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Link: http://www.quebecoislibre.org/15/150615-4.html Walter Edward Block is an American Austrian School economist and anarcho-libertarian theorist. He currently holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the J. A. Butt School of Business at Loyola University New Orleans. He is a senior fellow of the Ludwig von Mises Institute in Auburn, Alabama. He is best known for his 1976 book Defending the Undefendable. Grégoire Canlorbe: It is often argued (especially in Catholic circles and even more broadly, conservative ones) that the mistake of libertarian thought is to overlook the “community” dimension of the human being and to thus reduce man to an economic actor, in turn reducing interpersonal relationships to mere market relationships. The anthropological model of libertarians does not take into account the natural membership of human beings in many circles, from the family to the city, circles which assign man rights and duties. The model reduces the human being to a mere dealing animal and forgets that he is also a political animal. Is this reasoning sound, at least in part, in your opinion? Walter Block: Not sound. It misunderstands libertarianism. That philosophy is, solely, a theory of the just use of violence. It says that violence may be used only in defense or retaliation, but never initiated against innocent persons or their legitimately held property. If anything, this objection is better launched at Austrian economics, not libertarianism. But even there, it fails, abysmally. For Austrian economics is a theory of cause and effect, and claims that human purposes are the fountainhead of economic activity. Where this criticism makes the most sense is when launched not against Austrianism or libertarianism but mainstream economics. The neoclassicals buy into this crazy notion of economic man, or homo economicus, and perfect competition. But even here, most of the mainstream economists are not quite as bad as depicted above; particularly the ones involved in political economy. They know, pretty much, that man is a political animal. Certainly, the Public Choicers in particular cannot reasonably be accused of this fallacy. Grégoire Canlorbe: Frédéric Bastiat wrote: “If mankind is improving, this moral growth is due, not to the producer, but to the consumer. Religion understood this perfectly when it severely admonished the rich man—the great consumer—in regard to his tremendous responsibility. From a different point of view and in different language political economy arrives at the same conclusion. It affirms that we cannot prevent supplying what is demanded; […] that, therefore, it behooves the one who voices the desire and makes the demand to accept the consequences, whether beneficial or disastrous, and to answer before the justice of God, as before the opinion of mankind, for the good or evil end to which he has directed the labor of his fellow men.” (Economic Harmonies, chapter XI) To what extent do you share this point of view? Walter Block: I disagree with this. William Hutt and Ludwig von Mises were guilty of holding this erroneous view. Murray Rothbard corrected both in his Man, Economy and State. The error was “consumer sovereignty.” What about the producer? Is he not sovereign too? Ayn Rand’s character in the Fountainhead was a good example of this. As far as he was concerned, it was his way or the highway. He had a vision of good architecture, and he was willing to shove it down the throats of his clients. If they didn’t like his vision, he wouldn’t work for them. Ditto for Mozart, Einstein, Mises and Hutt themselves. Grégoire Canlorbe: For which reasons and under which circumstances did you come to espouse Austrian economics and anarcho-libertarian philosophy? Did you become an Austrian libertarian abruptly or did you experience a long, progressive and surreptitious transition toward this worldview? Walter Block: When I met Murray Rothbard in about 1966, I was a limited government monarchist libertarian. This was mainly based on the reading of Hazlitt’s Economics in One Lesson, Rand’s Atlas Shrugged, and under the tutelage of Nathaniel Branden and Ayn Rand. It took Murray about 10 minutes to convert me to the anarcho-capitalist position. He convinced me that the arguments I used against government post offices and highways, lack of competition applied also to courts, armies and police. It took me several years, under the tutelage of Murray Rothbard and Walter Grinder, to see my way clear to Austrian economics. I was enmeshed in logical positivism. I couldn’t get it through my thick head that there was such a thing as a synthetic a priori statement. I thought that if something were absolutely true, it could not be truth of the real world; it had to be a tautology. And, if it did apply to reality, we could only know its truth provisionally, empirically. Ah, well, I was young and stupid. Grégoire Canlorbe: Two views seem to be in opposition within Austrian economics. The first view considers the market economy to be perpetually spurred toward the general equilibrium model, that model helping understand the reason for profits and losses by entrepreneurs along the equilibrating process on the one hand, and the long-term outcome of this process on the other hand. The second perspective, as promoted by Guido Hülsmann, argues that there is no trend toward any equilibrium, and that the scope of the general equilibrium model is simply counterfactual: It describes the situation that would emerge should no entrepreneur commit any mistake. Of those two antagonistic views, which one has you preference? Walter