Economic Thought. Lecture 3

The Rise of the Absolute State

Religion and Economics

• Rothbard thinks that the history of economics is not self-contained.

• Why does he stress religion so much?• Religion is a key part of a fundamental

polarity that animates the book.• Recall the key antithesis between

subjectivist theories of value and objective, cost-of-production theories.

Religion Continued

• Rothbard associates subjectivist theories with emphasis on consumption, belief in the power of reason, and Catholicism.

• Cost-of-production theories go together with emphasis on abstinence from consumption and hard work, skepticism about reason, and Protestantism.

• Of course, Rothbard doesn’t contend these associations are logically necessary.

Luther and Calvin

• Rothbard takes both Luther and Calvin to be irrationalists.

• “If reason cannot be used to frame an ethic, this means that Luther and Calvin had to, in essence, throw out natural law, and in doing so, they jettisoned the basic criteria developed over the centuries by which to criticize the despotic actions of the state.

Luther and Calvin Continued

• Indeed, Luther and Calvin, relying on isolated Biblical passages rather than on an integrated philosophic tradition,opined that the powers that be are ordained of God, and that therefore the king, no matter how tyrannical, is divinely appointed and must always be obeyed.”

Luther and Economics

• Luther’s ideas on economics were confused. He didn’t think economics was very important.

• He thought that the secular world was sharply separated from the Kingdom of God. This played into the hands of secular princes, anxious to increase their own power.

• Rothbard adopts a view of Luther associated with conservative Catholics like Heinrich Denifle and Hartmann Grisar.

Calvin on Interest

• Despite his low opinion of Calvin, Rothbard gave him credit (pun intended) for getting rid of the usury prohibition.

• Aristotle said that money is barren. Calvin answered, only if you don’t do anything with it.

• Although he allowed interest in theory, in practice he imposed restrictions on it. This was the opposite of the Catholics.

Salmasius

• One of the most important Calvinist writers on interest was the Dutch classical scholar Claudius Salmasius (1588-1653)

• John Milton launched a famous and vituperative attack on his work in defense of Salmasius’criticism of the English church government

Salmasius Continued

• Here is a sample of Milton’s invective: • She [France] is right, by my troth, she is right, and

can willingly allow you, you French capon, with your mankind wife and your desks chock-full of emptiness, to wander about, till somewhere in creation you light upon a dole bountiful enough for a grammarian-cavalier or illustrious hippo-critic,--always supposing any king or state has a mind to bid highest for a vagabond pedant that is on sale..

Salmasius on Interest

• Salmasius said, what is supposed to be so bad about money lending?

• He asked, why isn’t money lending a business like any other?

• If the complaint is that the poor are victims of high interest rates, then allowing more money lending will lower interest rates.

The Calling

• Calvin stressed that people were called by God to work in their jobs. This contrasted with the medieval view that only those in the priesthood were called.

• Prosperity was a sign that you one of the elect.

The Weber Thesis

• The great sociologist Max Weber placed major emphasis on the notion of the calling, especially among the Puritans, in his account of the origins of capitalism. His famous book is The Protestant Ethic and the Spirit of Capitalism.

• Weber emphasized what he called “innerwordly asceticism”. Those who thought they had a calling would save and accumulate and not just consume. This is one way Weber distinguishes between ordinary trading, which is common in history, and capitalism.

Rothbard on the Weber Thesis

• Rothbard rejects the Weber Thesis. Capitalism began in Catholic areas, towns in Italy in the Middle Ages, long before the Calvinists Weber stressed.

• Some Catholics, like Jacob Fugger, had the “Protestant’ virtues Weber talks about.

Rothbard on Weber Continued

• Rothbard follows Emil Kauder in thinking that the Calvinist stress on hard work led to a glorification of labor and to cost-of-production theories of value.

• The Catholics stressed a balance between consumption and production (Aristotle's moderation). This led to subjectivist theories of value.

Copernicus and the Quantity Theory

• Rothbard modifies a claim he made in an earlier chapter. Even before Azpilcueta, Copernicus (1473-1543) arrived at the quantity theory.

• He argued that increases in the quantity of money are the main cause of rising prices. He was able to come up with this even though he wrote in 1526, before the influx of metals from Spanish America into Europe.

