Naturally, I reject these articles because our editorial policy and our mission is to publish articles that actually support peace, freedom, and Austrian Economics. It’s not our job to publish articles opposed to these things. After all, for writers and readers who don’t like what the Mises Institute stands for, they can read and publish articles at National Review, The Washington Post, The New York Times, Commentary, and countless other neoconservative or social-democrat publications that are more than happy to tell readers that radical laissez-faire and non-interventionist foreign policy are terrible.
In case you haven’t read it lately—or perhaps you’ve never read it—the mission statement of the Mises Institute states that the Institute “exists to promote teaching and research in the Austrian school of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard.”
For those who find this mission statement too non-specific, I recommend consulting the decades’ worth of commentary and research published by the Institute over the forty-plus years of the Institute’s existence. For anyone who has bothered to read any significant portion of this body of work, the Mises Institute’s mission and editorial positions over the past four decades are no mystery.
In my ten years as an editor at the Mises Institute, however, I’ve been often surprised by how many self-described “supporters” of the Institute don’t actually agree with its mission. For example, it’s remarkable how many article submissions I have received over the years in which the author attacks our core editorial positions.
These articles often have titles like “Why the Austrian School is wrong about X.” ”X” is some fundamental tenet of the Austrian School that is supposedly “disproven” in 900 words by the would-be columnist who generally demonstrates almost no understanding of the Austrian School at all.
I also receive article submissions which take the form of “the libertarian/free-market case for Y” in which Y is a position—usually a morally repugnant one—that is utterly opposed to what Mises Institute scholars have been publishing here for decades. This sort of submission usually—but not always—centers on foreign policy and advocates for the latest war or “humanitarian” intervention.
To elaborate, as interest rates increase, capital’s opportunity cost increases. Capital requires a higher overall gain from equity to compete with the higher passive interest income. Increasing taxes on capital increases the chance of capital consumption. If an industry is faced with capital consumption by decree, there is only one strategy, a staged retreat strategy. Production ultimately halts. Hence, capital taxes divert resources from productive activities to passive, debt-yielding types of activities.
The Misesian tradition provides essential insights into the nature of capital. From Frédéric Bastiat to Murray N. Rothbard, Austrian capital theory excels.
Bastiat illustrated gains from capital by giving us the anecdote of the neighbor who wanted to borrow a timber planer. Rothbard gave us the examples of royalties in the extractive industry to illustrate capital consumption. The list goes on. Often, capital’s exceptional output is because it behaves as both nonlinear and time specific.
Historically, societies have been reluctant to tax gains from capital. For example, capital gains tax was only introduced in Australia in the mid-1980s. Many of the gains from capital assets continue to receive favorable tax treatment.
The Laffer curve attempts to model government revenue against a taxation rate. Rothbard criticized the Laffer curve by saying that it should be a “straight line.” I understand Rothbard to mean that at some point the tax collected from deployed capital does not gradually decline with an increased tax rate, as the Laffer curve would suggest. Rather, the tax collected on capital gains immediately halts due to capital’s opportunity cost. Capital shifts to alternative passive investments based on the entrepreneur’s subjective value and imputed costs. The concept can be illustrated by the following formula:
[expected gain from capital] + [starting capital] − [taxes]
must be greater than (>)
[interest] + [principal] on an alternative passive investment
The opportunity cost of capital is therefore the risk-free interest rate obtainable on a passive income stream. No self-respecting entrepreneur sets out to lose capital when they can just put the money on term deposit.
An equity capital investment becomes less attractive as deposit rates rise. An equity capital investment also becomes less attractive if capital consumption, via taxation, occurs. To use a sporting analogy, capital may “sit on the sidelines” as entrepreneurs consider alternate investments. That sideline is often interest-bearing deposits. Where the expected net gain from capital only equals the alternative passive interest income stream, then said passive income stream is the preferred investment for two reasons:
There is a lower chance of capital losses on the risk-free rate.
There is a lower chance of capital consumption via taxation changes.
The first reason is straightforward. However, I see capital consumption as a more nuanced concept.
We were assured by one and all, at the time, that this new withholding tax was strictly limited to the wartime emergency, and would disappear at the arrival of peace. The rest, alas, is history. But the point is that no one can seriously maintain that an income tax deprived of withholding power could be collected at its present high levels.
