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Why One Corporation Can Dictate Measles Policy in America


Scanning the headlines, one might notice that there is now a multitude of articles on the measles virus in most major media outlets. Outbreaks in places like New York City have led to what the AP calls "extraordinary police powers" to mandate vaccinations or quarantine those suspected of the disease.

Proponents of mandatory vaccines defend these measures while contended there is too much resistance to measles vaccination based on a variety of philosophical or religious concerns. They want new state laws eliminating the possibility of opting out of any vaccination for any non-medical reasons.

Why So Few Choices in Vaccines?

But why are some people resistant to the measles vaccine? And more importantly, are there any ways that manufacturers of vaccines can address some of these issues?

There are, not surprisingly, a wide variety of reasons given by patients and guardians for choosing to not be vaccinated. Many of these involve debates over the science of vaccines and and their effects and risks.

I'll leave those debates up to the biologists and their critics.

What will interest me in this article is how government regulation — and government-created monopolies — have limited the types and varieties of measles vaccines available, and how these decisions have been made explicitly to limit consumer choice in favor of embracing a certain public-policy agenda. In turn, these policy choices have discouraged some patients and parents from being vaccinated.

This is illustrated in the response to some parents and patients who have opposed use of the measles vaccine in response to fears the composite MMR vaccine is more dangerous than a "single-antigen" or "monovalent" vaccine. In other words, some people would prefer a measles vaccine that has not been combined with vaccines for mumps and rubella. This concern is apparently widespread enough to show up frequently in "Q and A" publications on measles vaccination.

Government officials and doctors, meanwhile, insist that there is no scientific basis for these fears.

Let's assume they are correct, and there is no additional risk.

But what should be the proper response to continued patient and parent fears in this regard?

It would seem the most productive and efficient response would be to overcome this objection by simply offering a non-composite vaccine. If the need to obtain more measles vaccinations is so urgent, it would make sense to — at least in the short term — circumvent fears over the MMR by meeting consumers where they are. The result would be more people being vaccinated specifically for measles — the disease we're told warrants an immediate response.

This, however, has not been the strategy employed by policymakers. Instead, government officials and doctors has been almost universally united in telling resistant patients and parents to just shut up and get the composite vaccine. The stock response in the Q and As is simply that the separate measles vaccine "is no longer available." No further explanation is ever given. Those who persist in asking questions about other options, it is implied, endanger public health.

Some may remember, though, that up until 2009, a separate measles vaccine was still available in the United States from Merck Corporation, the only company licensed to produce the vaccine in the United States.1

This was discontinued, however, much to the cheers of many pro-vaccination activists. For example, writing for a site called "Science-Based Medicine," physician John Snyder declared Merck's plan "great news," even though Snyder admits that a single-antigen vaccine had has been in continued production "for various reasons." These included the fact "a monovalent measles vaccine has been recommended during measles epidemics to protect infants 6-12 months of age."

So why would it be "great news" that this additional option will no longer be available?

Apparently, the reason was based not on any medical problem with the separate vaccine, but was a public-policy decision pushed by lobbyists — and possibly by Merck itself. Writing for the American Association of Pediatrics (AAP), physicians David Kimberlin and Joseph Bochini write:

[The AAP] was very concerned that availability of monovalent measles, mumps, and rubella vaccines would increase the number of at-risk children by enabling parents to elect to spread out immunization...

In other words, if patients are given choices, lobbyists theorized some of them might receive only partial vaccinations, based on individual assessments of risk. Thus, the AAP has opted to reduce choices — and reduce opportunities to evaluate risk — and embrace an all-or-nothing plan designed to force patients into adopting a certain vaccination schedule.

The general idea being pushed here is that doctors only have access to patients intermittently. Thus, in order to increase "efficiency" in vaccines, the ideal is to pack as many immunizations into a single doctor visit as possible.

Faced with a choice of the composite vaccine or nothing, some people have opted for nothing. This is not surprising since their preferred option has been removed from the menu of choices.

The result has likely been fewer measles vaccinations among those who dislike the composite vaccine. Lobbyists deliberately pushed for the removal of a non-coercive option that could have been used to vaccinate more people. Not surprisingly, many of those same people are now pushing for explicitly coercive laws to force the use of a specific vaccine preferred by a single huge pharmaceutical company.

Merck's Government-Created Monopoly

But why should patients be only able to access treatments provided by a single corporation?

In a functioning marketplace — which the US pharmaceutical industry certainly is not — it is highly unlikely this sort of power would be enjoyed by a single firm.

In a functioning marketplace, if there is a demand for other types of vaccines, it is likely other companies would step in to provide those services. Competition could be offered by new startups, or by foreign firms entering the marketplace.

Unfortunately, we find the US government makes this sort of competition extraordinarily difficult.

In Financing Vaccines in the 21st Century: Assuring Access and Availability, (published by the National Academies Press) the authors note the plethora of barriers to entry that preclude the entrance of other firms into the vaccine market.

