Sunday 24 September 2017

The Austrian School Dismissed - Part 6

“Further, laissez faire theory was developed in fine flower by the Catholic Physiocrats, who were directly influenced by natural law-natural rights thought.” (Rothbard)

But the Physiocrats developed what was essentially a preliminary form of  The Labour Theory of Value, in that they identified that surplus value is produced in production, not distribution, which completely destroys Rothbard’s line of argument. The main difference between the Physiocrats and the Classical Economists was that the Physiocrats believed that only agriculture could produce surplus value, i.e. agricultural labour was productive, whereas wages and profits from manufacturing were simply deductions from the agricultural surplus. 

The Physiocrats measured value by use value, but, as Marx describes in Theories of Surplus Value, in a world in which agricultural production dominates, and where productivity changes little from one period to another, measuring value in terms of physical inputs, as against outputs, amounts to pretty much the same thing as measuring it in terms of the labour required for that production.  The fact, of identifying that it is the difference between the value of the output, as opposed to the value of the input, which is the source of the surplus value, was the main contribution of the Physiocrats, and again completely undermines the arguments put forward by the Austrians and other neoclassicists, which try to explain profit as arising from exchange, or risk, or other such spurious origins, which are, in fact, a throwback to the ideas of the Mercantilists, prior to the Physiocratic discovery.

Adam Smith showed that it was labour in general, rather than just agricultural labour, which created value, and that labour employed in manufacture was just as productive as agricultural labour in that it too created surplus value. Labour was only non-productive when it exchanged against revenue rather than capital. For example, a cook, employed by a capitalist, to cook his dinner, is paid out of revenue, and is not productive, the same cook, employed by the same capitalist, in a hotel, to cook meals, which are sold to customers, is productive if these meals are sold at a profit.

“He (Schumpeter) also treats their (the scholastics) adoption of the market price as essentially the just price, utility theory, subjective value, etc.” (ibid)

But a number of different concepts are conflated here. The “just price” as defined by Aquinas and Magnus is the opposite of utility theory. Their idea of the “just price” was precisely the basis for the development of the Labour Theory of Value, that the value of a good is the labour (and costs, in Aquinas formulation) it contains. Duns Scotus also developed the theory of exchange value based not on utility but on “labour and charges”.

“We may sum up the Case for Catholicism as follows: (1) Smith's laissez-faire and natural law views descended from the late Scholastics, and from the Catholic Physiocrats; (2) the Catholics had developed marginal utility, subjective value economics, and the idea that the just price was the market price, while the British Protestants grafted on a dangerous and ultimately highly statist labor theory of value, influenced by Calvinism; (3) some of the most "dogmatic" laissez-faire theorists have been Catholics: from the Physiocrats to Bastiat; (4) capitalism began in the Catholic Italian cities of the 14th century; (5) Natural rights and other rationalist views descended from the Scholastics.” (ibid)

This is historically inaccurate, at best, and I am tempted to call it something worse. Smiths views did derive from the Scholastics, and from the Physiocrats, but it was precisely the elements of the Labour Theory of Value, in these sources, that he drew on, and corrected the deficiencies of these previous theories. Let Aquinas speak for himself of his understanding of where value comes from, and the determination of "the just price" as different from the market price.

“Let us assume that at one corner, A, there are two books, and at another, B, there is one book; and that at C there is a person, Sortis, for example, who has worked for two days, and at D there is Plato, who has worked for one day. Then the ratio of A to B should be the same as C to D (that is, A should have twice the value of B).” (St. Thomas Aquinas “Commentarii in Decem Libros Ethicorum Aristoteletis” p 65).

There is a link to Catholicism through Aquinas, but not in the direction Rothbard wants. The teachings of the Fathers of the Church honoured the merits of labour, and in Aquinas' writings there seems to be a desire to justify merchants profits, therefore, by declaring that the trader embodies in goods a value proportionate to his “labour and charges”, a theory which had already been upheld by the Talmud.

“Professor von Mises' view on the Max Weber thesis should be mentioned here: namely, that Weber reversed the true causal pattern, i.e. that capitalism came in first, and that the Calvinists adapted their teachings to the growing influence of the bourgeoisie – rather than the other way round.” (ibid)

I would agree with Mises, to an extent here, though the process is not as mechanical as presented. Ideas are rooted in material conditions. The embryonic development of capitalism created the material conditions in which the idea of abstention and capital accumulation could appear rational. But the development of the Protestant Ethic, in turn, provided the ideological basis in which more accumulation of capital could take place. The material condition is always parent to the idea, but ideas, like children, have their own development.  (At least if the children are allowed to develop.  Rothbard is also infamous for advocating the idea that parents should have the liberty not to feed their children, and to sell them to others!

"Applying our theory to parents and children, this means that a parent does not have the right to aggress against his children, but also that the parent should not have a legal obligation to feed, clothe, or educate his children, since such obligations would entail positive acts coerced upon the parent and depriving the parent of his rights. The parent therefore may not murder or mutilate his child, and the law properly outlaws a parent from doing so. But the parent should have the legal right not to feed the child, i.e., to allow it to die. The law, therefore, may not properly compel the parent to feed a child or to keep it alive. (Again, whether or not a parent has a moral rather than a legally enforceable obligation to keep his child alive is a completely separate question.) This rule allows us to solve such vexing questions as: should a parent have the right to allow a deformed baby to die (e.g., by not feeding it)? The answer is of course yes, following a fortiori from the larger right to allow any baby, whether deformed or not, to die. (Though, as we shall see below, in a libertarian society the existence of a free baby market will bring such "neglect" down to a minimum.

{Rothbard, Children and Rights})

If Mises is correct of course then he has destroyed Rothbard’s argument that Catholicism leads to the free market, and Protestantism to socialism. The only other interpretation is that Catholicism creates capitalism, but capitalism creates Protestantism, not as a corresponding, reinforcing ideology, but as its own nemesis. Not the conclusion Rothbard wants I think.

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