The Logic of Action, Volume 1: Method, Money and the Austrian School
by Murray N. Rothbard (Lyme, N.H.: Edward Elgar Publishing, Inc., 1997); 452 pages; $80.
During the past 40 years, one of the most important contributors to the Austrian school of economics was Murray Newton Rothbard. He was also one of the major figures in the revival and renaissance of classical-liberal and libertarian thought in the post-World War II era. His interests and writings spanned economic theory and policy, economic and political history, methodology of the social sciences, social ethics, political philosophy, and foreign policy.
His knowledge of all these fields was vast and his memory was phenomenal. And he wrote well. His style was clear, logical, and compelling. He could easily cut through complex issues and demonstrate how obvious was the libertarian position on practically any topic.
Rothbard was unique among 20th-century defenders of freedom. His death in 1995 was a great loss to the cause of liberty. (See “Murray N. Rothbard, 1926-1995: R.I.P.” by Richard M. Ebeling in “Monthly Report from FFF,” February 1995.)
During a time when most American economists were under the spell of the “New Economics” of John Maynard Keynes, Rothbard restated and refined the Austrian concept of economics in his monumental two-volume treatise, Man, Economy, and State (1962). The following year, he presented an Austrian interpretation of the causes and consequences of the Great Depression in his book America’s Great Depression (1963). And in 1970, he articulated the Austrian critique of the interventionist state in Power and Market: Government and the Economy.
But his contributions to the Austrian school extended beyond these three important works. Over the decades, he published many articles and essays expounding and applying Austrian economics in many different areas. The most important of these pieces have now been brought together in two volumes, The Logic of Action, Volume 1: Method, Money and the Austrian School and Volume 2: Applications and Criticisms from the Austrian School. The present review focuses on the first volume.
The first part of volume 1 presents the core concepts of modern Austrian economic theory. The writings of Ludwig von Mises were Rothbard’s inspiration, and they serve as the starting point for his own exposition. Economics, Rothbard argues, begins with the idea of human action. Man is a conscious being who pursues ends and applies means in a setting in which the means to serve those ends are scarce relative to the goals to which human actors wish to apply them. From this simple but essential insight about man and the human condition, all the implications of the logic of human conduct are derived.
Following Mises, Rothbard explains that our knowledge of the logic of human action is fundamentally different from the way scientists acquire knowledge about the physical world. The inanimate matter of the external world can be measured, quantified, and organized on the basis of various hypotheses concerning the nature and relationships between the physical objects and entities of the universe. But we have no way of determining the real or true causal reasons why the elements of nature have the properties and relational characteristics they seem to possess. We can only observe, hypothesize, quantitatively test, and draw tentative conclusions that may be falsified by some new conjecture that is tested tomorrow.
Human sciences such as economics, however, have a radically different starting point. Here we have the ability to know the nature and properties of the causal factor that generates the complex relations of the social and economic processes. All of the social processes have their origin in and can be reduced to the actions and reactions of individual human beings. Being human himself, the social scientist can draw upon a source of knowledge unavailable to the natural scientist: introspection. That is, the social scientist can look within himself and trace out the logical and formal characteristics of his own mental processes.
As Mises expressed it, “action” is reason applied to purpose. By understanding the logic of our own reasoning processes, the social scientist can comprehend the essentials of human action. Man, as a conscious being, invariably finds some aspects of his human condition unsatisfactory. He imagines ends or goals that he would like to attain in place of his present or expected circumstances. And he perceives methods and means to try to achieve them.
But he soon discovers that some of the means with which he could attain ends are limited in quantity and quality relative to their potential uses. Hence, man is confronted with the necessity of choosing among desired ends, and he has to set some goals aside either for a day or forever, so that those means can be used for the pursuit of other ends to which he has assigned greater importance. Few human decisions, however, are completely categorical, i.e., either/or. Most are incremental, i.e., giving up a little bit of one attainable end so as to possibly attain a little bit more of some other desired end. Thus, most choices are made at the “margin.”
From these elementary and self-evidently true foundations, all the complex theorems of economics can be traced out. But the resulting laws of economics are not open to quantitative verification or prediction. The laws of economics, in other words, are logical relationships and not empirical ones. Why? Because man has volition, free will, and the ability to change his mind and imagine new possibilities that make his actions and responses in the future different in their concrete form from what they were yesterday or today. Hence, the search for a quantitative economics for deterministic prediction of what men and markets will do today, tomorrow, or a year from now is the pursuit of the unattainable.
In part 2 of the volume, Rothbard applies this concept of economic theory to the problems of utility and welfare economics, to the confused and inappropriate uses of the idea of “efficiency” in economic policy analysis, and to the tendency of economists to illegitimately introduce normative judgments when evaluating the likely results from various government interventions and market processes.
In part 3, Rothbard discusses the meaning of these Austrian ideas in the study of money, monetary policy, and a free-market monetary order as well as their importance for understanding the limits and impossibilities of a socialist economic system.
If a critical note is to be made, it is about the essay entitled, “The Present State of Austrian Economics.” Written in 1992, Rothbard takes to task various individuals and groups in the Austrian movement who reach conclusions different from his own. His benchmark for making these criticisms is his own interpretation of Misesian economics. He says at one point, “The correct Austrian paradigm is and can only be the Misesian, that is, the paradigm of Misesian praxeology.”
Even one who shares many of the same Misesian views as Rothbard must accept the fact that rarely does any school of thought have one dogmatic party line to which all members of that school are expected to adhere. Divergences of views, even among those who share many common premises, are normal and a sign of intellectual health and growth. The answer is not for the critic to condemn those who differ but instead to logically and calmly show where he thinks they have gotten things wrong.