Dictionary of Arguments

Philosophical and Scientific Issues in Dispute

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Disputed term/author/ism	Author	Entry	Reference
Bullionism	Ricardo	Rothbard II 193 Bullionism/Ricardo/Rothbard: It was Ricardo's intention to revive and establish the bullionist position, not only against the anti-bullionists, but more importantly against the more respected and influential moderate anti-bullionist doctrine of Henry Thornton. Thornton was the most important theoretical opponent ofbullionism, and so Ricardo set out to take up the cudgels for Lord King, although, in doing so, he unfortunately (…) reverted to and elaborated the rigid and mechanistic approach of John Wheatley. >Henry Thornton, >John Wheatley. ThorntonVsRicardo: It was Thornton, however, who was his leading opponent, and Ricardo set out to convert him; as he wrote in High Price: Ricardo: Mr. Thornton must, therefore, according to his own principles, attribute it [the premium on gold bullion] to some more permanent cause than an unfavourable balance oftrade, and will, I doubt not, whatever his opinion may formerly have Rothbard II 194 been, now agree that it is to be accounted for only by the depreciation of the circulating medium.⁽¹⁾ Supply/RicardoVsThornton, Henry: In the course of the High Price, Ricardo set forth clearly the important point that there is no such thing as a shortage of specie or a great need for more of it: that, in effect, any level of the money supply is optimal: If the quantity of gold or silver in the world employed as money were exceedingly small, or abundantly great... the variation in their quantity would have produced no other effect than to make the commodities for which they were exchanged comparatively dear or cheap. The smaller quantity of money would perform the functions of circulating medium as well as the larger. Rothbard II 194 Time/equilibrium/Ricardo/Rothbard: To accomplish his impressive if unbalanced task, David Ricardo had to concentrate exclusively on long-run equilibrium states, and to ignore the market processes towards them. In that way, Ricardo set the stage for his later approach to all economic questions. 1. David Ricardo 1810. The High Price of Bullion. A Proof oft he Depreciation of Banknotes.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Capitalism	Schumpeter	Sobel I 33 Capitalism/Schumpeter/Sobel/Clemens: „Can capitalism survive? No. I do not think it can ... its very success undermines the social institutions which protect it, and "inevitably" creates conditions in which it will not be able to live and which strongly point to socialism as the heir apparent.“ (Joseph A. Schumpeter (1942), Capitalism, Socialism, and Democracy⁽¹⁾: 61.) Sobel/Clemens: Perhaps the most interesting aspect of Schumpeter's lifelong work in economics was a similarity between his work and that of Karl Marx, the most noted socialist writer in history. What makes this similarity striking is that Schumpeter's greatest insights relate to the role of the innovative entrepreneur at the heart of capitalism. >Entrepreneurship/Schumpeter, >Karl Marx, >Marxism, >Socialism. Yet, despite this insight, Schumpeter, like Marx, believed that the economic system of capitalism would eventually be replaced by socialism as a result of forces from within. In Capitalism, Socialism, and Democracy (CSD)⁽¹⁾ Schumpeter himself states: "My final conclusion therefore does not differ, however much my argument may, from that of most socialist writers and in particular from that of all Marxists" (CSD⁽¹⁾: 61).* Socialism/SchumpeterVsMarx: There are, however, two important differences between the analysis of Schumpeter and Marx with regard to the end of capitalism. First, while Marx personally desired socialism and believed it to be a superior economic system, Schumpeter did not, declaring: "Prognosis does not imply anything about the desirability of the course of events that one predicts. If a doctor predicts that his patient will die presently, this does not mean he desires it" (CSD⁽¹⁾: 61). Schumpeter was a firm believer in the power of private innovation and entrepreneurship and the benefits capitalism produced; ones that he believed were superior to the outcomes under socialism. Unlike Marx, Schumpeter did not want capitalism to be replaced by socialism, nor did he think this transition would be beneficial for the well-being of society. Second, while both Marx and Schumpeter believed there was an inevitable transition of capitalism into socialism, they disagreed on the causes. Marx believed capitalism would produce inequalities, monopolies, and economic failures that would lead to a revolt of the "exploited" working class (the "proletariat") against the wealthy, capitalist class (the "bourgeoisie") that owned the means of production. >Bourgeoisie. In stark contrast, Schumpeter understood from his analysis of history that capitalism greatly benefitted the working class: „Queen Elizabeth owned Silk stockings. The capitalist achievement does not typically consist in providing more Silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.“ (CSD⁽¹⁾: 67) Schumpeter clearly dismisses Marx's argument in an essay published in a 2008 collection of his writings, Essays on Entrepreneurship, Innovations, Business Cycles, and the Evolution of Capitalism (EOE)⁽²⁾: SchumpeterVsMarx: „In Marx ... it is necessary to separate the arguments ... and the answer itself. All his arguments, but in particular the one that asserts that labour will be goaded into revolution by steadily increasing misery, can be proved to be untenable. But this does not dispose of the answer itself, because it is possible to arrive at a correct result by faulty methods.“ (EOE⁽²⁾: 207-208) So while he agreed with Marx's conclusion that capitalism would be replaced by socialism, he firmly disagreed with the cause of the transition. Capitalism/Schumpeter: Schumpeter instead believed that capitalism would be destroyed by its very economic success as it produced an intellectual class that would subsequently work to undermine the systems of private property and private contracting that underpin the economic system of capitalism. >Bureaucracy/Schumpeter, >Entrepreneurship/Schumpeter. Sobel I 34 Def Capitalism/Schumpeter: „A society is called capitalist ifit entrusts its economic process to the guidance of the private businessman. This may be said to imply, first, private ownership of nonpersonal means of production, such as land, mines, industrial plant and equipment; and, second, production for private account, i.e., production by private initiative for private profit.“ (EOE⁽²⁾: 189).** In Thomas K. McCraw's definitive biography of Schumpeter, Prophet of lnnovation (2009⁽³⁾), he argues that Schumpeter's discussion of the socialism successfully replacing capitalism should be interpreted as, at least to some extent, sarcastic. McCraw writes: "As a whole, the organization of Schumpeter's discussion of socialism has elements of a Shell game. At first his argument seems designed to establish the viability of socialism and its likely replacement of capitalism. But there follows such a lengthy series of convoluted qualifications and assumptions as to raise doubts about his candor ... a careful reading leaves little question that his purpose has been to praise capitalism and condemn socialism. Even so, Schumpeter's irony escaped many readers" (2009⁽³⁾:366-367). * Schumpeter also stressed that "the institution of bank credit is so essential to the functioning of the capitalist system that, though not strictly implied in its definition, it should be added to the other two criteria" of private ownership and private production for private profit as defining characteristics of the capitalist system (EOE⁽²⁾: 189). 1. Schumpeter, Joseph A. (1942). Capitalism, Socialism, and Democracy [CSD]. Harper & Brothers. 2. Schumpeter, Joseph A. (2008). Essays on Entrepreneurs, Innovations, Business Cycles, and the Evolution of Capitalism. Edited by Richard V. Clemence. 3. McCraw, Thomas K. (2009). Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Harvard University Press. Brocker I 250 Capitalism/Schumpeter: Thesis: a) Capitalism is best understood not as a system of market equilibria, but rather as a competitive dynamic process, driven by innovative companies, to disrupt equilibria; this process not only captures and transforms the structures of the economy, but all structures of modern society. b) For the sake of scientific progress, one must strictly distinguish between positive and normative analysis: Brocker I 251 SchumpeterVsClassical Economy/SchumpeterVsRicardo/SchumpeterVsKeynes: these authors did not make the distinction between positive and normative analysis. ((s) Distinction descriptive/normative.). Brocker I 254 Schumpeter's thesis: Capitalism will not perish from its failures, but from its successes. In contrast to Marx, however, this is presented as a conditional prognosis rather than an unconditional one. The condition is that no disturbing influences occur in the future development. ⁽¹⁾ Schumpeter pro capitalism: see Civilization/Schumpeter. Brocker I 255 Innovation/Schumpeter: the development of capitalism can only be described taking into account the innovation competition for ever new products, processes and organizational forms, which is essential for the process of creative destruction. ⁽²⁾ Brocker I 262 Schumpeter's main message is that the (supposed) strengths of socialism should be feared as totalitarianism and that the (supposed) weaknesses of capitalism should be acknowledged as civilized in modern society and thus worthy of preservation. >Socialism/Schumpeter. 1. Joseph A. Schumpeter, Capitalism, Socialism and Democracy, New York 1942. Dt.: Joseph A. Schumpeter, Kapitalismus, Sozialismus und Demokratie, Tübingen/Basel 2005 (zuerst: Bern 1946). S. 105, 263. 2. Ebenda S. 142. Ingo Pies, „Joseph A. Schumpeter, Kapitalismus, Sozialismus und Demokratie (1942)“ in: Manfred Brocker (Hg.) Geschichte des politischen Denkens. Das 20. Jahrhundert. Frankfurt/M. 2018.	EconSchum I Joseph A. Schumpeter The Theory of Economic Development An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge/MA 1934 German Edition: Theorie der wirtschaftlichen Entwicklung Leipzig 1912 Sobel I Russell S. Sobel Jason Clemens The Essential Joseph Schumpeter Vancouver 2020 Brocker I Manfred Brocker Geschichte des politischen Denkens. Das 20. Jahrhundert Frankfurt/M. 2018
Classical Economics	Say	Rothbard II 22 Classical Economics/Say/Rothbard: Say did not rest content with a general, even if pioneering, analysis of the pricing of productive factors. He goes on to virtually create the famous ‘triad’ of classical economics: land (or ‘natural agents’), labour (or ‘industry’ for Say), and capital. Labour works on, or employs ‘natural agents’ to create capital, which is then used to multiply productivity in collaboration with land and labour. Although capital is the previous creation of labour, once in existence it is used by labour to increase production. If there are classes of factors of production, what easier trap to fall into than to maintain that each class receives the kind of income attributed to it in common parlance: i.e. labour receives wages; land receives rent; and capital receives interest? Surely a common-sense approach! And so Say adopted it. RothbrdVsSay: While useful as a first attempt (excepting the forgotten Turgot) to clarify production theory out of Adam Smith's muddle, this superficial clarity comes at the expense of deep fallacy, that would not be uncovered until the Austrians. >Austrian School. In the first place, these three rigidly separated categories already begin to break down in Say's interesting insight that labourers ‘lend’ their services to owners of capital and land and earn wages thereby; that landowners ‘lend’ their land to capital and labour and earn rent; and that capitalists ‘lend’ their capital to earn interest. For how exactly do these payments differ? How does rent as a ‘loan’ price compare with interest as a loan? And how do wages differ from interest or rent? In fact, the muddle is even worse, for workers and landowners don't ‘lend’ their services; they are not creditors. On the contrary, in a deep sense, capitalists lend them money by giving them money in advance of selling the product to the consumers; and so workers and landowners are ‘debtors’ to the capitalists, and pay them a natural rate of interest. Böhm-Bawerk: And finally, this classical triad rests on a basic equivocation, as Böhm-Bawerk would eventually point out, between ‘capital’ and ‘capital goods’. Capital as a fund of savings or lending may earn interest; but capital goods - which are the real physical factors of production rather than money funds - do not earn interest. Like all Rothbard II 23 other factors, capital goods earn a price, a price per unit of time for their services. If you will, capital goods, land, and labourers all earn such prices, in the sense of ‘rents’, defining a rental price as a price of any good per unit of time. This price is determined by the productivity of each factor. But then where does interest on capital funds come from? Interest/SayVsSmith/SayVsRicardo/SayVsMarx/Rothbard: Thus, in grappling with the problem of interest, Say criticizes Smith and the Smithians for focusing on labour as the sole factor of production, and neglecting the cooperating role of capital. Tackling the Smith-Ricardian (and what would later be the Marxian) riposte: that capital is simply accumulated labour, Say replies yes, but the services of capital, once built, are there and continue anew and must be paid for. >Division of labour/Say.	EconSay I Jean-Baptiste Say Traité d’ Economie Politique Paris 1803 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Desire	Say	Rothbard II 21 Desire/Say/Rothbard: J.B. Say also put clearly for the first time the insight that wants are unlimited. Wrote Say: ‘there is no object of pleasure or utility, whereof the mere desire may not be unlimited, since every body is always ready to receive whatever can contribute to his benefit or gratification’. SayVsSteuart: Say denounced the proto-Galbraithian position of the British mercantilist Sir James Steuart, in extolling an ascetic reduction of wants as a solution to desires outpacing production. Say heaps proper scorn on this doctrine: ‘Upon this principle, it would be the very acme of perfection to produce nothing and to have no wants, that is to say, to annihilate human existence.’ Unfortunately, Say proceeds to fall prey to this very Galbraithian trap by attacking luxury and ostentation, and by maintaining that ‘real wants’ are more important to the community than ‘artificial wants’. Say hastens to add, however, that government intervention is not the proper road to achieving proper affluence. Value/price/Say: On the valuing or pricing of the services of the factors (or as Say would put it, ‘agents’) of production, Say adopted the proto-Austrian in direct contrast to the Smith-Ricardo tradition. For since subjective human desire for any object creates its value, and reflects its utility, productive factors receive value because of their ‘ability to create the utility wherein originates that desire’. Value/SayVsRicardo: Ricardo, writes Say, believes ‘that the value of products is founded upon that of productive agency’, i.e. that the value of products is determined by the value of their productive factors, or their cost of production. In contrast, Say declares, ‘the current value of productive exertion is founded upon the value of an infinity of products compared one with another(...).	EconSay I Jean-Baptiste Say Traité d’ Economie Politique Paris 1803 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Economic Rent	Ricardo	Kurz I 280 Economic Rent/Ricardo/classical economics/Kurz: In the Principles Ricardo defines rent rigorously in the following way: „Rent is that portion of the produce of the earth, which is paid to the landIord for the use of the original and indestructihle powers of the soil.“ (Ricardo 1951 : 67)⁽¹⁾. „It is often, however, confounded with the interest and profit of capital, and, in popular language, the term is applied to whatever is annually paid by a farmer to his landlord. If, of two adjoining farms of the same extent, Kurz I 281 and of the same natural fertility, one had all the conveniences of farming buildings, and, besides, were properly drained and manured, and advantageously divided by hedges, fences and walls, while the other had none of these advantages, more remuneration would naturally be paid for the use of one, than for the use of the other; yet in both cases this remuneration would be called rent. But it is evident, that a portion only of the oney annually to be paid for the improved farm, would be given for the original and indestructible powers of the soil; the other portion would be paid for the use of the capital which had been employed in ameliorating the quality of the land, and in erecting such buildings as were necessary to secure and preserve the produce.