The Essential Rothbard - Ludwig von Mises Institute

18 The Essential Rothbard
that the demand curve to a firm cannot be perfectly elastic
throughout. 24
Capital theory is central to Austrian economics, and Rothbard
attaches especial importance to his unification of Frank Fetter’s
“brilliant and neglected theory of rent” 25 with the pure time preference
theory of interest and the Austrian theory of the structure
of production. It is hardly surprising that he was keen to show the
advantages of the Austrian view against competing doctrines, and
he gives a penetrating criticism of the main alternative position.
According to Frank Knight, capital is a perpetual fund; this contrasts
with the Austrian view, pioneered by Eugen von Böhm-Bawerk,
that stresses the stages of production over time. Rothbard
assails this theory in the form given to it by one of Knight’s disciples,
Earl Rolph.
Let Rolph picture a production system, atomized or integrated
as the case may be, with no one making the advances
of present goods (money capital) that he denies exist. And as
the laborers and landowners work on the intermediate products
for years without pay, until the finished product is ready
for the consumer, let Rolph exhort them not to worry, since
they have been implicitly paid simultaneously as they worked.
For this is the logical implication of the Knight-Rolph position.
26
Rothbard offers a fundamental and far reaching criticism of
Keynesian economics. He begins his assault on Keynes by pointing
out that at the basis of the entire Keynesian system is a false
assumption. Keynes maintained that total spending could fall short
of what is needed to maintain full employment. But how can this
be? If workers are unemployed, will they not bid down wages?
How then can there be continued unemployment on the free market?
24 Ibid., p. 721; emphasis in the original.
25
Ibid., p. xcv.
26
Ibid., p. 507.