David Friedman on Rothbard

Miscellaneous General
61

Which leads one to ask: Didn’t Rothbard see anything strange about someone hating what cannot be changed? Didn’t he realize that asking for state-hating (‘radical’) minarchists would be like asking for people who hate gravity, by their own worldview? Was Rothbard really surprised at the demise of ‘radical’ minarchism, if indeed it ever existed, or was he just trying to somehow make Friedman look even ‘worse’ than minarchists?

this is a logical fallacy. People hate religion, even though it is not likely that it go away any time soon… People hate atheists, but they aren’t going away… So, sure one can hate something that cannot be changed. But government is changing all the time, but, at least in the American Government, I think it is changing in the wrong direction.

62

[quote=“Isaac “Izzy” Marmolejo”]

Which leads one to ask: Didn’t Rothbard see anything strange about someone hating what cannot be changed? Didn’t he realize that asking for state-hating (‘radical’) minarchists would be like asking for people who hate gravity, by their own worldview? Was Rothbard really surprised at the demise of ‘radical’ minarchism, if indeed it ever existed, or was he just trying to somehow make Friedman look even ‘worse’ than minarchists?

this is a logical fallacy. People hate religion, even though it is not likely that it go away any time soon… People hate atheists, but they aren’t going away… So, sure one can hate something that cannot be changed. But government is changing all the time, but, at least in the American Government, I think it is changing in the wrong direction.

[/quote]

I did not mean that. I was speaking of minarchists who consider the state itself as inherently unchangeable, not just unlikely to go away. And if someone thinks that the state just can’t go away without reforming in a mater of moths, never and not just right now (the guys I was talking about) than hating the state would be like hating gravity: an unchangeable fact.

And I’m not even mentioning here minarchist who think that a minimal state is just in itself. For them hating the state would be like hating aspirin: too much can kill you, but you do not get to hate it for that!

I myself am an anarchist, but I’d never ask for a state-hating minarchist.

63

Sorry, did you have a question? Yeah, how about no.

Abolitionist as opposed to gradualist. Or did you miss that memo? Guess I was wrong in assuming people actually had an understanding of the strategy for liberty framework… like you know, read the relevent material under discussion.

Taking the concept of radical vs. conservative in our new sense, let us analyze the now famous “abolitionism” vs. “gradualism” debate. The latter jab comes in the August issue of Reason (a magazine every fiber of whose being exudes “conservatism”), in which editor Bob Poole asks Milton Friedman where he stands on this debate. Freidman takes the opportunity of denouncing the “intellectual cowardice” of failing to set forth “feasible” methods of getting “from here to there.” Poole and Friedman have between them managed to obfuscate the true issues. There is not a single abolitionist who would not grab a feasible method, or a gradual gain, if it came his way. The difference is that the abolitionist always holds high the banner of his ultimate goal, never hides his basic principles, and wishes to get to his goal as fast as humanly possible. Hence, while the abolitionist will accept a gradual step in the right direction if that is all that he can achieve, he always accepts it grudgingly, as merely a first step toward a goal which he always keeps blazingly clear. The abolitionist is a “button pusher” who would blister his thumb pushing a button that would abolish the State immediately, if such a button existed. But the abolitionist also knows that alas, such a button does not exist, and that he will take a bit of the loaf if necessary – while always preferring the whole loaf if he can achieve it.

It should be noted here that many of Milton’s most famous “gradual” programs such as the voucher plan, the negative income tax, the withholding tax, fiat paper money – are gradual (or even not so gradual) steps in the wrong direction, away from liberty, and hence the militance of much libertarian opposition to these schemes.

His button-pushing position stems from the abolitionist’s deep and abiding hatred of the State and its vast engine of crime and oppression. With such an integrated world-view, the radical libertarian could never dream of confronting either a magic button or any real-life problem with some arid cost-benefit calculation. He knows that the State must be diminished as fast and as completely as possible. Period.