Some of these are market-based. The cost of producing and delivering vaccines is costly in terms of fixed costs. But many of these costs are government created as well. In an examination of how government-created limitations on vaccine production has led to bottlenecks and fragility in vaccine distribution, the authors write:

Perhaps the most important long-run solution to the fragility of vaccine supplies is to ensure that multiple companies have access to the U.S. market. Although a large number of small domestic R&D firms and foreign companies have applications pending for vaccine licenses in the United States, regulatory and cost barriers may inhibit the entry of many of these producers. For example, a company that has had a successful vaccine product in use for many years in Europe and Canada must conduct full clinical trials as part of its U.S. license application rather than drawing on efficacy and safety data from its current product experience. GAO (2002) has recommended expedited FDA review procedures. Implementing this recommendation would accelerate approval of new and competitive vaccines in the case of shortages and also reduce the total cost of bringing a vaccine to market.2

Defenders of the status quo insist that regulations are necessary to ensure public safety, but experience suggests "the impact of regulation has been costly, without clear evidence of corresponding improvements in quality."

The effect has been to cut off patients and parents from options that might have been available without government policy artificially raising costs to so high an extent. Particularly illustrative is the fact that American consumers do not have the option of accessing foreign vaccines that have already been in wide usage outside the US.

This is especially relevant to the case of the MMR since the Japanese manufacturer Takeda Pharmaceutical company already produces an alternative composite vaccine containing only measles and rubella antigens. (It was specifically produced to provide an alternative to the MMR which some Japanese researches contended led to too many adverse reactions.) Moreover, at least as late as 2007, a single-antigen measles vaccine in the UK was "obtainable on a private basis" (i.e., not through the National Health Service) at least partially through imported vaccines.

These options have been essentially abolished by government regulation in the US.3

Moreover, many medical professionals appear happy to embrace and push these monopolies, since monopoly power can be easily used to force certain politically-popular composite vaccines. Monopolists like Merck are happy to play along since this can help increase revenues by simultaneously reducing administrative costs and marketing only costlier composite vaccines.4

The end result is an excellent illustration of how partnerships between government regulators and private companies can be used to reduce consumer choices, and even, ultimately, to push coercive medical policies which mandate acceptance of what few choices remain.

1. See table 5-1 in Financing Vaccines in the 21st Century: Assuring Access and Availability.: 2. See chapter 5, "Vaccine Supply." Available online through the National Center for Biotechnology Information. Chapter 5 also describes how market concentration toward a small number of providers has been significant in recent decades. 3. See Caves, Kevin W. and Singer, Hal J., "Bundles in the Pharmaceutical Industry: A Case Study of Pediatric Vaccines" (August 11, 2011).  "the FDA’s requirement that vaccines currently sold in other markets undergo costly additional clinical trials before entering the U.S. market (to meet potentially more stringent regulatory requirements) 'often discourages manufacturers from launching vaccines in the U.S.'" 4. See Financing Vaccines in the 21st Century: Assuring Access and Availability: "Much current R&D and product testing is directed toward expansion of combination vaccines because they generally reduce the number of doses and the administration costs of vaccination, even though they may be more expensive."

The Sociology of the Development of Austrian Economics


Although this paper was presented as a lecture in 1996, I have chosen to publish it in this volume in nearly its original manuscript form.1 It was never previously published or posted electronically, but the paper achieved a limited circulation in manuscript form via copy and fax machines during the primitive days of the Internet. Despite its relatively restricted exposure, however, it generated a remarkably heated discussion in Austrian economics circles—much of it based on an inaccurate hearsay version of the paper—that lasted for a number of years.2

So the first reason for publishing the paper now without major revision is to set the record straight regarding the actual claims and supporting arguments contained in it. A second reason for proceeding with belated publication of the manuscript is to acquiesce in and thus put a halt to the numerous importunities to publish that I have been subjected to over the years by colleagues and friends who were broadly aware of the prolonged controversy that swirled around the paper but were neither in the audience at its original presentation nor had the opportunity to read it subsequently. The third, and perhaps the most important, of my reasons for complying with the editors’ request to publish the paper is that, despite the fact that the situation in Austrian economics has greatly changed for the better since the paper was originally written and despite my dissatisfaction with its imperfections of style and tone, I think its substantive claims have stood up quite well and bear repeating. In particular, I believe the paper identifies counterproductive attitudes peculiar to proponents of a heterodox intellectual movement. Such attitudes are always liable to recur and must be vigilantly guarded against because they are likely to impede the movement’s further progress, if not threaten its very survival.

Austrian Economics Defined

Before we venture to speculate on the future of the Austrian School, we must first define the distinct intellectual paradigm adherence to which characterizes a member of this school.

Specifying a vague methodological attitude or stance, for example “subjectivism” or “methodological individualism,” is not sufficient. These labels arguably apply to a broad array of modern economists—from the late George Shackle to Milton Friedman the price theorist—as well as to the contemporary followers of Carl Menger and Ludwig von Mises. To capture the essence of the distinctively Austrian approach to economics, therefore, we must do much more. Namely, we must define the precise and realistic method utilized by the acknowledged masters of Austrian economics for discovering and explicating what Menger called the “exact” laws of economics.3

For my money, this method is praxeology, which was given its name and first comprehensive explication by Mises. Mises did not conceive praxeology as a metaeconomic discourse unrelated to the workaday concerns of the economic theorist; he himself used it as a tool of research in revolutionizing the theories of money, business cycles, and socialism. Even before Mises, however, this method was actually employed by the great founders of the Austrian school, Menger and Böhm-Bawerk, to discover new economic truths. What Mises calls “the modern theory of value and prices,”4 first systematically expounded by Böhm-Bawerk, is a tangible creation of praxeology. Going back further still, this method was also adumbrated and used by some of the most creative eighteenth- and nineteenth-century economists, namely Cantillon, Say, Senior, and Cairnes.

