# Think Tank > Austrian Economics / Economic Theory >  Rothbard's Critics

## r3volution 3.0

Or one of them, anyway:




> Murray Rothbard was...a mediocre to  bad economist...[and] fundamentally dishonest


Would you elaborate?

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## idiom

/Popcorn

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## Krugminator2

The list is endless.  But here is David Friedman to start http://daviddfriedman.blogspot.com/2...ice-versa.html 

He calls Adam Smith a fraud when you could argue Adam Smith is the most important liberty person in the history of the world.  He nitpicks Friedman but the doesn't acknowledge that Friedman almost single-handedly ended the draft. Also little known fact, Rothbard got exposed like so many other people to libertarianism from.............. Milton Friedman. Kind of significant. https://www.econlib.org/archives/201...rd_on_sti.html

He blamed inflation on Reagan. What? That doesn't even make sense. Reagan deserves the credit for ending inflation. Thomas Sowell and Milton Friedman list it as Reagan's single greatest accomplishment. What is Rothbard talking about? The country had the biggest post Great Depression recession under Reagan to beat inflation.

He wrote what swell guy Che was. https://mises.org/library/ernesto-che-guevara-rip  He hated Reagan but supported Pat Buchanan, Ross Perot, and Strom Thurmond for president. And oh yeah, LBJ over Goldwater.

And there is the economic stuff. He thought deflation was good policy in a depression and never changed his mind. That's stupid and makes free market people look like idiots.

And here as an interesting clip from someone who was as close to Mises as anyone on what she thought about Rothbard's way of making a point. 



And yeah, he beyond a shadow of doubt wrote some of the worst parts of Ron Paul's newsletters.

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## r3volution 3.0

> The list is endless.  But here is David Friedman to start http://daviddfriedman.blogspot.com/2...ice-versa.html


Here's the only specific charge made in that article. 




> after a talk of his in which he claimed that Reagan did not really cut  government and offered as evidence the increase in the nominal federal  budget. I pointed out that, while his conclusion might for all I knew be  true, his evidence combined whatever growth had occurred in the real  size of the federal government with the effect of inflation over the  period.
> 
> His response was that that was all right; because Reagan was responsible for the inflation


First, Reagan did increased government spending, both nominally and in real terms: 



That's a real increase of ~28%.

Second, as to Rothbard wanting to attribute the inflation to Reagan, I fail to see the problem. 

The President controls monetary policy much as he controls fiscal policy. 




> He blamed inflation on Reagan. What? That doesn't even make sense.  Reagan deserves the credit for ending inflation. Thomas Sowell and  Milton Friedman list it as Reagan's single greatest accomplishment. What  is Rothbard talking about? The country had the biggest post Great  Depression recession under Reagan to beat inflation.


Inflation was lower under Reagan's Fed, it didn't _end_. 

M2 increased by ~87% from 1980-88 (source), the CPI by ~38% (source).




> He calls Adam Smith a fraud when you could argue Adam Smith is the most important liberty person in the history of the world.


You could also argue, correctly, as Murray did, that Smith was neither as rigorously pro-market nor as original as is often thought.




> He nitpicks Friedman but the doesn't acknowledge that Friedman almost single-handedly ended the draft. Also little known fact, Rothbard got exposed like so many other people to libertarianism from.............. Milton Friedman. Kind of significant. https://www.econlib.org/archives/201...rd_on_sti.html


What specific incorrect/dishonest criticisms did Rothbard level at Friedman?

The article you link is Rothbard praising Stigler.




> He wrote what swell guy Che was. https://mises.org/library/ernesto-che-guevara-rip  He hated Reagan but supported Pat Buchanan, Ross Perot, and Strom Thurmond for president.


He criticizes Che's communism, naturally, while stating his admiration for his struggle against US foreign policy in Latin America. 

I certainly wouldn't have written this article, but it contains nothing factually incorrect or dishonest.




> And oh yeah, LBJ over Goldwater.


...because he feared Goldwater's foreign policy (wrong in hindsight, not totally unreasonable at the time). 




> And there is the economic stuff. He thought deflation was good policy in a depression and never changed his mind. That's stupid and makes free market people look like idiots.


And so it is. 




> And here as an interesting clip from someone who was as close to Mises as anyone on what she thought about Rothbard's way of making a point.


"He (Mises) couldn't understand how a man as brilliant and as bright as Rothbard could be an anarchist"

That makes two of us. 

Anyway, you posted the video because the speaker said that Murray could be vitriolic and resort to name calling at times.

I have no reason to doubt that but, despite it being unflattering, it doesn't make him a bad economist nor "fundamentally dishonest."

...unless you're claiming that anyone who ever resorts to ad hominems is fundamentally dishonest, in which case we all are. 




