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<font face="Times New Roman, Times" size=4>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
</font><font face="Times New Roman, Times" size=5>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.<br><br>
It provides some compelling arguments about free markets and personal
gains and losses.<br><br>
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.<br><br>
Enjoy.<br><br>
<br>
</font><font face="Times New Roman, Times" size=4>The State is
distinguished from all other institutions in society in two<br>
ways: (1) it and it alone can interfere by the use of violence with
actual or<br>
potential market exchanges of other people; and (2) it and it alone
obtains its<br>
revenues by a compulsory levy, backed by violence. No other individual
or<br>
group can legally act in these
ways.</font><font face="Times New Roman, Times" size=2>56
</font><font face="Times New Roman, Times" size=4>Now what happens when
the State, or<br>
a criminal, uses violence to interfere with exchanges on the market?
Suppose<br>
that the government prohibits A and B from making an exchange they
are<br>
willing to make. It is clear that the utilities of both A and B have
been<br>
lowered, for they are prevented by threat of violence from making an<br>
exchange that they otherwise would have made. On the other hand, there
has<br>
been a gain in utility (or at least an anticipated gain) for the
government<br>
officials imposing this restriction, otherwise they would not have done
so.<br>
As economists, we can therefore say nothing about social utility in this
case,<br>
since some individuals have demonstrably gained and some
demonstrably<br>
lost in utility from the governmental action.<br>
The same conclusion follows in those cases where the government<br>
forces C and D to make an exchange which they otherwise would not
have<br>
made. Once again, the utilities of the government officials gain. And
<i>at least<br>
</i></font><font face="Times New Roman, Times" size=1>55
</font><font face="Times New Roman, Times">On this fallacy of
methodological collectivism, and the broader fallacy of conceptual<br>
realism, see the excellent discussion in Hayek, <i>Counter Revolution of
Science</i>, pp. 53ff.<br>
</font><font face="Times New Roman, Times" size=1>56
</font><font face="Times New Roman, Times"><i>Criminals </i>also act in
these ways, but they cannot do so legally. For the purpose of<br>
praxeologic rather than legal analysis, the same conclusions apply to
both groups.<br>
Murray N. Rothbard: Toward a Reconstruction of Utility and Welfare
Economics (1956)<br>
</font><font face="Courier New, Courier">31<br>
</font><font face="Times New Roman, Times" size=4><i>one </i>of the two
participants (C or D) lose in utility, because at least one<br>
would not have wanted to make the exchange in the absence of<br>
governmental coercion. Again, economics can say nothing about social<br>
utility in this
case.</font><font face="Times New Roman, Times" size=2>57<br>
</font><font face="Times New Roman, Times" size=4>We conclude therefore
that <i>no government interference with<br>
exchanges can ever increase social utility</i>. But we can say more than
that. It<br>
is the essence of government that it alone obtains its revenue by
the<br>
compulsory levy of taxation. All of its subsequent acts and
expenditures,<br>
whatever their nature, rest on this taxing power. We have just seen
that<br>
whenever government forces anyone to make an exchange which he would<br>
not have made, this person loses in utility as a result of the coercion.
But<br>
taxation is just such a coerced exchange. If everyone would have paid
just as<br>
much to the government under a system of voluntary payment, then
there<br>
would be no need for the compulsion of taxes. Given the fact that
coercion is<br>
used for taxes, therefore, and since all government actions rest on its
taxing<br>
power, we deduce that: <i>no act of government whatever can increase
social<br>
utility</i>.<br>
Economics, therefore, without engaging in any ethical judgment<br>
whatever, and following the scientific principles of the Unanimity Rule
and<br>
Demonstrated Preference, concludes: (1) that the free market always<br>
increases social utility; and (2) that no act of government can ever
increase<br>
social utility. These two propositions are the pillars of the
reconstructed<br>
welfare economics.<br>
Exchanges between persons can take place either voluntarily or under<br>
the coercion of violence. There is no third way. If, therefore, free
market<br>
exchanges always increase social utility, while no coerced exchange
or<br>
interference can increase social utility, we may conclude that the<br>
maintenance of <i>a free and voluntary market “maximizes” social
utility<br>
</i>(provided we do not interpret “maximize” in a cardinal sense).<br>
Generally, even the most rigorously <i>Wertfrei </i>economists have
been<br>
willing to allow themselves one ethical judgment: they feel free to<br>
recommend any change or process that increases social utility under
the<br>
Unanimity Rule. Any economist who pursues this method would have to
(a)<br>
</font><font face="Times New Roman, Times" size=1>57
</font><font face="Times New Roman, Times">We cannot discuss here the
praxeological analysis of general economics which shows<br>
that, in the long run, for many acts of coercive interference, the
coercer himself loses in<br>
utility.<br>
Murray N. Rothbard: Toward a Reconstruction of Utility and Welfare
Economics (1956)<br>
</font><font face="Courier New, Courier">32<br>
</font><font face="Times New Roman, Times" size=4>uphold the free market
as always beneficial, and (b) refrain from advocating<br>
any governmental action. In other words, he would have to become an<br>
advocate of <i>“ultra” laissez-faire.<br><br>
</i></font><font face="Times New Roman, Times">Here is the information
about the site and the author: [1926-1995; Professor of Economics,
University of Nevada, Las Vegas. This seminal<br>
article was originally published in <i>On Freedom and Free Enterprise:
The Economics of<br>
Free Enterprise</i>, May Sennholz, ed. (Princeton, N.J: D. Van Nostrand,
1956). Reprinted<br>
in <i>The Logic of Action One: Method, Money, and the Austrian School
</i>by Murray N.<br>
Rothbard (London: Edward Elgar, 1997, p. 211-255. Mises.org’s online
edition copyright<br>
© 2002, The Mises Institute, published with the permission of the Estate
of Murray N.<br>
Rothbard]<br><br>
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