Friedman Contra Rothbard
by David Gordon
by David Gordon
In a series of posts to an Internet discussion group several years ago, David Friedman severely criticized Murray Rothbard's account of Adam Smith in his Economic Thought Before Adam Smith (Edward Elgar, 1995). These comments have enjoyed wide circulation, and various posters to the Mises Institute Blog have referred to them. For that reason, I propose to examine Professor Friedman's extraordinarily insulting remarks.
One might have anticipated that a review of Rothbard's book by Friedman would be very much worth reading. Rothbard contends that Adam Smith, far from being the founder of economics, "contributed nothing of value to economic thought. . . he introduced numerous fallacies, including the labor theory of value, and thereby caused a significant deterioration of economic thought from previous French and British economists of the eighteenth century. (Economic Thought, p.463) In the second volume of his work, Rothbard assails David Ricardo; and, though he sadly did not live to finish a volume on twentieth-century economic thought, it is safe to say that Alfred Marshall would not have fared well in it.
For Friedman, by contrast, Smith, Ricardo, and Marshall are the key figures in the history of economics. Would it not be very useful, then, to have a defense of Smith and Ricardo against Rothbard's criticisms from an economist of Friedman's undoubted intelligence and polemical dexterity? Unfortunately, this was not to be; Friedman could not be bothered reading the entire book. "I [Friedman] should add that I have no opinion about the bulk of the book, since I have not read it and it deals with people I know much less about than Smith." What he offers instead are some critical remarks about a few pages in which Rothbard addresses Smith's departures from laissez-faire and some comments about Richard Cantillon. (He also says that Rothbard wrongly attributes to Smith an "embedded labor theory of exchange value"; but he later says Smith's value theory is a complicated subject and that establishing Rothbard's misrepresentation of it "would require more than I [Friedman] intend to write for this post." Actually, Rothbard thinks that Smith held the cost-of-production theory that Friedman attributes to him side-by-side with the labor theory. He refers interested readers to the Lecture Notes for his History of Economic Thought class.)
The heart of Friedman's assault on Rothbard concerns what he says about Smith's departures from laissez-faire. Rothbard, he alleges, is guilty of a "hatchet-job"; in some places he is either "deliberately dishonest" or "he had never really read the book he was criticizing, merely skimmed it for quotes suitable to his purposes."
Friedman's vehemence is more than a little odd. Rothbard's contention that Smith did not consistently advocate laissez-faire is much less radical than Friedman insinuates. Readers of Friedman unfamiliar with Rothbard's book would probably get the impression that Rothbard considers Smith a veritable statist, hardly a defender of liberty at all. Quite the contrary, Rothbard says, "Smith retreated from the absolutist, natural law position that he had set forth in his ethical work, The Theory of Moral Sentiments (1757). In this book, free interaction of individuals creates a harmonious natural order which government interference can only cripple and distort. In Wealth of Nations, on the other hand, laissez-faire becomes only a qualified presumption rather than a hard-and-fast rule, and the natural order becomes imperfect and to be followed only ‘in most cases'. . . Indeed, the list of exceptions that Smith makes to laissez-faire is surprisingly long." (Economic Thought, p.465) Smith's deviations from laissez-faire have been a scholarly commonplace since Jacob Viner's famous paper, "Adam Smith and Laissez-Faire," which was published in 1928. (Rothbard cites this paper in Economic Thought, p.531.)
Are we not confronted by a strange situation? Rothbard advances a revolutionary thesis about Smith: he has made no theoretical contribution to economics. Friedman, who admires Smith and has closely studied The Wealth of Nations, declines to engage with Rothbard's analysis. Instead, he challenges Rothbard on an issue where, for once, Rothbard is in the scholarly mainstream.
Friedman might respond that he objects not to the thesis that Smith deviated from laissez-faire, but to the details of what Rothbard says. One of his objections concerns Rothbard's remarks about Smith and the "martial spirit." After quoting a paragraph from Smith, Friedman says: "Smith's argument for the virtues of a martial spirit is the same as the argument often offered for the right to bear arms. It makes a standing army less necessary, and it means that if a standing army ever tries to take over, the people will be able to stop it. This is very nearly the opposite of what Rothbard implies." After another quotation from Smith, Friedman adds: "This may or may not be correct, but it is at the opposite pole from the position Rothbard is attributing to Smith — in favor of individuals standing up for themselves, not being obedient." It is at this point that he charges Rothbard with either dishonesty or failure to read The Wealth of Nations.
