdam Smith and today's Austrian economists. Consequently, they tended to regard mergers as a naturalconsequence of the competitive struggle and notsomething that should be interfered with by antitrustlegislation.12 Although some industries were becoming more concentrated in the late nineteenth century,rivalry was still as strong as ever, as the rapid expansion of output and the decline in prices attest. Thus,the economists of the time saw no reason to interferein market processes with antitrust regulation.

Beginning in the 1920s, mathematical economistsdeveloped the so-called perfect competition model,and it replaced the older theory. To economists competition no longer meant rivalry and enterprise. Instead, it meant the equation of price and marginalcost. Most important, it meant that there must be"many" firms in "unconcentrated" industries. Onceeconomists began to define competition in terms ofmarket structure, they became more and more enamored with antitrust regulation as a way of forcing thebusiness world to conform to their admittedly unrealistic theory of competition.

Economist Paul McNulty has noted: "The two concepts [of competition] are not only different; they arefundamentally incompatible. Competition came tomean, with the mathematical economists, a hypotheti-cally realized situation in which business rivalry . . .was ruled out by definition."13 F.A. Hayek has madean

even stronger statement: "What the theory of perfectcompetition discusses has little claim to be called'competition' at all and... its conclusions are of little useas guides to policy."14 Moreover, wrote Hayek, "If thestate of affairs assumed by the theory of perfect competition everexisted, itwould not only deprive oftheir scopeall the activities which the verb 'to compete'describesbutwould make them virtually impossible."15 Advertising,product differentiation, and price undercutting, for example, are all excluded by definition from a state of"perfect" competition which, according to Hayek, "meansindeed the absence of all competitive activities."

Those economists who use market structure tomeasure competition are likely to have a favorableattitude toward antitrust regulation. Stigler assertedmore than 30 years ago, "One of the assumptions ofperfect competition is the existence of a ShermanAct."16 To the nineteenth-century economists, however, an antitrust law was incompatible with rivalryand free enterprise. The perfect competition modeland its corollary, the structure-conduct-performanceparadigm of industrial organization theory, have seriously misled the economics profession, at least asfar as antitrust policy is concerned.

Conclusion

The two principal reasons for the "antitrusteconomists' paradox," then, are the lack of historicalknowledge—particularly about actual economicevents in the late nineteenth century—and the failure to appreciate that competition is best viewed asa dynamic discovery procedure, as Hayek contends.Economists who believe that there was once a "goldenage of antitrust" have never produced any evidence ofsuch an age. As this paper has shown, the ShermanAct was a tool used to regulate some of the mostcompetitive industries in America, which were rapidly expanding their output and reducing their prices,much to the dismay of their less efficient (but politically influential) competitors. The Sherman Act,moreover, was used as a political fig leaf to shield thereal cause of monopoly in the late 1880s—protectionism. The chief sponsor of the 1890 tariff bill, passedjust three months after the Sherman Act, was noneother than Sen. Sherman himself.

In the late nineteenth century most economistsviewed competition as a dynamic, rivalrous process,much like the contemporary Austrian theory. Accordingly, they nearly unanimously opposed antitrust on the grounds that such a law would beinherently incompatible with rivalry. Once the economics profession embraced the "perfect" competition theory which, as Hayek has said, means "theabsence of all competitive activities," it also embracedantitrust regulation. For once competition came tomean "many" firms and the equation of price tomarginal costs, rather than dynamic rivalry, mosteconomists became convinced that antitrust laws were

needed to force markets in the direction of their idealized model of "perfect" competition. Consequently, antitrust has for over a century been a tremendous dragon competition, rendering American industry lessproductive and less competitive in world markets.Robert Bork might not have been exaggeratingwhen, writing in his book, The Antitrust Paradox, heremarked that ifgovernment were to somehow force theeconomy into "competitive equilibrium," it would haveapproximately the same effect on personal wealth asseveral strategically placed nuclear explosions.

Quoted in Thomas Hazlett, "Interview With George Stigler,"Reason (January 1984): 46.

Bruno Frey, et al., "Consensus and Dissention Among Economists," American Economic Review (May 1984): 986-94.

3Sanford Gordon, "Attitudes Toward the Trusts Prior to theSherman Act," Southern Economic Journal (July 1963): 158.

4Ibid., p. 162.R. Gray, and J. Peterson, Economic Development in the United

States (New York: Irwin, 1965).

An Interview

with Leland B. Yeager

Leland B. Yeager is professor of economicsat Auburn University.

Q: Throughout your career as an economist, youhave shown interest in social ethics.

A: I don't see anything peculiar about economistsbeing interested in ethics. The two fields overlap.Both are concerned with how people can functiontogether in society without central direction. Somehow, they pursue their own interests and serve thoseof others at the same time.

Q: And your interest is utilitarianism.

A: That's right. Among many classical liberals,utilitarianism is a bad word. Many don't understandwhat it means. Utilitarianism comes in different va

rieties. Mises and Henry Hazlitt, both utilitarians,are on the same wavelength, as was David Hume,who inspired F.A. Hayek.

No sensible version of utilitarianism relies on

interpersonal comparisons of utility. Hume, Mises,Hazlitt, and Hayek did not make interpersonal comparisons. Bentham, I suppose, did sometimes, notalways, write as if he imagined they were possible.The same can be said of Edgeworth in MathematicalPsychics. He seemed to conceive—either as an expository device or even seriously—of drawing up an aggregate utility function.

Q: But how can utilitarianism protect the minority against the majority?

The following discussion is based on Thomas J. DiLorenzo, 'TheOrigins of Antitrust: An Interest-Group Perspective," InternationalReview of Law and Economics (June 1985).

Congressional Record, 51st Congress, House, 1st Session (June20, 1890), p. 4100; emphasis added.

Ibid., p. 2558; emphasis added.

9Ibid., p. 4100.

10Sanford Gordon, "Attitudes Toward the Trusts," p. 158.

George Stigler, "The Economists and the Problem of Monopoly," American Economic Review (May 1982): 1.

12The following discussion is based onThomasJ. DiLorenzo andJack C. High, "Antitrust and Competition, Historically Considered," Economic Inquiry (Summer 1988).