The essence of Austrian economics may be defined, then, as the structure of economic theorems that is arrived at through the process of praxeological deduction, that is, through logical deduction from the reality-based Action Axiom. In addition to providing a unique and practicable method for developing the science of economics, this definition is useful precisely because it clearly excludes Shackle and Friedman, as well as many other economists, past and present, from being considered as practitioners of Austrian economics. It is childish to seek to define an intellectual paradigm, or even to use a definite term to designate it, while at the same time bemoaning a particular definition because it excludes or is “intolerant of” those whose views are essentially inconsistent with the paradigm so defined. It must not be forgotten that a definition, by definition, is meant to be rigidly essentialist and, hence, exclusivist.

Having given a definition of Austrian economics, I now turn to a discussion of two problems which cloud its future. Both of these problems, I will argue, betray a peculiar reluctance on the part of some of its practitioners to define precisely what is meant by Austrian economics. Perhaps this reluctance is due to a fear that to define a science or the specific method of pursuing it is to peremptorily foreclose the possibility of any future progress in the discipline. The enormous advances that have occurred within the praxeological paradigm since Say and Senior first began to self-consciously articulate its method, I think, render this fear baseless. Indeed, I would argue that it is hardly accidental that Mises, the first economist to deliberately utilize praxeology as a comprehensive research method, was the economist who made the greatest substantive advances in the Austrian theoretical paradigm. However, due to a severe constraint of time, I will not pursue this point any further here.


The first problem beclouding the future of the Austrian school I call “Austro-punkism.” My use of this neologism here is not intended to evoke the older, indefinite sense of the term “punk” as anyone, “especially a youngster, regarded as inexperienced, insignificant, etc.”5 Rather, I use it in the more specific and now widely-accepted sense to indicate the harboring of an impious attitude toward the accomplishments of the past and, hence, toward all authority. This attitude is the driving force of the phenomenon of “punk” rock, which from its narrowly musical roots in the late 1970s has grown into a broad cultural movement today. The broad social acceptance of the punk phenomenon is exemplified by the fact that its music, now blandly but significantly entitled “alternative rock,” permeates the airwaves of even mainstream, commercial radio stations. (I must confess I am bitter that the last remaining “classic” rock station in New York City has recently and abruptly converted to the “alternative” rock format.) 

Now, I am not trying to suggest here that the roots of Austropunkism lie in popular culture. I will deal with the causes that underlie it shortly. My immediate purpose in the allusion to punk rock is to justify my use of the “Austro-punkism” label as a nonpejorative and meaningfully descriptive term, which contributes precision and clarity to our discussion of the prospects for Austrian economics.

Austro-punkism, as I employ the term, then, identifies a movement within Austrian economics that recognizes no masters of the discipline and that, therefore, calls all received doctrine into question. It views Austrian economics as a discipline in a state of constant and radical flux, devoid of any fundamental and constant principles but rife with a myriad of endlessly debated questions. Indeed, leading proponents of Austro-punkism proudly trumpet that an Austrian economist is one for whom there should eternally exist more questions than answers. To venture a more meaningful definition of Austrian economics than this represents for Austropunks an attempt to intolerantly close off the perpetual and openended conversation that they uphold as the hallmark of scientific inquiry.6

With no acknowledged masters, any self-proclaimed Austrian (whether equipped with formal training in economics or not) is judged fit to try his hand at radically reconstructing the discipline. In other words, Austrian economics can and should be revolutionized on a daily basis, by anyone and everyone. This means that the works of Mises, Hayek, and Rothbard are not treated as authoritative texts to be learned from and built upon in the painstaking labor of systematically adding to the inherited structure of economic theory. Instead these texts provide Austro-punkism with a common vocabulary in which to carry on their incessant and carping metaeconomic discussion about the dire need for radical reconstruction of economic theory. But the plans for reconstruction that issue forth from such metaeconomic griping never amount to more than casual and wildly implausible glosses on the texts of the masters. This explains the centrality of hermeneutics to Austropunkism; it provides a justification for treating the meaning of the texts as infinitely elastic and capable of bearing almost any interpretation, however outlandish. Without recourse to the exercise of deconstructing the texts of the masters, the metaeconomic discourse of Austro-punkism would come to a screeching halt, because it has offered no practical alternative to praxeology as a method for systematically elaborating economic theory.

The treatment meted out by the Austro-punks to Mises and Rothbard sharply contrasts with the pious treatment accorded by these creative geniuses to their own masters. Mises confesses that he felt himself competent to criticize the value and price theory that he learned from Menger and Böhm-Bawerk only after he himself had reached a mature understanding of the issues.7 This occurred only at the age of 52, after he already had published his major treatises on money and socialism and had achieved eminence as one of the leading economists on the Continent. And, despite their substantive and long-standing differences in political economy, the first time Murray Rothbard ever ventured to directly criticize Mises in public was in the classic paper he presented at South Royalton in 1974 on “Praxeology, Value Judgments and Public policy.”8 Murray was then already 48 years old and yet, after his talk had ended, I remember him confiding to a few of us that he was still a “little shaky” from the experience of publically disagreeing with his mentor for the first time. (This of course is precisely the attitude one should have when attempting to advance beyond the acknowledged master of a discipline, even in a minor area.)

