The Essential Rothbard - Ludwig von Mises Institute

28 The Essential Rothbard
But the conclusions of the new welfare economics, in line with
the dominant interventionism of twentieth-century social science,
brought little comfort to supporters of the free market. Market
imperfections, stemming from positive and negative externalities,
required the state constantly to intervene.
Rothbard will have none of this. In a veritable tour de force, he
argues that the assumptions of welfare economics, if correctly
interpreted, lend support to the free market. An economist, acting
in his purely scientific capacity, can take account only of consumer
preferences demonstrated in action. And if he abides by this
restriction, he will of necessity condemn every governmental
interference with voluntary trade.
As the same essay illustrates, Rothbard took nothing for
granted in ethics. Much of conventional welfare economics
depends on the detection of positive externalities. Rothbard, with
his characteristic jump to the essence, inquires, why are positive
externalities a social problem?
A and B decide to pay for the building of a dam for their use;
C benefits though he did not pay. . . . This is the problem of
the Free Rider. Yet it is difficult to understand what the hullabaloo
is all about. Am I to be specially taxed because I enjoy
the sight of my neighbor’s garden without paying for it? A’s
and B’s purchase of a good reveals that they are willing to pay
for it; if it indirectly benefits C as well, no one is the loser. 51
In “The Fallacy of the Public Sector” (1961), 52 he exposes the
central mistake in the external benefits argument in even more
memorable fashion:
A and B often benefit, it is held, if they can force C into doing
something. . . . [S]uffice it to say here that any argument proclaiming
the right and goodness of, say, three neighbors, who
yearn to form a string quartet, forcing a fourth neighbor at
51 Logic of Action I, p. 251.
52 Logic of Action II, pp. 171–79.