[Vision2020] Rothbard's View on Free Markets

[Jeff Harkins]

There has been much discussion about economics 
and free enterprise on the forum the past several 
weeks.  In looking over some of my dusty tomes of 
knowledge I came across a piece by Murray N. 
Rothbard: "Toward a Reconstruction of Utility and 
Welfare Economics" (1956).  It is also online and 
I have provided a link at the end.  It is a good thought piece.

It provides some compelling arguments about free 
markets and personal gains and losses.

Some of you might find it interesting.  I include 
a section from the paper which discusses the role 
of state in the free exchange process.

Enjoy.


The State is distinguished from all other institutions in society in two
ways: (1) it and it alone can interfere by the use of violence with actual or
potential market exchanges of other people; and (2) it and it alone obtains its
revenues by a compulsory levy, backed by violence. No other individual or
group can legally act in these ways.56 Now what happens when the State, or
a criminal, uses violence to interfere with exchanges on the market? Suppose
that the government prohibits A and B from making an exchange they are
willing to make. It is clear that the utilities of both A and B have been
lowered, for they are prevented by threat of violence from making an
exchange that they otherwise would have made. On the other hand, there has
been a gain in utility (or at least an anticipated gain) for the government
officials imposing this restriction, otherwise they would not have done so.
As economists, we can therefore say nothing about social utility in this case,
since some individuals have demonstrably gained and some demonstrably
lost in utility from the governmental action.
The same conclusion follows in those cases where the government
forces C and D to make an exchange which they otherwise would not have
made. Once again, the utilities of the government officials gain. And at least
55 On this fallacy of methodological 
collectivism, and the broader fallacy of conceptual
realism, see the excellent discussion in Hayek, 
Counter Revolution of Science, pp. 53ff.
56 Criminals also act in these ways, but they 
cannot do so legally. For the purpose of
praxeologic rather than legal analysis, the same 
conclusions apply to both groups.
Murray N. Rothbard: Toward a Reconstruction of 
Utility and Welfare Economics (1956)
31
one of the two participants (C or D) lose in utility, because at least one
would not have wanted to make the exchange in the absence of
governmental coercion. Again, economics can say nothing about social
utility in this case.57
We conclude therefore that no government interference with
exchanges can ever increase social utility. But we can say more than that. It
is the essence of government that it alone obtains its revenue by the
compulsory levy of taxation. All of its subsequent acts and expenditures,
whatever their nature, rest on this taxing power. We have just seen that
whenever government forces anyone to make an exchange which he would
not have made, this person loses in utility as a result of the coercion. But
taxation is just such a coerced exchange. If everyone would have paid just as
much to the government under a system of voluntary payment, then there
would be no need for the compulsion of taxes. Given the fact that coercion is
used for taxes, therefore, and since all government actions rest on its taxing
power, we deduce that: no act of government whatever can increase social
utility.
Economics, therefore, without engaging in any ethical judgment
whatever, and following the scientific principles of the Unanimity Rule and
Demonstrated Preference, concludes: (1) that the free market always
increases social utility; and (2) that no act of government can ever increase
social utility. These two propositions are the pillars of the reconstructed
welfare economics.
Exchanges between persons can take place either voluntarily or under
the coercion of violence. There is no third way. If, therefore, free market
exchanges always increase social utility, while no coerced exchange or
interference can increase social utility, we may conclude that the
maintenance of a free and voluntary market “maximizes” social utility
(provided we do not interpret “maximize” in a cardinal sense).
Generally, even the most rigorously Wertfrei economists have been
willing to allow themselves one ethical judgment: they feel free to
recommend any change or process that increases social utility under the
Unanimity Rule. Any economist who pursues this method would have to (a)
57 We cannot discuss here the praxeological 
analysis of general economics which shows
that, in the long run, for many acts of coercive 
interference, the coercer himself loses in
utility.
Murray N. Rothbard: Toward a Reconstruction of 
Utility and Welfare Economics (1956)
32
uphold the free market as always beneficial, and (b) refrain from advocating
any governmental action. In other words, he would have to become an
advocate of “ultra” laissez-faire.

Here is the information about the site and the 
author:  [1926-1995; Professor of Economics, 
University of Nevada, Las Vegas. This seminal
article was originally published in On Freedom 
and Free Enterprise: The Economics of
Free Enterprise, May Sennholz, ed. (Princeton, 
N.J: D. Van Nostrand, 1956). Reprinted
in The Logic of Action One: Method, Money, and the Austrian School by Murray N.
Rothbard (London: Edward Elgar, 1997, p. 211-255. 
Mises.org’s online edition copyright
© 2002, The Mises Institute, published with the 
permission of the Estate of Murray N.
Rothbard]

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