' Paul McNulty, "A Note on the History of Perfect Competition,"•Journal of Political Economy (August 1967): 398.

,4F. A. Hayek, "The Meaning of Competition," in F. A. Hayek,Individualism and Economic Order (Chicago: University of Chicago Press, 1948), p. 92.

15Ibid.

16George Stigler, "Perfect Competition, Historically Contemplated," Journal of Political Economy (February 1957): 1. •

A: It is a standard caricature that it cannot. MurrayRothbard takes this position. But if we go back toChapter 5 in Mill's Utilitarianism, the one dealingwith justice, we read that justice is a name for thatset of rules and principles guiding our institutionsand behavior which are of utmost importance tohuman happiness. If we set aside justice to give athrill to Rothbard's majority—the people who gettheir kicks from torturing redheads—then we aresetting aside rules and principles that are vital to adecent society and therefore to human happiness.

This notion of overriding minority rights to amusethe majority is a caricature version of utilitarianism.Respect for minority rights is essential to a decentsociety. Any reasonable version of utilitarianismtakes a longer view, considering how a good societycan be sustained. It is not preoccupied with the pleasures of the moment. In my depressed moments I feellike not writing anything more on these issues, sinceHazlitt has already said everything.

Leland Yeager (right) and Henry Hazlitt (left) at theMises Institute's tribute to Hazlitt in 1987.

Q: What's wrong with natural rights theory?

A: Nothing. I consider myself a consistent champion of the kind of rights that are mentioned in theDeclaration of Independence and the Bill of Rights.But it is wrong to start with some conception of rightsand then try to derive everything else from there. Theimportance of respecting human rights follows fromhow vital they are to a good society and so to humanhappiness.

I get the impression from libertarian rights theorists—like Tibor Machan—that they want to justposit human rights, perhaps mentioning the natureof the individual human being and his responsibilityfor his own life. The good guys see rights practicallyas ultimates, the bad guys don't, and that's that. Suchtheorists must think it somehow demeaning tohuman rights to mount a sustained argument forthem (which, I think, would necessarily be a utilitarian argument).

My objection to rights theory, as presented by thosewho want to distinguish themselves from utilitarians, isthe basis on which they enunciate rights. Rothbard'srights are peculiarly narrow—to one's body and to property. Many "rights" being bandied about nowadaysamount to claims to all sorts of good things, it being leftvague just who has the corresponding obligations tosupply these good things, and why.

Furthermore, to invoke rights in a discussion is touse heavy artillery that impairs peaceful discourse. Arights advocate may say in effect: Morality requiresadhering to my policy, and anyone who denies the rightsI have announced is an enemy of morality. And that'sthe end of the discussion. This is not scholarship at itsbest.

Q: But you want to hold on to a notion of rights.

A: Not as the very starting point, but—yes—asconcepts that arise within the field of ethics. Thefollowing definition of rights seems to work in mostcontexts where the word appears: Rights are entitlements to behavior on the part of others that arebinding on those others with a particularly strongdegree of moral force. Rights to life, liberty, andproperty mean that others are particularly obligednot to invade our own lives, bodies, freedom, andpossessions.

Q: But in popular discussion, the terms "rights" ismost often used to mean the opposite ofyour definition.

A: True. Civil rights are valid, but people try tosell contrary policies under its name. The so-calledcivil-rights bill currently pending, which increasesopportunities for anybody who has a grievance to suethe employer or potential employer, is a bad idea. Itis disingenuous to deny that such laws tend to establish defacto quotas. If the best way to protect yourselffrom suits is to have the statistically "correct" mix ofgroups, you're being prodded to staff your firm thatway. Many good intentions vaguely written into law

only bring opportunities for nasty and litigious typesto exploit the law in other ways.

Q: Do you wish more economists were interestedin ethics?

A: We can't expect all economists to be interestedin the same things. But the tradition of economistsbeing interested in ethics goes way back and carriesup to the present. Hume, Smith, Sidgwick, Mill,Keynes, Mises all were, as do Hayek, and Buchanan.And ethics does indeed seem to be gaining explicitattention in economics discussion these days. Thetypical economics journal does not deal with the subject, however, since it is supposed to be on the frontiers and cannot be concerned with the great bulk ofalready accepted doctrine.

Q: What role has the mathematization of theprofession had in pushing aside ethical discussion?

A: It has played a role in pushing aside the overlaps between economics and ethics, for it isn't obvioushow one puts ethics into equations. But I don't wantto condemn mathematics, since doing so would beengaging in a particular type of methodology. I don'tmuch admire laying down methodological taboos,telling your colleagues the wrong and right ways togo about their work.

Q: Are you uncomfortable with Mises's views onthe use of mathematics, that they have a limited usein doing history but not in economic theory?

A: I have always been a bit dismayed at Mises'sstern line against mathematics in economics. Howcan one be so farsighted as to see that nothing goodcan come out of applying it to economics?

In general, I think people should be more modest intheir methodological sermonizing. Just because onetheorist doesn't apply certain methods doesn't meanthey should be taboo. Mathematics can be a good wayof conveying some ideas. With some concepts, you haveto keep hammering at them to get them across to yourstudents. The idea of maximizing utility under constraints should be done with words, graphs, and mathematics. Three ways are better than one. To reallyunderstand these topics, you've got to go over themseveral times while using a variety of techniques.

Q: You speak about Austrian taboos, but aren'tthere taboos in the mainstream?

A: Yes. Plenty of methodological taboos are nevereven discussed. Tacit methodologizing is even worsethan explicit methodologizing. If people are explicit,they lay out their message for inspection. An implicitassumption of the mainstream is that if economicreasoning is to be "rigorous"—meaning worth anyattention, I guess—it must appear in a formal modelof maximization of utility, profit, or present value.

Q: Is any particular school guilty of this?

A: The New Classicists are my particular bugbear. They tell us that we must suppose that markets

are always clearing, that we've got to interpret thebusiness cycle as if markets are always clearing, thatwe've got to see unemployment as voluntary withholding of labor from the market. But this notionthat all markets are clearing, or are close enough toclearing so that we are required to do our reasoning asif they were clearing, has no more merit than a methodological precept whose basis hardly gets explicitlydiscussed.

