This Interview was originally published in French by Institut Coppet as part of a series of interviews with economists conducted by Grégoire Canlorbe.
Grégoire Canlorbe: One of your favorite fields of study is the economics of prohibition. In light of the Kirznerian, or market-process, approach to economic analysis, you suggest that prohibition is systemically advocated on the basis of misconceptions of the market’s ability to solve social problems. Could you elaborate on this point?
Mark Thornton: Economic analysis of the War on Drugs does not depend on moral considerations. Economics asks the question whether your chosen means can achieve your ends and at what costs. Economic analysis finds that prohibition cannot achieve the stated ends of preventing consumption and related social goals and can never do so.
In fact, in the case of drugs and alcohol, the means of prohibition actually worsens the problems that prohibition is intended to solve. The stronger prohibition is enforced the worse things get. Plus, it creates new problems and is extremely costly in terms of the types of resources (judges, attorneys, and security) that are allocated to prohibition. There is an increase in property crime and violence and a decrease in the respect for law and order. Thousands of people die every year because of prohibition.
Finally, in the absence of prohibition, the free market and the free society have means to help solve the problems that prohibition was designed to solve. Legalization is a win-win-win-win proposition for society and I sense that, ideologically, society is moving in our direction.
Grégoire Canlorbe: Murray Rothbard is known to be one of the most iconoclastic authors of the Austrian school, mainly because of his anarcho-capitalist ideal, his unconditional support of methodological apriorism, his hostility toward fractional-reserve banking, and more.
What is your opinion on Rothbard’s works? Do you believe that they live up to Hayek’s contributions in terms of insight?
Mark Thornton: I certainly think that Rothbard “lives up” to Hayek. Rothbard's contributions to economics, history, and philosophy are revolutionary. Both men were incredibly brilliant and insightful multi-dimensional scholars. Despite their tremendous contributions, both men were marginalized in academia.
Hayek was indeed awarded the Nobel Prize but his position at the University of Chicago was not in the economics department. Rothbard has clearly been recognized for his genius by modern libertarians, but not by academia. Ludwig von Mises’s career was very similar. This ought to bring into question the efficacy of mainstream academia in everyone’s mind.
I can certainly say that I have not lived up to the contributions of these three men, but there is no scientific manner to rank one of them over the other two. It must remain a matter of opinion and fancy. Part of the mission of the Mises Institute is to help great scholars in Austrian economics and libertarian political philosophy from “falling through the cracks” of academia.
Grégoire Canlorbe: It is not uncommon to hear that Rothbard had extremely bad practical judgment when it came to politics. Do you subscribe to this criticism? According to you, which candidate would Murray Rothbard have supported in the present election?
Mark Thornton: It is very common to hear various criticisms of Rothbard, but I do not think any of them are valid. It is largely minor figures or non-figures who are trying to steal some of Rothbard’s spotlight.
Politics was a serious hobby for Rothbard. He believed in arranging alliances with other non-libertarian groups on an issue or issues of agreement. This was a way in which he brought public attention to libertarian solutions. The alliances did not last, but how can you fault someone who is widely credited with the creation of the libertarian movement that we see in today’s world? It is shallow thinkers who bring this charge against Rothbard and they are clearly wrong.
I don’t think there is any question that Murray would be thrilled with this election in the US and that he would be “supporting” Donald Trump. Trump has exposed a vast undercurrent of resentment on the part of regular Americans who have been hurt by big government interventions, crony trade deals, and they and their ideas have been suppressed by cultural Marxists. When I say he would be supporting Trump, I point out that Murray would spend most of his efforts attacking Trump for some of his bad ideas, such as protectionism and by attacking Trump’s opponent as even worse.
Grégoire Canlorbe: Could you remind us of the precocious contributions by Richard Cantillon in entrepreneurial economics — and how the conceptual distinction between capitalists’ and entrepreneurs’ respective profits was perpetuated and enriched through the Austrian tradition? Would you say that the central banking system privileges the renters at the expense of entrepreneurs and their employees?
Mark Thornton: Cantillon showed how entrepreneurs were the chauffeurs of capitalism. Entrepreneurs drive the economy anywhere the consumers want to go. The process is “regulated” because entrepreneurs earn uncertain profits (and losses). The capitalist who funds the entrepreneurs earns interest.
However, Cantillon also showed that both roles were mixed in that entrepreneurs could fund themselves or eventually fund themselves and become rich once they have paid off their loans and that capitalists were also at risk and had to act entrepreneurially or they would go bankrupt by making bad loans. This distinction between entrepreneurs earning profits and losses and capitalists earning interest is also true for modern Austrian economics.
I would certainly say that the central bank benefits the capital side of the economy and hurts the labor side of the economy and on net hurts the overall economy to the benefit of crony capitalists. By the way, there is a pdf of my translation of Cantillon’s essay available.
Grégoire Canlorbe: In Tariffs, Blockades, and Inflation: The Economics of the Civil War, co-written with Robert B. Eklelund, Jr., you apply the basic principles of Austrian economics and public choice theory to illuminate some of the central causes and consequences of the American Civil War, especially introducing a new concept: the “Rhett Butler Effect.” How do you sum up the lines of force of your iconoclastic perspective?
Mark Thornton: The American Civil War has become an instrument of control for cultural Marxists in the mainstream media, rather than a serious issue of scholarly investigation. When I was in college we studied all the causes of the session and war, now its all about racism and slavery. The outcome of the war is now thought to be just a matter of “might” and being right and just on the part of the Union.