“ (Ricardo 1951: 67)⁽¹⁾ RicardoVsSmith, Adam: Adam Smith, Ricardo goes on to argue, did not stick to a rigorously defined concept when using the word rent. In Part II of Chapter XI of Book I of The Wealth of Nations ( WN)⁽²⁾, 'Of the Produce of Land which sometimes does, and sometimes does not, afford Rent', Smith gives an example of the timber business, timber clearly being a reproducible resource, in which he confounds the concepts of profits and rent (WN I.xi.c.5)⁽²⁾: „He [Smith] tells us, that the demand for timber, and its consequent high price, in the more southern countries of Europe, caused a rent to be paid for forests in Norway, which could before afford no rent. Is it not, however, evident, that the person who paid what he thus calls rent, paid it in consideration of the valuable commodity which was then standing on the land, and that he actually repaid himself with a profit, by the sale of the timber? If, indeed, after the timber was removed, any compensation were paid to the landlord for the use of the land, for the purpose of growing timber or any other produce, with a view to future demand, such compensation might justly be called rent, because it would be paid for productive powers of the land; but in the case stated by Adam Smith, the compensation was paidfor the liberty of removing and se/ling the timber, and not for the liberty of growing it.“ (Ricardo 1951⁽¹⁾: 68) Kurz I 282 Profit/rent/Ricardo: In Ricardo's view the distinction between profits and rent is crucial, because as capital accumulates and the population grows the two component parts of the social surplus are typically affected differently: „This is a distinction of great importance, in an enquiry concerning rent and profits; for it is found, that the laws which regulate the progress of rent, are widely different from those which regulate the progress of profits, and se/dom operate in the same direction. In all improved countries, that which is annually paid to the landlord, partaking of both characters, rent and profit, is sometimes kept stationary by the effects of opposing causes; at other times advances or recedes, as one or the other of these causes preponderates. In the future pages of this work, then, whenever I speak of the rent of land, I wish to be understood as speaking of that compensation, which is paid to the owner of land for the use of its original and indestructible powers.“ (Ricardo 1951:68-9⁽¹⁾) RicardoVsSmith, Adam: Hence what Smith called 'rent' of coal mines or stone quarries is to Ricardo profits and not rent. >Profit, >Economic Rent, >Royalties. 1. Ricardo, D. (1951 [1817]) On the Principles of Political Economy and Taxation, in P. Sraffa (ed.) with the collaboration Of M.H. Dobb, The Works and Correspondence of David Ricardo, Vol. I, Cambridge: Cambridge University Press. (P/b edn 2004, Indianapolis, IN: Liberty Fund.) 2. Smith, A. (1976 [1776]) An Inquiry into the Nature and Causes of the Wealth of Nations,in R.H. Campbell, AS Skinner and WB. Todd (eds), The Glasgow Edition of the Works and Correspondence of Adam Smith, Vol. I, Oxford University Press, Oxford. (In the text quoted as WN, book number, chapter number, section number, paragraph number.) Kurz, Heinz D. and Salvadori, Neri. „Ricardo on exhaustible resources, and the Hotelling Rule.“ In: Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge. Rothbard II 83 Rent/land/Ricardo/Rothbard: Rent served as the linchpin of the Ricardian system. For, according to Ricardo's rather bizarre theory, only land differed in quality. Labour, as we have seen, was assumed to be uniform, and therefore wage rates are uniform, and, as we shall see, profits are also assumed to be uniform because of the crucial postulate of the economy's always being in long-run equilibrium. >Labour, >Ricardo, >Wages/Ricardo. Land is the only factor which miraculously is allowed to differ in quality. Next, Ricardo assumes away any discovery of new lands or improvements in agricultural productivity. His theory of history therefore concludes that people always begin by cultivating the most fertile lands, and, as population increases, the Malthusian pressure on the food supply forces the producers to use ever more inferior lands. In short, as population and food production rise, the cost of growing corn must inexorably rise over time. Rent, in Ricardo's phrase, is payment for the ‘use of the original and indestructible powers of the soil’. This hints at a productivity theory, and indeed Ricardo did see that more fertile and productive lands earned a higher rent. But unfortunately, as Schumpeter put it, Ricardo then ‘embarks upon his detour’. In the first place, Ricardo made the assumption that at any moment the poorest land in cultivation yields a zero rent. He concluded from that alleged fact that a given piece of land earns rent not because of its own productivity, but merely because its productivity is greater than the poorest, zero-rent, land under cultivation. Remember that, for Ricardo, labour is homogeneous and hence wages uniform and equal, and, as we shall see, profits are also uniform and equal. Land is unique in its permanent, long-run structure of differential fertility and productivity. Hence, to Ricardo, rent is purely a Rothbard II 84 differential, and Land A earns rent solely because of its differential productivity compared to Land B, the zero-rent land in cultivation. Rent/land/Ricardo: To Ricardo, several important points followed from these assumptions. First, as population inexorably increases, and poorer and poorer lands are used, all the differentials keep increasing. Thus, say that, at one point of time, corn lands (which sums up all land) range in productivity from the highest, Land A, through a spectrum down to Land J, which, being marginal, earns a zero rent. >Marginal costs/Ricardo. Rothbard II 95 RothbardVsRicardo/Problems: (…) in discussing the rise in cost of producing corn, Ricardo reverses cause and effect. Ricardo states that increasing population ‘obliges’ farmers to work land of inferior quality and then causes a rise in its price. But as any utility theory analyst would realize, the causal chain is precisely the reverse: when the demand for corn increases, its price would rise, and the higher price would lead farmers to grow corn on higher-cost land. But this realization, of course, eliminates the Ricardian theory of value and with it the entire Ricardian system. (…) as numerous critics have pointed out, it is certainly not true historically that people always start using the highest-quality land and then sink gradually and inevitably down to more and more inferior land. Rothbard II 91 VsRicardo/Rothbard: One of the greatest fallacies of the Ricardian theory of rent is that it ignores the fact that landlords do perform a vital economic function: they allocate land to its best and most productive use. Land does not allocate itself; it must be allocated, and only those who earn a return from such service have the incentive, or the ability, to allocate various parcels of land to their most profitable, and hence most productive and economic uses. >Allocation. Ricardo himself did not go all the way to government expropriation of land rent. His short-run solution was to call for lowering of the tariff on corn, or even repeal of the Corn Laws entirely. Rothbard II 108 VsRicardo: The Ricardian theory of rent was effectively demolished by Thomas Perronet Thompson (1783–1869) in his pamphlet, The True Theory of Rent (1826)⁽¹⁾. Thompson weighed in against this fallacious capstone to the Ricardian system: ‘The celebrated Theory of Rent’, Thompson charged, ‘is founded on a fallacy’, for demand is the key to the price of corn and to rent. The fallacy lies, in assuming to be the cause what in reality is only a consequence... [I]t is the rise in the price of produce... that enables and causes inferior land to be brought into cultivation; and not the cultivation of inferior land that causes the rise of rent. 1. Thomas Perronet Thompson. 1826. The True Theory of Rent, in Opposition to Mr. Ricardo and Others. Being an Exposition of Fallacies on Rent, Tithes, &C. In the Form of a Review of Mr. Mill's Elements of Political Economy. London.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Economics	Schumpeter	Brocker I 251 Economic Theory/Schumpeter: For the sake of scientific progress, a strict distinction must be made between positive and normative analysis: SchumpeterVsClassical Economy/SchumpeterVsRicardo/SchumpeterVsKeynes: these authors did not make the distinction between positive and normative analysis. ((s) Distinction descriptive/normative.). >J.M. Keynes, >Keynesianism, >D. Ricardo. Ingo Pies, „Joseph A. Schumpeter, Kapitalismus, Sozialismus und Demokratie (1942)“ in: Manfred Brocker (Hg.) Geschichte des politischen Denkens. Das 20. Jahrhundert. Frankfurt/M. 2018.	EconSchum I Joseph A. Schumpeter The Theory of Economic Development An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge/MA 1934 German Edition: Theorie der wirtschaftlichen Entwicklung Leipzig 1912 Brocker I Manfred Brocker Geschichte des politischen Denkens. Das 20. Jahrhundert Frankfurt/M. 2018
Economy	Ricardo	Rothbard II 82 Economy/Ricardo/Rothbard: In contrast to Adam Smith, for whom the output, or wealth, of nations was of supreme importance, Ricardo neglected total output to place overriding emphasis on the alleged distribution of a given product into macro-classes. Specifically, into the three macro-classes of landlords, labourers and capitalists. Thus, in a letter to Malthus, who on this question at least was an orthodox Smithian, Ricardo made the distinction clear: ‘Political economy, you think, is an enquiry into the nature and causes of wealth; I think it should rather be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation.’ Since entrepreneurship could not exist in Ricardo's world of long-run equilibrium, he was left with the classical triad of factors. His analysis was strictly holistic, in terms of allegedly homogeneous but actually varied and diverse classes. Ricardo avoided any Say-type emphasis on the individual, whether he be the consumer, worker, producer or businessman. SchumpeterVsRicardo: In Ricardo's world of verbal mathematics there were, as Schumpeter has astutely pointed out, four variables: total output or income, and shares of income to landlords, capitalists, and workers, i.e. rent, profits (long-run interest) and wages. Problem: [Ricardo] had four variables, but only one equation with which to solve them: Total output (or income) = rent + profits + wages. To solve, or rather pretend to solve, this equation, Ricardo had to ‘determine’ one or more of these entities from outside his equation, and in such a way as to leave others as residuals. >Wages/Ricardo, >Rent/Ricardo, >Land/Ricardo, >Marginal costs/Ricardo, >Ricardian economics. Rothbard II 195 Money/Prices/Rocardo/Rothbard: For money to be strictly neutral to everything except a general level of prices, Ricardo had to assert a strict, radical dichotomization between the monetary and the real worlds, with values, relative prices, production and incomes determined only in the 'real' sphere, while overall prices were set exclusively in the monetary sphere. >Bullionism. RothbardVsRicardo: And never the two spheres could meet. And here began the fateful and all-pervasive modern fallacy of a severe split between two hermetically sealed worlds: the 'micro' and the 'macro', each with its own determinants and laws. Furthermore, as Salerno(1) writes, fit was Ricardo's strong affrmation of the neutral-money doctrine in his bullionist writings that was to serve as the source of the classical conception of money as merely a "veil" hiding the "real" phenomena and processes of the economy".⁽¹⁾ In particular, if money is neutral, then value, or relative prices, had to have only 'real' determinants, which Ricardo discovered in embodied quantities of labour. 1. Joseph Salerno, 'The Doctrinal Antecedents of the Monetary Approach to the Balance of Payments' (doctoral dissertation, Rutgers University, 1980), p. 447. Salerno goes on to point out that Ricardo's strict, mechanistic split between the money and the real, leading to the doctrine that money is a 'veil', led also to the seeming paradox of Ricardo, in his Principles, flip-flopping to a highly misleading purely real, non-monetary, 'barter' analysis of the balance of payments. The paradox is only seeming, for a severe split enables someone to leap back and forth between the purely monetary and the purely real. It was the barter analysis of Ricardo's Principles, Salerno notes, 'which served as the foundation for the classical theory of the balance of payments'. Ibid., p. 449.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Equivalence Theorem	Barro	Mause I 277 Equivalence Theorem/government debt/Ricardo/Barro: Thesis: the financing of public expenditure via taxes or via government debt is equivalent. However, this requires a number of restrictive assumptions. The theorem goes back to Ricardo, but was only brought into its present form by Barro. ⁽¹⁾ N.B.: The question is whether additional expenditure makes sense in consideration of the need for private cutting consumption to finance it, but not in what way it is financed. Reason: If government debt rises, private households will anticipate future tax increases and adjust their consumption patterns accordingly. VsEquivalence Theorem: the empirical relevance of these questions can be questioned. For example, there could be altruism between the generations: Parents plan with a basically infinite time horizon. Another problem: it is also assumed that the path of expenditure policy is independent of the financial instrument used. This is only plausible if intergenerational altruism works and voters are perfectly informed. Behavioral Economics/BuchananVsRicardo/BuchananVsBarro/BuchananVsEquivalence theorem: if government debt is perceived less strongly than taxes, debt-financed higher spending may be politically enforceable. Then Ricardo's equivalence collapses. ⁽²⁾ This problem also exists when the capital markets are not perfect, allowing households to easily shift consumption between the present and the future, even without public debt instruments. VsBarro: another problem: distorting taxes: If you move away from the first best tax system, it may well play a role for the welfare of individuals whether the state is in debt. Hereto: Solution/Barro: subsequently introduced the argument of tax smoothing into the discussion. ⁽³⁾ In this case, it makes sense to compensate for fluctuations in tax revenue by increasing and reducing government debt, but to keep tax rates relatively constant. BarroVsKeynesianism: The reason for this is not an economic policy countermeasure for Keynesian motives, but the fact that welfare losses caused by distorting taxes increase disproportionately with tax rates. For further problems see >Growth/Diamond. 1. Robert J. Barro. 1974. Are government bonds net wealth? Journal of Political Economy 82 (6): 1095– 1117. 2. James M. Buchanan & Richard E. Wagner. Democracy in deficit. The political legacy of Lord Keynes. New York 1977. 3. Robert J. Barro. 1979. On the determination of the public debt. Journal of Political Economy 87 (5): 940– 971.	EconBarro I Robert J. Barro Rational expectations and the role of monetary policy 1976 EconBarro II Robert J. Barro David B. Gordon Rules, discretion and reputation in a model of monetary policcy 1983 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018
Equivalence Theorem	Ricardo	Mause I 277 Equivalence Theorem/government debt/Ricardo/Barro: Thesis: the financing of public expenditure via taxes or via government debt is equivalent. However, this requires a number of restrictive assumptions. The theorem goes back to Ricardo, but was only brought into its present form by Barro.⁽¹⁾ N.B.: The question is whether additional expenditure makes sense in consideration of the need for private cutting consumption to finance it, but not in what way it is financed. Reason: If government debt rises, private households will anticipate future tax increases and adjust their consumption patterns accordingly. VsEquivalence Theorem: the empirical relevance of these questions can be questioned. For example, there could be altruism between the generations: Parents plan with a basically infinite time horizon. Another problem: it is also assumed that the path of expenditure policy is independent of the financial instrument used. This is only plausible if intergenerational altruism works and voters are perfectly informed. Behavioral Economics/BuchananVsRicardo/BuchananVsBarro/BuchananVsEquivalence theorem: if government debt is perceived less strongly than taxes, debt-financed higher spending may be politically enforceable. Then Ricardo's equivalence collapses. ⁽²⁾ This problem also exists when the capital markets are not perfect, allowing households to easily shift consumption between the present and the future, even without public debt instruments. VsBarro: another problem: distorting taxes: If you move away from the first best tax system, it may well play a role for the welfare of individuals whether the state is in debt. Hereto: Solution/Barro: subsequently introduced the argument of tax smoothing into the discussion. ⁽³⁾ In this case, it makes sense to compensate for fluctuations in tax revenue by increasing and reducing government debt, but to keep tax rates relatively constant. BarroVsKeynesianism: The reason for this is not an economic policy countermeasure for Keynesian motives, but the fact that welfare losses caused by distorting taxes increase disproportionately with tax rates. For further problems see >Growth/Diamond. 1. Robert J. Barro. 1974. Are government bonds net wealth? Journal of Political Economy 82 (6): 1095 – 1117. 2. James M. Buchanan & Richard E. Wagner. Democracy in deficit. The political legacy of Lord Keynes. New York 1977. 3. Robert J. Barro. 1979. On the determination of the public debt. Journal of Political Economy 87 (5): 940– 971.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018