Friedman's charges are baseless: he has misunderstood Rothbard's remarks. Rothbard does not say or imply that the reason Smith favors the martial spirit is to make people obedient to the government. On the contrary, he quotes part of the same passage as Friedman does: "the security of every society must always depend, more or less, upon the martial spirit of the great body of the people." Rothbard then goes on: "It was his anxiety to see government foster such a spirit that led Smith into another [emphasis mine] deviation from laissez-faire: his call for government-run education." (Economic Thought, pp.465—66) It is in connection with education in the elements of literacy, not the inculcation of the martial spirit, that Rothbard discusses obedience: they are two separate educational programs, though organized in parallel fashion.
Friedman also thinks that Rothbard's remarks about education are distortions of Smith; but before turning to this question, I think we should consider further Smith's remarks about the martial spirit. In his haste to malign Rothbard, Friedman fails to note how radically Smith here departs from a libertarian view. Smith does not just defend the martial spirit; he apparently calls for universal military exercises, in the style of ancient Greece and Rome, to develop this spirit. The ancient institutions were much better than modern militias: "The influence, besides, of the ancient institutions was much more universal. By means of them the whole body of the people was completely instructed in the use of arms. Whereas it is but a very small part of them who can ever be instructed by the regulations of any modern militia; except, perhaps, that of Switzerland." (The Wealth of Nations, Book V, Chapter I, Article 2d.) And, of course, support for a standing army is itself a departure from laissez-faire.
Smith was not content with having the government develop the people's martial spirit. Rothbard quotes the following from The Wealth of Nations: "An instructed and intelligent people besides, are always more decent and orderly than an ignorant and stupid one. They feel themselves, each individually, more respectable, and more likely to obtain the respect of their lawful superiors, and they are therefore more disposed to respect those superiors. They are. . . less apt to be misled into any wanton or unnecessary opposition to the measures of government." (Economic Thought, p.466) The "inferior ranks of society," accordingly, must be properly instructed.
Vincent Cook, one of the members of the Internet discussion group, also quoted this passage, and appropriately remarked: "that's hardly the sort of rhetoric one would expect from a champion of individualism." How did Friedman respond? Here we find a curious circumstance. As anyone who has ever met Friedman knows, he is a debater of extraordinary facility. Before an opponent can finish making a point, he is ready with five or six refutations. As one would expect, for each of Cook's points he has a response. For each — except one. About the quotation from Smith on obedience, he says nothing at all. The relevance of the quotation to government education, we shall shortly consider. But aside from this issue, the quotation shows that Friedman is wrong to say, "Smith wanted people to stand up for themselves, not to be obedient." Smith did not see the two traits as inconsistent. He thought that if the standing army acted against the constitution, people imbued with the martial spirit would be able to resist. But the "lower ranks," guided by reason and not passion, should obey their lawful superiors.
Rothbard uses the passage as evidence that Smith supported government education, but Friedman finds Rothbard's view "in part false and in part misleading. To begin with, Smith did not call for government-run education. He offered arguments both for and against government education, and his conclusion, which Rothbard does not mention, was that subsidizing the education of the masses would be a legitimate government activity, but that it would be equally legitimate, and might be better, to leave education entirely private."
Once more it is Friedman and not Rothbard who is mistaken. Friedman is probably relying on a paragraph in The Wealth of Nations, Book V, Chapter I, Part IV, Conclusion, of which the remarks just quoted are a paraphrase. He has not taken note that Smith is talking about "the expense of the institutions for education and religious instruction. [emphasis added]" This is a different question from the establishment of the institutions; it concerns how these institutions are to be supported, once they exist.
Once a school is set up, fees or voluntary contributions may suffice to support it. But as to setting up schools, Smith holds that the "public can facilitate this acquisition [by the common people of the most essential elements of education] by establishing in every parish a little school." (The Wealth of Nations, Book V, Chapter I, Article 2d)
Friedman would have been saved from his error had he consulted an excellent secondary source. In Friedman's Lecture Notes on Smith, we find: "Possible public role in the education of the common people: 1. Establish local schools, partly subsidized, but with the master largely paid from fees paid by the parents." He clearly recognizes here the distinction between establishing and financing the schools, exactly the matter he neglects in his criticism of Rothbard.