I am skeptical about all such postulates. Whatpostulates are legitimate depends on what you arestudying. For example, if you are doing an exercise inmicroeconomics to find the long-run equilibrium consequences for a product's price and output of a specified change in taxes or technology, then it onlyclutters up the analysis to focus on the transitionfrom the present state of affairs to the future equilibrium state. We then have no particular reason to beinterested in the disequilibrated markets beforeprices have fully adjusted. But if we are doing macroeconomics—which is concerned with lapses from fullcoordination and with what accounts for the greateror lesser degree of lapse—then transitional obstaclesare the center of the topic. What might be merely afringe complication set aside in a micro analysismoves to center stage in macro. Yet New Classicaleconomics dismisses all concern with lapses of coordination and the failure of markets to clear. It simplywipes away the problem.

Q: Are you, then, a methodological pragmatist?

A: I am a methodological libertarian. I am notsaying that anything goes, or that whatever onecomes up with is automatically valid. Divine inspiration is not as good as looking at the facts. But letpeople work with whatever method works for themand fits with their talents and inclinations. After all,their work is open for public inspection.

Q: Donald McCloskey has been persuasive in thisregard. What do you think of his work?

A: I agree with him at many points when he isspeaking for himself. I haven't read all the people hecites—those associated with deconstructionism and

hermeneutics—but my impression is not too favorable. Hermeneutics was a flash in the pan, but it isan example ofwhat happens quite often in economics.Economists will latch onto an idea out of some otherfield in hopes of making a splash in their own. They'lldip into engineering, psychology, or mathematics andtry to make a reputation. This way they can lookcatholic and widely read.

Q: And what of your view toward Shackle andLachmann, the radical subjectivists?

A: They advanced a kind of subjectivism I reject—nihilism. I know they don't call it that, but that is theway it comes across to me. If the extreme subjectivistslike Lachmann and Shackle take themselves seri

ously—that expectations are totally subjective, that

we cannot know anything about the future, that thefuture is being freely invented—why would they poseas professors of economics? Why do they set out to doanything? Lachmann was a dear man, but his doctrine was negative and destructive.

Q: How do you see your own role in the Austrianschool?

A: I don't know whether I am considered a critic

of Austrian economics or not. I have criticized the

Austrians' business-cycle theory and their methodological preachments. But I have long had a respectful and sympathetic interest in the school. I first cameacross some books by Mises in the Oberlin Collegelibrary shortly after World War II—Omnipotent Government and Bureaucracy, as I recall. I was impressed and learned a lot. In fact, I included some ofMises's insights in my answers on a final exam in anantitrust course. A "C" grade testified to my badjudgment on when and how to express my enthusiasm. Once, while visiting the Princeton Universitylibrary, before Human Action appeared in English, Iread parts of its earlier version, Nationalokonomie. Ihad already read Hayek's essays in Individualism andEconomic Order. But mostly I was very excited aboutMises's doctrine of calculation under socialism. I gavea faculty seminar on that topic in 1949 when I wasteaching for one year at Texas A & M. I even thoughtabout exploring some related topic for my Ph.D. dissertation.

Q: Did you ever meet Ludwig von Mises?

A: Yes, several times. Probably around 1948 or1949, while a graduate student at Columbia University, I somehow received or wrangled an invitation tovisit him in his apartment. Our conversation driftedonto the alleged intellectual dishonesty of leftist economists. At one point I asked, "Professor Mises, aretheir any honest leftists?" He pondered for half aminute or so and then replied, in all seriousness, 'Yes:Gottfried Haberler."

Leland B. Yeager

About a year later I took an extracurricular shortcourse in monetary theory that Mises was offering atNew York University. I'm afraid I learned more therethan in all the lectures at Columbia. I credit Mises—

some might say I should blame him—for my basicideas on monetary economics.

I attended a two-week Volker Fund conference in

1955 at which Mises was one of the three main lecturers. I saw him occasionally after that. In 1979,after his death, when I was working on my translation of his Nation, Stoat, und Wirtschaft, I receivedsome advice from Mrs. Mises at their apartment.

Q: What themes in Austrian economics do youlike?

A: I like the concern with the big picture. TheAustrians have shown how the activities of millionsof separate people can be coordinated into a systemthat has a semblance of logic and structure evenwithout a central planner. And I also like the Austrianconcern with institutions. Unlike the mainstream,which sometimes gets bogged down in details aboutdecision-making within firms and households, Austrians are primarily concerned with economy-widerelations among such units.

Q: And what don't you like?

A: I am not a card-carrying Austrian. I don't likethe way the business-cycle theory gets recited againand again without any new evidence or reasoning. Oncapital theory, I find myself disagreeing with somepresent-day Austrians. Briefly, my view is that ifyouput together Bohm-Bawerk, Cassel, and Fisher andmake the proper selection and combination of theirdoctrines, you have the essence of capital theory. Theinterest rate is determined by interaction betweentime preference and the productivity of roundabout-ness. I don't know why this view should be consideredanti-Austrian. Bohm-Bawerk and Hayek explicitlyrecognized both time-preference and productivity. Idon't quite understand how the pure subjectivist orpure time-preference theory came to be regarded asa key part of Austrian doctrine. I only have a hunch.Maybe people thought that since subjectivism is good,the more subjectivism the better.

Q: You don't regard Austrian economics as a separate school within economics?

A: It certainly shouldn't separate itself and takeon the mission of doing battle with the mainstream.All of us economists have some ideas we hope tocontribute to our fellow economists. The Austriantradition is distinctive in having a favored set oftopics and perhaps a method. But Austrians shouldbe trying to influence the general understanding ofhow the economy works.

Q: What can formal Austrian theory add to thebody of mainstream thought?