Gold Standard	Copleston	Rothbard II 209 Deflation/gold standard/Copleston/CopelstonVsRicardo/Rothbard: in his challenge to Ricardo [Copleston is] (…) reviving, perhaps unwittingly, the 'complete bullionist' or 'pre-Austrian' monetary tradition of Cantillon and Lord King. >Bullionism, >Austrian School. Rothbard: Copleston, in the first place, attacked Ricardo's mechanistic assertion that exchange rates measure the degree of depreciation, this doctrine resting on the equally mechanistic View that 'a variation in price caused by an altered value of money is common at once to all commodities'. Copleston countered that it was precisely because prices do not adjust smoothly, instantly, and uniformly to inflation that the inflation process is so painful and destructive: Rothbard II 210 Copleston: The fact undoubtedly is, that the altered value of money does not affect all prices at the same time: but that wide intervals occur, during which one class is compelled to buy dear while they sell cheap, and others have no prospect whatever of indemnity, or of regaining the relative position they once occupied. Rothbard: In short, Copleston pointed out the profound truth that in a transition period to a new monetary equilibrium there are always gains by those whose selling prices rise faster than their buying prices, and losses by those whose costs rise faster than selling prices, and Who are late in receiving the new money. But, even further, Copleston points out that some of these changes in relative income and wealth will be permanent. In Short, changes in the money supply are never neutral to the economy, and their effects are never confined to the 'level' of prices.	Copleston I Edward Copleston State of the Currency", 1822, 1822 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Inflation	Say	Rothbard II 38 Inflation/Say/Rothbard: Say was a hard-money man, insistent that all paper must be instantly convertible into specie. Irredeemable paper expands rapidly in quantity and depreciates the value of the currency, and Say pointed to the recent issue by the revolutionary French government of the assignats, inconvertible paper that depreciated eventually to zero. Say was thus able to analyse one of the first examples of runaway inflation. If the national money is deteriorated, it becomes an object to get rid of it in any way, and exchange it for commodities. This was one of the causes of the prodigious circulation that took place during the progressive depreciation of the French assignats. Everybody was anxious to find some employment for a paper currency, whose value was hourly depreciating; it was only taken to be re-invested immediately, and one might have supposed it burnt the fingers it passed through.⁽¹⁾ Say also pointed out that inflation systematically injures creditors for the benefit of debtors. Rothbard II 39 SayVsRicardo/SayVsSmith, Adam: Say was highly critical of the Smith-Ricardo yen to find an absolute and invariable measure of the value of money. He pointed out that while the relative values of money to other prices can be estimated, they are not susceptible to measurement. The value of gold or silver or coin is not fixed but variable as is that of any commodity. 1. Say, Jean-Baptiste. Traité d’Economie Politique, Paris 1803.	EconSay I Jean-Baptiste Say Traité d’ Economie Politique Paris 1803 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Labour	Bailey	Rothbard II 133 Production theory/wages/labour/productivity/Bailey/BaileyVsRicardo/Rothbard: (…) Samuel Bailey who, in the course of his definitive critique of Ricardian value theory in 1825, pointed to the crucial role of the productivity of labour in determining wages: the value of labour does not entirely depend on the proportion of the whole produce which is given to the labourers in exchange for their labour, but also on the productiveness of labour... The proposition, that when labour rises profits must fall, is true only when its rise is not owing to an increase in its productive powers... If the productive power of labour be augmented, that is, if the same labour produce more commodities in the same time, labour may rise in value without a fall, nay, even with a rise of profits. Problem/Rothbard: One of the critical problems in developing the productivity theory of wages was the Ricardian insistence on emphasizing the alleged laws of aggregate distribution, of ‘wages’ as a whole and as a total share of national product and income, rather than as wage rates of individual units of labour. J.B. Say had presented a productivity theory of wages, but had not analysed the determination of particular wage rates in any detail. Nassau Senior, in the early 1830s, while confused on the topic of wages, came out for the productivity theory. He also managed to demolish Adam Smith's ‘productive’ vs ‘unproductive’ labour doctrine, stressing, as had J.B. Say, ‘production’ as the flow of services, which emanate both from material and immaterial products. >Production/Say, >Wages/Longfield.	Bailey I Samuel Bailey Money and its vicissitudes in value; as they affect national industry and pecuniary contracts: with a postscript join-stock banks London 1837 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Labour	Sraffa	Kurz I 151 Labour/Sraffa/Kurz: (…) at the beginning of his constructive work Sraffa was convinced that these [the concepts of labor and of labor theory of value] stood for the failure of the earlier authors to elaborate a coherent theory of value and distribution. The right starting point, he insisted, was that of Petty, Who had singled out workers' means of subsistence, their "food," not labor, as the "ultimate measure of value." SraffaVsRicardo/SraffaVsMarx: Sraffa accused Ricardo and Marx of having "corrupted" the concept of physical real cost (see, for example, D3/12/4: 2)(1). As late as 1929 he still considered labor as "not a quantity at all" and called the concept "metaphysical" (see, for example, D3/12/l I : 64)(1). He questioned the special treatment of the labor of a wage earner as compared with that of a slave, a horse, or a machine, as it was advocated by ome classical authors and also by Marshall, and maintained that "it is a purely mystical conception that attributes to human labour a special gift of determining value" (D3/12/9: 89)⁽²⁾. Kurz I 154 Wages/prices/labor/production/Sraffa/Kurz: (…) at first [Sraffa] retained the Ricardo-Marx assumption that wages as a whole were paid out of the capital advanced at the beginning of the uniform period of production, that is, ante factum. It was only toward the end of 1943 that he abandoned the classical assumption and took wages to be entirely paid out of the product. A consequence of this was the replacement of the classical socio-economic distinction between "necessaries" and "luxuries" with the more technical distinction between "basic" and "nonbasic" products. In the context of an investigation in the late 1920s of how a change in wages affects the rate of interest and relative prices, given the system of production in use, Sraffa saw that solving a set of simultaneous equations for each and every level of wages was cumbersome and the results not very transparent. He Kurz I 155 was therefore on the lookout for a second method designed to render the properties of the system easier to grasp. The method sought, as we have already noted, was the reduction to dated quantities of labor (or wages appropriately discounted forward). Could the series of dated labor terms be expressed in a compact form, in a Single magnitude, that was independent of distribution? As is well known, Eugen von Böhm-Bawerk had thought that this was indeed possible and in his Positive Theory of Capital ([1889] 1959)⁽¹⁾ had elaborated such a measure in terms of the "average period of production. " SraffaVsBöhm-Bawerk: Sraffa around the turn of 1928 studied Böhm-Bawerk's attempt and saw that the concept could not be defined independently of the rate of interest. Therefore it could not be used as a primitive technical data, or given, in the theory of value and distribution. However, in studying the impact of a change in distribution on relative prices, it was possible to employ the average period as a measure of the capital-to-labor ratio with which a given commodity was produced at the level of the rate of interest taken as the starting point of the investigation. Sraffa: Sraffa in fact for a while used the concept for this purpose and was even provisionally prepared to accept two doctrines Böhm-Bawerk had advocated. Böhm-Bawerk: 1) With a rise in wages (and the corresponding fall in the rate of interest), consumption goods would fall in price relative to capital goods. This was seen to be an implication of the Austrian unidirectional conceptualization of production which starts with unassisted labor and leads via a finite sequence of intermediate or capital goods to final or consumption goods. Being obtained at the very end of the production process, the latter were generally taken to be produced With a higher capital-to-labor ratio (or average period of production) than capital goods. 2) In the case in which there is a choice of technique, cost-minimizing producers at a Iower (higher) rate of interest would invariably adopt that method of producing a given commodity which is associated with a higher (Iower) average period of production. SraffaVsBöhm-Bawerk: Sraffa soon got doubts as to the validity of these doctrines. (…) contrary to the marginalist proposition, consumption goods were not necessarily produced in a more capital-intensive way than capital goods. In a circular flow framework, the Austrian classifieation of goods according to their greater or smaller distance from the maturing of the final product made no sense: wheat, for example, was both a means of production (seed) and a consumption good. Sraffa concluded as follows with regard to the sum total of capital goods compared with the sum total of goods produced: „It may be said that the value of total capital in terms of total goods produced cannot vary {as a consequence of a variation of wages and a contrary variation of the rate of interest}, since the goods are composed exactly in the same proportions as the capitals which have produced them." (1)3/12/7: 157(3).⁽²⁾ Sraffa added that the proposition is "false, but may contain an element of truth." Some twelve years later, in a note composed in November 1943, he Kurz I 156 clarified that his proposition was based on the "statistical compensation of large numbers" (D3/12/35: 28)⁽²⁾. Henceforth he called the assumption that the value of social capital relative to that of social product does not change with a change in distribution "My Hypothesis" or simply "Hypothesis". 1. Böhm-Bawerk, E. von. (1889). The Positive Theory of Capital, trans. William A. Smart (London: Macmillan and Co., 1891). 2. Taken from the work Sraffa carried out in the period 1927–1931 (unpublished papers). Kurz, Heinz D. „Keynes, Sraffa, and the latter’s “secret skepticism“. In: Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge.	Sraffa I Piero Sraffa Production of Commodities by Means of Commodities. Prelude to a Critique of Economic Theory (Cambridge: Cambridge University Press). Cambridge 1960 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015
Land (Economics)	Ricardo	Rothbard II 83 Rent/land/Ricardo/Rothbard: Rent served as the linchpin of the Ricardian system. For, according to Ricardo's rather bizarre theory, only land differed in quality. Labour, as we have seen, was assumed to be uniform, and therefore wage rates are uniform, and, as we shall see, profits are also assumed to be uniform because of the crucial postulate of the economy's always being in long-run equilibrium. >Labour, >Ricardo, >Wages/Ricardo. Land is the only factor which miraculously is allowed to differ in quality. Next, Ricardo assumes away any discovery of new lands or improvements in agricultural productivity. His theory of history therefore concludes that people always begin by cultivating the most fertile lands, and, as population increases, the Malthusian pressure on the food supply forces the producers to use ever more inferior lands. In short, as population and food production rise, the cost of growing corn must inexorably rise over time. Rent, in Ricardo's phrase, is payment for the ‘use of the original and indestructible powers of the soil’. This hints at a productivity theory, and indeed Ricardo did see that more fertile and productive lands earned a higher rent. But unfortunately, as Schumpeter put it, Ricardo then ‘embarks upon his detour’. In the first place, Ricardo made the assumption that at any moment the poorest land in cultivation yields a zero rent. He concluded from that alleged fact that a given piece of land earns rent not because of its own productivity, but merely because its productivity is greater than the poorest, zero-rent, land under cultivation. Remember that, for Ricardo, labour is homogeneous and hence wages uniform and equal, and, as we shall see, profits are also uniform and equal. Land is unique in its permanent, long-run structure of differential fertility and productivity. Hence, to Ricardo, rent is purely a Rothbard II 84 differential, and Land A earns rent solely because of its differential productivity compared to Land B, the zero-rent land in cultivation. Rent/land/Ricardo: To Ricardo, several important points followed from these assumptions. First, as population inexorably increases, and poorer and poorer lands are used, all the differentials keep increasing. Thus, say that, at one point of time, corn lands (which sums up all land) range in productivity from the highest, Land A, through a spectrum down to Land J, which, being marginal, earns a zero rent. >Marginal costs/Ricardo. Rothbard II 95 RothbardVsRicardo/Problems: (…) in discussing the rise in cost of producing corn, Ricardo reverses cause and effect. Ricardo states that increasing population ‘obliges’ farmers to work land of inferior quality and then causes a rise in its price. But as any utility theory analyst would realize, the causal chain is precisely the reverse: when the demand for corn increases, its price would rise, and the higher price would lead farmers to grow corn on higher-cost land. But this realization, of course, eliminates the Ricardian theory of value and with it the entire Ricardian system. (…) as numerous critics have pointed out, it is certainly not true historically that people always start using the highest-quality land and then sink gradually and inevitably down to more and more inferior land. Rothbard II 91 VsRicardo/Rothbard: One of the greatest fallacies of the Ricardian theory of rent is that it ignores the fact that landlords do perform a vital economic function: they allocate land to its best and most productive use. Land does not allocate itself; it must be allocated, and only those who earn a return from such service have the incentive, or the ability, to allocate various parcels of land to their most profitable, and hence most productive and economic uses. >Allocation. Ricardo himself did not go all the way to government expropriation of land rent. His short-run solution was to call for lowering of the tariff on corn, or even repeal of the Corn Laws entirely. Rothbard II 108 VsRicardo: The Ricardian theory of rent was effectively demolished by Thomas Perronet Thompson (1783–1869) in his pamphlet, The True Theory of Rent (1826)⁽¹⁾. Thompson weighed in against this fallacious capstone to the Ricardian system: ‘The celebrated Theory of Rent’, Thompson charged, ‘is founded on a fallacy’, for demand is the key to the price of corn and to rent. The fallacy lies, in assuming to be the cause what in reality is only a consequence... [I]t is the rise in the price of produce... that enables and causes inferior land to be brought into cultivation; and not the cultivation of inferior land that causes the rise of rent. 1. Thomas Perronet Thompson. 1826. The True Theory of Rent, in Opposition to Mr. Ricardo and Others. Being an Exposition of Fallacies on Rent, Tithes, &C. In the Form of a Review of Mr. Mill's Elements of Political Economy. London. Rothbard III 560 Land/Ricardo/Rothbard: What if the supply of capital remained the same, while the supply of labor or land factors changed? Thus, suppose that, with the same capital structure, population increases, thus expanding the total supply of labor factors. The result will be a general fall in the MVP of labor and a rise in the MVP of land factors. This rise will cause formerly submarginal, no-rent lands to earn rent and to enter into cultivation by the new labor supply. Land/Ricardo: This is the process particularly emphasized by Ricardo: population pressing on the land supply. The tendency for the MVP (marginal value product) of labor to drop, however, may well be offset by a rise in the MPP (marginal physical product) schedules of labor, since a rise in population will permit a greater utilization of the advantages of specialization and the division of labor. The constant supply of capital would have to be reoriented to the changed conditions, but the constant amount of money capital will then be more physically productive. Hence, there will be an offsetting tendency for the MVPs of labor to rise. >Factor market/Rothbard, >Production factors/Rothbard, >Land/Rothbard, >Labour/Rothbard, >Marginal product/Rothbard.