Austro-punkism itself, indeed, raises more questions than there are answers for. Most significantly, why Austro-punkism? Why is the neo-Austrian school—of all schools of economics past and present—seemingly the only school ever to be afflicted with the scourge of punkism? Why not Ricardian-punkism or Chicagopunkism? The works of Milton Friedman, George Stigler, and Gary Becker, after all, are never casually derided or subjected to grossly distorted reinterpretations by those professing to be Chicago economists. This is not to deny, of course, that almost all schools spawn radical internal critics. But generally such dissidents, sooner or later, promote a schism among the like-minded in the discipline. One only has to think of Paul Davidson and the Post-Keynesians, Robert Mundell and the Supply-siders, Robert Lucas and the Rational Expectations school, Gregory Mankiw and the other New Keynesians to recognize the pervasiveness of this phenomenon in contemporary economics.

Yet, schismatics differ from punks in three important respects. First, the promoters of schism are generally individuals who have completely absorbed and may even have substantially contributed to the orthodoxy they are now seeking to escape. Second, they are eager to proclaim their apostasy to the world by relabeling themselves. And, third, at least some in the ranks of the schismatic movement are willing and able to embark upon the arduous task of substantively reconstructing the edifice of the orthodox economic theory they object to. Austro-punks, in contrast, tend to be innocent of a profound understanding of the orthodoxy they criticize. Moreover, their interest lies not mainly in theoretical or applied research in economics proper, but in promulgating metanorms for economic theorizing and dawdling glosses on the texts of the masters. Most significantly, rather than seizing the first opportunity to break free of the oppressive orthodoxy they disdain, Austro-punks cling to their proclaimed position within Austrian economics like Leonidas and his Spartans at Thermopylae. 

So, I ask again, why the peculiar phenomenon of Austropunkism? I have pondered on this question for a few years and I think I have a few answers. The causes of Austro-punkism are threefold. Briefly, they are the lack of formal graduate training in Austrian economics, the influence of 1970s-style left-libertarianism, and the work (not the person) of Ludwig Lachmann. I will say a few words about each of these causes in turn.

1. Lack of a Graduate School

Lack of formal graduate training in Austrian economics represents the objective or institutional deficiency that has bedeviled Austrian economics from the inception of its modern renascence. Despite several laudable programs in Austrian economics associated with universities in the U.S., there is still not available to the interested young scholar a conventional graduate program in which he or she may obtain comprehensive and rigorous training in Austrian economic theory. But rigorous theoretical training is essential not only to the development of the aspiring Austrian economist but also to the healthy flourishing of the overall discipline. Graduate education is the means of fostering respect for the masters of the science by enforcing a disciplined interpretation of their texts. The chairman of my dissertation committee, an unreconstructed IS/LM Keynesian9, once told me that the first time he read Patinkin’s Money, Interest, and Prices10, William Fellner led him through it by the nose; the second time, Fellner sent him through it on his ear; and by the third reading, humbled and scraped, he had begun to understand it. Needless to say, my advisor neither lacked respect for Patinkin, nor foisted upon me any bizarre reinterpretations of his work. A similar engagement with Human Action or Man, Economy and State11 would work wonders for our metaeconomists.

In fact, it is precisely the inadequacy of their grounding in technical Austrian economic theory that accounts for their absorption in metaeconomics. When pushed to analyze a real-world problem, Austro-punks generally resort to Chicago price theory, Public Choice theory, Game theory, or Transactions-costs economics depending upon the era and institution of their graduate training. Those who have not been relentlessly drilled in the technical aspects of price theory as taught by Böhm-Bawerk, Wicksteed, and Mises or compelled to master the intricacies of Austrian production and capital theory in their intellectually formative years will hardly be inclined to pursue meaningful research in theoretical or applied Austrian economics.

But graduate schools are essential to a flourishing discipline not only for how they teach but also for whom they exclude. There are no other means available for weeding out those who are unsuited by ability or temperament to pursue research in economics and who, therefore, are apt to develop into sterile and punkish malcontents. This all-important exclusionary function is generally performed by rigorous drilling in the fundamentals of the discipline. For example, beginning with what Paul Samuelson calls the “terror” employed by Viner in his theory course in the 1930s, the University of Chicago’s Economics Department has not lacked for a mechanism for screening out unfit candidates for advanced degrees. Thus one rarely encounters individuals proclaiming to be “Chicago economists” who seek to overturn Chicago price theory or, for that matter, “MIT economists” who repeatedly express doubts about the efficacy of mathematical modeling. Would that we could say the same about so-called “Austrian economists” who regard Rothbard as merely a libertarian theorist and ridicule praxeology as a simplistic and intolerant methodology.

This singularly promiscuous use of the label “Austrian economist” cries out for the implementation of an institutionalized exclusionary process in Austrian economics. Of course, this is not a call for anointing a particular person or institution as final arbiter of who does and who does not qualify as an “Austrian economist.”

This would be a ridiculous and less than ingenuous inference from my argument. Rather, the existence of a graduate program in Austrian economics would provide the critical objective test—a “market test,” if you will—to facilitate the natural process of doctrinal self-exclusion, as is the case currently, for example, with Chicago economists. Those individuals who flunk out of the Chicago graduate economics program or whose interests or aptitudes divert them into a graduate philosophy program rarely, if ever, refer to themselves as “Chicago economists.” Why should matters be any different with Austrian economists?