Friedman directs yet another criticism against Rothbard's discussion of Smith on education. Rothbard nowhere mentions Turgot's support for a centralized program of education, far more statist than anything Smith had in mind. Rothbard, Friedman maintains, unfairly plays favorites. He admires Turgot, so he ignores his anti-libertarian measures: Smith, whom he dislikes, gets much more severe treatment.
Rothbard certainly has his likes and dislikes, but Friedman's criticism ignores the dialectical situation that occasions the discussion about Smith and laissez-faire. After his discussion of Smith's economics, Rothbard faces a problem. If Smith was as bad an economist as he contends, why was he so influential? One answer he considers is that Smith's fame stems from his defense of the free market. He thinks there is something to this answer, and quotes several influential passages that support the market, including the most famous of all, the "invisible hand" passage.
Rothbard then remarks: "Despite the undoubted importance of these passages, however, Adam's Smith's championing of laissez-faire was scarcely consistent." (Economic Thought, p.465) It is at this point that he begins an extensive discussion of Smith's departures from laissez-faire. The reason for the discussion, then, is at least in part a response to one possible explanation of Smith's fame.
In his account of Turgot, Rothbard is almost entirely concerned with his contributions to economic theory. Turgot did not gain fame, as Smith did, as a propagandist for laissez-faire, nor did he write a comprehensive treatise about the proper scope of government. Why then should Rothbard have discussed Turgot's views about government in as much detail as Smith's? If he were attempting a pairwise comparison of the virtues and vices of the two thinkers, Turgot's views on education would certainly be relevant. But this is not his aim.
But suppose I am mistaken, and that Rothbard deliberately accords more favorable treatment to Turgot than to Smith, whom he obviously dislikes. This would not show that Rothbard's comments about Smith are mistaken: at worst, readers, if inclined to libertarian views, would take away a somewhat more favorable attitude toward Turgot than was justified.
Friedman, relentless in his pursuit of Rothbard, has still another complaint. One of the deviations from laissez-faire that Rothbard attributes to Smith is taxes on the export of raw wool. Our critic pounces: "Rothbard does not mention that at the time Smith was writing the export of wool was a criminal offense, which the government tried to prevent by extensive regulations over the wool trade. What Smith is actually advocating is thus a sharp reduction in government interference with trade, although not a total elimination of it. Rothbard has to have known that, and I do not see any way of interpreting his failure to mention it as due to anything but deliberate dishonesty — the attempt to mislead his readers by omission."
Friedman is himself guilty of omission. He fails to note that under Smith's proposed reform, the gains to growers through the end of prohibition would be almost entirely taken away through taxes. "A tax of five, or even of ten shillings upon the exportation of every tod [about 28 pounds] of wool, would produce a very considerable revenue to the sovereign. It would hurt the interest of the growers somewhat less than the prohibition, because it would not probably lower the price of wool quite so much." (The Wealth of Nations, Book IV, Chapter VIII) Manufacturers would gain, Smith claims; and in any case, the new tax might make it possible to reduce other more burdensome taxes. This hardly strikes one as a "sharp reduction" in government interference; and Friedman's complaint against Rothbard is as usual devoid of substance.
Friedman raises a more interesting point about the wool tax. Unless one is an anarchist, there must be a source of revenue for the government. Given this fact, why are revenue tariffs beyond the pale? Why is Smith's wool tax worse than the land tax that Turgot favored?
The question is a good one, but Friedman has not taken adequate account of Rothbard's aim. Rothbard wishes to show that Smith deviated from laissez-faire in various particulars. The fact, if it is one, that one can give a rationale for some of these measures that does not altogether depart from classical liberal principles is not relevant to the issue Rothbard raises. Of course a single tax on land also violates laissez-faire. So what?
Friedman, to give him credit, manages to catch Rothbard in a minor slip. Rothbard gives public works as an example of Smith's advocacy of government intervention, "on the rationale that private enterprise would not ‘have the incentive' to maintain them properly (!?)" Friedman notes that the passage from Smith to which Rothbard refers covers only the maintenance of public works, not their erection; and, in any case, Smith thinks that although private enterprise cannot adequately maintain roads, it can maintain canals better than government agencies.