The consumption tax, on the other hand, can only be regarded as a payment for permission-to-live. It implies that a man will not be allowed to advance or even sustain his own life unless he pays, off the top, a fee to the State for permission to do so. The consumption tax does not strike me, in its philosophical implications, as one whit more noble, or less presumptuous, than the income tax.
Orthodox neoclassical economics has long maintained that, from the point of view of the taxed themselves, an income tax is “better than” an excise tax on a particular form of consumption, since, in addition to the total revenue extracted, which is assumed to be the same in both cases, the excise tax weights the levy heavily against a particular consumer good. In addition to the total amount levied, therefore, an excise tax skews and distorts spending and resources away from the consumers’ preferred consumption patterns. Indifference curves are trotted out with a flourish to lend the scientific patina of geometry to this demonstration.
As in many other cases when economists rush to judge various courses of action as “good,” “superior,” or “optimal,” however, the ceteris paribus assumptions underlying such judgments—in this case, for example, that total revenue remains the same—do not always hold up in real life. Thus, it is certainly possible, for political or other reasons, that one particular form of tax is not likely to result in the same total revenue as another. The nature of a particular tax might lead to less or more revenue than another tax. Suppose, for example, that all present taxes are abolished and that the same total is to be raised from a new capitation, or head, tax, which requires that every inhabitant of the United States pay an equal amount to the support of federal, state, and local government. This would mean that the existing total government revenue of the United States, which we estimate at $1.38 trillion—and here exact figures are not important—would have to be divided between an approximate total of 243 million people. Which would mean that every man, woman, and child in America would be required to pay to government each and every year, $5,680. Somehow, I don’t believe that anything like this large a sum could be collectible by the authorities, no matter how many enforcement powers are granted the IRS. A clear example where the ceteris paribus assumption flagrantly breaks down.
But a more important, if less dramatic, example is nearer at hand. Before World War II, Internal Revenue collected the full amount, in one lump sum, from every taxpayer, on March 15 of each year. (A month’s extension was later granted to the long-suffering taxpayers.) During World War II, in order to permit an easier and far-smoother collection of the far-higher tax rates for financing the war effort, the federal government instituted a plan conceived by the ubiquitous Beardsley Ruml of R.H. Macy & Co., and technically implemented by a bright young economist at the Treasury Department, Milton Friedman. This plan, as all of us know only too well, coerced every employer into the unpaid labor of withholding the tax each month from the employee’s paycheck and delivering it to the Treasury. As a result, there was no longer a need for the taxpayer to cough up the total amount in a lump sum each year. We were assured by one and all, at the time, that this new withholding tax was strictly limited to the wartime emergency, and would disappear at the arrival of peace. The rest, alas, is history. But the point is that no one can seriously maintain that an income tax deprived of withholding power could be collected at its present high levels.
One reason, therefore, that an economist cannot claim that the income tax, or any other tax, is better from the point of view of the taxed person, is that total revenue collected is often a function of the type of tax imposed. And it would seem that, from the point of view of the taxed person, the less extracted from him the better. Even indifference-curve analysis would have to confirm that conclusion. If someone wishes to claim that a taxed person is disappointed at how little tax he is asked to pay, that person is always free to make up the alleged deficiency by making a voluntary gift to the bewildered but happy taxing authorities.1
A second insuperable problem with an economist’s recommending any form of tax from the alleged point of view of the taxee, is that the taxpayer may well have particular subjective evaluations of the form of tax, apart from the total amount levied. Even if the total revenue extracted from him is the same for tax A and tax B, he may have very different subjective evaluations of the two taxing processes. Let us return, for example, to our case of the income as compared to an excise tax. Income taxes are collected in the course of a coercive and even brutal examination of virtually every aspect of every taxpayer’s life by the all-seeing, all-powerful Internal Revenue Service. Each taxpayer, furthermore, is obliged by law to keep accurate records of his income and deductions, and then, painstakingly and truthfully, to fill out and submit the very forms that will tend to incriminate him into tax liability. An excise tax, say on whiskey or on movie admissions, will intrude directly on no one’s life and income, but only into the sales of the movie theater or liquor store. I venture to judge that, in evaluating the “superiority” or “inferiority” of different modes of taxation, even the most determined imbiber or moviegoer would cheerfully pay far higher prices for whiskey or movies than neoclassical economists contemplate, in order to avoid the long arm of the IRS.2
Jack Dorsey, Vipassanā meditation practitioner and billionaire CEO of Twitter, is known for cultivating an eclectic image as a guru and deep thinker. He is also well-known as a supporter of bitcoin, having a personal stake and speaking at conferences to dedicated hodlers. But over this past weekend he used his sizable Twitter account (5.6 million followers!) to go a step beyond simply questioning the currency regime and post a decidedly provocative link to mises.org:
By provocative we mean Dorsey linked not to some article on bitcoin or money, but to Murray N. Rothbard’s seminal 1974 essay “Anatomy of the State.” This short missive may well represent Rothbard’s most bracing and concise attack on government as an institution, and that’s saying something. This is Rothbard at his full-throated best, challenging the state per se as a predatory and malign force in society rather than a needed protector of rights or provider of order. As I wrote earlier this year:
[“Anatomy of the State”] demands that readers understand the stark nature of government, without fairy tales or niceties. It applies the same lens to public and private criminality. It challenges every myth surrounding politics and statecraft, ranging from “the government is us” to judicial review. It explains how the state maintains legitimacy, how it expands, how it deals with other states, and ultimately how it works to prevent domestic threats to its power. And it still serves as the baseline analysis for understanding state power, nearly 50 years after Rothbard helped create a burgeoning anarcho-capitalist movement.
