Making Economic Sense - Second Edition

534 Pages·2006·1.361 MB·English

by  Murray Newton Rothbard

Making Economic Sense
2nd Edition
Murray N. Rothbard
Ludwig
von Mises
Institute
AUBURN, ALABAMA
Copyright © 1995, 2006 by the Ludwig von Mises Institute
All rights reserved. No part of this book may be reproduced in any manner
whatsoever without written permission except in the case of reprints in the
context of reviews. For information write the Ludwig von Mises Institute,
518 West Magnolia Avenue,Auburn, Alabama 36832.
ISBN: 0-945466-46-3
C
ONTENTS
Preface by Llewellyn H. Rockwell, Jr. . . . . . . . . . . . . . . . . . . . . . . . .xi
Introduction to the Second Edition
by Robert P. Murphy . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii
MAKING ECONOMIC SENSE
1 Is It the “Economy, Stupid”? . . . . . . . . . . . . . . . . . . . . . . . . . .3
2 Ten Great Economic Myths . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3 Discussing the “Issues” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
4 Creative Economic Semantics . . . . . . . . . . . . . . . . . . . . . . . .23
5 Chaos Theory: Destroying Mathematical Economics
From Within? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
6 Statistics: Destroyed From Within? . . . . . . . . . . . . . . . . . . . .28
7 The Consequences of Human Action: Intended
or Unintended? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
8 The Interest Rate Question . . . . . . . . . . . . . . . . . . . . . . . . . .33
9 Are Savings Too Low? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
10 A Walk on the Supply Side . . . . . . . . . . . . . . . . . . . . . . . . . . .40
11 Keynesian Myths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
12 Keynesianism Redux . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
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vi Making Economic Sense
THE SOCIALISM OF WELFARE
13 Economic Incentives and Welfare . . . . . . . . . . . . . . . . . . . . .53
14 Welfare as We Don’t Know It . . . . . . . . . . . . . . . . . . . . . . . .56
15 The Infant Mortality “Crisis” . . . . . . . . . . . . . . . . . . . . . . . .58
16 The Homeless and the Hungry . . . . . . . . . . . . . . . . . . . . . . .62
17 Rioting for Rage, Fun, and Profit . . . . . . . . . . . . . . . . . . . . .64
18 The Social Security Swindle . . . . . . . . . . . . . . . . . . . . . . . . . .68
19 Roots of the Insurance Crisis . . . . . . . . . . . . . . . . . . . . . . . . .71
20 Government Medical “Insurance” . . . . . . . . . . . . . . . . . . . . .74
21 The Neocon Welfare State . . . . . . . . . . . . . . . . . . . . . . . . . .77
22 By Their Fruits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
23 The Politics of Famine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
24 Government vs. Natural Resources . . . . . . . . . . . . . . . . . . . .87
25 Environmentalists Clobber Texas . . . . . . . . . . . . . . . . . . . . . .89
26 Government and Hurricane Hugo:
A Deadly Combination . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
27 The Water Is NotRunning . . . . . . . . . . . . . . . . . . . . . . . . . . .96
POLITICS AS ECONOMIC VIOLENCE
28 Rethinking the ’80s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
29 Bush and Dukakis: Ideologically Inseparable . . . . . . . . . . .106
30 Perot, The Constitution, and Direct Democracy . . . . . . . .110
31 The Flag Flap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
32 Clintonomics: The Prospect . . . . . . . . . . . . . . . . . . . . . . . .116
33 Clintonomics Revealed . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
34 Price Controls are Back! . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
35 The Health Plan’s Devilish Principles . . . . . . . . . . . . . . . . .127
Contents vii
36 Outlawing Jobs: The Minimum Wage, Once More . . . . . .133
37 The Union Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136
38 The Legacy of Cesar Chavez . . . . . . . . . . . . . . . . . . . . . . . .140
39 Privatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144
40 What To Do Until Privatization Comes . . . . . . . . . . . . . . .146
