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Monday, January 30, 2012

Book Review: An Austrian Perspective on The History of Economic Thought, Part IV

Note: This is Part IV of a four-part book review

Analysis and Random Thoughts
In this fourth and final installment of this overly long book review, I will present some analysis and commentary of a few concepts presented in Rothbard's work that I found noteworthy.

The Zig-Zag Theory of Human History. Outside of the broad historical narrative that Rothbard wrote in this History...a historical account that presented an unbroken narrative from the Greeks forward, which I don't think I have ever seen before until now (my previous exposure to history in brick-and-mortar schooling settings has always been in asynchronous slices and chunks); it is always nice to have a sense of how history shapes events that came afterward. Thus, one of the concepts from Rothbard's book that resonated with me the most was his characterization of the flow of human history, and how ideas and theories, once articulated and if popular enough to accrue enough adherents, echo in posterity.

Another is how we moderns tend to think of history and progress as linear, and that we, standing on the shoulders of those who came before, are the most advanced and civilized humans that the world has ever seen. Rothbard throws a bucket of ice water on this conceit, offering instead a "zig-zag" model, where human progress (measured in the rectitude of ideas and theories) veers back and forth and even goes backwards from time to time. Exhibit A in Rothbard's argument is the case of Smith, and the damage his admittedly very popular Wealth of Nations wrought to economic thought (at least from the Austrian perspective):
[T]he more malignant aspect of this Smith-worship is that the lost economists were in many respects far sounder than Adam Smith, and in forgetting them, much of sound economics was lost for at least a century...Smith deflected economics...from a correct [Continental] path, and on to a very different and fallacious one.
Viewed in this manner, I do hope that our successors will eventually come to forgive our 300 year long Smith-Ricardo-Mill-Marx(-Keynes?) detour in economic thought.

Hatin' on Calvin: Rothbard's tome takes a generally dim view of the Reformation, an event of course near and dear to my heart as a Protestant, if only for the fact that the Reformation ended the reign of the sclerotic Scholastics,  distributed economic though outside of Church-run academe, and made economic thought more vulnerable to destructive detours. In fact, many sections of this History made it sound as if the Protestants, and Calvin in particular, opened the metaphorical Pandora's Box and midwifed totalitarian governance into an otherwise liberal and free world. Indeed in some sections, it seemed like Rothbard was claiming that Calvinist-style Protestantism was solely responsible for the wholesale sweep of tyrannical governance through an otherwise free and liberal Europe. Yet a cursory glance at history easily demonstrates the cruel authoritarianism of, and poverty of liberty in, the dominant Catholic regimes of the time, particularly in their harsh suppression of heretical Protestant sects [6].  Moreover, Rothbard is very clear in that he believes absolute obedience to a monarch is a product of Protestant thought, in contrast to Catholic thought which allegedly retained natural law as a bulwark against absolutism. How then would Rothbard explain Catholic absolutists ("Sun King" Louis XIV or "Bloody" Queen Mary), or the anti-absolutist Calvinist Puritans who opposed the (also bloody) absolutist Tudor dynasty, or other republican trends that developed only in England and nowhere else on the Continent?

Thus, contra Rothbard, I offer that the trend in European history from even before the Reformation (but certainly so after the Church's grip on society was loosed), was the eventual unhorsing of theocracy as the dominant theory of governance. For instance, if one can approach God using reason...as is Rothbard's stated contention in this History...what is to stop Man from moving past God using reason as well? Which is, incidentally, exactly what happened with the secularists and the atheists, those natural heirs of reason and humanism, who would go on to declare God dead and erect in His place an idol to themselves. Rothbard, while noting that humanist philosophy was born in Renaissance (and Catholic) Italy, failed to note that said philosophy spread northward to the rest of Western Europe like a virus. With it came "absolutist political thought, and its contempt for the systematic thinking and natural law doctrines of the Scholastics".

Of the Enlightenment, Rothbard had this to say:
The Enlightenment was a general movement in European thought in the eighteenth century that stressed the power of human reason to discern truth. Generally, it was dedicated to natural law and natural rights, although in the later years of the century it began to shade off into utilitarianism. While scholasticism was compatible with an emphasis on natural law and natural rights, it was generally discarded and reviled as ignorant 'superstition', along with revealed religion. In religion, therefore, Enlightenment thinkers tended to discard Christianity, attack the Christian Church, and adopt skepticism, deism, or even atheism.
[6] While doing research for this post, I happened across a Reformation-era depiction of male and female Protestants, stripped nude and impaled on a stake through whatever orifice the executioner found available and/or amusing, after a victorious Counter-Reformation campaign. Wish I had preserved the link, but no matter...tolerant and liberal-minded folk, those olden-day Roman Catholics were not. I am certain that Protestant revolutionaries were more sweet and forgiving in their dealings with their Catholic adversaries; however, my point is that I think Rothbard makes too much hay out of supposed Catholic fidelity to natural law, and Protestantism's initial apostasy from it.

