Book Review: An Austrian Perspective on The History of Economic Thought, Part I

Posted on April 20, 2012 by


The Book: An Austrian Perspective on the History of Economic Thought, 1241 pages, by Murray Rothbard

The Gist: This well-crafted, lucidly written, exhaustively detailed, and frankly brutally large tome traces the thread of economic thought and theoretical development forward from the first recorded economic thinkers in the world…the Greeks…forward through time to the present day. [1].  Right away, Rothbard poses a fundamental argument about the human condition that frames his History: that history is not a progressive improvement upon the values and thought systems of our forebears but is instead a “zig-zag” back and forth, with technologies and “correct” theories discovered only to be forgotten and “rediscovered” later on, oftimes after an “incorrect” theory has been followed to its fully fallacious and often calamitous conclusion. Furthermore, throughout his History, Rothbard is careful to holistically integrate the influence of the zeitgeist with a historical figure’s own life experience and religion on his economic contribution:

Leaving out religious outlook, as well as social and political philosophy, would disastrously skew any picture of the history of economic thought

The result is a painfully long yet informative manuscript leveraging autobiographies and Church history, weaved together in such a manner as to tell the history of economic thought from the Ancients forward to Marx. This review will, in four parts, attempt to summarize Rothbard’s history and capture his key points.

Ancient Economic Thought
The Greeks, most notably Aristotle, but also Plato, articulated for the first time ever, notions of private property, scarcity, subjective value and utility, the influence of supply and demand on value, time-preference, division of labor, the functions of money, and the imputation of value from ends to means. In short, the bulk of the body of economic thought had already been thunk by Western Civilization’s progenitors.  Indeed, as Rothbard puts it, these men

were focusing on the logical implications of a few broadly empirical axioms of human life: the existence of human action, the eternal pursuit of goals by employing scarce means, the diversity and inequality among men. These axioms are certainly empirical, but they are so broad and pervasive that they apply to all of human life

The Greeks, in addition to practically founding modern economic thought and doing the bulk of the yeoman’s work in fleshing out the theoretical framework, also gifted the human race with a theory of natural law, the “just and proper moral law discovered by man’s right reason, can and should be should be used to engage in a moral critique of the positive man-made laws of any state or polis”. Natural law, thence, attempts to capture the universal and eternal nature of man, and Rothbard will circle back to natural law repeatedly in his Austrian perspective of economic history.

[1] Rothbard claimed to have searched for economic thought outside of Western Civilization and, with the notable exception of ancient China (which had no impact outside of China), failed to find any whatsoever, an interesting finding in and of itself. What was/is it about Western Civilization that made it the unique locus of economic thought on the planet for 3,000 years?

Scoping forward through time, the Romans, having absorbed the Greek city-states, carried the seed of Greek economic thought, via the traditions of the Stoics and the most famous Roman Stoic, Marcus Tullius Cicero, forward through history. Interestingly, according to the author, the Romans contributed little to nothing to the extant body of economic thought, but did function as an efficient and extremely effective conduit of economic and jurisprudent tradition, as Roman law greatly influenced subsequent Western legal and social theory (which in turn, influenced thought about “political economy”). As an example, Roman laws ensconced, for the first time in the West, the notion of absolute property rights and attendant contract theory, which in turn shaped Anglophone concepts of English Common Law and the civil codes of non-Anglophone Continental Europe. Private property rights are the bedrock rights in natural law theory, as well as the foundational assumption of Austrian economic theory.