A: Emphasis on the dispersion of knowledge insociety, and the need to transmit it through the mar

ket, is a message that should penetrate the mainstream more fully. And the emphasis on legal institutions and their role in the coordination of economicactivity is also a fruitful framework for study. Hayekoften gets credit for these concerns, but the knowledge problem is already implicit, at least, in Mises.The planners don't know how to combine the factorsof production, even supposing they know what theywant to produce. Mises's emphasis on meaningfulmarkets displays his interest in transmitting thisknowledge through the price system, a point thatHayek elaborated on.

Q: What about the role of entrepreneurship as aunique Austrian contribution?

A: It does need to be hammered home, but I thinkthe mainstream has got the message by now. If theycan find an economist who hasn't yet got it, thenAustrians should continue. The problem is that entrepreneurship is an idea that is difficult to modelformally. So far, anyway, working in this area doesn'tprovide much opportunity to display technical ability.I do think that there has been too much Austriandiscussion about whether entrepreneurship is equilibrating or disequilibrating. It is clearly both.

Q: Any thoughts on the anti-socialist revolutionin Eastern Europe?

A: Sure. It overwhelmingly demonstrates thatattempts at central economic direction do not work.The experiments made since 1917 and since 1945have been decisive. The advocates of socialism will no

longer come from the ranks of economists. It is nolonger intellectually respectable. •

r

Austrians Expand Programat New York University

The Austrian Economics program at NewYork University has announced an ambitiouspublication program. Mario Rizzo and Lawrence White (University of Georgia) will co-edit "Foundations of the Market Economy,"a series of monographs for Routledge Press.Peter Boettke, Israel Kirzner, and MarioRizzo will serve as general editors for JAIPress's annual publication, Advances in Austrian Economics, which will assemble articleson a general topic. The first volume will focuson the topic "Is Change Possible?" Finally, inconjunction with New York University Press,a series titled "The Political Economy of theAustrian School" has been launched to gatherpapers by Austrians on a topic in economicpolicy. •

Jack Wiseman (1919-1991)

By Peter G. Klein

With the death of Jack Wiseman this Januarythe Austrian school has lost a distinguished

"fellow traveler." Throughout a long career at theLondon School of Economics and the University ofYork, and through close associations with the Institute of Economic Affairs in London and the Center for

the Study of Public Choice at Virginia Tech andGeorge Mason University, Wiseman was a tirelessfighter for subjectivism in economics and a vocalopponent of positivism, undue sub-specialization,and the esoteric, technique-oriented character ofmodern economic theory. He also represented a livinglink with the great "London tradition" of the 1930sand 1940s, perhaps the last period when distinctively"Austrian" ideas were playing an active role in thedevelopment of mainstream economics.

Born to a poor family in the English midlands, thecradle of the industrial revolution, Wiseman proceeded by scholarships through the local secondaryschools and later to the L.S.E., which he entered in1946 only after a seven-year delay for military service. At the L.S.E. he joined a truly extraordinarygroup of thinkers: His first economics class wastaught by William Baumol, then a newly arrivedgraduate student; the chairholders in economics wereF. A. Hayek, Lionel Robbins, James Meade, T. S.Ashton, R. G. D. Allen, Edmund Phelps-Brown, F. WPaish, and R. S. Sayers, and also teaching were P. T.Bauer, Arnold Plant, and Harold Laski; his personaltutor was Ronald Coase. He would later describe thedepartment as "the best economists' club in theworld."1 Wiseman concentrated on the "core" subjectarea, where he worked closely with Robbins withplans for an academic career.

After graduation he secured a temporary lectureship at L.S.E. in Industry and Trade, and was laterpromoted to a full lectureship in Business and PublicFinance. It was in these two areas (what would todaybe called industrial organization and public finance),that Wiseman published his earliest works: first a1953 Economica article on collectivist economic planning—a subject with which, unfortunately, the academic establishment had mostly lost interest—andthen his best-known paper, "The Theory of PublicUtility Pricing: An Empty Box."2 Both of these, andespecially the latter, argued along Austrian lines thatmarginal-cost pricing rules cannot be meaningfullyapplied to collective decision-making processes orpublic resource allocation, because "cost" and "benefit" exist solely in the mind of the individual actor, asanticipated prior to action though realized only after.That is, "marginal social cost" is more than a trickything to measure; it is impossible even to define.Perhaps predictably, the work failed to generatemuch interest in the profession, which was then en-

10

Jack Wiseman

thralled with macroeconomics, growth, and "positiveeconomics" (recall that Hayek himself had mostlygiven up economic theory by that time). Wisemancontinued to pursue his own interests, however, developing his "unknowability thesis": The central constraint we face is our inability to know the future. Itwas also during this period that he collaborated withAlan Peacock on a widely read study on The Growthof Public Expenditure in the United Kingdom.3

Wiseman continued lecturing at the L.S.E. until1964, when he joined Peacock to set up a programin public finance at the newly created University ofYork, where he remained until retirement in 1987.At York he began to work with Stephen Littlechild,author of The Fallacy of the Mixed Economy, on aself-described "subjectivist economics textbook."Sadly, the project was never completed, though itsflavor can be gathered from the delightful essay on"Crusoe economics" that came out of the project andappeared in a volume honoring George Shackle. Healso came to develop a close relationship with JamesBuchanan, whom he had met at the L.S.E. in 1960,and with whom he shared interests in both Shackel-ian subjectivism and the public choice approach topolitical theory; as a visitor at Buchanan's PublicChoice Center he began to sketch an outline of a "newpolitical economy," a grand reconstruction of economic science that he continued to develop until hisdeath.

He died of cancer at his home in Yorkshire at theage of 71. His friends and colleagues remember him

as an unpretentious, practical man, an independentthinker and, above all, a great talker. He is at least awriter whose work deserves to be better known.

*In an autobiographical sketch publishedin his bookof essaysCost, Choice and Political Economy (London: Edward Elgar,1989), p. 28. There Wiseman singles out as the source of itsexcellence not only the L.S.E. people themselves, but also thestyle of teaching, with its emphasis on student participation.By contrast, he describes a year spent as a visitor at Berkeleyin 1962 with surprise for the faculty's lack of interest instudents: "After L.S.E., the [American] system seemed remoteand uncaring. The first year of undergraduate study wastreated as a 'weeding-out'period in which the dropout rate wasvery high. Teaching this group was a chore left largely tojunior staff, teaching assistants and unwary visitors; seniority

Economics Rankings:A Survey

by Alexander Tabarrok

"The popular subject of discussion amongeconomists is not so much economics aseconomists" (Samuelson 1962).