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Marginal costs	Ricardo	Rothbard II 84 Marginal costs/Ricardo: (…) as population inexorably increases, and poorer and poorer lands are used, all the differentials keep increasing. Thus, say that, at one point of time, corn lands (which sums up all land) range in productivity from the highest, Land A, through a spectrum down to Land J, which, being marginal, earns a zero rent. But now population increases and farmers have to cultivate more and poorer lands, say K, L, and M. M now becomes the zero-rent land, and Land J now earns a positive rent, equal to the differential between its productivity and that of M. And all the previous infra-marginal lands have their differential rents raised as well. It becomes ineluctably true, therefore, that over time, as population increases, rents, and the proportion of income going to rent, increase as well. Yet, though rent keeps increasing, at the margin it always remains zero, and, as Ricardo put it in a crucial part of his theory, being zero rent does not enter into cost. Put another way: quantity of labour cost, being allegedly homogeneous, is uniform for each product, and profits, being uniform and fairly small throughout the economy, form a part of cost that can be basically neglected. Since the price of every product is uniform, this means that the quantity of labour cost on the highest-cost, or zero-rent, land, uniquely determines the price of corn and of every other agricultural product. Rent, being infra-marginal in Ricardo's assumptions, cannot enter into cost. >Economic rent/Ricardo, >Wages/Ricardo, >Economy/Ricardo. And, paradoxically, while rent keeps rising over time, it remains zero at the margin, and therefore without any impact on costs. RothbardVsRicardo: There are many flaws in this doctrine. 1) (…) even the poorest land in cultivation never earns a zero rent, just as the least productive piece of machinery or worker never earns a zero price or wage. It does not benefit any resource owner to keep his resource or factor in production unless it earns a positive rent. The marginal land, or other resource, will indeed earn less of a rent than more productive factors, but even the marginal land will always earn some positive rent, however small. 2) Second, apart from the zero-rent problem, it is simply wrong to think that rent, or any other factor return, is caused by differentials. Each piece of land, or unit of any factor, earns whatever it produces; differentials are simple arithmetic subtractions between two lands, or other factors, each of which Rothbard II 85 earns a positive rent of its own. The assumption of zero rent at the margin allows Ricardo to obscure the fact that every piece of land earns a productive rent, and allows him to slip into the differential as cause. >Causality/Philosophical theories. 3) (…) in discussing the rise in cost of producing corn, Ricardo reverses cause and effect. Ricardo states that increasing population ‘obliges’ farmers to work land of inferior quality and then causes a rise in its price. But as any utility theory analyst would realize, the causal chain is precisely the reverse: when the demand for corn increases, its price would rise, and the higher price would lead farmers to grow corn on higher-cost land. But this realization, of course, eliminates the Ricardian theory of value and with it the entire Ricardian system. 4) (…) as numerous critics have pointed out, it is certainly not true historically that people always start using the highest-quality land and then sink gradually and inevitably down to more and more inferior land. >Ricardo/Neoclassical Economics.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Markets	Marx	Rothbard II 431 Market/Marx/Rothbard: (…) in the 'disproportionality' theory of Marx, we return, in a deep sense, to where we, or rather Marx himself, began: to communism, and the desire to eradicate the market and the division of labour. Woven into his discussions in Capital and Theories of Surplus Value (written 1861-63) is the view that cycles and crises inevitably stem from the market process. To Marx, the problem was endemic in the market economy, and particularly in the money, or indirect exchange, economy. Since the market allegedly had no coordinating mechanism, all production and exchange, according to Marx, is chaotic, discoordinated, a regime of what he called 'the anarchy of production'. Rothbard II 432 Equilibrium/MarxVsRicardo/Rothbard: Marx had a telling point against the Ricardians, the British classicists of his day. The world does not indeed bask happily in the never-never land of long-run equilibrium. RothbardVsMarx: But what Marx overlooked is precisely what the Ricardians overlooked: if they had shifted their focus out of the cloudland of long-run equilibrium, and back to the real world of the market economy, they would have discovered a very different world. They would have seen what Turgot and the French and Italians and scholastics had seen: the real world of markets is not perfectly, but still harmoniously and dynamically coordinated by two crucial elements: a price system that is free to fluctuate to equate the changing forces of supply and demand; and entrepreneurs who, in their continuing search for increased profits and avoidance of losses, perform this coordinating task. >Price, >Markets, >Entrepreneurship, >Equilibrium.	Marx I Karl Marx Das Kapital, Kritik der politische Ökonomie Berlin 1957 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Production Theory	Bailey	Rothbard II 133 Production theory/wages/labour/productivity/Bailey/BaileyVsRicardo/Rothbard: (…) Samuel Bailey who, in the course of his definitive critique of Ricardian value theory in 1825, pointed to the crucial role of the productivity of labour in determining wages: the value of labour does not entirely depend on the proportion of the whole produce which is given to the labourers in exchange for their labour, but also on the productiveness of labour... The proposition, that when labour rises profits must fall, is true only when its rise is not owing to an increase in its productive powers... If the productive power of labour be augmented, that is, if the same labour produce more commodities in the same time, labour may rise in value without a fall, nay, even with a rise of profits. Problem/Rothbard: One of the critical problems in developing the productivity theory of wages was the Ricardian insistence on emphasizing the alleged laws of aggregate distribution, of ‘wages’ as a whole and as a total share of national product and income, rather than as wage rates of individual units of labour. J.B. Say had presented a productivity theory of wages, but had not analysed the determination of particular wage rates in any detail. Nassau Senior, in the early 1830s, while confused on the topic of wages, came out for the productivity theory. He also managed to demolish Adam Smith's ‘productive’ vs ‘unproductive’ labour doctrine, stressing, as had J.B. Say, ‘production’ as the flow of services, which emanate both from material and immaterial products. >Production/Say, >Wages/Longfield.	Bailey I Samuel Bailey Money and its vicissitudes in value; as they affect national industry and pecuniary contracts: with a postscript join-stock banks London 1837 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Rate of Profit	Marx	Kurz I 164 Rate of profit/Marx/MarxVsRicardo/Sraffa/Kurz: In Sraffa's reading, Marx had detected an important error in Ricardo's line of reasoning, which emanated from his neglect of nonwage Capital in the analysis of the wage-profit relationship.26 As Marx ([1861—63] 1989, 73)⁽¹⁾ stressed over and over again, this neglect had serious implications, and in particular had misled Ricardo into focusing attention on the wrong causes in his explanation of a falling tendency of the rate of profits: But because for Ricardo the rate of profit and the rate of surplus value are identical terms, a permanent fall in profit or the tendency of profit to fall can only be explained as the result of the same causes that bring about a permanent fall or tendency to fall in the rate of surplus value, i.e. in that part of the day during which the worker does not work for himself but for the capitalist. What are these causes? If the length of the working day is assumed to remain constant, then the part of it during which the worker works for nothing for the capitalist can only fall, diminish, if the part during which he works for himself grows. And this is only possible (assuming that LABOUR is paid at its VALUE) if the value of the NECESSARIES - the means of subsistence on which the worker spends his wages - increases. But as a result of the development of the productive power of labour, the value of industrial commodities is constantly decreasing. The diminishing rate of profit c»an therefore only be explained by the fact that the value of FOOD, the principal component part of the means of subsistence, is constantly rising. For Ricardo, the general rate of profits falls if, and only if, proportional wages rise. >Marx, >Sraffa. MarxVsRicardo: This proposition was not correct: as Marx had pointed out, it only holds if one disregards the nonwage capital and argues as if capital advances consist only of the wages bill. However, once this very restrictive assumption is abandoned, the rate of profits can fall (or rise) even if proportional wages remain constant. Kurz I 165 Marx/Ricardo/Sraffa: In Sraffa's reading, Marx had developed his law as a critique of Ricardo's explanation of the falling rate of profits, incorporating major elements of Ricardo's in his own analysis. Thus Marx had argued that an accumulation process without technical change is bound up with a tendency of rising money wages and a falling rate of exploitation (i.e, rising proportional wages) - quite independently of rising costs of food production or the so-called law of population (see Marx [1867] 1954, 581—582).⁽¹⁾ Ricardo: According to Sraffa, Marx had incorporated also another element of Ricardo's doctrine in his own analysis: Ricardo's "machinery substitution argument" recurs in Marx's law of the falling rate of profits in terms of an "increasing organic composition of capital." Moreover, in Sraffa's understanding Marx had based his argument on the same "natural course" Scenario as Ricardo had: both had started with Kurz I 166 an analysis of the case of accumulation with given technical knowledge, where known but hitherto unused methods may be introduced in consequence of changes in the distributive variables and relative prices, but technical progress proper is set aside. >Rate of profit/Sraffa. 1. K. Marx. 1867. The Capital.The Process of Production of Capital. https://www.marxists.org/archive/marx/works/1867-c1/ (21.11.2024) Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge. Rothbard II 411 Rate of profit/surplus value/Marx/Rothbard: In contrast to Ricardo, (…), land and rent [for Marx] are simply assimilated into 'capital', since man's labour allegedly created all land anyway, and since the importance ofland and feudalism allegedly disappears as capitalism proceeds on its way. Values and prices of land therefore need not be treated or explained. Profit/Marx/Rothbard: Profit, for Marx, is derived only from exploiting labour; it is the surplus value over the wages necessary for the subsistence oflabour. Profits, on the other hand, have nothing to do With the amount of capital invested; Rothbard II 412 for capital is only dead matter, stored or frozen labour, and can therefore no longer be 'exploited' to provide current profits.⁽¹⁾ Only 'living' labour, then, can be used to provide profit for the capitalist. But if the amount of profit is extracted solely from labour, this means that any accumulation of capital will necessarily reduce the rate of profit earned by the capitalist. Thus, suppose no capital or, in Marxian terms, 'constant' capital is used⁽²⁾, and investment is made solely in the form of 'variable capital' used to pay wages. >Wages/Marx. Rothbard II 413 Rate of Profit/Marx/Rothbard: [Marx‘] theory implies that, since profits are only derived from the exploitation of labour, profit rates are necessarily Iower in heavily capitalized than in labour-intensive industries. But everyone, including Marx, is forced to acknowledge that this manifestly does, not hold true on the market. The tendency on the market, as Smith and Ricardo well knew, is for rates of profit to tend toward equality in all industries. But how so, if profit rates are necessarily and systematically higher in the labour-intensive industries? Here is surely the most glaring single hole in the Marxian model. Marx acknowledged that, in the real world, profit rates clearly tend toward equality (or, as Marx termed it, an 'average rate ofprofit'), and that real prices or exchange-values in capitalist markets therefore do not exchange at their Marxian quantity-of- labour values. >Value theory/Marx. Rothbard: Marx admitted this crucial problem, and promised that he could solve the problem successfully in a later volume of Capital. He struggled with this problem for the rest of his life, and never solved it - perhaps one of the main reasons that he stopped working early on Capital and never published the later volumes. Rothbard II 414 Rothbard: Volume III was subjected to detailed, withering, thoroughgoing demolition two years later by Böhm-Bawerk in his extensive review essay, Karl Marx and the Close of His System.⁽³⁾ Rothbard: Unfortunately, Böhm-Bawerk's point was too technical to have much impact outside the ranks of economists, and, since then, Marxism has held its greatest attraction in the ranks of sociologists, historians, the literati, and others who tend to be economically ignorant. Böhm-BawerkVsMarx: Marx claimed that goods exchanged on the market in proportion to the quantities oflabour embodied in them (i.e., that their values are determined by the quantity oflabour-hours needed to produce them), andyet also conceded that the rates of profit on all goods tended to be equal. And yet, if the first clause is true, the rates of profit would be systematically Iower in proportion to the intensity of capital investment, and higher in proportion to their labour-intensiveness of production. Marx promised to resolve this insoluble contradiction in Volume III and to reconcile these two fundamentally contradictory propositions. Solution/Marx/Böhm-Bawerk: In Karl Marx and the Close of His System⁽³⁾, Böhm-Bawerk demonstrated that Marx's proffered 'solution' was a sham, and that actually what Marx did was to throw in the towel and admit that, on the capitalist market, profit rates were equal and therefore that prices were not proportional to or determined by the quantity of labour hours in the production of goods. Instead, Marx in effect embraced standard Ricardian theory and admitted that prices were actually determined by the costs (or, in his terminology, 'prices') of production plus the average rate of profit. In this way, while pretending to have saved his theory by talking grandly about competition transforming 'values into prices ofproduction', Marx had actually abandoned the labour theory of value altogether and had therefore scuttled his entire system. >Rate of Profit/Smith, >Rate of Profit/Ricardo, >Commodity/Marx, >Wages/Marx. Rothbard II 428 RothbardVsMarx: Finally, there is a glaring inner contradiction at the heart of Marxian economics that is never resolved. If the capitalists suffer over time from a falling rate of profit, and workers suffer from increasing impoverishment, Who is benefiting in the distribution of the economic pie? At least in the Ricardian system, the capitalists suffer from a falling rate of profit, and the workers are kept at brute subsistence level, but some group keeps grabbing all the social benefits - the parasitic landlords and their increasing absorption of the social product by land rent. But in the Marxian system, the landlords have disappeared, increasingly and rapidly assimilated into the capitalist class. So how can both mighty classes lose out under developing capitalism?⁽⁴⁾ >Capitalism/Marx, >History/Marx. 1. As Böhm-Bawerk was later to point out, even if we choose to adopt this cost-of-production approach, we have to recognize that capital embodies not just labour, and land, but also time. Land, as we shall see further, was tossed out by Marx by amalgamating it into capital; but if time had been acknowledged as an important factor, then time-preference would have to be acknowledged, and the entire Marxian system would have collapsed. 2. 'Constant' because, according to Marx, capital goods, being deadweight, cannot generate any profit, or increased value. 3. First published as Zum Abschluss des Marxschen Systems in a Festschrift for Karl Knies in 1896, and published as a separate booklet the same year It was a rapid success, being translated the following year into Russian, and the English translation coming out in 1898. Unfortunately, 'close' is a peculiar and misleading term; a far more accurate title would have been Karl Marx and the Completion of His System. 4. See Gottfried Haberler, 'Marxist Economics in Retrospect and Prospect', in M. Drachkovitch (ed.), Marxist Ideology in the Contemporary World - Its Appeals and Paradoxes (Hoover Institution, New York: Praeger, 19 66), pp. 118, 183.	