2. 1970s-Style Left-Libertarianism

Many of those interested in pursuing Austrian economics are naturally motivated by ideology. They are intensely interested in learning how to rationally defend a free society. This motivation, in and of itself, should present no difficulties for our science. But many of the ideologically-inclined individuals who found their way into Austrian economics since the beginning of its revival in the 1960s have been proponents of 1970s-style left-libertarianism. This variant of libertarianism fosters a punkish worldview, since its adherents tend to promote atomistic individualism, which neglects the distinction between State power and bureaucracy on the one hand and the necessarily hierarchical and authoritarian structures and institutions of culture, religion, scholarship and business on the other. They do not realize that society and all its institutions are pervasively and inescapably elitist and authoritarian.12 They chafe against the operation of the iron law of oligarchy, which ensures that an elite will always tend to coalesce and predominate in any human endeavor.

Accordingly, as Mises has pointed out, “There never lived at the same time more than a score of men whose work contributed anything to economics.”13 Yet the Austro-punk is not humbled by this insight; from his perch in metaeconomics, he behaves as if literally anyone is competent to prescribe a method of proceeding for the wholesale reconstruction of Austrian economics. The Austropunk is also not chastened by the fact that the great methodologists of our science were each one of the score of those then currently living who made genuine contributions to economic theory. Moreover, it was generally only later in their careers, after prolonged meditation on and practice of economic theory, that men such as Say, Senior, Cairnes, Menger, Hayek, and Mises took up methodological concerns.

3. Ludwig Lachmann

While left-libertarian ideology goes a long way toward explaining the predisposition that many Austro-punks harbor to dismiss the body of theory inherited from the past masters of the science as inconsistent with their prescribed meta-norms, it is the work of Ludwig Lachmann that supplies the content of these norms. Without embarking on a detailed evaluation of Lachmann’s work, or of his position in Austrian economics, suffice it to say that Austropunks have seized upon his well-known assertions that the “future is unknowable” and that “expectations, like human preferences, are autonomous.”14 These propositions are then wielded by Austro-punkism as a rhetorical bludgeon to bash any systematic elaboration of economic theory that employs, in however subsidiary a manner, the equilibrium construct. Thus, for example, the mighty edifice of praxeological economic theory laboriously constructed over the years by economists from Menger to Rothbard is summarily rejected as “too equilibrium” and “failing to meaningfully incorporate expectations.” Of course, the Austro-punk project that seeks to formulate a system of economic theory completely dispensing with any reference to the mental construct of equilibrium has not yet advanced beyond the meta-plane. Nor will it ever, because human action always and everywhere embodies an inherent tendency toward equilibrium. Furthermore, Austro-punkism will never succeed in its program of expanding economic theory to incorporate learning and expectations-formation processes. As Mises has demonstrated, the content of specific individuals’ knowledge and expectations, which renders the economist’s praxeological theorems relevant to real-world analysis, can only be derived from the historical discipline of thymology.15

The South Royalton Syndrome

A second problem besetting the contemporary Austrian School of economics and threatening to stunt its future development is what might be called the “South Royalton Syndrome.” It also is attributable to a failure to clearly define a uniquely Austrian paradigm. South Royalton, Vermont was the site in June 1974 of the first conference on Austrian economics held in North America. The main speakers at the conference were Murray Rothbard, Israel Kirzner, and Ludwig Lachmann, and its participants included a surprisingly large number of graduate students who have since gone on to academic careers, while continuing to pursue research in Austrian economics. Together with the wholly unexpected awarding of the Nobel Prize in economics to Hayek later in the same year, it was truly a defining moment in the Austrian revival whose galvanizing effect on the young acolytes is difficult to overestimate.16

Given these circumstances, there is an understandable, although unfortunate, tendency among those who participated in the South Royalton conference to define Austrian economics as a closed network of South Royalton participants and their immediate students. The focus of the definition is thus not on a specific body of truth and the method of advancing it but on a specific group of people, whose work is viewed as the exclusive source of new contributions to the discipline. Those who are afflicted with the South Royalton syndrome, consequently, are inclined to ignore or dismiss the work of those outside the network and treat them as unwanted interlopers into Austrian economics. This is especially the case if the newcomer’s approach is fresh and diverges from the familiar or, even worse, directly challenges the work of a revered insider.

A living science, however, requires the new blood of those who display the vision and drive to diverge from well-worn paths and to venture beyond the boundaries tentatively marked out by the current leaders of the discipline. These young visionaries should be enthusiastically welcomed into the Austrian fold and encouraged and supported in their exploration for new truth. This was always Murray Rothbard’s view of how Austrian economics should progress. He was always urging others, especially the young, to “go beyond” his own work while adhering to the basic praxeological paradigm. He once wrote to me that “I welcome change and advances in Austrian theory provided they are true, i.e., that they work from within the basic Misesian paradigm. So just as I think that I have advanced beyond Mises in developing the Misesian paradigm, [other] people … have advanced the paradigm still further, and great!” 


It is interesting to note that Austro-punkism and the South Royalton syndrome, although they appear to denote attitudes that are polar opposites, may actually be complementary. After all, given their self-conscious aversion to defining a common intellectual paradigm, the bonds linking the network of Austro-punks tend to be personal rather than purely scientific. And their much-ballyhooed devotion to tolerance as the beau ideal of the scientific method does not seem to be manifested in the treatment accorded those young scholars who are eagerly advancing the frontiers of the praxeological paradigm.

My purpose in making these remarks is not to accuse particular persons of error, and so I have studiously tried to avoid any references to particular persons. Rather my purpose is cautionary; we are all as fallible human beings in a shared intellectual movement confronted with similar temptations to err. I have been moved to speak out because the errors in this case are capable of destroying a recently reborn and still fragile science with a great and glorious tradition and much to offer the human race.