41 Population “Control” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150
42 The Economics of Gun Control . . . . . . . . . . . . . . . . . . . . .153
43 Vouchers: What Went Wrong? . . . . . . . . . . . . . . . . . . . . . .156
44 The Whiskey Rebellion: A Model for Our Time? . . . . . . .160
45 Eisnerizing Manassas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164
ENTERPRISE UNDER ATTACK
46 Stocks, Bonds, and Rule by Fools . . . . . . . . . . . . . . . . . . . .169
47 The Salomon Brothers Scandal . . . . . . . . . . . . . . . . . . . . . .173
48 Nine Myths About the Crash . . . . . . . . . . . . . . . . . . . . . . . .176
49 Michael R. Milken vs. The Power Elite . . . . . . . . . . . . . . .181
50 Panic on Wall Street . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .185
51 Government-Business “Partnerships” . . . . . . . . . . . . . . . . .189
52 Airport Congestion: A Case of Market Failure? . . . . . . . . .192
53 The Specter of Airline Re-Regulation . . . . . . . . . . . . . . . . .195
54 Competition at Work: Xerox at 25 . . . . . . . . . . . . . . . . . . .199
55 The War on the Car . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .201
FISCAL MYSTERIES REVEALED
56 Are We Undertaxed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .209
57 The Return of the Tax Credit . . . . . . . . . . . . . . . . . . . . . . .212
58 Deductibility and Subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . .215
59 That Gasoline Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .217
viii Making Economic Sense
60 Babbitry and Taxes: A Profile in Courage? . . . . . . . . . . . . .221
61 Flat Tax or Flat Taxpayer? . . . . . . . . . . . . . . . . . . . . . . . . . .224
62 Mrs. Thatcher’s Poll Tax . . . . . . . . . . . . . . . . . . . . . . . . . . .227
63 Exit the Iron Lady . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .230
64 The Budget Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .233
65 The Balanced-Budget Amendment Hoax . . . . . . . . . . . . . .236
ECONOMIC UPS AND DOWNS
66 The National Bureau and Business Cycles . . . . . . . . . . . . .243
67 Inflationary Recession, Once More . . . . . . . . . . . . . . . . . . .246
68 Deflation, Free or Compulsory . . . . . . . . . . . . . . . . . . . . . .250
69 Bush and the Recession . . . . . . . . . . . . . . . . . . . . . . . . . . . .254
70 Lessons of the Recession . . . . . . . . . . . . . . . . . . . . . . . . . . .258
71 The Recession Explained . . . . . . . . . . . . . . . . . . . . . . . . . . .264
THE FIAT MONEY PLAGUE
72 Taking Money Back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .271
73 The World Currency Crisis . . . . . . . . . . . . . . . . . . . . . . . . .295
74 New International Monetary Scheme . . . . . . . . . . . . . . . . .300
75 “Attacking” the Franc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .302
76 Back to Fixed Exchange Rates . . . . . . . . . . . . . . . . . . . . . . .306
77 The Cross of Fixed Exchange Rates . . . . . . . . . . . . . . . . . .311
78 The Keynesian Dream . . . . . . . . . . . . . . . . . . . . . . . . . . . . .315
79 Money Inflation and Price Inflation . . . . . . . . . . . . . . . . . .317
80 Bank Crisis! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .321
81 Anatomy of the Bank Run . . . . . . . . . . . . . . . . . . . . . . . . . .325
82 Q & A on the S & L Mess . . . . . . . . . . . . . . . . . . . . . . . . . .328
Contents ix
83 Inflation Redux . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .333
84 Inflation and the Spin Doctors . . . . . . . . . . . . . . . . . . . . . . .336
85 Alan Greenspan: A Minority Report on the
Fed Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .339
86 The Mysterious Fed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .341
87 First Step Back to Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . .344
88 Fixed-Rate Fictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .347
ECONOMICS BEYOND THE BORDERS
89 Protectionism and the Destruction of Prosperity . . . . . . . .355
90 “Free Trade” in Perspective . . . . . . . . . . . . . . . . . . . . . . . . .367