Block: I am known, far and wide, as Walter “Moderate” Block; well, at least in my own mind. I am a moderate on this question, in any case. Why can’t I embrace both? As it happens, I do indeed embrace each of these. Certainly, I am a strong Hulsmannian on this issue. I think Guido’s work on counterfactuals is nothing short of magnificent. It is this sort of thing that enables us to say to those such as Krugman who doubt that governmental increases in the money stock lead to inflation: We content ourselves with maintaining that prices are higher than they otherwise would have been without all of this quantitative easing. As this is a correct praxeological statement, it is necessarily true, and cannot be refuted with any evidence, any more than can be the Pythagorean Theorem. Similarly, we can respond to the Stiglitzes of the word who assert that minimum wages do not lead to unemployment for unskilled workers. In like manner, the unemployment rate of those with discounted marginal revenue products below the level stipulated by this legislation is higher than otherwise it would have been. But, I also think that we are always tending toward equilibrium (for me, a synonym would be “full cooperation,” not only with each other but with all the laws of the universe), but never reaching it. This, too, is a praxeological law. It simply cannot be denied, empirically, that there are “tendencies” in this direction. Of course, at any given time, we are not in general equilibrium (whatever, precisely, that would mean), but this is not a refutation of that claim, any more than is the fact that profits are positive and unequal across industries a rejection of the view that profits tend to be the same in all industries (when due allowance is made for risk), and will be zero in the evenly rotating economy. By the way, the ERE is a contrary to fact conditional. It is a heuristic device that helps us think more clearly about the economy. No good Austrian, certainly not Mises or Rothbard, ever used this concept as a stationary state that could realistically describe any real world economy. Grégoire Canlorbe: A crucial debate focuses on the question of whether Friedrich A. von Hayek can be classified as a praxeologist, or at least, as an Austrian economist. How do you position yourself in relation to this problem? Walter Block: No. Hayek specifically and unambiguously said something to the effect that “I can’t (or don’t) follow Mises” into praxeology, the embracing of the synthetic a priori. Here are Hayek’s exact words: “I must admit that I myself often initially did not think his arguments to be completely convincing and only slowly learned that he was mostly right and that, after some reflection, a justification could be found that he had not made explicit. And today, considering the kind of battle he had to lead, I also understand that he was driven to certain exaggerations, like that of the a priori character of economic theory, where I could not follow him.” (Source: Hayek, FA. [1977] 2009. “Introduction” in Mises, L. 2009 Memoirs, Auburn: Ludwig von Mises Institute.) So, by his own admission—the last six words of this quote say it all—Hayek cannot be characterized as a praxeologist. This is a grave problem for me. For on the one hand, I often use the two words “praxeologists” and “Austrian” (in this context of course) as synonyms. At the very least, if not identical, praxeology is by far the most important characteristic of Austrian economics as far as I am concerned. I am sorely tempted to say that anyone who does not accept praxeology, let alone rejects it, cannot be an Austrian economist. But, equally surely, Hayek has made more and greater contributions to Austrian economics than any man alive, with the possible exception of people such as Menger and Bohm-Bawerk, and certainly Mises and Rothbard. Who am I, whose contribution to Austrianism is an insignificant fraction of Hayek’s, to deny this appellation to him? I could say that he has himself denied this. I could say that it matters not my own input into this science; even were it zero, or negative, I could still be correct in this assessment of him. But none of this is fully satisfactory to me. I would rather make an exception to Hayek: assert that no one else who disavows praxeology can be an Austrian economist. This, too, is not fully satisfactory. In an attempt to get out of this position where I have located myself, between a rock and a hard place, let me say the following: Defining Austrian economics is sort of like defining a chair. We all know what the paradigm case of it is: a flat surface, with four legs and a back. But, what about a three legged stool with a back? What about with no back? What about with one leg, as in the case of the bar stool? What about a bench? A shelf? A couch? A sofa? The point is the definition of a chair is slippery. It is a continuum. Some things are clearly chairs, some things are clearly not (dogs, apples), and with regard to others, we are not sure, it is a grey area. I suggest that Austrian economics operates in a similar manner, and that Hayek is in a grey area. He has made magnificent contributions (e.g., business cycles, subjectivism), but rejects what I consider the single most important element of this science. Grégoire Canlorbe: Generally speaking, and especially in the field of monetary economics, how do you sum up the main differences between the Austrian School of Economics and the mainstream movement, as well as the main fallacies of neoclassical economics? Walter Block: The monetarists are alright on inflation. When government creates money, prices rise higher than would otherwise