Economists do love to rank themselves. There is

no doubt a Freudian explanation for this but that willhave to await further research. For now the Austrian

Economics Newsletter is pleased to report the long-awaited results.

Top Ten Economistsin the U. S.

1. Gary Becker2. Henri Theil

3. Martin Feldstein

4. Robert Lucas

5. Robert Barro

6. Oliver Williamson

7. Robert Solow

8. Zvi Griliches

9. Thomas Sargent10. Mancur Olson

(Chicago)(Florida)(Harvard)

(Chicago)(Harvard)

(Berkeley)(MIT)

(Harvard)

(Hoover Institution)(Maryland)

Source: Marshall Medoff, "The Ranking of Economists,"Journal of Economic Education (Fall 1989):405-15.

Explanation: The rankings here are based uponthe total number of citations received in the years1971 to 1985 from a population of all economists inthe top 125 universities in 1985. Nobel prize winners have been excluded from this list (RobertSolow received his Nobel prize after Medoff completed his article) as are economists over 65 yearsof age.

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was rewarded not onlyby income butby the relinquishmentofsuchchores..." (p. 26). Does this sound familiar to the modern Americanstudent?

2JackWiseman, "Uncertainty, Costs and CollectivistEconomicPricing," Economica (May 1953); idem, "The Theory of Public Utility Price: An Empty Box," Oxford Economic Papers (February1957). Both reprinted in James M. Buchanan and G. F. Thirlby,eds., L.S.E. Essays on Cost (London: Weidenfeld and Nicolson,1973), and in Cost, Choice and Political Economy, op. cit.

3Alan T. Peacock and Jack Wiseman, The Growth of PublicExpenditure in the United Kingdom (London: Oxford UniversityPress, [1961] 1967).

4S. C. Littlechild and Jack Wiseman, "Crusoe's Kingdom: Cost,Choice and Political Economy," in S. Frowen, ed., Unknowledgeand Choice in Economics (London: Macmillan, 1989), reprintedin Cost, Choice and Political Economy, op. cit. •

Top Ten U.S. Economics Departments

1. Chicago 6. Minnesota

2. MIT 7. Yale

3. Princeton 8. UCLA

4. Rochester 9. Stanford

5. Harvard 10. Columbia

Source: John Tschirhart, "Ranking Economics Departments inAreas of Expertise," Journal of Economic Education (Spring1989):199-222.

Explanation: Tschirhart looked at all departmentsoffering Ph.D's in the United States. The rankings arebased upon; the per capita, total number of standardized and quality adjusted (by journal) articles publishedduring the period 1975 to 1984.

Top Ten Economics Journals

1. Journal of Political Economy2. Journal of Financial Economics3. American Economic Review

4. Journal of Monetary Economics5. Journal of Finance6. Journal of Economic Literature7. Econometrica

8. BellJournal of Economics9. Brookings Papers on Economic Activity

10. Review of Economic Studies

Source: S. J. Liebowitz and J. P. Palmer,"Assessing theRelative Impacts of Economics Journals,"Journal of EconomicLiterature (March 1984): 77-88.

Explanation: The rankings are based upon the citations from journals (other than the journal beingranked) in 1980 to articles published during the period 1975 to 1979. These citations are weighted in aniterative procedure so that a citation from the Journalof Financial Economics to the JPE is worth more than acitation from the Review of EconomicStudies to the JPE.The citations are also weighted by the number of characters a journal publishes, this controls for the size ofthe journal.

Top Ten Economics Book Publisherswith Comparison to JPE

1. University of Chicago Press 0.832. Cambridge University Press 0.513. Brookings Institution 0.474. Basic Books 0.46

5. Hoover Institution Press 0.37

6. Allen and Unwin 0.31

7. North-Holland 0.26

8. Harvard University Press 0.249. Harcourt Brace Jovanovich 0.24

10. Princeton University Press 0.22

Source:David Laband, "Measuring the Relative Impact ofEconomics Book Publishers and Economics Journals," Journalof Economic Literature Qune 1990):655-60.

Explanation: The number in the far right column isthe relative impact of publishing a book compared topublishing a JPE article. For example an economicsbook published by the Cambridge University Press inthe study period received only about half as manyquality adjusted citations as an article in the JPE.

The rankings are based upon the number of citations in the period 1981 to 1985 to books which werepublished (and announced in the Journal of EconomicLiterature) in 1980. The citations were weighted according to the rankings established by Liebowitz andPalmer. Textbooks and directories are excluded.

Comments

The numbers reveal one thing for certain—theUniversity of Chicago is by far the most influentialand powerful university in the economics profession.Chicago has the number one economist, department,journal, and book publisher! The only sign of itsweakness is in the number of top, young (40 or under)economists. According to Medoff (1989, p. 413, Table3) Chicago has none of the top ten young economists.MIT leads in this regard with four and Princetonfollows closely with three. However, this is not likely tobe reflected in Chicago's (statistical) ranking verymuch. This is because of the immense importance ofUniversity of Chicago journals. Graves, Marchandand Thompson (1982) found that two-thirds of thearticles published by University of Chicago economists were in three journals published by the University of Chicago (Medoff, p. 406). This wouldn't matterexcept for the fact that authors from the same schoolas the editor tend to receive more pages than unaffiliated authors (Laband, 1985a). Parochialism maytherefore effect rankings at least in the short run(Stigler and Friedland, 1975).

It is interesting to note that the ranking ofthe top10 departments is fairly invariant to the measuresused. Laband (1985b) in the Southern EconomicsJournal ranked the top 50 departments according toa composite score of pages published per faculty member, cites per article published, and graduate studentplacement plus a measure of graduate publication.He also included the percent change in published

12

pages and the percent change in cites (this was inorder to measure the extent a department has improved or worsened.) Seven of Laband's top ten overlap with Tschirhart's top ten. After Golden,Carstensen, and Weiner (1987) "corrected" for somestatistical oversights in Laband's study, nine of thetop ten overlap. However, there are exceptions to thisrule. For example, when all articles are included, notjust those in mainstream journals, Tschirhart findsthat George Mason University, which specializes inpublic choice and Austrian economics, jumps from aranking of 31 to that of eight! Tschirhart's rankingsare the most recent and probably the most valuablebecause he ranks by area of expertise as well asgeneral rank.