As always, Dorsey was cagey and a bit opaque in his Twitter habits. He offered no explanation or follow-up. But we can only assume he intended to plant a seed, and our analytics tell us many tens of thousands of new visitors to mises.org clicked through both to Rothbard’s essay and related links.
But Dorsey wasn’t done, tweeting another cryptic message over the weekend about the fiftieth anniversary of Richard Nixon’s gold shock:
The hashtag #wtfhappenedin1971, and its accompanying Twitter account, has been active throughout 2021 in explaining the end of gold redemption in America. Like it or not, social media is now where anyone can climb on their soapbox and attempt to advance a narrative. Subversive sites like wtfhappenedin1971.com use twitter to do just that, helping millions understand the tremendous harm caused by government issuance of money backed by nothing. They skillfully use shocking graphics to make the case against inflationism and monetary hedonism. And they help organizations like the Mises Institute in our broader mission to show how money has become entirely corrupted by politics and special interests at the expense of ordinary Americans. Thanks to #wtfhappenedin1971 and Mr. Dorsey’s missive, the term “Rothbard” trended on Twitter all weekend—after we seized the opportunity to promote what we consider the best and most accessible book on money ever written: Rothbard’s What Has Government Done to Our Money?
If libertarianism wishes to give up modern political categories, it has to think about law in a different way. Murray N. Rothbard, the most important exponent of the radical libertarian school, is right when he rejects the historicism and relativism of legal realism and when—for the same reasons—he criticizes Hayek and Leoni.
But unfortunately, he does not really grasp the function of the evolution into classic natural law. Furthermore, his idea of building a libertarian code is completely inconsistent with his frequent references to the Greek and Christian legal heritage.1
In For a New Liberty, Rothbard points out that the history of a changing and evolving law can be useful in order to find just rules: “since we have a body of common law principles to draw on, however, the task of reason in correcting and amending the common law would be far easier than trying to construct a body of systematic legal principles de novo out of the thin air.”2
But the relationship between common law and natural law must be seen differently. Common law is not only an interesting tool for discovering natural law: it has its specific role. Positive law needs to interact with natural law principles, but even the latter cannot be considered as self-sufficient.
Moreover, in his defense of rationality, Rothbard does not realize that law cannot be entirely read into the praxeological framework, which is axiomatic and deductive. The division of theory and history puts some disciplines into opposition with others, but above all it makes a distinction within any single field of study.
Economics, for instance, is a theoretical science if considered as political economics, but a historical and empiric activity if it analyzes what happened in the past.3 This is also true for legal studies, because they have a theoretical part but, at the same time, include many other aspects which, on the contrary, are historical and cannot be examined using logical and a priori methods.
Carlo LottieriCarlo Lottieri is an Italian political philosopher with the University of Siena and Istituto Bruno Leoni whose main interests are in contemporary libertarian thought. Most recently he edited an anthology of writings by Bruno Leoni.