Marx I Karl Marx Das Kapital, Kritik der politische Ökonomie Berlin 1957 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Rate of Profit	Ricardo	Kurz I 163 Rate of profit/Ricardo/Marx/Kurz: According to Sraffa, Marx had developed his law strictly against the background of Ricardo's explanation of a falling tendency of the general rate of profits. (…) Ricardo (1951-73, 1:49), in ascertaining the level of the general rate of profits and its development over time in changing technical conditions, had taken as given "the proportion of the annual labour of the country devoted to the support of the labourers" Ricardo's concept was subsequently adopted by Marx in terms of a given rate of surplus value. >Surplus value. In his observations on the wage-profit relationship, Ricardo typically assumed that the social capital consists only of wages (or can be fully reduced to wages in a finite number of steps), so that the rate of profits, r, is given by the ratio of profits, P, to wages, W, r=P/W = 1-w/w Kurz I 164 where w designates proportional wages (i.e., the wage share). Starting from this relationship, Ricardo had then argued that as Capital accumulates, proportional wages tend to rise, and the rate of profits tends to fall, because of increasing costs of production due to diminishing returns in agriculture. The rising money prices of agricultural commodities, in particular food, necessitate increases in money wages in order to keep "real," that is, commodity, wages constant. To this Ricardo added the following argument. With the rise in nominal wages and the associated fall in the rate of profits it becomes profitable to introduce known but hitherto unused methods of production ("machinery"). In Ricardo 's words, "Machinery and labour are in constant competition and the former can frequently not be employed until labour {i.e, the money wage} rises" (1:395)⁽¹⁾. The introduction of machinery in turn can temporarily check the rise in money wages and the associated fall in the rate of profits However, with further capital accumulation and a growing population, money wages, and hence also proportional wages, will sooner or later have to start rising again. 1. Ricardo, D. 1951-73. The Works and Correspondence of David Ricardo. I I vols. Edited by Piero Sraffa, with the collaboration of M. H. Dobb Cambridge: Cambridge University Press. Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge. Rothbard II 88 Rate of profit/Adam Smith/Ricardo/Schumpeter/Rothbard: Adam Smith believed that the rate of profit, or the long-run rate of interest return, is determined by the quantity of accumulated capital, so that more capital will lead to a falling rate of profit. While this theory is not fully correct, it at least understands that there is some connection between saving, capital accumulation, and long-run interest or profit. But to Ricardo there is no connection whatever. Interest on capital is only a residual. By a series of fallacies, and holistic, locked-in assumptions, trivial conclusions are at last ground out, all with a portentous air, allegedly telling us conclusive insights about the real world. SchumpeterVsRicardo: As Schumpeter scornfully puts it: propositions such as ‘profits depend upon wages’, and the falling rate of profit, are excellent examples of ‘that Art of Triviality that, ultimately connected with the Ricardian Vice, leads the victim, step by step, into a situation where he has got either to surrender or to allow himself to be laughed at for denying what, by the time that situation is reached, is really a triviality’.⁽¹⁾ >Profit/Ricardo, >Economy/Ricardo, >Value theory/Ricardo. Rothbard II 418 Rate of Profit/Smith/Ricardo/Rothbard: One crucial aspect of the inevitable doom of capitalism [for Marx] is the inescapable law of the falling rate of profit. The extant uniform equilibrium rate, according to Marx, was doomed to keep falling. Rothbard: Both Smith and Ricardo had theories of a falling rate of profit, each fallacious, and each arrived at in completely different ways. Smith: To Smith, the rate of profit (or interest) is determined by the stock of capital; the greater the amount of capital accumulated, the Iower the profit rate. RicardoVsSmith: Ricardo, in contrast, was worried about the increasing squeeze of the economy by the landlords as inexorable population growth puts ever more inferior lands under cultivation. Labour hours required for production are raised, thereby raising both money wages and rents, hence eating increasingly into profits. Rothbard: But, one may well ask, if the accumulation of capital necessarily slashes profits, why do capitalists, who are clearly motivated by a search for higher rather than Iower profits, insist on continuing to accumulate? Why do they persist in cutting their own throats? >Rate of Profit/Marx, >Value theory/Marx, >Competition/Marx. 1. J.A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), note 3, p. 653n.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Rate of Profit	Smith	Rothbard II 88 Rate of profit/Adam Smith/Ricardo/Schumpeter/Rothbard: Adam Smith believed that the rate of profit, or the long-run rate of interest return, is determined by the quantity of accumulated capital, so that more capital will lead to a falling rate of profit. While this theory is not fully correct, it at least understands that there is some connection between saving, capital accumulation, and long-run interest or profit. But to Ricardo there is no connection whatever. Interest on capital is only a residual. By a series of fallacies, and holistic, locked-in assumptions, trivial conclusions are at last ground out, all with a portentous air, allegedly telling us conclusive insights about the real world. SchumpeterVsRicardo: As Schumpeter scornfully puts it: propositions such as ‘profits depend upon wages’, and the falling rate of profit, are excellent examples of ‘that Art of Triviality that, ultimately connected with the Ricardian Vice, leads the victim, step by step, into a situation where he has got either to surrender or to allow himself to be laughed at for denying what, by the time that situation is reached, is really a triviality’.⁽¹⁾ >Profit/Ricardo, >Economy/Ricardo, >Value theory/Ricardo. Rothbard II 418 Rate of Profit/Smith/Ricardo/Rothbard: One crucial aspect of the inevitable doom of capitalism [for Marx] is the inescapable law of the falling rate of profit. The extant uniform equilibrium rate, according to Marx, was doomed to keep falling. Rothbard: Both Smith and Ricardo had theories of a falling rate of profit, each fallacious, and each arrived at in completely different ways. Smith: To Smith, the rate of profit (or interest) is determined by the stock of capital; the greater the amount of capital accumulated, the Iower the profit rate. RicardoVsSmith: Ricardo, in contrast, was worried about the increasing squeeze of the economy by the landlords as inexorable population growth puts ever more inferior lands under cultivation. Labour hours required for production are raised, thereby raising both money wages and rents, hence eating increasingly into profits. Rothbard: But, one may well ask, if the accumulation of capital necessarily slashes profits, why do capitalists, who are clearly motivated by a search for higher rather than Iower profits, insist on continuing to accumulate? Why do they persist in cutting their own throats? >Rate of Profit/Marx, >Value theory/Marx >Competition/Marx. 1. J.A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), note 3, p. 653n.	EconSmith I Adam Smith The Theory of Moral Sentiments London 2010 EconSmithV I Vernon L. Smith Rationality in Economics: Constructivist and Ecological Forms Cambridge 2009 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Ricardian Economics	Rothbard	Rothbard IV 4 Ricardian theory/VsRicardian theory/VsRicardo/Rothbard: It was this Ricardian analysis that later gave rise to Karl Marx’s perfectly logical conclusion that since all value was the product of the quantity of labor hours, then all interest and profit obtained by capitalists and employers must be “surplus value” unjustly extracted from the true earnings of the working class. Having thus given hostage to Marxism, the later Ricardians attempted to reply that capital equipment was productive and therefore reasonably earned its share in profits; but the Marxians could with justice offer the rebuttal that capital too was “embodied” or “frozen” labor, and that therefore wages should have absorbed the entire proceeds from production. >Price/Classical Economics, >Paradox of Value/Classical Economics, >Austrian School, >Value, >Value theory/Marx, >Labour/Marx.	Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Ricardo Effect	Hayek	Rothbard III 718 Ricardo Effect/efficiency/Hayek/Rothbard: One common prounion argument is that unions benefit the economy through forcing higher wages on the employers. At these higher wages the workers will become more effcient, and their marginal productivity will rise as a result. >Efficiency, >Productivity. RothbardVsRicardo effect: If this were true, however, no unions would be needed. Employers, ever eager for greater profits, would see this and pay higher wages now to reap the benefits of the allegedly higher productivity in the future. As a matter of fact, employers often train workers, paying higher wages than their present marginal product justifies, in order to reap the benefits of their increased productivity in later years. >Unions/Rothbard. Ricardo effect/Hayek: A more sophisticated variant of this thesis was advanced by Ricardo and has been revived by Hayek. This doctrine holds that union-induced higher wage rates encourage employers to substitute machinery for labor. This added machinery increases the capital per worker and raises the marginal productivity of labor, thereby paying for the higher wage rates. RothbardVsRicardo/RothbardVsHayek/RothbardVsUnions: The fallacy here is that only increased saving can make more capital available. >Saving/Rothbard. Capital investment is limited by saving. Union wage increases do not increase the total supply of capital available. Therefore, there can be no general rise in labor productivity. Instead, the potential supply of capital is shifted (not increased) from other industries to those industries with higher wage rates. And it is shifted to industries where it would have been less profitable under nonunion conditions. The fact that an induced higher wage rate shifts capital to the industry does not indicate economic progress, but rather an attempt, never fully successful, to offset an economic retrogression - a higher cost in the manufacture of the product. Hence, the shift is "uneconomic." >Wages/Rothbard, >Production/Rothbard. Rothbard III 719 Innovation/technology/efficiency: A related thesis is that higher wage rates will spur employers to invent new technological methods to make labor more effcient. Here again, however, the supply of capital goods is limited by the savings available, and there is almost always a sheaf of technological opportunities awaiting more capital anyway. Furthermore, the spur of competition and the desire of the producer to keep and increase his custom is enough of an incentive to increase productivity in his firm, without the added burden of unionism.⁽¹⁾ 1. On the Ricardo effect, see Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 767–70. Also see the detailed critique by Ford, Economics of Collective Bargaining, pp. 56–66, who also points to the union record of hindering mechanization by imposing restrictive work rules and by moving quickly to absorb any possible gain from the new equipment.	Hayek I Friedrich A. Hayek The Road to Serfdom: Text and Documents--The Definitive Edition (The Collected Works of F. A. Hayek, Volume 2) Chicago 2007 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Ricardo Effect	Rothbard	Rothbard III 718 Ricardo Effect/efficiency/Hayek/Rothbard: One common prounion argument is that unions benefit the economy through forcing higher wages on the employers. At these higher wages the workers will become more effcient, and their marginal productivity will rise as a result. >Efficiency, >Productivity. RothbardVs: If this were true, however, no unions would be needed. Employers, ever eager for greater profits, would see this and pay higher wages now to reap the benefits of the allegedly higher productivity in the future. As a matter of fact, employers often train workers, paying higher wages than their present marginal product justifies, in order to reap the benefits of their increased productivity in later years. >Unions/Rothbard. Ricardo effect/Hayek: A more sophisticated variant of this thesis was advanced by Ricardo and has been revived by Hayek. This doctrine holds that union-induced higher wage rates encourage employers to substitute machinery for labor. This added machinery increases the capital per worker and raises the marginal productivity of labor, thereby paying for the higher wage rates. RothbardVsRicardo/RothbardVsHayek/RothbardVsUnions: The fallacy here is that only increased saving can make more capital available. >Saving/Rothbard. Capital investment is limited by saving. Union wage increases do not increase the total supply of capital available. Therefore, there can be no general rise in labor productivity. Instead, the potential supply of capital is shifted (not increased) from other industries to those industries with higher wage rates. And it is shifted to industries where it would have been less profitable under nonunion conditions. The fact that an induced higher wage rate shifts capital to the industry does not indicate economic progress, but rather an attempt, never fully successful, to offset an economic retrogression - a higher cost in the manufacture of the product. Hence, the shift is "uneconomic." >Wages/Rothbard, >Production/Rothbard. Rothbard III 719 Innovation/technology/efficiency: A related thesis is that higher wage rates will spur employers to invent new technological methods to make labor more effcient. Here again, however, the supply of capital goods is limited by the savings available, and there is almost always a sheaf of technological opportunities awaiting more capital anyway. Furthermore, the spur of competition and the desire of the producer to keep and increase his custom is enough of an incentive to increase productivity in his firm, without the added burden of unionism.⁽¹⁾ 1. On the Ricardo effect, see Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 767–70. Also see the detailed critique by Ford, Economics of Collective Bargaining, pp. 56–66, who also points to the union record of hindering mechanization by imposing restrictive work rules and by moving quickly to absorb any possible gain from the new equipment.	Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Socialism	Marx	Höffe I 366 Scientific Socialism/Marx/Höffe: In contrast to Proudhon's socialism, which is debased as "utopian," "petty-bourgeois", and "doctrinaire," Marx is not satisfied with a "utopian interpretation" of the previous national economy. He does indeed adopt Proudhon's guiding goal, the classless society. According to the Communist Party's Manifesto (1848)⁽¹⁾, written together with Engels, the "history of all previous society consists in the history of class struggles," which recalls Hegel's theorem of >master and slave. Religion/Marx/Höffe: astonishingly, [in the manifesto] (...) the religious opposites that dominate at least modern times are not mentioned. >Religion. Höffe I 367 According to the eleventh Feuerbach thesis, Marx is convinced of the mission and at the same time convinced of the power of a theory (...). With its help he believes he can achieve his goal, - establishing a classless society - and bring about the necessary path, the revolutionary transformation of the existing society. Höffe I 368 VsPolitical Economy: "Capital"⁽³⁾ [rejects] the previous political economy (economics) (...) and develops an alternative. Labor: In one point Marx (...) agrees with his liberal opponents: As with Locke, wages should be based on the amount of work done. MarxVsSmith, Adam/MarxVsRicardo: Marx accuses his opponents of an unhistorical approach and the extrapolation resulting from it, which is in fact unacceptable: According to Marx, the laws of economic development asserted by Smith and Ricardo are not eternally valid laws of nature. They apply only to the modern, namely capitalist form of economy and society. >Adam Smith, >David Ricardo. He concedes that the traditional national economy has enlightened the mechanism of production relations: the connection of private property with the separation of labor and capital, with the division of labor, competition, etc. But he accuses it of a "fatalistic economy" that does not concern itself with the conditions of the origin of production relations and therefore does not recognize the law of their change. He contrasts this with what is later called historical materialism ("histomat"). Commodity/Money: [Marx] begins with the analysis of commodity and money as the material preconditions and formal elements. He concedes to capital the world-historical task of developing all productive forces of labor. On the other hand, however, it prevents what is indispensable for a truly humane economy: that labor or the worker becomes the subject of social processes. 1. K.Marx und F. Engels, Manifest der Kommunistischen Partei, 1848 2. K.Marx und F. Engels, Thesen über Feuerbach, 1845 3. K. Marx Das Kapital Vol. I 1867, Vol. II & II 1885 (= MEW 23-25)	Marx I Karl Marx Das Kapital, Kritik der politische Ökonomie Berlin 1957 Höffe I Otfried Höffe Geschichte des politischen Denkens München 2016