Scholasticism and the other “Great Schism”
For a period of time after the Roman Empire collapsed, the history of economic thought was the history of the Scholastics of the Roman Catholic Church, at least for a few hundred years. The Scholastic schools, by integrating economic analysis with the study of ethics, natural law, jurisprudence, ontology and theology, methodically refined and propagated Western economic and political thought, including theories that were pagan (i.e., natural law theory) as well as Christian in origin, forward through the Middle Ages. The Scholastics emphasized private property and freedom to contract, as well as a “just price” (defined as the prevailing market prices, plus or minus some arbitrary “reasonable” sum), and the (often hedged) right to violently resist tyrants. Merchants, money-changers, and money-lenders were viewed as profiteers in the Ancient and Scholastic traditions, their gains “turpe lurcum“, or ill-gotten. Accordingly, the Scholastics also maintained a prohibition on usury, the ultimate in turpe lurcum, which in the old days was the charging of any interest at all, although this prohibition waned over the ages under pressure from various quarters, to the point to where the proscription was in name only. They were also some of the first recorded hard-money advocates, and, notably, the “Salamancan School” postulated a subjective theory of value based upon consumer utility, in contrast to the prevailing cost-of-production theories of value or the labor theory of value, of which Smith would be a notable exponent and Ricardo, and later Marx, would propagate to much distractive and destructive effect. However, the Salamancan School was before its time, and its discoveries were lost when the Scholastic tradition was cast aside in the aftermath of the Reformation. The advent of Protestant anti-Scholasticism, Rothbard claimed, split European economic thought into two camps: one from the portion of Europe that was Calvinist or Lutheran (i.e, northern Germany, England, and Scandinavia), the other from the remainder of the Continent that remained Catholic.

This split is crucial to Rothbard’s history. The advent of Calvinism ushered in the first wide-spread acceptance of interest (still proscribed during this time in Catholic lands), the concept that labor as a good in and of itself (the so-called Protestant work ethic) and, according to Rothbard, the first historical introduction of the labor theory of value, which would derail economic thought for 500 years and still holds influence today. In contrast, Scholastics focused on consumption, where the consumer strikes the Thomist Aristotelian balance between the “good life” of labor, consumption, and leisure. In this Scholastic framework, the consumer makes a subjective valuation about the price of goods and selects accordingly. Being an Austrian economist, Rothbard clearly sides with this Continental subjective theory of value and a near anarcho-capitalism rooted in natural law.

The factor with arguably the largest effect on the trajectory of post-Reformation economic thought and theories of governance was the Protestant rejection of para-Christian natural rights and natural law theory embedded in Canon law.[2] This rejection, according to Rothbard, opened the proverbial Pandora’s Box for absolutist “sovereigns”, the “divine rights of kings”, and set the stage for the absolutist rulers that followed. In their zeal to return to the essentials of Christian faith, which Protestants allegedly saw as corrupted by centuries of popery-cum-paganism, Rothbard argued that Protestant Reformers also set aside two thousand years of received Western natural-law thought. Rothbard argues that this removed the philosophic check on state power and led, progressively over the centuries, to absolutism, mercantilism, and communism.

A second, less influential factor was where this thought was occurring: before and for a short while after the Reformation, economic thought was transmitted from professor to pupil in the universities. Soon, however, economic thought would migrate away from academia and Latin and, via the Protestant emphasis on literacy, “democratize” economic theorizing to lay citizens, clergy, merchants, and pamphleteers, each in their native languages. This “distributed” system of economic theoretical development accelerated Western economic theoretical development, but also made it far more chaotic and incoherent (lending support to Rothbard’s “zig-zag” theory proposed earlier).

[2] Under lethal pressure from authoritarian and absolutist Catholic regimes, Protestants would later return to the natural law and natural rights framework they had earlier rejected, but this was after some thoroughly shocking examples of mystic-inspired, Book of Acts-style proto-communism were attempted in central Germany, Holland, and in Bohemia by the Anabaptists and the Taborites, who attempted totalitarian communism five centuries before Marx popularized it. What was noteworthy about the Anabaptist example was how quickly utopian communism devolved into forced labor, forced polygyny, forced expropriation of goods…and death to those who resisted. The Secularists, for their part, never did return to any conception of natural law and natural rights, and recognized no limit on State power whatsoever.

Next: Mercantilist Economic Thought