Below is a reprint of a Murray Rothbard essay particularly relevant at this time of the partial government shutdown. It was originally appeared in the New Individualist Review (Summer, 1961) The Fallacy of the “Public Sector”
By Murray N. Rothbard
We have heard a great deal in recent years of the “public sector,” and solemn discussions abound through the land on whether or not the public sector should be increased vis-à-vis the “private sector.” The very terminology is redolent of pure science, and indeed it emerges from the supposedly scientific, if rather grubby, world of “national-income statistics.” But the concept is hardly wertfrei; in fact, it is fraught with grave, and questionable, implications.
In the first place, we may ask, “public sector” of what? Of something called the “national product.” But note the hidden assumptions: that the national product is something like a pie, consisting of several “sectors,” and that these sectors, public and private alike, are added to make the product of the economy as a whole. In this way, the assumption is smuggled into the analysis that the public and private sectors are equally productive, equally important, and on an equal footing altogether, and that “our” deciding on the proportions of public to private sector is about as innocuous as any individual’s decision on whether to eat cake or ice cream. The State is considered to be an amiable service agency, somewhat akin to the corner grocer, or rather to the neighborhood lodge, in which “we” get together to decide how much “our government” should do for (or to) us. Even those neoclassical economists who tend to favor the free market and free society often regard the State as a generally inefficient, but still amiable, organ of social service, mechanically registering “our” values and decisions.
One would not think it difficult for scholars and laymen alike to grasp the fact that government is not like the Rotarians or the Elks; that it differs profoundly from all other organs and institutions in society; namely, that it lives and acquires its revenues by coercion and not by voluntary payment. The late Joseph Schumpeter was never more astute than when he wrote, “The theory which construes taxes on the analogy of club dues or of the purchase of the services of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind.”1…
There is a crisis, and only you, and people like you, can get us out of it.
What is this crisis? On the one hand, the statist order is collapsing all around us. America is mired in a futile war in Afghanistan. A belligerent policy toward Iran threatens to bring about a new war in the Middle East. And let’s not forget about North Korea, where the danger of a nuclear war is by no means over.
On the domestic front, the Fed continues the manipulation of our economy which led to the 2008 crisis. Government debt is rising to an unprecedented level.
Thanks to the works of great thinkers and scholars like Ludwig von Mises and Murray N. Rothbard, we know the solution to the problems that the State causes. Freedom is the answer. Only a completely free market economy and a non–interventionist foreign policy can solve our problems.
And people want to hear our message. The magnificent success of Dr. Ron Paul inspires all of us. His books, including End the Fedand The Revolution: A Manifesto, are best sellers.
Now we are in a position to understand the crisis I spoke about earlier. Freedom means the right to hold controversial, un-PC opinions, and to act on these opinions, so long as you don’t commit aggression. But today the lunatic left is trying to suppress those who hold opinions like ours. If they had their way, we would be completely silenced. Unfortunately, there are so-called left “libertarians” who have joined this campaign of suppression. They demand that libertarians embrace the complete PC agenda. It is because of this sad situation that we need to support alternative media.
Here is a sample of what we are up against. Jeremy Waldron is a well-known legal academic who has taught at Oxford and now teaches at NYU Law School. In The Harm in Hate Speech, he calls for suppression of so-called “hate speech,” which really means anything that is un-PC.
Hate speech, Waldron tells, us, consists of “publications which express profound disrespect, hatred, and vilification for the members of minority groups”
Why should we restrict hate speech? Waldron says it is like environmental pollution:
tiny impacts of millions of actions — each apparently inconsiderable in itself — can produce a large-scale toxic effect that, even at the mass level, operates insidiously as a sort of slow-acting poison, and that regulations have to be aimed at individual actions with that scale and that pace of causation in mind.
But why does contagion operate only with bad effects? Will not the cumulative effects of a series of individual encounters in which members of minority groups are treated with equal respect generate a positive atmosphere of assurance, in precisely the same way that Waldron postulates for the amassing of hate messages? Waldron assumes without argument a quasi–Gresham’s law of public opinion, in which bad opinion drives out good.
Murray N. Rothbard has infuriated me! I learned exponentially more from this text than from every American history class I have ever taken and every history text book I was forced to purchase – combined. I paid $4 American (in 2014 dollars) for this collection on eBook. When compared to the several thousand I spent in college courses and American History text books, this has to be the greatest value ever. If Rothbard had only expanded his scope to include math, physical science, and engineering…well, I could have gotten my entire undergraduate education for less than $20. How dare he stick to the social sciences! Read the rest of this entry »
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