be the case (note the Hulsmannian counterfactual influence here). But, they don’t follow the Austrians in realizing that this also creates the business cycle. Also, the chief monetarist, Milton Friedman, is widely known for his Free to Choose television series. But for him, this does not apply to money, for whenever people were relatively free to choose their monetary medium, they invariably chose gold (sometimes silver). But Friedman was a rabid opponent of gold as money. There are numerous other differences between the Austrians and the neoclassicals, and in all such cases, I think the latter’s views are fallacious and those of the former correct. However, let me start out on a positive note. Traditional economists are not all bad. Most of them are pretty good on things like the minimum wage, rent control, free trade, occupational licensure, Luddite-ism, price controls, etc. They are not Marxists, and eschew the labor theory of value. Virtually all of them are free of the broken window fallacy. Let me now mention a few cases of divergence. The mainstream are in the logical positivist tradition, and maintain that prediction is the test of economic theory. For them, there is no such thing as economic law; there are only hypotheses, which much be empirically, econometrically tested and only provisionally accepted, when the results yield the right signs for the coefficients and are statistically significant. Austrians are praxeologists who assert that econometrics may be useful in illustrating economic law, but cannot test it. Austrians are subjectivists who maintain that cost curves are a snare and an objective delusion; costs are opportunities forgone, and thus cannot be depicted graphically. Austrians reject mathematical economics since their calculus requires infinitesimally small units, and human action is discrete, not smoothly curved. The mainstream revels in these techniques. Austrians adhere only to ordinal utility; neoclassicals embrace both ordinal and cardinal utility and interpersonal comparisons in the latter case. Austrians see the boom in the business cycle as the problem, and the bust as a cleansing process, bringing back the economy to coherence; the mainstream, Keynesians to a man, take the very opposite point of view. Austrians see interest rates as based on time preference; their colleagues in the profession accept, in addition, productivity theories. Grégoire Canlorbe: Most critics of the free-market economy point out the fact that, in accordance with the so called “law of supply and demand,” the market does balance supply with solvent demand but never balances supply with the insolvent needs of the poor. “Differentiate or die” is considered to be the principle at the very heart of a free-market economy, and the law of supply and demand to be simply another appellation for the law of the strongest. What is your opinion of this commonly held view? Walter Block: The market economy necessarily, apodictically, praxeologically, benefits all participants. But some cannot enter the market (children, the infirm, etc.), and hence they are insolvent. Yet the market benefits them too, albeit indirectly, since such people are far better off in a free society than in a socialist one. These critics should ask themselves, where would they be better off, in a place like Hong Kong, Switzerland, Singapore, which have relatively free economies and everyone is rich, or in some other less free place where people are less wealthy. Private charity varies with wealth and income; the freer the country, and the richer, other things equal, the more charitable. But, would it not be even better for the poor to live in a relatively unfree semi-socialist country such as the U.S., with a vast welfare system? No. These programs do not enrich the poor, they impoverish them. How so? They break up the family, as Charles Murray has demonstrated in his book Losing Ground, and intact families are among the best cure for poverty. Indeed, the poverty rate for intact families is in the single digits; impoverishment is mainly a function of broken-up or never-formed families, and this in turn is due to statist welfare programs. Grégoire Canlorbe: According to the followers of Say’s law, general overproduction crises are impossible because any overproduction in a specific sector coincides with an underproduction of equal magnitude in value in another sector. Two cases then arise: If certain products do not find an entry into the market, it can be caused by the lack of means in order to buy these products; and if money is in short supply, it comes from underproduction in a given sector. Production in sector A is insufficient in order to buy up the whole production in sector B. If certain products remain unsold, it can mean that the clients can afford to buy these products but they prefer to buy the products in another sector of activity, the latter being now urged to push up production in order to meet the needs and wants of the clients coming from the first sector. There is too much production in sector A and too little in sector B. In a nutshell, if certain products remain unsold, this is due to the fact that there are no other products to offer in exchange, money playing the role of a simple intermediary between the producers without any demand for itself. The money that is not spent on consumption goods is held in an account and funds producers’ investments; there is no liquidity preference and therefore no money-hoarding outside the economy. At least since Keynes, a common retort to Say’s law is that, if certain products remain unsold, it can come from neither the public’s poor means nor