And that is why the radical libertarian is not only an abolitionist, but also refuses to think in such terms as a Four Year Plan for some sort of stately and measured procedure for reducing the State. The radical – whether he be anarchist or laissez-faire – cannot think in such terms as, e.g.: Well, the first year, we’ll cut the income tax by 2%, abolish the ICC, and cut the minimum wage; the second year we’ll abolish the minimum wage, cut the income tax by another 2%, and reduce welfare payments by 3%, etc. The radical cannot think in such terms, because the radical regards the State as our mortal enemy, which must be hacked away at wherever and whenever we can. To the radical libertarian, we must take any and every opportunity to chop away at the State, whether it’s to reduce or abolish a tax, a budget appropriation, or a regulatory power. And the radical libertarian is insatiable in this appetite until the State has been abolished, or – for minarchists – dwindled down to a tiny, laissez-faire role.

Now go and read the very next paragraph of my post… the one you took out of context & ignorantly ranted against.

64

This guy covers all of the things we talked about in this thread. It might be interesting to people who argue over his opinion.

65

The logic is very simple. One ought not to deliberately make bad arguments, whether or not for correct conclusions. Arguments are not simply about which side you are on. They are also about what is true.

Were people much richer during the hyperinflation of the Weimer Republic than they were before? If you define “rich” by nominal income, obviously they were. Equally obviously, they in fact were not. That’s the same mistake that Rothbard deliberately made in measuring the growth of government under Reagan.

66

In the OP, Friedman is quoted as writing:

“Think that through and he [Rothbard] was saying that it was all right to misrepresent the evidence to his fellow libertarians as long as the result was to make them think badly of someone they should think badly of, to lead them to the correct conclusion for the wrong reason. I don’t regard that as a desirable approach to political (or other discussion). Or, for that matter, a libertarian one—we are generally opposed to fraud as well as force.”

Rothbard used this tactic in arguing against free banking in his paper “The Present State of Austrian Economics” (A Working Paper from the Ludwig von Mises Institute, November 1992).

Here are the passages in question, pages 35 and 36. Rothbard is arguing that to advocate free banking is to advocate conterfeiting, and he implies that this is Mises’s position as well:

“What is desperately needed is to abolish the counterfeiting. That was the proposal stemming from Mises’s insight into the inevitably destructive effects of paper money and fractional reserve banking. Instead, what our pseudo-Austrian economists propose to do is not to abolish counterfeiting, but to privatize it—to open up the counterfeiting process to “free” private competition.”

“One of Mises’s favorite quotes on money and banking was from Thomas Tooke: “free trade in banking is tantamount to free trade in swindling.” Tooke and Mises, of course, were referring to fractional-reserve banking, in which banks pledge to redeem on demand receipts to non-existent money in their vaults. These bank notes or deposits are just as much counterfeit as warehouse receipts to non-existent grain,…”

“The champions of free competition in counterfeiting retort that this is simply the market at work…”

“If counterfeiting per se is deplorable and to be outlawed, then the same standards must be applied to its surrogate, fractional reserve banking, which is currently legal and which would run rampant in the “free-banking” heaven of our non-Misesian pseudo-Austrians.”

Rothbard writes that one of Mises’s favorite quotes was “free trade in banking is tantamount to free trade in swindling.” But he neglects to mention that Mises strongly disagreed with this quote.

Rothbard writes that to advocate free banking is to be a “non-Misesian pseudo-Austrian.” However, Mises was a free-banking advocate.

“It is a mistake to associate with the notion of free banking the image of a state of affairs under which everybody is free to issue banknotes and to cheat the public ad libitum. People often refer to the dictum of an anonymous American quoted by Tooke: “Free trade in banking is free trade in swindling.” However, freedom in the issuance of banknotes would have narrowed down the use of banknotes considerably if it had not entirely suppressed it.” (Human Action, 3rd rev. ed. p.446)

Above, Mises argues for free banking and against Tooke’s dictum.

Mises’s position on free banking and Tooke’s dictum is also recorded in the book “The Free Market and Its Enemies.” This book is a transcription of some talks Mises gave in 1951.