Surplus Value	Marx	Kurz I 156 Surplus value/Marx/Ricardo/MarxVsRicardo/Sraffa/Kurz: Studying carefully Marx's Capital (and anew the Theories of Surplus Value) at the beginning of the 1940s, Sraffa found that Marx had detected an important error in Ricardo's argument. Marx had approved of Ricardo's new con- ceptualization of real wages as proportional wages (see Marx [1861-63]⁽¹⁾ 1989, 226-227, 419) and had translated it into the relation between the value of the social surplus product (S) and that of the social variable capital ( V), or rate of surplus value (S/ V). Accordingly, Ricardo's proposition that the level of the general rate of profits is inversely related to proportional wages is equivalent to the statement that its fall (rise) is conditional on a fall (rise) in the rate of surplus value. Marx (1861-63] 1989⁽¹⁾, 10) had objected to this that Ricardo had erroneously identified the rate of profits with the rate of surplus value: he had been led to this identification because "in his observations on profit and wages, Ricardo . .. treats the matter as though the entire capital were laid out directly in wages." If we take into account nonwage capital - or, more precisely, if we take into account that capital cannot be resolved entirely into direct and indirect wages in a finite number of steps, as Ricardo had been inclined to assume - then his proposition no longer held necessarily true: the rate of profits can fall (or rise) even if proportional wages remain constant. SraffaVsMarx: However, as Sraffa noted, Marx had not always been consistent in his own treatment of wages. Notwithstanding his approval and adoption of Ricardo's concept of proportional wages, Marx - especially in his own working notes on the law of the falling tendency of the rate of profits - had freely moved between this concept and the traditional one of real wages conceived of as an inventory of commodities. >Surplus Value/Sraffa. 1. K. Marx. 1867. The Capital.The Process of Production of Capital. https://www.marxists.org/archive/marx/works/1867-c1/ (21.11.2024) Kurz, Heinz D. „Keynes, Sraffa, and the latter’s “secret skepticism“. In: Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge. Rothbard II 411 Rate of profit/surplus value/Marx/Rothbard: In contrast to Ricardo, (…), land and rent [for Marx] are simply assimilated into 'capital', since man's labour allegedly created all land anyway, and since the importance ofland and feudalism allegedly disappears as capitalism proceeds on its way. Values and prices of land therefore need not be treated or explained. Profit/Marx/Rothbard: Profit, for Marx, is derived only from exploiting labour; it is the surplus value over the wages necessary for the subsistence oflabour. Profits, on the other hand, have nothing to do With the amount of capital invested; Rothbard II 412 for capital is only dead matter, stored or frozen labour, and can therefore no longer be 'exploited' to provide current profits.⁽¹⁾ Only 'living' labour, then, can be used to provide profit for the capitalist. But if the amount of profit is extracted solely from labour, this means that any accumulation of capital will necessarily reduce the rate of profit earned by the capitalist. Thus, suppose no capital or, in Marxian terms, 'constant' capital is used⁽²⁾, and investment is made solely in the form of 'variable capital' used to pay wages. >Wages/Marx. Rothbard II 413 Rate of Profit/Marx/Rothbard: [Marx‘] theory implies that, since profits are only derived from the exploitation of labour, profit rates are necessarily Iower in heavily capitalized than in labour-intensive industries. But everyone, including Marx, is forced to acknowledge that this manifestly does, not hold true on the market. The tendency on the market, as Smith and Ricardo well knew, is for rates of profit to tend toward equality in all industries. But how so, if profit rates are necessarily and systematically higher in the labour-intensive industries? Here is surely the most glaring single hole in the Marxian model. Marx acknowledged that, in the real world, profit rates clearly tend toward equality (or, as Marx termed it, an 'average rate ofprofit'), and that real prices or exchange-values in capitalist markets therefore do not exchange at their Marxian quantity-of- labour values. >Value theory/Marx. Rothbard: Marx admitted this crucial problem, and promised that he could solve the problem successfully in a later volume of Capital. He struggled with this problem for the rest of his life, and never solved it - perhaps one of the main reasons that he stopped working early on Capital and never published the later volumes. Rothbard II 414 Rothbard: Volume III was subjected to detailed, withering, thoroughgoing demolition two years later by Böhm-Bawerk in his extensive review essay, Karl Marx and the Close of His System.⁽³⁾ Rothbard: Unfortunately, Böhm-Bawerk's point was too technical to have much impact outside the ranks of economists, and, since then, Marxism has held its greatest attraction in the ranks of sociologists, historians, the literati, and others who tend to be economically ignorant. Böhm-BawerkVsMarx: Marx claimed that goods exchanged on the market in proportion to the quantities oflabour embodied in them (i.e., that their values are determined by the quantity oflabour-hours needed to produce them), andyet also conceded that the rates of profit on all goods tended to be equal. And yet, if the first clause is true, the rates of profit would be systematically Iower in proportion to the intensity of capital investment, and higher in proportion to their labour-intensiveness of production. Marx promised to resolve this insoluble contradiction in Volume III and to reconcile these two fundamentally contradictory propositions. Solution/Marx/Böhm-Bawerk: In Karl Marx and the Close of His System⁽³⁾, Böhm-Bawerk demonstrated that Marx's proffered 'solution' was a sham, and that actually what Marx did was to throw in the towel and admit that, on the capitalist market, profit rates were equal and therefore that prices were not proportional to or determined by the quantity of labour hours in the production of goods. Instead, Marx in effect embraced standard Ricardian theory and admitted that prices were actually determined by the costs (or, in his terminology, 'prices') of production plus the average rate of profit. In this way, while pretending to have saved his theory by talking grandly about competition transforming 'values into prices ofproduction', Marx had actually abandoned the labour theory of value altogether and had therefore scuttled his entire system. >Rate of Profit/Smith, >Rate of Profit/Ricardo, >Commodity/Marx, >Wages/Marx. Rothbard II 428 RothbardVsMarx: Finally, there is a glaring inner contradiction at the heart of Marxian economics that is never resolved. If the capitalists suffer over time from a falling rate of profit, and workers suffer from increasing impoverishment, Who is benefiting in the distribution of the economic pie? At least in the Ricardian system, the capitalists suffer from a falling rate of profit, and the workers are kept at brute subsistence level, but some group keeps grabbing all the social benefits - the parasitic landlords and their increasing absorption of the social product by land rent. But in the Marxian system, the landlords have disappeared, increasingly and rapidly assimilated into the capitalist class. So how can both mighty classes lose out under developing capitalism?⁽⁴⁾ >Capitalism/Marx, >History/Marx. 1. As Böhm-Bawerk was later to point out, even if we choose to adopt this cost-of-production approach, we have to recognize that capital embodies not just labour, and land, but also time. Land, as we shall see further, was tossed out by Marx by amalgamating it into capital; but if time had been acknowledged as an important factor, then time-preference would have to be acknowledged, and the entire Marxian system would have collapsed. 2. 'Constant' because, according to Marx, capital goods, being deadweight, cannot generate any profit, or increased value. 3. First published as Zum Abschluss des Marxschen Systems in a Festschrift for Karl Knies in 1896, and published as a separate booklet the same year It was a rapid success, being translated the following year into Russian, and the English translation coming out in 1898. Unfortunately, 'close' is a peculiar and misleading term; a far more accurate title would have been Karl Marx and the Completion of His System. 4. See Gottfried Haberler, 'Marxist Economics in Retrospect and Prospect', in M. Drachkovitch (ed.), Marxist Ideology in the Contemporary World - Its Appeals and Paradoxes (Hoover Institution, New York: Praeger, 19 66), pp. 118, 183.	Marx I Karl Marx Das Kapital, Kritik der politische Ökonomie Berlin 1957 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Surplus Value	Ricardo	Kurz I 156 Surplus value/Marx/Ricardo/MarxVsRicardo/Sraffa/Kurz: Studying carefully Marx's Capital (and anew the Theories of Surplus Value) at the beginning of the 1940s, Sraffa found that Marx had detected an important error in Ricardo's argument. Marx had approved of Ricardo's new con- ceptualization of real wages as proportional wages (see Marx [1861-63]⁽¹⁾ 1989, 226-227, 419) and had translated it into the relation between the value of the social surplus product (S) and that of the social variable capital ( V), or rate of surplus value (S/ V). Accordingly, Ricardo's proposition that the level of the general rate of profits is inversely related to proportional wages is equivalent to the statement that its fall (rise) is conditional on a fall (rise) in the rate of surplus value. Marx (1861-63] 1989⁽¹⁾, 10) had objected to this that Ricardo had erroneously identified the rate of profits with the rate of surplus value: he had been led to this identification because "in his observations on profit and wages, Ricardo . .. treats the matter as though the entire capital were laid out directly in wages." If we take into account nonwage capital - or, more precisely, if we take into account that capital cannot be resolved entirely into direct and indirect wages in a finite number of steps, as Ricardo had been inclined to assume - then his proposition no longer held necessarily true: the rate of profits can fall (or rise) even if proportional wages remain constant. SraffaVsMarx: However, as Sraffa noted, Marx had not always been consistent in his own treatment of wages. Notwithstanding his approval and adoption of Ricardo's concept of proportional wages, Marx - especially in his own working notes on the law of the falling tendency of the rate of profits - had freely moved between this concept and the traditional one of real wages conceived of as an inventory of commodities. >Surplus Value/Sraffa. 1. K. Marx. 1867. The Capital.The Process of Production of Capital. https://www.marxists.org/archive/marx/works/1867-c1/ (21.11.2024) Kurz, Heinz D. „Keynes, Sraffa, and the latter’s “secret skepticism“. In: Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015
Taxation	Say	Rothbard II 40 Taxation/Say/Rothbard: [Say] tended to make it responsible for all the economic evils of society, even, as we have seen, for recessions and depressions. In contrast to almost all other economists, Say had an astonishingly clearsighted view of the true nature of the state and of its taxation. In Say there was no mystical quest for some truly voluntary state, nor any view of the state as a benign semi-business organization supplying services to a public grateful for its numerous ‘benefits’. No; Say saw clearly that the services government indubitably supplies are to itself and to its favourites, and that all government spending is therefore consumption spending by the politicians and the bureaucracy. He also saw that the tax funds for that spending are extracted by coercion at the expense of the tax-paying public. Say goes on to attack the ‘prevalent notion’ that tax monies are no burden on the economy, since they simply ‘return’ to the community via the expenditures of government. Say is indignant: Rothbard II 41 This is gross fallacy; but one that has been productive of infinite mischief, inasmuch as it has been the pretext for a great deal of shameless waste and dilapidation. The value paid to government by the tax-payer is given without equivalent or return: it is expended by the government in the purchase of personal service, of objects of consumption... ⁽¹⁾ SayVsSmith, Adam/Rothbard: Thus, in contrast to the naive Smith's purblind assumption that taxation always confers proportional benefit, we see J.B. Say treating taxation as very close to sheer robbery. Taxes/SayVsSchumpeter/Rothbard: He is not impressed with the apologetic notion, properly ridiculed in later years by Schumpeter⁽²⁾, that all society somehow voluntarily pays taxes for the general benefit; instead, taxes are a burden coercively imposed on society Rothbard II 42 by the ‘ruling power’. Neither is Say impressed if the taxes are voted by the legislature; to him this does not make taxes any more voluntary: for ‘what avails it... that taxation is imposed by consent of the people or their representatives, if there exists in the state a power, that by its acts can leave the people no alternative but consent?’⁽¹⁾ Taxation/production/Say: Moreover, taxation cripples rather than stimulates production, since it robs people of resources that they would rather use differently. Taxation/SayVsRicardo: Say engages in an instructive critique of Ricardo, which reveals the crucial difference over the latter's long-run equilibrium approach and the great difference in their respective attitudes toward taxation. Ricardo had maintained in his Principles⁽³⁾ that, since the rate of return on capital is the same in every branch of industry, taxation cannot really cripple capital. For, as Say puts it, ‘the extinction of one branch by taxation must needs be compensated by the product of some other, towards which the industry and capital, thrown out of employ, will naturally be diverted’. Here is Ricardo, blind to the real processes at work in the economy, stubbornly identifying a static comparison of long-run equilibrium states with the real world. Taxation/Solution/Say/Rothbard: (…) ‘the best scheme of [public] finance, is to spend as little as possible; and the best tax is always the lightest’. In the next sentence, he amends the latter clause to say ‘the best taxes, or rather those that are least bad...’.⁽¹⁾ 1. Say, Jean-Baptiste. Traité d’Economie Politique, Paris 1803. 2. J.A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 491. 3. Ricardo, D. (1951 [1817]) On the Principles of Political Economy and Taxation, in P. Sraffa (ed.) with the collaboration Of M.H. Dobb, The Works and Correspondence of David Ricardo, Vol. I, Cambridge: Cambridge University Press. (P/b edn 2004, Indianapolis, IN: Liberty Fund.)	EconSay I Jean-Baptiste Say Traité d’ Economie Politique Paris 1803 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Theoretical Economics	Ricardo	Mause I 41 Theoretical Economics/Ricardo: Ricardo was the first economist to work predominantly in theory. With him, the "pure" theoretical economy began - and the danger that its results, despite the often very restrictive assumptions, would be used as economic policy guidelines. VsRicardo: For example, one can only justify free trade with Ricardo's model if one of the central premises of this model applies, that of the (international) immobility of production factors - a premise that is no longer fulfilled today. >Economic policy, >Politics, >Interventions, >Interventionism, >Free trade.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018