from its preference for other products, but it can simply arise from the public’s preference to hoard money in specie instead of spending it on consumption goods or holding it in an account. The mechanism according to which any overproduction in a given sector corresponds to an underproduction of equal magnitude in value in another sector (as a cause or a consequence) is thus eliminated. It may happen that each sector is in overproduction simultaneously, and this because of cash hoarding due to the “liquidity preference” principle in a context of uncertainty. What is your opinion in defence of Say’s law and in order to refute these common assumptions? Walter Block: The easiest refutation of this is the real balance effect. If people hoard money, stick it in their mattresses or like Scrooge McDuck in their money bins, they render everyone else’s money more valuable. As I state in my book Defending the Undefendable, the hoarder is actually a hero, since he is greatly reviled by Keynesians (pretty much all economists other than Austrians), journalists, pundits, commentators, and is actually a benefactor to people in general, by increasing the value of their monetary holdings. What the Keynesian criticism of the hoarder comes down to is that they think some people have too great a demand for cash balances. But, they offer no criterion whatsoever as to what level would be optimal. Grégoire Canlorbe: It is often heard that one of the side effects of trade globalization is the explosion of unemployment and income inequalities in the “developed” countries because in the context of trade globalization between countries with different wage rates, the higher the minimum income (determined by market forces or imposed by law) in the developed countries, the more that imports from low-wage countries are favoured. These imports indeed find their counterpart in value via exports. Nevertheless, the competition between workers in developed countries with workers in low-wage countries necessarily destroys jobs unless employers find a way to push down employment costs. Thus, trade globalization leads to either an increase in unemployment in case of rigid wages or to a race to the bottom in salary policy (and therefore to an explosion of income inequalities) in case of flexible salaries. This being said, thanks to delocalization and imports from low-wage countries, consumers can buy products at lower prices. In exchange for lower prices, consumers must nevertheless suffer from the loss of their jobs or from lower wages. To this first side effect, a second one can be added: the loss of food production autarky, which puts the security of developed countries in jeopardy in the long term. And there is a third side effect: the disappearance of certain activities in developed countries owing to the present comparative costs, though costs vary as time goes by and the disappearance of these activities could turn out disadvantageous tomorrow. What is your opinion about these three side effects anti-globalization advocates often bring up? Walter Block: I think these people are economically illiterate. Unemployment does not come about because of free trade. Rather, it emanates from government interference with the free enterprise system, mainly by artificially boosting real wage rates above productivity levels (minimum wage laws, union pay scales) and by subsidizing it (generous unemployment benefits which compete with marginal revenue productivity of workers). Income (and wealth) inequalities stem from two sources, one legitimate, the other not at all so. The former is the fact that people have different skill sets, work ethics, in a word, productivity levels, again, not from free international trade. The latter is corporate state or crony capitalism: Some people gain government favours, others have to pay for them. The libertarian in me cries out for an end to the latter and to allow the former to operate freely. Yes, if the U.S. engaged in full free trade with Bangladesh, it is quite possible that some low-skilled workers in the former countries would suffer from lower wages. But this is part and parcel of the international division of labour, and is not all that likely. When the automobile replaced the horse and buggy, and the computer the typewriter (think of these innovations as imports from a country called “the future”) it was not typically the low skilled workers who swept the floors of the car and typewriter factories who lost out to any great extent; rather, it was the highly skilled blacksmiths and horse trainers who did so. The laws of comparative advantage indicate that there are gains to be made from free trade on the part of all countries who open their borders. Yes, the banana growers in Canada (think greenhouses) and the maple syrup industry in Costa Rica (think very large refrigerators) will take a hit when trade opens up between these two countries. But this is just the market’s way of indicating that if there is to be any modicum of economic efficiency, the northern country should specialize in the cold weather crop and the southern in what can be effectively grown in the tropics. Grégoire Canlorbe: Our interview comes to its end. Would you like to add a few words? Walter Block: It was a pleasure to try to wrestle with these very important, well-articulated, and complicated questions. I am honoured to be part of your program. *First published on December 29, 2014, on the Institut Coppet website. ---------------------------------------------------------------------------------------------------- * Grégoire Canlorbe is a French intellectual entrepreneur. He currently resides in Paris. |