We show that the conventional explanation of the outcome of the war is incorrect. The Rhett Butler Effect is a part of our explanation. This started out as a one-line footnote in my dissertation on the Economics of Prohibition. With the War on Drugs, smugglers have an incentive to smuggle the most potent drugs possible in order to avoid detection. With the Union blockade of the Confederacy, blockade-runners had the incentive to smuggle the most valuable goods relative to weight and size.
This meant that blockade runners would smuggle dried beef rather than wheat, but it also meant that they would smuggle some luxury goods such as perfume and champagne, rather than basic foodstuffs, and this contributed to the demoralization of hungry Southerners.
Grégoire Canlorbe: It is sometimes argued than a common cause of internal wars throughout history consists in an excessive degree of cultural heterogeneity on a given territory.
As Herbert Spencer puts it in his Principles of Sociology,
Social life being cooperative life, presupposes not only an emotional nature fitted for cooperation, but also such intelligence as perceives the benefits of cooperation, and can so regulate actions as to effect it. …Other things equal, facility of cooperation will be proportionate to the amount of fellow feeling; and fellow feeling is prevented by whatever prevents men from behaving in the same ways under the same conditions. … In the absence of considerable likeness, the political aggregates formed are unstable, and can be maintained only by a coercion which, some time or other, is sure to fail.
How would you assess this analysis from a praxeological point of view?
Mark Thornton: Mises makes a similar point. He recognizes that there is a minimal amount of homogeneity necessary to have a stable society. For example, he concluded the people in a given nation should speak the same language or languages or share a common history and some common customs.
If there is too much diversity among people then they should be free to secede along the lines of common bonds, if possible. If you are not free to secede there will be a political tendency for the larger more powerful majority group to act punitively against the smaller minority group.
We see this in Colonial America where Europeans entered indentured servitude and eventually received their freedom, but Africans were placed in chattel slavery for life.
Grégoire Canlorbe: The skyscraper index, created by economist Andrew Lawrence, shows a correlation between the construction of the world’s tallest buildings and the business cycle. One of your most decisive contributions to the Austrian theory of the business cycle was to examine the general relationship between the business cycle and skyscraper building with respect to the role of “Cantillon effects” in skyscraper cycles. Could you remind us of your theory?
Mark Thornton: The Skyscraper Index offers an opportunity to look inside at the business cycle in action. Artificially low interest rates stimulate the demand for land, especially in central business districts. Higher land prices create an incentive to build taller buildings, and taller buildings require new technologies in building systems, such as air conditioning, plumbing, and elevators, as well as new building technologies such as lifting cranes and cement pumpers. Such processes permeate throughout the economy, not just skyscrapers. In this manner you see how central bank policy can have pervasive negative effects throughout the building as well as throughout the economy.
I am currently working on a new book on the topic of skyscrapers and business cycles. The fun part of this is that record-breaking skyscrapers have correctly “predicted” all of the important economic crises for over a century. The next record breaker might just be under construction today.
Grégoire Canlorbe: You suggest that Richard Cantillon was Adam Smith’s most plausible influence in his three evocations of the invisible hand. Could you highlight the textual connection between Cantillon’s Essai and Smith’s “invisible hand” in support of your thesis? What does this discovery imply when it comes to elucidating the proper sense of this metaphor?
Mark Thornton: Smith used the phrase three times. The first was to argue against spiritual forces, in that thunder was not a sign that the Gods were angry and that was written before Smith had read Cantillon.
The second use in the Theory of Moral Sentiments closely parallels Cantillon’s model of the isolated estate where Cantillon demonstrates that the owner of a vast estate cannot benefit much at all from his land unless he employs and compensates a large number of employees, farmers, and artisans.
Smith’s third use in the Wealth of Nations parallels Cantillon’s model of the economy which shows that there are embedded interests in entrepreneurs to make the most out of their resources and that this well serves the interests of consumers. Cantillon shows that entrepreneurs, wage rates, and trade were well regulated, a term used throughout his Essay and it does not mean government regulation, but rather self-regulation.
Grégoire Canlorbe: Mises’s motto, which you’ve made yours, was this Virgil quote: “Do not give in to evil but proceed ever more boldly against it.” You probably know what Machiavelli did retort to it incidentally.
As he wrote in The Prince, “How one lives is so far distant from how one ought to live, that he who neglects what is done for what ought to be done, sooner effects his ruin than his preservation; for a man who wishes to act entirely up to his professions of virtue soon meets with what destroys him among so much that is evil.”
What would be your counter-attack in defense of the Misesian mantra?
Mark Thornton: I admit that living up to this motto is a mighty task. It comes at a cost in this world. It is far easier to choose the dark side, or to just ignore your social obligation to a free society. These people generally benefit materially and gain greater prestige. I also will admit that there is “much that is evil” in the world today, but at least I was not targeted by the Nazis and Commies the way Mises was.
Grégoire Canlorbe: Thanks for your time and your insights. Would you like to add anything else?
Mark Thornton: I encourage your readers to visit and subscribe to mises.org. It houses the world of Austrian economics and libertarian political theory and everything is free. We also have a Facebook page and an active Twitter account.
Grégoire Canlorbe is a journalist currently living in Paris. He has conducted interviews for Man and the Economy and Agefi Magazine, and his work can be found at the Foundation for the Economic Education and Gatestone Institute. Contact: email.
Mark Thornton is a Senior Fellow at the Mises Institute and the book review editor of the Quarterly Journal of Austrian Economics. He has authored seven books and is a frequent guest on national radio shows. Contact: email, twitter, facebook.