91 The Nafta Myth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .370
92 Is There Life After Nafta? . . . . . . . . . . . . . . . . . . . . . . . . . .375
93 “Fairness” and the Steel Steal . . . . . . . . . . . . . . . . . . . . . . . .378
94 The Crusade Against South Africa . . . . . . . . . . . . . . . . . . .383
95 Are Diamonds Really Forever? . . . . . . . . . . . . . . . . . . . . . .385
96 Oil Prices Again . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .388
97 Why the Intervention in Arabia? . . . . . . . . . . . . . . . . . . . . .392
98 A Trip to Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .397
99 Peru and the Free Market . . . . . . . . . . . . . . . . . . . . . . . . . .399
100 A Gold Standard for Russia? . . . . . . . . . . . . . . . . . . . . . . . .402
101 Should We Bail Out Gorby? . . . . . . . . . . . . . . . . . . . . . . . .404
102 Welcoming the Vietnamese . . . . . . . . . . . . . . . . . . . . . . . . .408
THE END OF COLLECTIVISM
103 The Collapse of Socialism . . . . . . . . . . . . . . . . . . . . . . . . . .413
104 The Freedom Revolution . . . . . . . . . . . . . . . . . . . . . . . . . . .416
105 How to Desocialize? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .419
x Making Economic Sense
106 A Radical Prescription for the Socialist Bloc . . . . . . . . . . . .422
107 A Socialist Stock Market? . . . . . . . . . . . . . . . . . . . . . . . . . . .425
108 The Glorious Postwar World . . . . . . . . . . . . . . . . . . . . . . . .428
109 The Revolution Comes Home . . . . . . . . . . . . . . . . . . . . . . .431
110 The Trouble with the Quick Fix . . . . . . . . . . . . . . . . . . . . .436
OUR INTELLECTUAL DEBTS
111 William Harold Hutt : 1899–1988 . . . . . . . . . . . . . . . . . . . .443
112 Friedrich August von Hayek: 1899–1992 . . . . . . . . . . . . . .446
113 V. Orval Watts: 1898–1993 . . . . . . . . . . . . . . . . . . . . . . . . . .450
114 Ludwig von Mises:1881–1973 . . . . . . . . . . . . . . . . . . . . . . .452
115 Margit von Mises: 1890–1993 . . . . . . . . . . . . . . . . . . . . . . .455
116 The Story of the Mises Institute . . . . . . . . . . . . . . . . . . . . .458
POSTSCRIPT
117 The November Revolution . . . And What to Do
About It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .467
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .499
P
REFACE
The academic contributions of Murray N. Rothbard
(1926–1995) are legion, but he also had a passion for pub-
lic persuasion. A free society can only be sustained if the general
public is aware of the vital importance of the market and the
terrible consequences of statism. That’s why Rothbard hoped to
convince everyone about the virtues of the free economy. For
Rothbard, educating the public was strategically necessary and
morally obligatory. It was also lots of fun.
From 1982 to 1995, the Free Marketwas home to Rothbard’s
monthly explanation of economic events. He presented theory
and policy in clear, sprightly prose while never sacrificing intel-
lectual rigor. Keeping with Mencken’s rule, Rothbard’s clear
writing was a product of his clear thought. Even when dis-
cussing subjects like interest rates and excise taxes—subjects
economists typically take pains to make unbearably boring—
Rothbard teaches and entertains at the same time.
The Free Marketessays are a crucial part of the legacy he has
left us. As he skewers both parties in all branches of govern-
ment, and all their connected interests, we see a principled Aus-
trian School economist at work.
The Second Edition is expanded to include “Protectionism
and the Destruction of Prosperity,” a monograph printed by the
Mises Institute in 1986; “Taking Money Back,” a piece crafted
xi
xii Making Economic Sense
in 1991 to make a populist case for radical monetary reform,
and a brief but moving obituary of Mises published in 1973.
No matter how specialized and distant from reality the eco-
nomic profession becomes, Rothbard proves it is always possi-
ble to communicate truth more broadly. In this area, as in so
much else, Rothbard shows us the way.
Llewellyn H. Rockwell, Jr.
Auburn, Alabama
January 2006