Trade Unions	Rothbard	Rothbard III 565 Labour/unions/Rothbard: (…) there is no difference in kind between “workers” and “management.” The vice president of a company, if hired by its owners, has exactly the same amount of justification, or lack of justification, for joining a union as does a hired mechanic. Unions/Rothbard: For some reason, even the most ardent union advocate thinks absurd the idea of unionizing the vice presidents. Yet if there is no real dichotomy and all employees are labor, then our views on unions must be altered accordingly. Rothbard III 703 Labour Unions/Rothbard: It might be asserted that labor unions, in exacting higher wage rates on the free market, are achieving identifiable monopoly prices. >Monopoly price/Economic theories. For here two identifiable contrasting situations exist: (a) where individuals sell their labor themselves; and (b) where they are members oflabor unions which bargain on their labor for them. Furthermore, it is clear that while cartels, to be successful, must be economically more effcient in serving the consumer, no such justification can be found for unions. >Cartels/Rothbard. Productivity: Since it is always the individual laborer who works, and since effciency in organization comes from management hired for the task, forming unions never improves the productivity of an individual's work. >Productivity/Rothbard. Monopoly price: It is true that a union provides an identifiable situation. >Observation/Rothbard. However, it is not true that a union wage rate could ever be called a monopoly. For the characteristic of the monopolist is precisely that he monopolizes a factor or commodity. To obtain a monopoly price, he sells only part of his supply and withholds selling the other part, because selling a Iower quantity raises the price on an inelastic demand curve. >Elasticity/Rothbard. It is the unique characteristic of labor in a free society, however, that it cannot be monopolized. >Labour. Each individual is a self-owner and cannot be owned by another individual or group. Therefore, in the labor field, no one man or group can own the total supply and withhold part of it from the market. Each man owns himself. Cf. >Person/Philosophy, >Monopoly price/Rothbard. Rothbard III 705 Def Restrictionist price/wages/Rothbaard: If a union, in one way or another, achieves a higher price [wage] than its members could command by individual sales, its action is not checked by the loss of revenue suffered by the "withheld" laborers. If a union achieves a higher wage, some laborers are earning a higher price, while others are excluded from the market and lose the revenue they would have obtained. Such a higher price (wage) is called a restrictionist price. A restrictionist price, by any sensible criterion, is "worse" than a "monopoly price." Since the restrictionist union does not have to worry about the laborers who are excluded and suffers no revenue loss from such exclusion, restrictionist action is not curbed by the elasticity of the demand curve for labor. For unions need only maximize the net income of the working members, or, indeed, of the union bureaucracy itself.⁽¹⁾ Rothbard IIII 707 Laobur market/RothbardVsUnisions: Consequently, at best, a union can achieve a higher, restrictionist wage rate for its members only at the expense oflowering the wage rates of all other workers in the economy. Production efforts in the economy are also distorted. But, in addition, the wider the scope of union activity and restrictionism in the economy, the more diffcult it will be for workers to shift their locations and occupations to find nonunionized havens in which to work. And more and more the tendency will be for the displaced workers to remain permanently or quasi-permanently unemployed, eager to work but unable to find nonrestricted opportunities for employment. The greater the scope of unionism, the more a permanent mass of unemployment will tend to develop. >Unemployment. Degree of organisation: Unions try as hard as they can to plug all the "loop-holes" of nonunionism, to close all the escape hatches where the dispossessed workmen can find jobs. This is termed "ending the unfair competition of nonunion, Iow-wage labor." Rothbard: A universal union control and restrictionism would mean permanent mass unemployment, growing ever greater in proportion to the degree that the union exacted its restrictions (see below). Rothbard III 708 Membership: It is a common myth that only the old-style "craft" unions, which deliberately restrict their occupational group to highly skilled trades with relatively few numbers, can restrict the supply of labor. They often maintain stringent standards of membership and numerous devices to cut down the supply of labor entering the trade. This direct restriction of supply doubtless makes it easier to obtain higher wage rates for the remaining workers. Labour supply/Industrial unions: But it is highly misleading to believe that the newer-style "industrial" unions do not restrict supply. The fact that they welcome as many members in an industry as possible cloaks their restrictionist policy. Minimum wage: The crucial point is that the unions insist on a minimum wage rate higher than what would be achieved for the given labor factor without the union. By doing so, (…) they necessarily cut the number of men whom the employer can hire.^(2,3) >Labour market. Ergo, the consequence of their policy is to restrict the supply of labor, while at the same time they can piously maintain that they are inclusive and democratic, in contrast to the snobbish "aristocrats" of craft unionism. Industrial unionism/Mises/Rothbard: In fact, the consequences of industrial unionism are more devastating than those of craft unionism. For the craft unions, being small in scope, displace and Iower the wages of only a few workers. The industrial unions, larger and more inclusive, depress wages and displace workers on a large scale and, what is even more important, can cause permanent mass unemployment.⁽⁴⁾ >Strike action/Rothbard, >Economic ethics/Rothbard, >Free Market/Rothbard. Rothbard III 713 Costs/production costs/restrictionist wage: (…) a restrictionist wage raises costs of production for the firms in the industry. This means that the marginal firms in the industry - the ones whose entrepreneurs earn only a bare rent - will be driven out of business, for their costs have risen above their most profitable price on the market - the price that had already been attained. Productivity: Their ejection from the market and the general rise of average costs in the industry signify a general fall in productivity and output, and hence a loss to the consumers.⁽⁵⁾ Unions/Rothbard: Unions are not producing organizations; they do not work for capitalists to improve production.⁽⁶⁾ Rather they attempt to persuade workers that they can better their lot at the expense of the employer. Consequently, they invariably attempt as much as possible to establish work rules that hinder management's directives. These work rules amount to preventing management from arranging workers and equipment as it sees fit. In other words, instead of agreeing to submit to the work orders of management in exchange for his pay, the worker now sets up not only minimum wages, but also work rules without which he refuses to work. The effect of these rules is to Iower the marginal productivity of all union workers. The Iowering of marginal value-product schedules has a twofold result: (1) it itself establishes a restrictionist wage scale with its various consequences, for the marginal value product has fallen while the union insists that the wage rate remain the same; (2) consumers lose by a general Iowering of productivity and living standards. Restrictive work rules therefore also Iower output. All this is perfectly consistent with a society of individual sovereignty, however, provided always that no force is employed by the union. Rothbard III 715 Wages: Whereas wage rates on the nonunion labor market will always tend toward equilibrium in a smooth and harmonious manner, its replacement by collective bargaining leaves the negotiators with little or no rudder, with little guidance on what the proper wage rates would be. Even with both Sides trying tofind the market rate, neither of the parties to the bargain could be sure that a given wage agreement is too high, too Iow, or approximately correct. Wages/unions: Almost invariably, (…) the union is not trying to discover the market rate, but to impose various arbitrary "principles" of wage determination, such as "keeping up with the cost of living," a "living wage," the "going rate" for comparable labor in other firms or industries, an annual average "productivity" increase, "fair differentials," etc.⁽⁷⁾ Rothbard III 715 Trade Unions/Economic theories/Rothbard: Arguments in favour of unions⁽⁸⁾: Indeterminacy of wage rates: „(…) Wage rates are determined by marginal productivity in a zone rather than at a point; and within that zone unions have an opportunity to bargain collectively for increased wages without the admittedly unpleasant effects of unemployment or displacement of workers to poorer jobs." RothbardVs: It is curious that many writers move smoothly through rigorous price analysis until they come to wage rates, when suddenly they lay heavy stress on indeterminacy, the huge zones within which the price makes no difference, etc. (RothbardVsTrade unions). 1) (…), the scope of indeterminacy is very small in the modern world. We have seen above that, in a two-person barter situation, there is likely to be a large zone of indeterminacy between the buyer's maximum demand price and the seller's minimum supply price for a quantity of a good. >Barter/Rothbard, >Exchange/Rothbard, >Market/Rothbard. Within this zone, we can only leave the determination of the price to bargaining. However, it is precisely the characteristic of an advanced monetary economy that these zones are ever and ever narrowed and lose their importance. >Price/Rothbard, >Economy/Rothbard. The zone is only between the "marginal pairs" of buyers and sellers, and this zone is constantly dwindling as the number of people and alternatives in the market increase. Growing civilization, therefore, is always narrowing the importance of indeterminacies. 2) (…) there is no reason whatever why a zone of indeterminacy should be more important for the labor market than for the market for the price of any other good. Rothbard III 716 3) (…) suppose that there is a zone of indeterminacy for a labor market, and let us assume that no union is present. This means that there is a certain zone, the length of which can be said to equal a zone of the discounted marginal value product of the factor. This (…) is far less likely than the existence of a zone for a consumers' good, since in the former case there is a specific amount, a DMVP (discounted marginal value product) , to be estimated. But the maximum of the supposed zone is the highest point at which the wage equals the DMVP. Now, competition among employers will tend to raise factor prices to precisely that height at which profits will be wiped out. In other words, wages will tend to be raised to the maximum of any zone of the DMVP. Wages: Rather than wages being habitually at the bottom of a zone, presenting unions with a golden opportunity to raise wages to the top, the truth is quite the reverse. Assuming the highly unlikely case that any zone exists at all, wages will tend to be at the top, so that the only remaining indeterminacy is downward. Unions would have no room for increasing wages within that zone. Rothbard III 717 Monopsony and oligopsony: It is often alleged that the buyers of labor—the employers—have some sort of monopoly and earn a monopoly gain, and that therefore there is room for unions to raise wage rates without injuring other laborers. However, such a "monopsony" for the purchase of labor would have to encompass all the entrepreneurs in the society. If it did not, then labor, a nonspecific factor, could move into other firms and other industries. And we have seen that one big cartel cannot exist on the market. Therefore, a "monopsony" cannot exist. >Cartels/Rothbard, >Monopolies/Rothbard, >Monopoly price/Rothbard. Oligopsony: the "problem" of "oligopsony" - a "few" buyers of labor - is a pseudo problem. As long as there is no monopsony, competing employers will tend to drive up wage rates until they equal their DMVPs. The number of competitors is irrelevant; this depends on the concrete data of the market. Rothbard III 718 Competition/elasticity: Briefly, the case of "oligopsony" rests on a distinction between the case of "pure" or "perfect" competition, in which there is an allegedly horizontal - infinitely elastic - supply curve oflabor, and the supposedly less elastic supply curve of the "imperfect" oligopsony. >Competition/Rothbard, >Elasticity/Rothbard. Actually, since people do not move en masse and all at once, the supply curve is never infinitely elastic, and the distinction has no relevance. There is only free competition, and no other dichotomies, such as between pure competition and oligopsony, can be established. The shape of the supply curve, furthermore, makes no difference to the truth that labor or any other factor tends to get its DMVP (discounted marginal value product) on the market. >Supply/Rothbard. Efficiency/unions/Rothbard: One common prounion argument is that unions benefit the economy through forcing higher wages on the employers. At these higher wages the workers will become more effcient, and their marginal productivity will rise as a result. RothbardVs: If this were true, however, no unions would be needed. Employers, ever eager for greater profits, would see this and pay higher wages now to reap the benefits of the allegedly higher productivity in the future. As a matter of fact, employers often train workers, paying higher wages than their present marginal product justifies, in order to reap the benefits of their increased productivity in later years. >Ricardo effect/Rothbard. Ricardo effect: This doctrine holds that union-induced higher wage rates encourage employers to substitute machinery for labor. This added machinery increases the capital per worker and raises the marginal productivity of labor, thereby paying for the higher wage rates. RothbardVsRicardo/RothbardVsHayek/RothbardVsUnions: The fallacy here is that only increased saving can make more capital available. >Saving/Rothbard. Capital investment is limited by saving. Union wage increases do not increase the total supply of capital available. Rothbard III 719 Innovation/technology/efficiency: A related thesis is that higher wage rates will spur employers to invent new technological methods to make labor more effcient. Here again, however, the supply of capital goods is limited by the savings available, and there is almost always a sheaf of technological opportunities awaiting more capital anyway. Furthermore, the spur of competition and the desire of the producer to keep and increase his custom is enough of an incentive to increase productivity in his firm, without the added burden of unionism.⁽⁹⁾ 1. A restrictionist, rather than a monopoly, price can be achieved because the number of laborers is so important in relation to the possible variation in hours of work by an individual laborer that the latter can be ignored here. If, however, the total labor supply is limited originally to a few people, then an imposed higher wage rate will cut down the number of hours purchased from the workers who remain working, perhaps so much as to render a restrictionist price unprofitable to them. In such a case it would be more appropriate to speak of a monopoly price. 2. Cf. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. p. 764. 3. See Charles E. Lindblom, Unions and Capitalism (New Haven: Yale University Press, 1949), pp. 78 ff., 92–97, 108, 121, 131–32, 150–52, 155. Also see Henry C. Simons, “Some Reflections on Syndicalism” in Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948), pp. 131 f., 139 ff.; Martin Bronfenbrenner, “The Incidence of Collective Bargaining,” American Economic Review, Papers and Proceedings, May, 1954, pp. 301–02; Fritz Machlup, “Monopolistic Wage Determination as a Part of the General Problem of Monopoly” in Wage Determination and the Economics of Liberalism (Washington, D.C.: Chamber of Commerce of the United States, 1947), pp. 64–65. 4. Cf. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprintd by the Ludwig von Mises Institute, 1998. p. 764. 5. See James Birks, Trade Unionism in Relation to Wages (London, 1897), p. 30. 6. See James Birks, Trades’ Unionism: A Criticism and a Warning (London, 1894), p. 22. 7. On the nature and consequences of these various criteria of wage determination, see Ford, Economics of Collective Bargaining, pp. 85–110. 8. See Ford, Economics of Collective Bargaining, See the excellent critique by Hutt, in: Theory of Collective Bargaining, passim. 9. On the Ricardo effect, see Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 767–70. Also see the detailed critique by Ford, Economics of Collective Bargaining, pp. 56–66, who also points to the union record of hindering mechanization by imposing restrictive work rules and by moving quickly to absorb any possible gain from the new equipment.	Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Use Value	Say	Rothbard II 19 Use value/Ricardo/Say/Rothbard: (…) whereas Say simply discarded use-value, Ricardo made the value paradox and the unfortunate split between use- and exchange-value the key to his value theory. For Ricardo, iron was worth less than gold because the labour cost of digging and producing gold was greater than the labour cost of producing iron. Ricardo admitted that utility ‘is certainly the foundation of value’, but this was apparently of only remote interest, since the ‘degree of utility’ can never be the measure by which to estimate its value. All too true, but Ricardo failed to see the absurdity of looking for such a measure in the first place. His second absurdity, (…) was in thinking that labour cost provided such a ‘true’ and invariable measure of value. SayVsRicardo: As Say wrote in his annotations on the French translation of Ricardo's Principles, ‘an invariable measure of value is a pure chimera’. Smith, and still more Ricardo, were pushed into their labour cost theory by concentrating on the long-run ‘natural’ price of products. Price/costs/Say: Say's analysis was aided greatly by his realistic concentration on the explanation of real market price. Costs, of course, are intimately related to the pricing of factors of production. One question that cost-value theorists have difficulty answering is if, indeed, costs are determining, where do they come from? Are they mandated by divine revelation? One of the anomalies of Say's discussion is that, even though a subjective value and utility theorist, he uncomprehendingly rejected the insight of Rothbard II 20 Genovesi and of his own ideologue forbear Condillac, that people exchange one thing for another because they value the thing they acquire more than what they give up – so that exchange always benefits both parties. And in denying this mutual gain, Say is inconsistent with much of his own position on utility. >Value/Say.	