Originally published in Property, Freedom, and Society: Essays in Honor of Hans-Hermann Hoppe  1. Footnotes have been added and the title has been changed, but save for the correction of grammatical errors and the insertion of a few clarifying words here and there, the text has remained substantially unaltered.  2. See, for example, David L. Prychitko, “Thoughts on Austrian Economics, ‘Austro-Punkism,’ and Libertarianism,” in idem, Markets, Planning and Democracy: Essays after the Collapse of Communism (Lyme, N.H.: Edward Elgar Publishing,
2002), p. 186, et pass. 3. See Carl Menger, Problems of Economics and Sociology, Louis Schneider, ed. (Urbana: University Illinois Press, 1963), pp. 61, 69; idem, Investigations into the Method of the Social Sciences with Special Reference to Economics, Francis J. Nock, trans. (New York: New York University Press, 1985 [1883]), chaps. 4–5 4. Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: Contemporary Books Inc., 1966), p. 201. 5. Webster’s New Twentieth Century Dictionary of the English Language, unabridged 2nd ed. (New York: Simon & Schuster, 1983), p. 1462. 6. See Murray N. Rothbard, “The Hermeneutical Invasion of Philosophy and Economics,” Review of Austrian Economics 3, no. 1 (1989): 45–59; HansHerman Hoppe, “In Defense of Extreme Rationalism: Thoughts on Donald McCloskey’s The Rhetoric of Economics,” Review of Austrian Economics 3 no. 1 (1989): 179–214; idem, “Comment on Don Lavoie,” Mont Pèlerin Society, General Meeting (1994), available at 7. Ludwig von Mises, Notes and Recollections (South Holland, Ill.: Libertarian Press, 1978), p 60. On the moral obligation entailed in pronouncing on a specialized subject, Rothbard stated: “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.” Murray N. Rothbard, “Anarcho-Communism,” in Egalitarianism as a Revolt Against Nature and Other Essays, 2nd ed. (Auburn, Ala.: Mises Institute, 2002 [1974]), p. 202; originally published as “Anarcho-Communism,” The Libertarian Forum II, no. 1 (January 1, 1970). 8. Murray N. Rothbard, “Praxeology, Value Judgments, and Public Policy,” in Edwin G. Dolan, ed., The Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976), pp. 89–111, also published in Murray N. Rothbard, The Logic of Action One (Cheltenham, U.K.: Edward Elgar, 1997), pp. 78–99. 9. IS/LM stands for “Investment Saving/Liquidity preference Money supply.” 10. Don Patinkin, Money, Interest, and Prices, 2nd ed. (New York: Harper & Row, Publishers, 1965). 11. Mises, Human Action; Murray N. Rothbard, Man, Economy, and State: A Treatise on Economic Principles, with Power and Market: Government and the Economy, Scholars edition (Auburn, Ala.: Mises Institute, 2004; Man, Economy
and State originally published 1962). 12.
The word “authoritarian” is not used here in its usual sense as a description of a political system or an individual psychological trait; rather it is used, for lack of a better term, to refer to a social process in which authority in some area or subject is voluntarily and spontaneously invested in specific individuals, families, and organizations. On the nature and constitution of authority in this sense, see Robert Nisbet, Twilight of Authority (New York: Oxford University Press, 1975). For more on the topic of natural elites and related matters, see Hans-Hermann Hoppe, Democracy—The God That Failed: The Economics and Politics of Monarchy, Democracy, and Natural Order (New Brunswick, N.J.: Transaction Publishers, 2001), p. 71 et pass.
  13. Mises, Human Action, p. 873. 14. On this topic see Hans-Hermann Hoppe, “On Certainty and Uncertainty, Or: How Rational Can Our Expectations Be?”, Review of Austrian Economics 10, no. 1 (1997): 49–78; also idem, “In Defense of Extreme Rationalism” and “Comment on Don Lavoie.” 15. Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution (New Rochelle, N.Y.: Arlington House, 1969 [1957]). See also Joseph T. Salerno, “Ludwig von Mises on Inflation and Expectations,” Advances in Austrian Economics, vol. 2B (1995): 297–325. 16. See Murray N. Rothbard, “The Present State of Austrian Economics,”
paper delivered at the Tenth Anniversary Scholars’ Conference of the Ludwig
von Mises Institute, October 9, 1992; published in Journal des Economistes et des
Etudes Humaines 6, no. 1 (March 1995), pp. 43–89 and in The Logic of Action
One: Method, Money, and the Austrian School (Cheltenham, U.K.: Edward Elgar
Publishing, 1997); also Karen I. Vaughn, “The Rebirth of Austrian Economics:
1974–99,” Journal of the Institute of Economic Affairs 20, Issue 1 (March 2000);
Peter Lewin, “Biography of Ludwig Lachmann (1906–1990): Life and Work”
(accessed Jan. 12, 2009)

Billionaires Aren't Quite As Rich as We Think They Are


If the Wal-Mart CEO were to take a $1 salary and the company were to spread that over each of the company's workers, each worker would receive a one-time bonus of $10.

Original Article: "Billionaires Aren't Quite As Rich as We Think They Are".