“Propagandists who wanted to make the government pre-eminent in the issuance of money substitutes have publicized many stories about private money substitutes. These tales were condensed by an anonymous American who is credited with the dictum “Free trade in banking is free trade in swindling.” Economists, however, think differently; they consider free trade in banking as the only protection against the government’s issuance of bad banknotes.” (p.63)

Above, Mises again takes issue with Tooke’s dictum and advances the case for free banking.

Mises reiterates:

“The defenders of government interference with the issuance of banknotes and checkbook money justify this policy by declaring that “free trade in banking is free trade in swindling.” The poor, ignorant people must be protected, they say, against bad banknotes. But no one would be forced to take banknotes if they had not been declared legal tender by the government.” (p.81)

Again, Mises takes issue with Tooke’s dictum and argues in favor of free banking.

One who reads Rothbard’s article and who is unfamiliar with Mises’s position on free banking will come away believing that Mises quoted Tooke favorably and that Mises was against free banking, when the opposite is the case.

This is what Friedman means in writing:

“[Rothbard] was saying that it was all right to misrepresent the evidence to his fellow libertarians as long as the result was to make them think badly of someone they should think badly of, to lead them to the correct conclusion for the wrong reason. I don’t regard that as a desirable approach to political (or other discussion). Or, for that matter, a libertarian one—we are generally opposed to fraud as well as force.”

67

Adam,

Let’s make clear that there are two issues here.

Issue the First: Should anyone who wants to be allowed to open a bank?

Issue the Second: Should anyone who wants to be allowed to practice fractional reserve banking?

Rothbard apparently answered yes and no respectively, and apparently wrote that Mises was of the same opinion.

None of your quotes show any different.

Was Rothbard a weasel at times? That is another question altogether. Is there any evidence of it in the quotes you suppled? No.

68

The thing that annoys me about Rothbard is his…how can I say…bitterness towards Adam Smith. It feels like he tries too hard to be a revisionist, I’m not saying Smith was a a flawless economist, far from that, but it’s undeniable his influence for the cause of freedom and good economics.

69

@Vitor

Well it is true that Smith is a good read for some econ theory but he was far from being an original economist. Most of what he is credited with is not actually his to begin with.

70

Smiling Dave, if Adam’s post is correct then it has more implications than you are willing to admit in your response. Rothbard was outright misleading readers on what Mises actually said and wrote.

71

Jonathan,

But it’s not correct.

72

I beg to differ. Mises was a free banker. Now, Mises was not a free banker in the same spirit as Selgin, et. al., since that particular theory of free banking was no developed until after Mises’ death in 1973, but Mises is clear in Human Action that some circulation of fiduciary media is necessary. I think Salerno’s Mises Daily is pretty accurate in terms of comparing and contrasting Mises’ views on banking to the modern free bankers, but I think so is Adam in contrasting Rothbard and Mises.

I think you need to read what Adam quotes more carefully, because there is a clear contradiction between what Rothbard claims Mises wrote and what Mises actually wrote.

While this doesn’t have any implications on the above discussion, it wouldn’t be the first time Rothbard was loose with the facts. Rothbard’s history of Adam Smith is wanting, and there have been discussions elsewhere on this forum regarding Rothbard’s treatment of other historical figures. For example, Danny Sanchez has pointed out that Rothbard’s history of Francis Bacon is highly erroneous.

73

EDIT: double post

74

Jonathan,

Ok, I will read those quotes more carefully, and expand on their meaning.

1] “It is a mistake to associate with the notion of free banking the image of a state of affairs under which everybody is free to issue banknotes and to cheat the public ad libitum. People often refer to the dictum of an anonymous American quoted by Tooke: “Free trade in banking is free trade in swindling.” However, freedom in the issuance of banknotes would have narrowed down the use of banknotes considerably if it had not entirely suppressed it.”

So we have three sentences.

Look at that first sentence. It is saying quite clearly that issuing banknotes [fractional reserve banking] is “cheating the public”. Right there he is agreeing with Rothbard that FRB is cheating the public. [When he says “It is a mistake” he does not mean that part of the sentence is a mistake, but only the ad libitum part is a mistake. Proof of this will follow].