The rankings of books vis-a-vis JPE articles maybe misleading. Articles generate cites because theytend to be on current and controversial subjects. Buthow many of these articles withstand the test of time?How many make permanent contributions and howmany are cited merely so that they can be refuted? Asa hypothesis I would suggest that books have morelong term impact than articles. This could be testedby examining the relative impact of books published50 years ago and articles published 50 years ago.

Citations to Austrian Economists

1. F.A.Hayek 280

2. Israel Kirzner 47

3. Carl Menger 46

4. W. H. Hutt 29

5. Lawrence White 27

6. Murray Rothbard 24

7. Don Lavoie 23

8. Gerald O'Driscoll 20

9. Ludwig Lachmann 14

10. Ludwig von Mises 12

Source: Social Science Citation Index, 1989.

Explanation: This list includes only 1989 citations.The sample from which the list was taken was small andchosen on the basis of what I consider to be generalopinion among Austrians about who is an Austrian.

Auburn, George Mason, andNew York Universities

Auburn University has been ascending the ranksof economics departments. Its relatively young department ranks third among departments with anAustrian orientation. According to the various rankings, its publishing strengths are in the areas ofhistory of thought, labor economics, and microeconomics. It is difficult to assess George Mason University over time because it is largely a creature ofrecentimports from other schools. Some early rankings donot have George Mason listed, but some recent rankings place George Mason in the top 20. According to

the various rankings, its strengths are in the areas ofpublic finance, welfare economics, and natural resource economics. The New York University department has consistently ranked in or near the top 20.It ranks high in a number of fields including micro-and macroeconomics, welfare theory, and international economics.

Now that we know the top ten economists, thebest departments, the most prestigious journals, themost influential book publishers, and the ranking ofAustrians in the profession there is only one important question left: Who do you think is going to winthe Nobel prize this year?

Golden, J., Carstensen, F. and P. Weiner. 1987. "An Evaluationof 50 Ranked Economics Departments: Comment." Modern Economics Journal 54: 212-15.

Graves, P., Marchand, J. and R. Thompson. 1982. "EconomicsDepartmental Rankings: Research Incentives, Constraints, andEfficiency." American Economic Review 72: 1131-41.

Laband, D. 1985a. "Publishing Favoritism: A Critique of Department Rankings Based on Quantitative Publishing Performance."Southern Economic Journal 52: 510-15.

Laband, D. 1985b. "An Evaluation of 50 Ranked EconomicsDepartments—By Quantity and Quality of Faculty Publicationsand Graduate Student Placement and Research Success." Southern

Economic Journal (July): 216-40.

Medoff, M. 1989. "The Ranking of Economists." Journal of Economic Education (Fall 1989): 405-15.

Samuelson, Paul. 1962. "Economists and the History of Ideas"American Economic Review (March): 1.

Stigler, G. and C. Friedland. 1975. "The Citations Practices ofDoctorates in Economics." Journal of Political Economy 83: 477-507. •

Convention

Austrians Convene at Southwest

Social Science Association

Two sessions on Austrian economics were organized by Mark Thornton of Auburn University

for the 1991 Southwest Social Science Association

which took place in San Antonio, Texas, March 27-30.

The sessions were on the theme of "Global Change:Investigation, Understanding, Survival." The first session, "Financial Crisis in Capitalism," examined theimpact of public sector institutions on the recent performance of markets. Roger Garrison of Auburn University examined the impact of government deficits onthe economy in his paper, "Public Sector Borrowingand Private Sector Performance." Garrison noted

that mainstream economists have not been able to

find the effect of deficits on the economy because theytypically examine only one possible effect such asinflation or "crowding out." He said that deficits donot cause one particular effect, but many, and because of changes in policy and political regimes therelative impact of deficits changes over time. Thisactually makes deficits much worse than taxes be-

13

From left to right, top: Yuri Maltsev,Hans-Hermann Hoppc, Larry Sechrest.Second row: William Breit, John McC-

allie, and Roger Garrison. Third row:MurrayRothbard.

cause of the additional uncertainty it creates for individuals making long-run decisions.

Larry Sechrest of Sul Ross State Universityapplied Austrian methodology to central bank policy in "The Impossibility of Rational Monetary Policy." Parth Shah of the University of Michigan,Dearborn investigated the role of the Hong Konggovernment and "free banking" institutions to determine the source of stability of the Hong Kongdollar.

John McCallie of the University of Alabama, Birmingham presented his historical investigation ofdeposit insurance in 'The Crisis in Government Deposit Insurance." He found that economists warnedagainst government deposit insurance when it wasfirst proposed, predicting in many cases the problemsfacing deposit insurance today. Murray Rothbard ofthe University of Nevada, Las Vegas provided comments on McCallie's paper. The non-Austrian commentators of the session were in general agreementwith the findings presented.

The second session, "The Downfall of Communism," was a joint session of economics, internationalstudies, and political science, and was one of thebest-attended sessions of the convention.

Hans-Hermann Hoppe of the University of Nevada, Las Vegas presented his "Economic and Sociological Analysis of the Unification of Germany," andwas commented on by Larry Sechrest. Yuri Maltsevof the U.S. Institute of Peace presented "The Politicaland Economic Institutions of the Soviet Union in

Transition." Commentator Mark Thornton noted that

Maltsev presented an accurate but bleak picture ofthe future in the Soviet Union.