> And yeah, he beyond a shadow of doubt wrote some of the worst parts of Ron Paul's newsletters.


The whole paleo strategy was foolish. I would agree that Rothard was a poor political strategist.

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## Krugminator2

> Inflation was lower under Reagan's Fed, it didn't _end_.


Inflation did end. At least the major problem of inflation ended. Inflation started its descent because of Reagan and it took a painful recession to end it.

To criticize Reagan for arguably his greatest accomplishment is ridiculous. And it is typical Rothbard whether it is Adam Smith or whomever. He deliberately takes things out of context if he wants to attack someone. He criticized Adam Smith for supporting a sales tax or a tariff on something, which was true. But that product was outlawed. It would be similar to criticizing someone for supporting a tax on marijuana when marijuana is illegal. Context matters. This should rebut most of what you said.   Even if Adam Smith contributed nothing original (which I have no idea if that true), it doesn't matter.  Smith actually influenced the world. Rothbard is a guy, who at least in his mind, has the greatest product in the world but he didn't sell it. So he belittles people with slightly less good products who actually do sell it.  I'll take the guys (Friedman/Hayek) who actually are able to get their ideas accepted and put into practice.  Good ideas aren't worth $#@! if they don't sell.







> And so it is.


It's not. And no serious economist thinks otherwise, including just about every serious Austrian economist. Literally no one who does academic work thinks deflationary depressions are a good idea. If you like big government, you should love deflation. Because markets will get blamed for the suffering deflation will cause and people like FDR will get elected.

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## r3volution 3.0

> Inflation did end. At least the major problem of inflation ended.


In other words, it didn't end, it was just lower: as I said. 




> To criticize Reagan for arguably his greatest accomplishment is ridiculous.


Rothbard didn't criticize Reagan for reducing inflation.

He criticized him for having any at all. 

You might find that petty, but it's not wrong.

It's not even petty, considering that it only came up in the context of the larger argument that Reagan grew government (which he did). 




> And it is typical Rothbard whether it is Adam Smith or whomever. This should rebut most of what you said.   Even if Adam Smith contributed nothing original (which I have no idea if that true), it doesn't matter.  Smith actually influenced the world.  Rothbard is a guy, who at least in his mind, has the greatest product in the world but he didn't sell it. So he belittles people with slightly less good products who actually do sell it.  I'll take the guys (Friedman/Hayek) who actually are able to get their ideas accepted and put into practice


If you can rebut Rothbard's criticisms of Smith (on either his theory or on his "Columbus complex"), go ahead.

If you acknowledge that they're sound criticisms, but just don't like them for some reason, I don't know what to tell you.




> It's not. And no serious economist thinks otherwise, including just about every serious Austrian economist.


Head counts aren't sound arguments. 

Would you explain why you believe that central banks should expand the money supply to "fight deflation"?




> If you like big government, you should love deflation. Because markets will get blamed for the suffering deflation will cause and people like FDR will get elected.


That would be a matter of political strategy, nothing at all to do with economic theory.

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## Krugminator2

> If you can rebut Rothbard's criticisms of Smith (on either his theory or on his "Columbus complex"), go ahead.
> 
> If you acknowledge that they're sound criticisms, but just don't like them for some reason, I don't know what to tell you.


I added this "He deliberately takes things out of context if he wants to attack someone. He criticized Adam Smith for supporting a sales tax or a tariff on something, which was true. But that product was outlawed. It would be similar to criticizing someone for supporting a tax on marijuana when marijuana is illegal. Context matters."

You can Google David Friedman and Rothbard or he talks about this stuff at the 4 minute mark.







> Would you explain why you believe that central banks should expand the money supply to "fight deflation"?


Debt is priced in nominal dollars. So if you let wages and prices fall across the board, then people won't be able to service that debt. The more people who can't service their debt the worse the economy gets. You have the initial people who go bankrupt for making poor financial decisions, then you get a second wave of people who run into problems as the economy gets worse.   And then you get banks running into financial problems.  You get a deflationary spiral and a lot of needless bankruptcies and the bankruptcy process can be slow  so the adjustment process isn't going to be quick. 

Hayek was able to look at evidence and change his opinions when it made sense.  http://www.coordinationproblem.org/2...deflation.html

From Hayek's "The Campaign Against Keynesian Inflation" (pp. 210-1 in _New Studies_, written in the mid-70s, my emphasis) might be of interest:

*Such a "secondary depression" caused by an induced deflation should of course be prevented by appropriate monetary counter-measures.  Though I am sometimes accused of having represented the deflationary cause of the business cycles as part of the curative process, I do not think that was ever what I argued. 