The second sentence can only be construed as support for the idea that issuing banknotes is cheating the public. Again, totally what Rothbard ascribed to him.

Ah, one may protest. What about the thrid sentence, which begins with “However”? “However” means he is going to contradict what he said above.

If Adam is right, we will see Mises galloping out like Sir Lancelot defending the honor of some maligned lady and saying that FRB is not cheating at all, that FRB is not couterfeiting, that shame on Rothbard for implying such a dastardly lie.

Well. what does he actually say? Nothing of the kind. All he says is that sure, FRB is cheating the public, but they can only get away with a limited amount of cheating. He is disagreeing with but one small part of the original sentence, the adlibitum phrase. He remains in agreement with the main part of it, that issuing banknotes is cheating the public, exactly Rothbard’s point.

I leave it as an excercise to read all the other quotes carefully and see that Mises never disagrees with Tooke. On the contrary, he always accepts Tooke’s premise. In one, he is saying that free banking is the lesser of the two evils, the other being govt banking. In the other, that govt did not solve the problem Tooke mentioned, but rather made it worse.

2] As for Mises believing that some circulation of fiduciary media is necessary, necessary for what? What I found in HA is this:

"Banknotes are not indispensable. All the economic achievements of
capitalism would have been accomplished if they had never existed."

Sounds pretty uneccessary to me.

3] Mises mentions Fisher’s plan for insisting on 100% reserve requirements. He has nothing against it per se, its only flaw being that Fisher kept the govt in charge.

4] Conclusions: Mises agreed with Rothbard that FRB is counterfeiting and cheating the public. Whenever he quoted Tooke, he agreed with Tooke as well. The only thing he said in defense of free banking is that, though totally uneccessary, it’s better than the govt in charge of things. Also the very faint praise indeed that free bankers could only get away with a limited amount of cheating the public.

75

Rothbard proposed to “abolish” and “outlaw” FracRB, and from Adam’s quotes he made it appear as if Mises had been proposing the same. Fact is, Mises did not support abolishing/outlawing FracRB but predicted that a free market in notes would practically make FracRB non-existent (with which I agree, btw). Two very different positions. Friedman and Knott are right: Rothbard does seem to play loose with facts.

How does one outlaw swindling, btw? A paternalistic/protective stance toward the “public” is a fundamental justification for government’s existence. Is the public being swindled (through flashy ads and product placement in movies) into paying $2 for a Coke bottle that costs only $.50 to produce? Shouldn’t someone (the government?) abolish/outlaw that?

76

Can you please provide one shred of evidence from Human Action that some circulation of fiduciary media is necessary according to Mises? One will do for now.

77

Z,

  1. So we agree on a few very substantial points. First, that Mises considered Tookes description as accurate. Second, that Adam misstated things when he said that “Mises strongly disagreed with this quote”. Third, that Adam was exagerating whn ehe wrote that “Mises was a free-banking advocate”. After all, there is much more than a fine line separating enthusiastically advocating something and saying “don’t worry the fraud will kill itself off”

The one point left undecided is whether Rothbard implied that Mises held it should be outlawed when what he really held was that it would self destruct.

I dunno, careful reading of the Rothbard quote clearly has him attributing to Mises only an agreement with Tooke that it is swindling. He does not attribute the remedy of outlawing to him.

  1. As for oulawing swindling, I know very little about how an anarchic society is to be run. But skimming through things, I get the impression that in such a society fraud would be a no-no and that there would be some way to deal with it.

Just to be clear, I do not have an opinion whether some minimal form of govt is needed, as Mises wrote, or if it can be done away with altogether, as others write. Nor do I have an opinion about whether FRB is fraud if all is spelled out explicitly in the contract. Fascinating q’s, but I haven’t looked into them.

78

Adams’s list of quotes of Rothbard including this quote: "One of Mises’s favorite quotes on money and banking was from Thomas Tooke: “free trade in banking is tantamount to free trade in swindling.” is a routine list of manipulative quotes specifically designed to portray Rothbard as a manipulator and Mises’ as a free banker. Adam has not compiled these out of his own research. I’m in this “business” long enough to recognize the same dishonest list of manipulations by anti-rothbard free bankers. Adam is giving too much faith in his sources where he simply copies and pastes from.