The defect is easily remedied. Smith says, in a well-known passage: "The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain." (The Wealth of Nations, Book V, Chapter I, Part 3) Rothbard is entirely correct to enter public works on his list of Smith's deviations from laissez-faire.
Friedman claims, "Rothbard says that Smith advocated government coinage; he offers no evidence for this claim. So far as I [Friedman] can tell, Smith, like Turgot and Cantillon, mostly took government coinage for granted." But Smith explicitly says that the mint should charge seignorage, rather than mint money for free on precious metals that customers present to it. "The government, therefore, when it defrays the expense of coinage, not only incurs some small expense but loses some small revenue which it might get by a proper duty; and neither the bank nor any other private persons are in the smallest degree benefited by this useless piece of public generosity." (The Wealth of Nations, Book IV, Chapter VI) Clearly, he considers government coinage legitimate, just as Rothbard claims.
Amazingly, Friedman questions Rothbard's claim that Smith supported government operation of the Post Office. "Smith did not advocate it — he merely pointed out that it was the one commercial activity which all kinds of governments seemed to be able to run at a profit." But Smith says explicitly: "The post office is properly a mercantile project. The government advances the expense of establishing the different offices, and of buying or hiring the necessary horses or carriages, and is repaid with a large profit by the duties upon what is carried." (The Wealth of Nations, Book V, Chapter II, Part 1) Friedman's remark is a paraphrase of the next sentence in this passage. Smith thus does not confine himself to the historical observation to which Friedman calls attention. Just as Rothbard alleges, he favors a government Post Office as a way to generate revenue.
Rothbard claims that Smith favored the "outlawing of the practice of paying employees in kind, forcing all payments to be in money." (Economic Thought, p.466) Friedman cannot locate a passage from The Wealth of Nations where Smith says this. He should try this one: "Whenever the legislature attempts to regulate the differences between masters and their workmen, their counselors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favor of the masters. Thus the law which obliges the masters in several different trades to pay their workmen in money and not in goods, is quite just and equitable." (The Wealth of Nations, Book 1, Chapter X) Had Friedman deigned to spend a few minutes with an index, he could easily have found this.
Friedman also has "no idea" why Rothbard attributes to Smith a policy of compulsory registration of mortgages. I think that what Rothbard has in mind is Smith's support for a scheme of registration of land leases, for tax purposes: "The landlord and tenant, for example, might jointly be obliged to record their lease in a public register. Proper penalties might be enacted against concealing or misrepresenting any of the conditions. . ." (The Wealth of Nations, Book V, Chapter II, Article 1st) Friedman mentions the point in his own Lecture Notes, which I once more urge him to consult: "(Smith's proposed system for taxing rent): a. All leases must be publicly registered, with bounties to either landlord or tenant informing on the other."
As mentioned at the start, Friedman also has some remarks about Cantillon, but these, readers will be glad to know, I do not propose to discuss in detail. Friedman generously allows that Rothbard's remarks about Cantillon are "mildly misleading but not to the point of dishonesty or clear error." His main criticism is that Cantillon was more of a mercantilist than Rothbard alleges. Rothbard was well aware of the issue. About it he says: "There is no point wasting time in fruitless speculation on whether or not Cantillon was a ‘mercantilist'; Eighteenth century writers did not group themselves into such categories." He acknowledges the presence of inconsistencies but suggests that the "entire thrust of Cantillon's work was in a free trade, laissez-faire direction." (Economic Thought, p.359) For readers interested in pursuing the matter, I recommend the careful and penetrating research of Mark Thornton on Cantillon. This fully vindicates Rothbard's view.1
To sum up, nothing in Rothbard's account of Smith justifies Friedman's intemperate remarks. His insults serve only to show that he cannot control a manifest dislike of a scholar and thinker far above his own level.
- See, e.g., his "Richard Cantillon and The Origins of Economic Theory" Journal des Economistes et des Etudes Humaines (March, 1998) pp. 61—74 and his lecture "The Cantillon Legacy: Extending Rothbardian Revisionism" available here.
June 14, 2006
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