*Here is another Hayek quote on deflation. http://www.themoneyillusion.com/what...-of-deflation/

"Today I believe that deflation has no recognizable function whatever, and that there is no justification for supporting or permitting a process of deflation."

http://socialdemocracy21stcentury.blogspot.com/2011/01/hayek-on-secondary-deflation.html
"“Although I do not regard deflation as the original cause of a decline in business activity, such a reaction has unquestionably the tendency to induce a process of deflation – to cause what more than 40 years ago *I called a ‘secondary deflation’ – the effect of which may be worse, and in the 1930s certainly was worse, than what the original cause of the reaction made necessary, and which has no steering function to perform.* I must confess that forty years ago I argued differently. I have since altered my opinion – not about the theoretical explanation of the events, but about the practical possibility of removing the obstacles to the functioning of the system in a particular way”

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## r3volution 3.0

I'll come back to Adam Smith. For now, the more important issue of economic theory:




> Debt is priced in nominal dollars. So if you let wages and prices  fall across the board, then people won't be able to service that debt.  The more people who can't service their debt the worse the economy gets.  You have the initial people who go bankrupt for making poor financial  decisions, then you get a second wave of people who run into problems as  the economy gets worse.   And then you get banks running into financial  problems.  You get a deflationary spiral and a lot of needless  bankruptcies and the bankruptcy process can be slow  so the adjustment  process isn't going to be quick.


Suppose the government subsidizes ABC Corp, and so it expands.

Then, some years later, the subsidy is abolished, and so ABC Corp is going to shrink, or even go bankrupt. 

Should the government resume the subsidies or otherwise bail them out, why or why not?

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## Krugminator2

> Suppose the government subsidizes ABC Corp, and so it expands.
> 
> Then, some years later, the subsidy is abolished, and so ABC Corp is going to shrink, or even go bankrupt. 
> 
> Should the government resume the subsidies or otherwise bail them out, why or why not?


It is hard to know. It really depends on the specific subsidy.  Hayek emphasized that you should have predictable rules even if they are suboptimal. 

So let's use real examples.  

I am strongly against the mortgage interest deduction. It is terrible policy that encourages overconsumption in housing. But people made decisions based on that policy.  A lot of people who bought homes and worked as builders or real estate agents made life decisions around that policy. I would phase it out and not eliminate it immediately. Likewise with Social Security.  I might reduce benefits or not let benefits keep up with inflation but I would not eliminate Social Security day one because people made decisions around receiving benefits.

As far as artificially low interest rates, some people will and should go bankrupt when you have a recession. But if incomes start to fall across the board, you will have a lot of needless bankruptcies that serve no purpose and will prolong a depression.  It doesn't make sense from a cost benefit standpoint. And you don't need to take my word for it. There was something called the Great Depression which was caused by letting the money supply collapse.  Rothbard's policy of letting the world go to hell was tried. His only response is tariffs and raising taxes were the real cause a 15 year downturn. There is nothing to substantiate that but he had to come up with something that fit his ideology. You can believe that I guess. But the debt deflation and bank failure idea I used fits very nicely with what happened. (And it is agreed on by pretty much everyone else. Not a reason to believe something but I feel like people who have devoted their lives to a topic should be listened to in general.)

There were a ton of bankruptcies and people who lost houses after 2008. Do you think the economy would have been even better served with a cleansing Great Depression Part 2 where even more people lost their houses?  Ben Bernanke did a lot wrong but he is the reason 2008 was really a fairly mild recession relative to what it should have been. You can argue moral hazard but we might still be in a depression if Rothbard had his way.  I am not sure that would be worth it.

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## r3volution 3.0

> It is hard to know. It really depends on the specific subsidy.  Hayek emphasized that you should have predictable rules even if they are suboptimal. 
> 
> So let's use real examples.  
> 
> I am strongly against the mortgage interest deduction. It is terrible policy that encourages overconsumption in housing. But people made decisions based on that policy.  A lot of people who bought homes and worked as builders or real estate agents made life decisions around that policy. I would phase it out and not eliminate it immediately. Likewise with Social Security.  I might reduce benefits or not let benefits keep up with inflation but I would not eliminate Social Security day one because people made decisions around receiving benefits.
> 
> As far as artificially low interest rates, some people will and should go bankrupt when you have a recession. But if incomes start to fall across the board, you will have a lot of needless bankruptcies that serve no purpose and will prolong a depression.  It doesn't make sense from a cost benefit standpoint. And you don't need to take my word for it. There was something called the Great Depression which was caused by letting the money supply collapse. 
> 
> There were a ton of bankruptcies and people who lost houses after 2008. Do you think the economy would have been even better served with a cleansing Great Depression Part 2 where even more people lost their houses?  Ben Bernanke did a lot wrong but he is the reason 2008 was really a fairly mild recession relative to what it should have been. You can argue moral hazard but we might still be in a depression if Rothbard had his way.  I am not sure that would be worth it.