That famous quote provided by Rothbard quoting Mises on Tooke is deliberately taken out of context. It’s quite pathetic and anyone going back to the orginal reference will see the dishonesty. Rothbard is actually saying that free banking will NOT lead to “free swindling” but to hard money banking. And he quotes Mises on this issue who agrees with him on this.

79

p. 432,

Issuing money-certificates is an expensive venture. The banknotes must be printed, the token coins minted; a complicated accounting system for the deposits must be organized; the reserves must be kept in safety; then there is the risk of being cheated by counterfeit banknotes and checks. Against all these expenses stands only the slight chance that some of the banknotes issued may be destroyed and the still slighter chance that some depositors may forget their deposits. Issuing money-certificates is a ruinous business if not connected with issuing fiduciary media. In the early history of banking there were banks whose only operation consisted in issuing money-certificates. But these banks were indemnified by their clients for the costs incurred. At any rate, catallactics is not interested in the purely technical problems of banks not issuing fiduciary media. The only interest that catallactics takes in money-certificates is the connection between issuing them and the issuing of fiduciary media.

Of course, Mises argues that the issuing of said fiduciary media would be extremely limited in a free banking industry; his argument is actually strikingly similar to Selgin’s (referring to Selgin’s theory of an oversupply of notes and the consequent drive to redeem them).

80

Smiling Dave,

You write,

Look at that first sentence. It is saying quite clearly that issuing banknotes [fractional reserve banking] is “cheating the public”. Right there he is agreeing with Rothbard that FRB is cheating the public.

The key word, that you leave out, is “ad libitum”. Of course Mises agrees that the issuance of notes at “one’s pleasure” cheats the public. So does Selgin, et. al.! Mises, like Selgin et. al., simply believed that the market placed a limitation on the volume of fiduciary media which could be extended by a bank. Mises and modern free bankers disagree on the degree of limitation, of course.

The second sentence can only be construed as support for the idea that issuing banknotes is cheating the public.

Let’s be precise. The issuance of bank notes is not the same thing as the issuance of fiduciary media. Bank notes could just as well be money-certificates, or banknotes fully backed by a bank’s reserve. This does not affect the purchasing power of money.

If Adam is right, we will see Mises galloping out like Sir Lancelot defending the honor of some maligned lady and saying that FRB is not cheating at all, that FRB is not couterfeiting, that shame on Rothbard for implying such a dastardly lie.

That is not what Adam wrote, at all! Adam simply wrote that Mises believed in a free banking industry, since Mises believed that the issuance of fiduciary media would be limited by market forces (similar, but not the same, to the ideas proposed by Selgin, et. al.).

I leave it as an excercise to read all the other quotes carefully and see that Mises never disagrees with Tooke.

But, he indeed does! Mises held an advance theoretical knowledge on the working of the banking industry. Tooke claims that free banking is the same thing as swindling. Mises is disagreeing, saying that the only stable financial system is free banking.

The only thing he said in defense of free banking is that, though totally uneccessary, it’s better than the govt in charge of things.

This is absolutely wrong. Mises (p. 440), “Free banking is the only method available for the prevention of the dangers inherent in credit expansion.”

EDIT: Btw, I’m not agreeing with Lawrence White by claiming Mises amounts to a “proto-free banker”. Mises, as I interpret it, completely rejects monetary equilibrium theory between pp. 416-419. I also agree with Salerno’s interpretation of the Misesian case against the modern free banker’s argument in favor of fiduciary expansion as a means of staving off business cycles. I think that in this case free bankers are confusing causality, blaming the recession on monetary disequilibrium when in reality it was caused by an overissue of fiduciary media by a monopolized banking system.

Now, if DD5 is right that Adam quotes Rothbard out of context, then that’s another issue altogether. But, it isn’t an issue on what Mises writes, rather an issue of misinterpreting Rothbard’s interpretation.