Speaking of atheism, Rothbard did discuss atheistic humanist political thought as well, and no discussion of Italian Renaissance political thought would be complete without mentioning the amoral atheist Machiavelli. With him, we see in atheism, as opposed to both Catholicism and Protestant Christianity which both acknowledged their Classical natural law heritage, how there is no moral bulwark whatsoever against the abuses of a sovereign. Indeed, whereas other Italian pamphleteers of that era tended to ingratiate themselves by feting the virtu of the individual whose favor they wished to curry, Machiavelli took his advice in a completely different direction:
...in casting out Christian or natural law morality, however, he [Machiavelli] did not presume to claim to be 'value-free' as do his modern followers; he knew full well that he was advocating the new morality of subordinating all other considerations to power and to the reasons of the state. Machiavelli was the philosopher and apologist...for the untrammelled, unchecked power of the absolute state".
Rehabilitating Usury: Rothbard, in this History, spent quite a bit of time detailing the gradual rehabilitation of usury throughout the Middle Ages into modern times. I found this discussion interesting, both for acknowledging that the Christian Church a few hundred years ago viewed interest lending with the same abhorrence as the Islamic religion does today, and for Rothbard's exposition of interest as a key component of Austrian theory as it relates to time preferences. Indeed, Rothbard made such a strong case for usury that I found myself questioning, if only for a moment, my heretofore steadfast opposition to the charging of interest [7]. Through Rothbard, I see the theory behind the charging of interest, on how it is both compensation for risk borne by the investor, as well as a price put on the delay of present gratification in exchange for future gratification, and not mere profiteering and the engine of monetary debasement.  In other words, interest is the debtor paying back the creditor for the cost of opportunities that the creditor forefeited in order to grant a loan to the creditor. Put yet another way, time literally is money.

[7] I remain opposed to usury on Biblical grounds as well as monetary ones, as I document/argue here.

A Staid European Conceptualization of Left and Right. In Rothbard's manuscript, to be "left" is to be Liberal, to espouse the concepts of laissez faire, of limited government, Republicanism, and liberty, while to be "right" is to be inclined toward protectionism, absolutist government, and an aggressive and warlike foreign policy. This conceptualization, while somewhat flattering to those who consider themselves, as "leftists", to be the heirs to a tradition of freedom, is of course abused today by European socialists who fancy the "left" today as the repository of freedom while those "fascists" on the right are the sworn enemies of a free and liberal state. The real truth is quite far from this facile dichotomy: the political spectrum model, as employed in Europe, amounts to sibling rivalry between competing forms of statism...the Communists/Socialists on the Left (the "Reds") and the Fascists on the so-called "Right" (the "Browns"). Both supposed "poles" in European political thought assume an ever-burgeoning state; neither argue for individual freedom and autonomy, even on Rothbard's beloved Continent. This I found quite curious, for as a proto anarcho-capitalist, Rothbard never avails himself of the American-style left/right dichotomy, in which to be "left" is to be for absolute state power over the individual, while being "right" is generally seen as opposing state power and favoring individual freedom. As imperfect as it is, the common American concept of left vs. right, flawed as it is, is far more likely to promote the sort of anarcho-capitalism that Rothbard seems to prefer in his writing.

Political Man vs. Religious Man. One passage from Rothbard really got me to thinking about what I have come to view as a fundamental error in our culture...our rejection of the spiritual nature of man in favor of a purely secular and materialist conceptualization. Thus, just as our Enlightenment forebears rejected spirituality as crude superstition, so we too sow the Enlightenment secularist seeds, only to later wonder at the paucity of the hollow husks we reap. Ideas matter, and in this case, ideas espoused in the sixteenth century shape our reality today:
[George] Buchanan, in 1567, began to draft his great work, The Right of the Kingdom in Scotland, which he published in 1579. Buchanan began, like the Hugenots, with the state of nature and a social contract by the people with their rulers, a contract in which they retained their sovereignty and their rights. But there were two major differences. In the first place, [Theodore] Beza and [Philippe du Plessis] Mornay had talked of two such contracts: a political social contract, and a religious covenant to act as a godly people. With Buchanan, the religious covenant drops out totally, and we are left with the political contract alone. Some historians have interpreted Buchanan's radical step as secularizing politics into an independent 'political science'. More accurately, Buchanan emancipated political theory from the directly divine or theological concerns of the Protestant founders, and returned it to its earlier base in natural law and in human rights.
This passage from Rothbard immediately reminds me of some sage advice from Founding Father John Adams, who said:
We have no government armed in power capable of contending with human passions unbridled by morality and religion. Our Constitution was made only for a religious and moral people. It is wholly inadequate for the government of any other
With this quote from Adams, we see clearly how Buchanan, some 450-odd years ago, unfettered political economic theory from a framework of religious morality. Thus secularized, the people's political and economic thought was finally cleaved from religious concerns...their morality, the framework with which they would judge between right and wrong acts in the pursuit of their self interest, would be anchored in the less robust axioms of natural law.