Rothbard's paper "How and How Not to Desocial-ize," provided a set of guidelines on how the processof desocialization could be successful and how it

could result in failure. Former President on the

Southwest Social Science Association, WilliamBreit of Trinity University began his comments onRothbard's paper:

I am in agreement with much of what ProfessorRothbard had to say. My words of agreement mustsound like strange music to Rothbard's ears because he has for so long been in a tiny minority inholding his opinions on most economic issues. Heis quite right in asserting that for the last half-century almpst all western economists believed thatthere is no calculation problem under socialismand that the Soviet economy was successful andwould eventually overtake the United States. Ofcourse Murray Rothbard's was almost a lone voicein the wilderness saying nay to this orthodoxy. Asyou can discern from his paper he is not quite ashrinking ego. And yet he has resisted the temptation to say, "I told you so" even though he wouldhave been fully justified in saying it. No one couldhave taken more satisfaction than Rothbard in

having lived to see the collapse of communism andsocialism around the world. Now, at least on thisquestion, Rothbard is in the majority. There arefew people anywhere anymore who hold the viewthat central direction is an efficient way to organized economic activity.

Austrians have been active at the Southwest So

cial Science Association since at least 1984. These two

sessions testify that Austrian economists have astrong and growing presence in the Association andin the economics profession as a whole. MT •

Conference

u Egalitarianism and theFree Society"

To combat the growth of "politically correct"thinking on campus, and in public discourse,

the Mises Institute recently sponsored a scholarlyconference on "Egalitarianism and the Free Society."It explored the relationship between the state-enforced ideal of perfect equality and its incompatibilitywith true human liberty.

Held in Princeton, New Jersey, from April 11-13,1991, it featured some of the top economists, journalists, sociologists, and philosophers associated withthe Austrian school of economics. The speakers presented ideas on some of the most controversial academic and political trends of our time.

Murray Rothbard of the University of Nevada,

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Las Vegas set the tone of the conference by returningto, and expanding upon, issues he raised in his classic1970 essay "Freedom, Inequality, Primitivism, andthe Division of Labor." The fact of human inequalityis not only all pervasive; it is necessarily implied inthe very idea of the division of labor. Yet since itbecame clear to the Left that the economic side of

socialism was destined to fail, it has pursued a warfor forced equality through unfairly privileging un-derachievers and handicapping successful people.He noted that it is nearly impossible to caricaturethis movement because of the ever/expanding list of"victims" and the increasingly absurd justificationfor their "claims." He attempted, however, to provide a flavor of the absurdity by insisting on affirmative action for short people, a victim group ofwhich Rothbard himself is a distinguished member.

Llewellyn H. Rockwell, Jr., president of the Ludwig von Mises Institute, presented an intellectualsurvey of the concept of envy. Although this humanemotion has been consistently condemned by greatthinkers since the Ancients, it is rarely if ever mentioned in modern public policy discourse, much lessthoroughly explored. Rockwell theorized that it isactually a prime motivation behind the economic andsocial collectivism in the West. For example, why isthe welfare state still glorified even though it hasfailed to do what it is allegedly supposed to do? Thereason is that welfarism actually succeeds in onearea: institutionalizing envy. That is, it may not helpthe poor, but it hurts the rich, which, in an envioussociety, is the point after all.

Joe Salerno of Pace University provided a blistering attack on the transfer state, snowing how the pursuit of equality is an ellusive goal, and that the attemptto reach it can cause immeasurable destruction to socialcooperation. He elaborated on Rothbard's thesis thatincome transfers are not welfare enhancing and showedthat they always diminish welfare. He put his theory inthe context of work he is doing on the connection between the market economy as a coordinating agent andthe "social appraisement process" of economic calculation. David Fand of George Mason University's PublicChoice Center discussed other forms of pernicious redistribution.

Jeffrey Herbener of Washington and JeffersonCollege traced the idea of egalitarianism from theancient philosophers, to the economic tradition of thescholastics, to the modern Austrians, to show that thesubjectivist/free-market tradition has relied on theidea of inequality of personal attributes to understand how the liberal social order is most conduciveto individual creative potential.

Paul Gottfried of Elizabethtown College took onthe nebulous ideas of modern democratic theory andlinked them to the leftist desire for social leveling. Heargued that not only is democracy not required for thepreservation of individual liberty, but that democracy

is often the enemy of liberty and of private property.Democracy, especially the pursuit of "global democracy," creates a social calculus of interventionism ofwhich the primary beneficiaries are interest groups.He argued that the democratic tradition runs counterto the rule of law, making it antithetical to the marketand the constitutional republic.

Thomas DiLorenzo of the University of Tennessee, Chattanooga argued against the wave of legislation presumably designed to help disabled people,the newest victim group that has achieved officialstatus in Washington. He noted that there are already 43 different categories of disabilities thatmake one eligible for special treatment. The ironyis that disability legislation—especially theAmerican's with Disability Act of 1990—ends uphurting the most severely disabled persons. It mandates that employers always accommodate disabilities; on the margin, employers will choose the leastdisabled to save the expense. Like other groups thatseek victim status, official legal privilege will setup barriers to authentic participation in the divisionof labor.

Samuel Francis, award-winning editorial writerfor the Washington Times, argued that egalitarianism in politics is a boon for the managerial elite classthat runs the bureaucratic State. Far from being anindependent unit, this elite group has a symbioticrelationship with corporate business and electedleaders. Since the New Deal, this elite has superimposed its -vision of society on top of traditional patterns of social and economic relations. His strategyfor unseating this managerial elite from its positionof power is both academic and activist. First, thegoverning ideology of egalitarianism must be refutedand, second, the elite's designs for society must beexposed.

Steven Goldberg of the City College of New Yorktook on the difficult question of equality between thesexes, which has been a governing ideal in sociallegislation for decades. The premise most widely advanced to support the egalitarian sexual vision is thatit is an arbitrary social choice whether men or womenhold dominant positions in government and business.Goldberg presented an empirical argument that, contrary to sociology texts, history presents no exampleof a non-patriarchal society. Every supposed exampleto the contrary ends up being completely mistaken.The fact of patriarchy's all pervasiveness should caution social engineers about the limits to legislativeattempts toward sexual leveling.