Billionaires Aren't Quite As Rich as We Think They Are


One of the most enduring justifications for State intervention in an economy is the concept of wealth inequality. As the story goes, just 1% of the population owns roughly half of the wealth in the world. This is used as justification for a long range of programs, such as welfare, the graduated income tax and multiple components of the Green New Deal. However, the problem with this narrative is it fails to address two major questions:

1. What are the components of that wealth?

2. Who are the primary beneficiaries of that wealth?

Wealth Isn’t Uniform

To begin, we need to first understand how wealth is defined. Wealth, in investment terms, is defined as “the value of all the assets of worth owned by a person, community, company or country.” The underlying issue of the definition of wealth is within the concept of value. Value is not an objective concept; each individual will value every good or service on the planet differently based on personal interests. This is best defined in the Paradox of Value. Water is objectively more important to survival than a sack of diamonds; a person living by a river would trade truckloads of water for a sack of diamonds while a person stranded in the Sahara would eagerly trade a sack of diamonds for a CamelBak full of water. This is the underlying purpose of trade — to obtain something of relatively low supply locally for something of local abundance.

The problem here is that such valuations are subjective and highly reliant on meeting specific conditions. If we look at the components of wealth, the wealth of the 1% is made up predominantly of business ownership stakes .


Business ownership is typically represented by stock share in the company. How a person’s wealth is defined here is taking the current listed market price of the stock and multiplying it by the ownership stake of that individual. The problem with this definition is how equity is traded. The value of equity you will see on the Dow Jones is not the value of every share in existence. It is, instead, effectively the last marginal transaction for that particular company. So if Amazon is listing at $1,800 per share, all this means is that someone out there sold one or more shares for $1,800 to someone else. This does not mean that if someone waved $920 billion at the market, they’d be the sole owner of Amazon.

The vast majority of the ~500 million outstanding shares of Amazon are valued more than the listed market price by the holder. To get Jeff Bezos to part with his roughly 20 million shares would require a lot more than $37 billion. However, this does not mean Jeff Bezos is richer than advertised. Conversely, people who don’t own Amazon stock value it below the $1,800 market price. If Mr. Bezos were to face a life-or-death situation in which he needed to pay $37 billion in cash, he would be lucky to come up with a small percentage of that as attempting to dump that many shares on the market at once would collapse the market price.

The issue here is that maintaining high levels of wealth requires never trading in the goods. The only way the wealthy can remain wealthy is to never convert their equity into usable liquidity. While a single share of stock is, in accounting terms, classified as a liquid asset, a large block of shares is about as illiquid as owning a skyscraper or NFL stadium. Because of this, the wealth of the 1% is largely illusory since they realistically can’t use it for anything lest they destroy its apparent value.

Conversely, the bottom 99% posses roughly 15% of their assets in some kind of easily liquid form and their stock assets are significantly more liquid than those in the top. A person with $50,000 in assets can easily liquidate their property without causing a blip in the market pricing. In terms of assets that can be used without suffering a value impairment, the top 1% really only owns about 6% of the assets. While this is still unequal, it’s nowhere near the gaudy 50% frequently presented.

Who Really Benefits

One can easily counter this to say that those assets still primarily benefit the wealth individual and the rest of us are stuck holding the bag. However, this is also not held up as true. If we use the concept of CEO pay disparity, we can demonstrate who really benefits from that wealth.

Take Wal-Mart, a favorite target of unfair wage practice claims. The company’s CEO, Doug McMillon, is accused of earning 1,180 times more than the median worker with an annual compensation package of $22.8 million. To a single individual, $22.8 million seems like a lot of money. But consider that Wal-Mart also has in the order of 2.2 million employees. If the CEO were to take a $1 salary and the company were to spread that over each worker, the worker would receive a one-time bonus of $10. Mr. McMillon would quickly go bankrupt just trying to buy dinner for each employee just once.

If we look at Wal-Mart’s 2018 10-K report, the company produced revenues of $514 billion. Of that, $385 billion was a direct expense, primarily sent down the product chain to suppliers to pay for their workers and suppliers and so forth. Roughly $50 billion went to store workers. Another $107 billion was on SG&A, which can be assumed to be almost entirely labor related, either direct Wal-Mart employees or outside companies paying their workers.

All-told, an estimated $490 billion of those $514 billion in revenues ended up in the pockets of a direct worker somewhere in the world, supporting untold millions. Just the direct Wal-Mart employees collected an estimated 20-25% of the total revenues. The total C-Suite compensation package doesn’t even register as a rounding error. Investors got a dividend of $6 billion, or just 1% of that. It’s important to note that investors are primarily held in individual investment accounts or pension systems, so that also goes back to the line worker.

The wealthy owners of Wal-Mart, the Waltons, only see 0.2% of the economic activity generated by the company. That's a far cry from the 95% paid to workers and the remainder going to retirement pension accounts for individuals. The workers, or the 99%, are overwhelmingly the beneficiaries of all that wealth the Waltons formally own.

Why the Rich Are Good for Us

Ultimately, these extremely on-paper wealthy individuals have been of an immense value to the rest of us. Without someone taking the risk to form a business, to collect all of our disparate skills that, alone, are worthless and combining them into an organization, we would not be living in a world where poverty and hunger continues to collapse and some countries have gotten so wealthy that people with broadband internet and smartphones are classified as impoverished. This is entirely thanks to all those rich people who are only asking to keep a very small portion of the production their assets produce. Attempting to destroy this with redistribution schemes will ultimately be harmful to the 99%.

In the US, Rich States Spend Less on Welfare


As I've noted in the past , when it comes to government spending on social welfare programs, the United States is hardly the free-market, libertarian "paradise" many social democrats suppose it to be. When we look at social spending as a percentage of GDP, the US is similar to Switzerland, and the US spends more on social benefits than Australia and Canada.