This I think will prove to be a grievous error--for capitalism is merely a theory of resource allocation. It is amoral. It knows nothing of justice, of kindness, of mercy, of charity. It knows nothing of love...all it knows, all it promotes, is the most efficient distribution of goods and services. Economic Man cares only for the satisfaction of his own self-interested wants, and the thin gruel of pagan natural rights [8] proffered by secularists as a code of conduct for human beings imbued in lieu of religion insures little against the encroachments upon liberty and property by the State. This duality between man as selfish political actor and his spiritual nature (which emphasizes other-orientedness), conceived so many years ago, is the locus for many of modern man's woes today. Furthermore, as the influence of the Christian religion on Western civilization wanes, as the cultural residue of Christianity slowly relinquishes its influence, so too will individual liberty and love for one's fellow man slowly give way in favor of the selfish tyranny of evil men.  We can see this exchange of liberty for tyranny in action today; just as laissez-faire declined in popularity in concert with the decline in European spirituality (e.g., the substitution of deism-cum-atheism for Christianity), the welfare-warfare State "progressed" into the dominant political theory we have today. This depressing trend I think will only accelerate as Western Civilization's Christian heritage is gradually forgotten and/or actively expunged from legitimate political calculus, leaving in its place a pre-Christian pagan morality that Christianity had once overpowered. When God is dead, or at least banned from public debate, who or what will guide human action in His place?

[8] Rothbard contends the pagan Greeks were among the first to codify property rights, and that property rights being among the key tenets of natural law. Moreover, Rothbard's manuscript makes it clear that property rights are central to the Austrian concept of individual / entrepreneurial action, and thus a free market economy. How distressing it is to consider the implication that property rights, that supposed "natural right" that belongs, axiomatically to man in a state of nature, has been under attack continuously by governments (i.e., gangs of armed men) since the dawn of time. Even more troubling is to consider how poorly will natural law theory, a theory honored nowhere except in the cloistered scribbling of long-dead Ancients and their Scholastic and Classical Liberal heirs, protect individual property rights when the power of dogma, based on the written Word, has failed to do so.

In all, this was an excellent book that I highly recommend reading, particularly his sections on the Ancients and on Marx, for these areas I found most illuminating and think other readers will as well.

1 comment:

Justin said...

Nowhere more than in their discussion of usury do I find Austrian ideas to be so retrograde. I will freely admit they make a great point... for a world of full-reserve banking combined with the gold standard. For today's world, their insight is completely obsolete.

Today, under the fractional reserver system, bankers don't take "risks" with their own capital. They create credit, from scratch, without having the money beforehand, by monetizing collateral. If the loan fails, they simply seize the collateral. Thus, they never faced any risk, since their credit creation was guaranteed by physical collateral and never involved their own capital.

Nor do they shift the time demand to the present from the future, because they AREN'T bringing unused capital into play. They are simply monetizing capital that their their customers bring to them!

The whole idea that bankers deserve a premium for the service of making money available, only makes sense if money is a scarce commodity. That is no longer the case. In our modern system, credit creation is without limit, unconstrained by anything but entrepreneurial demand.

This also means that interest rates are, today, completely arbitrary, and are used SOLELY as a means to ENRICH the banking elites.

Thus, for example, right now, banks can get money from the Fed at near ZERO PERCENT. Yet, interest rates on credit cards, car loans, and student loans HAVE NOT COME DOWN!!!

Think about it, it is a huge scam. That is why I support PUBLIC BANKING, to allow credit creation for the public good, eliminating the wealth transfer to the banking elites.

Think about it, there is NO REASON we don't have essentially INTEREST FREE banking today. Well, the reason is apparent enough: just the pro-bank rhetoric of elite apologists like the Austrians.