David Gordon of the Ludwig von Mises Institutepresented Mises's own views about equality and inequality, showing that egalitarianism was antithetical to his social and economic system. Mises'sworld-view, in fact, relied on individual differencesworking themselves out through the market process.Efficiency can be best defined in terms of a system

15

that allows individual talents, always distributed unequally, to be put to their best use. Mises thought thatthe concept of equality is relevant only in terms ofhow the law ought to treat individuals. Gordon further showed that Mises's anti-egalitarianism isrooted in a more general philosophical tradition thatstood against all attempts to uproot the basis of socialpatterns consistent with liberty.

Joe Sobran, critic-at-large for National Review,explained how modern notions of civil rights are incomplete contradiction to an older version of rights.Modern civil rights are group-directed privileges tocoerce private parties and gain access to public funds.Moreover, he argued, this difference is widely understood by the public, which supports civil rights in theabstract, but resents the pressure group tactics ofseizing more legal favors from the state.

Thomas Fleming, editor of Chronicles magazine,spoke on how the premise of equality plays itself outin the world of education. The egalitarian ideologyhas led to the collapse of the public school, thebullying of private schools, and the radical centralization of education. As an alternative, he suggested a radical privatization of education and anelimination of laws restricting the manner in whichprivate schools conduct their affairs. Barring that,he said, all plans for education reform ought to bejudged on one criterion: Do they begin to decentralize the control of education, or do they furthercentralize it? He judged President Bush's educationreform plan—with its promotion of means-testedvouchers and a national curriculum—as going exactly in the wrong direction.

In honor of the conference, the Mises Institute hasrepublished Rothbard's 1970 essay on egalitarianism,but with an extensive new introduction.

Some of the papers from the conference will bereleased during the next six months. All will bepublished in a volume by Kluwer Academic Publishers. J AT •

Speakers (I to r) Thomas DiLorenzo, Jeffrey Herbener, JoeSalernoand Sam Francis answer questionsfrom theaudi

enceat theclosing session of the 'Egalitarianismand theFreeSociety"conference in April.

Freedom, Inequality, Primitivism,and the Division ofLabor

Murray N. RothbardThe Ludwig von Mises Institute, 1991

H irst published in 1970, Murray Rothbard's pre-•*- scient essay "Freedom, Inequality, Primitivism,

and the Division of Labor" has just been reprinted bythe Ludwig von Mises Institute in a handsome monograph, complete with a new introduction by the author. In this important essay, Rothbard demonstrateshis remarkable ability to transcend traditional categories, defy ordinary analysis, and integrate economics, ethics, and sociology into a powerful system ofsocial thought.

Many so-called free-market economists "defend"inequality on the grounds that it is necessary toprovide incentives that further economic growth andwealth creation. Milton Friedman tries to appeaseegalitarians on these grounds in Capitalism, andFreedom. Friedman goes so far as to argue that muchof the inequality in a capitalist society is really theresult of "true equality." Paying higher wages formore difficult jobs, for example, is required so thatthe total return on work is truly equal. Similarly theinequality in wealth created when some take on entrepreneurial risks with potentially high payoffs isreally the result of everyone's equal right to buylottery tickets. And don't forget, Friedman concludes,that government intervention in the economy createsa lot of inequality.

Now, Friedman is one the great economists of ourtime and he has done much to make classical liberal

ideas respectable in our universities. But this blatantpandering to egalitarianism is a sorry spot on hisrecord. It is a great shame that he chooses to acceptthe premise of his enemies—that equality is a socialnorm worth striving for—in order to argue for capitalism. If egalitarian social leveling is the goal, afterall, capitalism cannot compete with the alternatives.

Rothbard, in contrast, takes the egalitarians headon: He revels in the inequalities of capitalism andglorifies them. Of what value would freedom be, heasks, if men were all the same? "The glory of thehuman race is the uniqueness of each individual, thefact that every person, though similar in many waysto others, possesses completely individuated personality of his own." The uniqueness of each individualis one of the great arguments in favor of freedom.

And it is one of the great benefits of capitalism,the social system created when men are left free, thatit allows men to extend and amplify their differences.

Through the division of labor each man specializes inthe tasks at which he is best. "The philosopher, thescientist, the builder, the merchant—none could develop these skills or functions if he had had no scopefor specialization ... no individual who does not livein a society enjoying a wide range of division of laborcan possibly employ his powers to the fullest." Toemploy one's powers to the fullest in the field of one'schoice is more than an instrumental virtue; it's a keyelement to being fully human. "Personality," as Ludwig von Mises puts it, "has been acquired in thecourse of the evolution of society. What scope is therefor the individual human being—diverse in talents,thoughts, goals, and desires—in a primitive and stagnant society, in which son follows father in back-breaking drudgery interrupted only by theremorseless change of seasons?"

Rothbard's tribute to inequality is matched bydevastating attacks on the New (now old) Left, participatory democracy (an underdeveloped area in libertarian thought), and most importantlyromanticism and the mythology of the noble savage.He couldn't have been more predictive on the dominant themes in our contemporary political culture.

A great deal could be said about Rothbard's introduction alone. It is a tantalizing glimpse of the development of his thought since he wrote the essay.Several new developments are discussed, such asgroup quotas. Particularly interesting is Rothbard'srevised understanding of Adam Smith and the division of labor, and the roots of romanticism. Rothardnow finds Smith's contributions to be misleading andnot as seminal as he once thought, and the issue ofromanticism he now believes should be placed intothe wider context of theology.

Freedom, Inequality, Priuitiuism, and the Division of Labor is powerful and fascinating reading. Itcontains many ideas which deserve wider audienceand a bigger debate; hopefully this new monographwill stimulate that debate. ATT •

The book is available to full-time students for no

charge (please enclose a copy of your student ID).

Copyright © 1991 by the Ludwig von Mises Institute, Auburn University, Auburn, Alabama 36849, (205) 844-2500. Volume 12, Number3.Editor: Mark Thornton (Auburn University). Associate Editor: Jeffrey A. Tucker (George Mason University). Assistant Editor: Peter G.Klein(UniversityofCalifornia,Berkeley). Correspondents: Amy MarieMarshall (NotreDame University);SofiaBump, Richard R.Hite,and Alexander Tabarrok (GeorgeMason University); James P.Philbin (UNLV). Managing Editor: Judith F. Thommesen.

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