October 24, 2011

A Question for Mr. Rothbard

If I may make a brief commentary of Murray N. Rothbard’s Economic Depressions: Their Cause and Cure, I would like to say this, first and foremost. I don’t think that he’s wrong with the things that he says concerning how government interventionism can cause problems to become worse, and the story he weaves about how the government can easily fuel false growth does seem quite plausible. Indeed, if I am remembering my history right, there was a time in the mid to late 1930s that saw artificially boosted prices fall because businesses tried to engage in some competitive actions, rather than the prices that the government had managed to push up. Some more history to back this up: I notice that the essay was originally published in 1969, just a few years before the US economy, still hopping quite well from WWII, finally died down and saw real wages and wealth plateau.

The place that I am having my issue with Rothbard’s logic is in his discussion of what exactly the government intervention does to the economy. As I understand it, wealth comes from the saving and buildup of capital, of tools that enable the entrepreneur and businessman to produce the products that make money and create jobs. What Rothbard says is that the government intervening in the economy will lower rates and cause overinvestment in capital goods, rather than in the production of consumer goods. The specific problem that I have is this: is Rothbard proposing that we consume our capital now rather than keep building it up?

1 comment:

Larry Eubanks said...

Capital is not homogeneous. The malinvestment involves too many resources devoted to capital for use, let's say, in producing new housing. Production takes time. So devoting resources to production commits those resources to an attempt in the future to sell output for which demand may not be forthcoming. This "mistake" means that a business/entrepreneur has then to free resources for other production pursuits. These adjustments happen every day all across the country. For there to be a recession, as Rothbard points out, there have to be far more entrepreneurial mistakes happening at about the same time if there is to be a recession.