EconSay I Jean-Baptiste Say Traité d’ Economie Politique Paris 1803 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Utility	Bailey	Rothbard II 113 Value/Subjective utility/Bailey/BaileyVsRicardo/Rothbard: Bailey demonstrates that value is not inherent in goods at all, but is rather always a process of subjective evaluation in the minds of individuals. Value, as Bailey pointed out, ‘in its ultimate sense, appears to mean the esteem in which any object is held. It denotes strictly speaking, an effect produced on the mind...’. Value is purely a ‘mental affection’. Furthermore, he profoundly states that value is not only a subjective estimation, but also that valuation is necessarily relative among various goods or objects; value is a matter of relative preference. Thus Bailey: When we consider objects in themselves, without reference to each other; the emotion or pleasure or satisfaction, with which we regard their utility or beauty, can scarcely take the appellation of value. It is only when objects are considered as subjects of preference or exchange, that the specific feeling of value can arise. When they are so considered, our esteem for one object, or our wish to possess it, may be equal to, or greater or less than our esteem for another... BaileyVsRicardo/Rothbard: But if value is subjective and relative (or relational) valuation, it follows that it is absurd for Ricardo to hanker after an invariable measure of value. In a scintillating and telling passage, Bailey displays the inner contradictions and absurdities of any objective, absolute theory of value, and specifically of the Ricardian quantity of labour variant. The Ricardians had lost sight of the relative nature of value, and... consider it as something positive and absolute; so that if there were only two commodities in the world, and they should both from some circumstance or other come to be produced by double the quantity of labour, they would both rise in real value, although their relation to each other would be undisturbed. According to this doctrine, everything might at once become more valuable, by requiring at once more labour for its production, a position utterly at variance with the truth, that value denotes the relation in which commodities stand to each other as articles of exchange. Real value, in a word, is on this theory considered as being the independent result of labour; and consequently, if under any circumstances the quantity of labour is increased, the real value is increased. Hence, the paradox, [quoting from the devoted Ricardian Thomas De Quincey] ‘that it is possible for A continually to increase in value – in real value observe – and yet command a continually decreasing quantity of B’; and this though they were the only commodities in existence.	Bailey I Samuel Bailey Money and its vicissitudes in value; as they affect national industry and pecuniary contracts: with a postscript join-stock banks London 1837 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Value Theory	Ricardo	Rothbard II 88 Value theory/Ricardo/Rothbard: While Ricardo formally admitted that supply and demand determine day-to-day market pricing, he tossed that aside as of no consequence, and concentrated solely on long-run equilibrium, i.e. ‘natural’ price and the alleged macro-distribution of income in that equilibrium. Utility/Ricardo: Utility Ricardo brusquely disposed of as ultimately necessary to production but of no influence whatever on value or price; in the ‘value paradox’ he embraced exchange value and abandoned utility Rothbard II 89 completely. Price/Ricardo: Not only that: [Ricardo] frankly and boldly discarded any attempt to explain the prices of goods that are not reproducible, that could not be increased in supply by the employment of labour. Hence Ricardo simply gave up any attempt to explain the prices of such goods as paintings, which are fixed in supply and cannot be increased. In short, Ricardo abandoned any attempt at a general explanation of consumer prices. We have arrived at the full-fledged Ricardian – and Marxian – labour theory of value. >Value theory/Marx, >Price/Ricardo, >Costs/Ricardo, >Wages/Ricardo, >Land/Ricardo, >Economy/Ricardo, >Class conflict/Ricardo. Rothbard II 90 VsSmith/VsRicardo: Recent analysts, in an attempt to mitigate the crude fallacy of Ricardo's labour theory of value, have maintained, as in the case of Smith but even more so, that he was attempting not so much to explain the cause of value and price but to measure values over time, and labour was considered an invariable measure of value. But this hardly mitigates Ricardo's flaws; instead, it adds to the general fallacies and vagaries of the Ricardian system another important one: the vain search for a non-existent chimera of invariability. For values always fluctuate, and there is no invariable, fixed base of value from which other value changes can be measured. Solution/Ricardo: Thus, in rejecting Say's definition of the value of a good as its purchasing power of other goods in exchange, Ricardo sought the invariable entity, the unmoved power: Ricardo: A franc is not a measure of value for any thing, but for a quantity of the same metal of which francs are made, unless francs, and the thing to be measured, can be referred to some other measure which is common to both. This, I think, they can be, for they are both the result of labour; and, therefore, labour is a common measure, by which their real as well as their relative value may be estimated. It might be noted that both products are the result of capital, land, savings, and entrepreneurship, as well as labour, and that, in any case, their values are incommensurable except in terms of relative purchasing power, as Say had in fact maintained. >Value/Say, >Economic Rent/Ricardo. Rothbard II 133 Samuel BaileyVsRicardo/Rothbard: The next important step in the theory of wages came from Samuel Bailey who, in the course of his definitive critique of Ricardian value theory in 1825, pointed to the crucial role of the productivity of labour in determining wages: the value of labour does not entirely depend on the proportion of the whole produce which is given to the labourers in exchange for their labour, but also on the productiveness of labour... The proposition, that when labour rises profits must fall, is true only when its rise is not owing to an increase in its productive powers... If the productive power of labour be augmented, that is, if the same labour produce more commodities in the same time, labour may rise in value without a fall, nay, even with a rise of profits. One of the critical problems in developing the productivity theory of wages was the Ricardian insistence on emphasizing the alleged laws of aggregate distribution, of ‘wages’ as a whole and as a total share of national product and income, rather than as wage rates of individual units of labour. >Wages/Ricardo. Rothbard II 392 Value theory/Ricardo/Rothbard: (…) the delighted Marx found that Ricardian doctrine was, in effect, a quantity oflabour theory of value. Utility dropped out, and since only reproducible goods and not non-reproducible goods such as Rembrandt paintings were considered explainable, only the cost of production was considered a determinant of the embodied value of goods. And since Ricardo finessed 'rent' as allegedly not a part of cost, the only possible cost except labour hours was profit (interest) or cost of capital, and this was so small as to be readily neglected. Besides, profits are allegedly only a declining residual after the payment of wages, which are doomed to keep rising in money but not in real terms as population continues to press upon the food supply. >Value theory/Marx.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Wages	Bailey	Rothbard II 133 Production theory/wages/labour/productivity/Bailey/BaileyVsRicardo/Rothbard: (…) Samuel Bailey who, in the course of his definitive critique of Ricardian value theory in 1825, pointed to the crucial role of the productivity of labour in determining wages: the value of labour does not entirely depend on the proportion of the whole produce which is given to the labourers in exchange for their labour, but also on the productiveness of labour... The proposition, that when labour rises profits must fall, is true only when its rise is not owing to an increase in its productive powers... If the productive power of labour be augmented, that is, if the same labour produce more commodities in the same time, labour may rise in value without a fall, nay, even with a rise of profits. Problem/Rothbard: One of the critical problems in developing the productivity theory of wages was the Ricardian insistence on emphasizing the alleged laws of aggregate distribution, of ‘wages’ as a whole and as a total share of national product and income, rather than as wage rates of individual units of labour. J.B. Say had presented a productivity theory of wages, but had not analysed the determination of particular wage rates in any detail. Nassau Senior, in the early 1830s, while confused on the topic of wages, came out for the productivity theory. He also managed to demolish Adam Smith's ‘productive’ vs ‘unproductive’ labour doctrine, stressing, as had J.B. Say, ‘production’ as the flow of services, which emanate both from material and immaterial products. >Production/Say, >Wages/Longfield.	Bailey I Samuel Bailey Money and its vicissitudes in value; as they affect national industry and pecuniary contracts: with a postscript join-stock banks London 1837 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Wages	Longfield	Rothbard II 133 Wages/Longfield/LongfieldVsRicardo/Rothbard: The truly revolutionary step forward in the theory of wages - indeed in the theory of all factor pricing - came with Mountifort Longfield, in his Lectures on Political Economy⁽¹⁾. As we have seen, Longfield was concerned to show, in contrast to the Ricardian class-conflict theory of income distribution, that workers benefit from capitalist development. (Ironically, Longfield's laissez-faire Harmonielehre was replaced by a far more statist attitude in later life.) Rothbard II 134 In the course of doing so, Longfield took J.B. Say's correct but vague productivity theory of factor incomes, and worked out, for the first time, a remarkable marginal productivity theory of the rental prices (i.e. prices per unit time) of capital goods (which Longfield oddly called ‘profits’, in a typical confusion of returns on capital with the pricing of capital goods that has plagued economics since the early nineteenth century). Working out the specifics, Longfield showed that the price of each machine will tend to equal the marginal productivity of the machine, i.e. the productive value (in terms of value of their products) of the least productive machine which it pays to keep employed on the market, i.e. the marginal machine. Rothbard: Thus, for the first time, in an unknowing echo of Turgot, Longfield used the proper ceteris paribus method of analysing productive returns, holding one factor or class of factors constant, varying another set of factors, and analysing the result. Longfield stopped there in his brilliant pre-Austrian contribution, applying marginal productivity analysis only to capital goods. 1. Mountifort Longfield. 1833. Lectures on Political Economy. Dublin 1834. https://doi.org/10.2307/2223849	Longfield I Mountifort Longfield Lectures on political economy, delivered in Trinity and Michaelmas terms, 1833 Dublin 1834 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977
Wages	Ricardo	Kurz I 26 Wages/Ricardo/Kurz: Ricardo’s labour-based share concept⁽¹⁾ was subsequently adopted by Marx in terms of a given ‘rate of surplus value’, S/V [German Mehrwert], that is, the ratio between the portion of the net (labour) value added that goes to capital owners, or surplus value, S, and the portion that goes to workers, or variable capital, V. (…) Ricardo’s argument was not meant to be limited to the case of a given economy at a given time but was designed to cover in at least one important respect also the development of the economy over time. More specifically, Ricardo’s demonstration of the inverse relationship between the rate of profits and wages was seen to encompass the case in which the productivity of labour changes. It was on the basis of the new wage concept (and on the premise that the social capital consisted only of, or could be reduced to, wages) that Ricardo had felt he could assert what may be called his ‘fundamental proposition on distribution’: that the rate of profits depends on proportional wages, and on nothing else (see Kurz, 2006)⁽²⁾. SraffaVsRicardo: While Ricardo (and Marx) had consistently assumed wages to be paid ante factum, that is, at the beginning of the (uniform) production period, and thus as belonging to the capital advanced in each industry, Sraffa, after some deliberation, decided to treat wages as paid post factum, that is, at the end of the production period and thus out of the product. He admitted that this was a hard choice because of the undeniable ever-present element of subsistence in wages, but compared with the alternatives at hand it was the least unsatisfactory one.⁽³⁾ >Wages/Sraffa. 1. Ricardo, D. (1951–1973) The Works and Correspondence of David Ricardo, 11 volumes, edited by Piero Sraffa with the collaboration of M.H. Dobb (Cambridge: Cambridge University Press). (In the text referred to as Works, volume number.) 2. Kurz, H.D. (2006) The agents of production are the commodities themselves. On the classical theory of production, distribution and value, Structural Change and Economic Dynamics, 17, pp. 1–26. 2. Taken from the work Sraffa carried out in the period 1927–1931 (unpublished papers). Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge. Rothbard II 83 Wages/Ricardo/Rothbard: (…) Ricardo took from Mill the hard-core, or ultra-Malthusian, view that ‘wages’ – all wages – are always and everywhere pressing on the food supply to such an extent that they are always set, and determined, precisely at the level of the cost of subsistence. Labour is assumed to be homogeneous and of equal quality, so that all wages can be assumed to be at subsistence cost. While briefly and dimly acknowledging that labour can have different qualities or grades, Ricardo, like Marx after him, drastically assumed away the problem by blithely postulating that they can all be incorporated into a weighted quantity of ‘labour hours’. As a result, Ricardo could maintain that wage rates were uniform throughout the economy. In the meanwhile, as we have seen, food, or subsistence generally, was assumed to be incorporated into one commodity, ‘corn’, so that the price of corn can serve as a surrogate for subsistence cost in general. Rothbard: Given these heroic and fallacious assumptions, then, ‘the’ wage rate is determined instantly and totally by the price of corn, since the wage rate can neither rise above the subsistence level (as determined by the price of corn) nor sink below it. The price of corn, in its turn, is determined according to Ricardo's famous theory of rent. >Rent/Ricardo, >Marginal costs/Ricardo. Rothbard II 107 (…) Ricardo himself had pointed the way to abandoning his own crucial permanent subsistence theory of wages (which the German socialist Ferdinand Lassalle was later to call ‘the Iron Law of Wages’). Ricardo had adopted the subsistence wage theory, taken from the hard-core Malthusian first edition of Malthus's Essay on Population (1798)⁽¹⁾. But many of his statements apart from this rigid formal model were really adopted from the much weaker, indeed contradictory, second edition of the Essay (1803). These were qualifications which Marx would correctly note amounted to a desertion of the ‘iron law’. Criticism of Malthusian doctrine prevailed in the journals by the late 1820s. >Wages/Marx. Rothbard II 132 In addition to the labour theory of value, another vital cornerstone of the Ricardian system – the alleged inverse relation of wages and profits – was also riddled quickly by British economists. Even more than the explicit rejection of Malthusianism, the periodicals vehemently attacked the Ricardian view that wages and profits move inversely to each other. The British Critic denounced this thesis as early as October 1817, and two years later another writer zeroed in on the methodology of what would later be called the ‘Ricardian Vice’ with proper scorn: „taking for granted, as usual, that money never changes in value and the proportion between the supply and demand of any given commodity never alters (which is as if the astronomer were to assume as the basis of his calculations, that all the planets stand still and that they all stand still to all eternity), he assigns a specific sum to be divided between the master and the workman, as the unalterable price of the goods which they produce; from which adaptation of hypothetical conditions, it naturally follows, that, if the workmen get more, the master-manufacturer must receive less, there being only a certain sum to divide between them.“⁽²⁾ 1. Malthus, Th. R. 1798. An Essay on the Principle of Population, as it affects the future Improvement of Society, with Remarks on the Speculations of Mr. Godwin, M. Condorcet, and Other Writers. London: J. Johnson. 1st edition. 2. Barry Gordon, Barry. 1969. ‘Criticism of Ricardian Views on Value and Distribution in the British Periodicals, 1820–1850’, History of Political Economy, 1 (Autumn 1969). note 11, p. 384.	EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977

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