People always make plans based on the status quo.

That such plans will be interrupted by a change can't be a sufficient reason for preventing the change. 

(unless you're going to argue that the state should guarantee an absolutely static economy, which, apart from being absurd, is impossible)

From the examples you cite, I'm not seeing any general principle(s) emerge. 

This is why a simple hypothetical is better, at least as a starting point.

...

Returning to ABC Corp:

If the state doesn't bail them out, their workers/creditors/investors/suppliers are harmed, with secondary effects on people they do business with, and so forth. If the state does bail them out, those harms are prevented, while others occur (e.g. other people are taxed, overtly or via inflation, to make the associates of ABC Corp whole). 

On what basis would you prefer one outcome to the other? 

Is there any difference at all, in your view, apart from expectations/predictability?

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## Krugminator2

> Returning to ABC Corp:
> 
> If the state doesn't bail them out, their workers/creditors/investors/suppliers are harmed, with secondary effects on people they do business with, and so forth. If the state does bail them out, those harms are prevented, while others occur (e.g. other people are taxed, overtly or via inflation, to make the associates of ABC Corp whole). 
> 
> On what basis would you prefer one outcome to the other? 
> 
> Is there any difference at all, in your view, apart from expectations/predictability?


In my opinion, it never makes sense to bailout a specific business because you have moral hazard in the future. I would argue that bailing out Chrysler in the 70's contributed to the problems Ford and GM had in 2008.  It probably affected how unions and management negotiated. I would have let GM fail.

I get that you are arguing that the economy as a whole is the same as a micro level. You can certainly argue that the pain of the Great Depression changed behavior for the better over the next generation or two. It made people more debt averse. I would argue that a decade or more of nationwide suffering pretty high price to pay.

To me having a policy of growing incomes by a fixed amount accomplishes both the Austrian goal of not having artificially low interest rates and the monetarist goals of not having debt deflation.

For example  say you are going to target income growth of 4%.  If the economy is growing at 6% that means the inflation rate would be -2% so you would have mild deflation.  If the economy contracts and shrinks at -2% that means you would want inflation of 6%.

Since people know exactly what policy is going to be over the long term they should be fooled by artificially low rates.

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## r3volution 3.0

> In my opinion, it never makes sense to bailout a specific business because you have moral hazard in the future. I would argue that bailing out Chrysler in the 70's contributed to the problems Ford and GM had in 2008.  It probably affected how unions and management negotiated. I would have let GM fail.
> 
> I get that you are arguing that the economy as a whole is the same as a micro level. You can certainly argue that the pain of the Great Depression changed behavior for the better over the next generation or two. It made people more debt averse. I would argue that a decade or more of nationwide suffering pretty high price to pay.
> 
> To me having a policy of growing incomes by a fixed amount accomplishes both the Austrian goal of not having artificially low interest rates and the monetarist goals of not having debt deflation.
> 
> For example  say you are going to target income growth of 4%.  If the economy is growing at 6% that means the inflation rate would be -2% so you would have mild deflation.  If the economy contracts and shrinks at -2% that means you would want inflation of 6%.
> 
> Since people know exactly what policy is going to be over the long term they should be fooled by artificially low rates.


I think you're missing the fundamental problem with the state's intervention in the market economy. 

In an unfettered market, consumer preferences determine the structure of  production. That is, the relative prices of consumer goods determine  the allocation of production factors (land, labor, capital) among  different industries. If widgets are more popular than gadgets, they  fetch a higher price, and so production factors flow into widget-making  and away from gadget-making.  

The state's interventions  alter the structure of production so that it no longer reflects  consumer preferences. If the state subsidizes gadgets (directly or  indirectly, intentionally or as an unanticipated consequence of a  policy with some other goal), it causes a reallocation of production  factors from widget-making to gadget-making, resulting in an inferior  basket of consumer goods; i.e. consumers get more of the lower-valued goods, and less of the higher-valued goods. 

This is true regardless of expectations. If the state subsidized gadgets consistently for 10,000 years, and everyone expects it to do so for another 10,000 years, the problem remains that existing resources are being misused: i.e. not used to produce the goods which consumers value most highly. 

As for expectations, that cuts both ways. The state's interventions themselves upset people's plans. Also, taking into account that some enterprises _should not exist_ (because they don't reflect consumer preferences), when thinking about plans being ruined, you have to ask: what plans? If the plan related to the production of more goods which consumers don't want, who cares if it's ruined? If some confused Englishman is planning to take government subsidies to hire people to dig ditches and fill them back in, we should hope his plan is ruined!

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