The US's welfare spending totals nearly one-fifth of the nation's GDP, and is hardly far outside the norm when compared to the "welfare states" of Western Europe and the Anglosphere.


When it comes to the United States, however, it is often problematic to reduce the nation to any single statistics because the United States is so huge. After all, when comparing the US to European nations, the US — with more than 320 million people — is many times larger than the next largest country, Germany, which has only 82 million people.

Because of its enormous size, sizable variations across different states and regions. And many of these US states are themselves larger than numerous European countries.

So, in order to provide a little more insight into how large the welfare state is in the United States, I've broken out social spending by state, and then compared it to each state's total GDP — so as to be more comparable to the OECD's measure.

State and Local Social Spending

In the United States, social spending is complicated by the fact so much of it comes from both federal spending and from state and local spending. In terms of sheer dollar amounts, federal spending predominates because the amount of taxpayer money spent on Social Security, Medicare, and Medicaid is so enormous.

State governments, however, have very limited control over most of this federal spending. So, in order to get a sense of how different state governments view social spending, it is first helpful to look at just the state and local social spending over which state and local policymakers have actual control. At the local level, most of this is public school spending, and at the state level, state governments spend on a variety of health and poverty-relief programs above and beyond federal spending.

When calculated as a percentage of GDP, we find that social spending ranges from seven percent (in Nevada) to 16 percent (in Mississippi)1:


In this case, I'm adding together state spending on k-12 education, higher education, "public welfare" and "health and hospitals." This does not include state spending on roads, police, etc.

State, Local + Federal Social Spending

State and local spending, however, are just a fraction of total welfare spending that occurs in each state. If we add in federal transfer payments, such as Social Security and Medicare, the percentages are naturally much higher2:


By this measure, spending on social programs ranges from 35 percent to 16 percent.

What we find is that some of the nation's lowest-income states also have some of the highest levels of social spending by government.

"Well, that makes sense," some might say. "States with more poverty naturally tend to have more social spending on poverty relief." Other observers might also note — correctly — that states with lower welfare-spending levels also tend to be states with larger urban centers where more productive workers contribute to higher GDP numbers. Thus, GDP levels are higher meaning social spending ends up being a smaller percentage of total GDP.

I am inclined to agree with all of this. But this line of reasoning also contradicts what we are repeatedly told when politicians like Bernie Sanders compare the US welfare state to foreign welfare states.

Does More Social Spending Lead to a Higher Quality of Life?

For example, Americans are repeatedly told that the key to a high "quality of life" is to have high levels of social spending. After all, Scandinavian countries like Sweden, Denmark, and Finland have some of Europe's highest levels of spending on social benefits. We're also told these countries are the happiest places on earth.

While the US and Canada spend "only" 19 percent and 17 percent, respectively, on social benefits, Finland and Denmark spend 30 percent and 29 percent, respectively. All of these countries are fairly high income countries. But when politicians talk about Scandinavian countries' sizable welfare states, they often jump to the conclusion that these large welfare states are the reason for the countries' high quality of life.

Declaring a cause-and-effect relationship from this correlation, however, is quite unwarranted. We can see this when we compare US states, and it is apparent that states with more social spending can hardly be declared to be examples of astounding economic success.  In fact, the opposite appears to be true. In the US, some of the richest states — including states with some of the lowest poverty rates such as Utah and Minnesota — have relatively low levels of social spending.

Moreover, many of the states with lower levels of social spending perform better in terms of so-called "quality of life" measures. That is, low-spending states like Washington, Massachusetts, Utah, and Colorado tend to have lower crime rates, and higher life expectancy.

Yet, in the international context, we're told that the key to a high "quality of life" is an ever-more robust welfare state.

The truth, though, is that high levels of spending on social benefits have precious little connection to rising standards of living, high life expectancy, or any other quality of life measure.

The real key to health and happiness, whether we're talking about American states or European countries, is an open economy that fosters trade, capital accumulation, entrepreneurship, and basic protections of private property. Moreover, wealthier states and wealthier countries are usually just places that have been doing this longer. Sweden, for example, is a relatively rich country because it has enthusiastically embraced markets and market-based reforms at various intervals over the past century. Sweden's huge welfare state has been an impediment to this, but not enough of an impediment to erase the gains made by markets.  Western Europe is wealthier than Eastern Europe because it has been fostering capital accumulation for much longer than Eastern Europe has. Moreover, much of the capital in Eastern Europe was destroyed by the soviet-era communists, and countries that have experienced this sort of thing tend to never catch up to the rich countries who did not have similarly damaging regimes.

Similarly, states like New Mexico and Mississippi — which have high social spending but low incomes and high poverty — are poorer either because they tended to have low-productivity rural economies, or their economies were devastated by the American Civil War. The effects are still apparent today.

1. State spending data is provided by the Tax Policy Center for fiscal year 2015. The spending categories used here are a total of the categories "elementary and secondary education," "higher education," "public welfare," and "health and hospitals." This information is then calculated as a proportion of statewide GDP as provided by the US Bureau of Economic Analysis. GDP data is from 2017. See: and 2. The added fedeal spending totals are provided by in the report "Federal Spending in the States 2004 to 2013," Table 1, "How Much Did the Federal Government Spend in Your State?" I have included the categories, "retirement benefits" and "non-retirement benefits." These total are then added to the state and local totals, and calculated as a proportion of the BEA's statewide GDP numbers. See: and download "state-by-state distrubution."