Copernicus and Gresham’s Law

• Copernicus also arrived at Gresham’s Law. (Nicolas Oresme got it in the 14th century) Money that the state overvalues will drive out money undervalued by the state. E.g., debased coins will drive out non-debased coins. The good coins will be hoarded, melted down, or exported.

• “Bad money drives out good” is not true on the free market. On the free market, worn-down coins wouldn’t exchange at the same price as coins with their full metal content.

Botero and Malthus

• Not all developments in economic theory were good ones. One mistaken view, which Malthus made famous in 1798, was the law of population.

• Giovanni Botero (1540-1617) came up with the law of population in 1588. He said that population tends to grow without limit, but the growth in food is limited. As population presses on subsistence, it will be checked by wars, famine or plague, on the one hand, or having fewer children on the other.

Rothbard’s Criticism of the Law of Population

• Rothbard, following Schumpeter, says that the basic problem with the theory is that it treats population and food supply as independent, when they are interdependent.

• If people can check the growth of population in extreme circumstances, why not at other times?

The Montaigne Fallacy

• The great French essayist Michel de Montaigne (1533-1592) was responsible for another mistaken economic idea.

• He said that in trade, especially international trade, one party benefits at the expense of another. The French state should try to grab as much as it can.

• Montaigne saw that trade depends on the needs of others; but the fallacy is to think that trade creates these needs.

Montaigne and Skepticism

• Montaigne was a philosophical skeptic. “Man can know nothing, his reason being insufficient to arrive either at a natural law ethics or a firm theology. As Montaigne put it: 'reason does nothing but go astray in everything, and especially when it meddles with divine things'. And for a while, Montaigne adopted as his official motto the query, 'What do I know?’”

Montaigne and the State

• This skeptical view led Montaigne to defend obedience to the government in all matters. We don’t know enough to challenge the government’s authority.

• This is a key theme in Rothbard. Critics often claim that Mises and Rothbard are dogmatic; to say that economic law are known a priori leads to intolerance. Rothbard denies this. His view is that skepticism can’t offer resistance to absolutism.

Defenses of the Absolute State

• Montaigne was one of many in the 16th century who defended the absolute power of the state

• Humanists, i.e., scholars who studied the Latin and Greek classics, shifted from an earlier stress on human excellence to emphasizing the glory of the king. E.g., in France Guillaume Budé, (1467-1540) pictured the king as a quasi-divine figure.

Machiavelli

• The most famous 16th century defender of government power was Machiavelli. He argued in The Prince (1527) that the ruler need not observe moral restraints.

• Machiavelli advised the ruler to do whatever was needed to gain and keep power. He should be deceitful and pretend to be virtuous.

• This makes him, to Rothbard, a preacher of evil.

Skinner’s Objection

• Quentin Skinner, a key source for Rothbard’s account of Machiavelli, denied that he was a preacher of evil.

• He said that Machiavelli didn’t favor doing evil for its own sake. The prince should use evil measures only if necessary. If possible, the prince should really be good.

Rothbard’s Reply too Skinner’s Objection

• “ Professor Skinner, however, has a curious view of what 'preaching evil‘ might really be. Who in the history of the world, after all, and outside a Dr Fu Manchu novel, has actually lauded evil per se and counselled evil and vice at every step of life's way?

Reply Continued

• Preaching evil is to counsel precisely as Machiavelli has done: be good so long as goodness doesn't get in the way of something you want, in the case of the ruler that something being the maintenance and expansion of power. What else but such 'flexibility' can the preaching of evil be all about?”

Religion and Communism

• Another key theme in Rothbard’s book, that will be important in his discussion of Marxism in Volume 2, is that one source of communism is a mystical doctrine that stems from the Calabrian abbot, Joachim of Fiore (1145-1202)

• Joachim argued that history would come to an end in a third age, the age of the Holy Spirit. In this age, people would be totally liberated.

Religion and Communism Continued

• Rothbard thinks that through a Czech group called the Taborites, Joachimite doctrines had an influence on the Anabaptist revolt of Thomas Münzer and the communist uprising in Münster.

• Three important books that influenced Rothbard are Ronald Knox, Enthusiasm; Norman Cohn, The Pursuit of the Millennium; and Eric Voegelin, The New Science of Politics.