I recently read Bryan Caplan’s famous essay “Why I Am Not an Austrian Economist” for the first time, and I noticed something quite interesting. Rothbard is known for his passionate defense of sound money, and his harsh criticisms of government stimulus and money printing. However, in section 3.4.1. of Caplan’s essay titled “The Correct and Widely Accepted Aspects of the ABC,” he notes that Rothbard was sporadic on his views of wage rigidity. It’s generally known, for instance, that Rothbard viewed wages as being flexible enough, when not inhibited by government intervention, to fall during a period of falling demand (Man, Economy, and State p. 785):

For inflation affects the entire economy and its prices, while particular wage rates will fall only to the extent necessary to “clear” the market for the particular labor factor. Thus, freely flexible wage rates will fall only in those fields necessary to eliminate unemployment in those particular areas.

However, Caplan notes that Rothbard sometimes thinks otherwise in terms of the flexibility of free market wage rates (America’s Great Depression pp. 43-44):

Generally, wage rates can only be kept above full-employment rates through coercion by governments, unions, or both. Occasionally, however, the wage rates are maintained by voluntary choice (although the choice is usually ignorant of the consequences) or by coercion supplemented by voluntary choice. It may happen, for example, that either business firms or the workers themselves may become persuaded that maintaining wage rates artificially high is their bounden duty. Such persuasion has actually been at the root of much of the unemployment of our time, and this was particularly true in the 1929 depression. (My bold)

So we can see that Rothbard’s position isn’t so clear cut. Caplan points out reasons why wage rates will likely be voluntarily held above their market-clearing levels in a free market, but this isn’t terribly important for our purposes here. What is important is that considering Rothbard’s insistence that wage rates will sometimes fall quickly and efficiently when necessary, it’s peculiar that he also states that “there is no such thing as ‘too little’ or ‘too much’ money, that, whatever the social money stock, the benefits of money are always utilized to the maximum extent.”

But what about when wage rates are voluntarily held above market-clearing levels in a truly free market? If we agree with Rothbard that “given wage rigidity, increases in the money supply can increase employment, and decreases can reduce it”, then how can we reconcile his confusion when he simultaneously holds that any supply of money is optimal even when wage rates are voluntary held too high in the free market? It’s obvious that if we follow Rothbard’s logic when lower wage rates are voluntarily resisted, any supply of money is not optimal as he originally claimed.

I found two things extremely interesting about this. First, Caplan’s argument against Rothbard’s position on money and wage rates is eerily similar to my points I make against Austrian economist Robert Murphy and “Murphy’s Law of Money Printing” in chapter 5 of my book “Monetary Kaleidics: Reflections on Money Illusion and the War on Cash.” Yet, I constructed my argument against Murphy well before ever reading Caplan’s essay. It’s curious to note how we both came to independent yet seemingly parallel conclusions about two of the most popular Austrian economists on money.

Second, whenever Caplan’s essay is mentioned to free market supporters, many Austro-identitarians typically trot out several responses by Austrian economists such as this, this, this, this, this, and this. Yet, none of these responses, nor any other I could find online, even attempt to address or refute the specific points Caplan and I make above. They instead defend other aspects of Austrian economics (which I mostly side with the Austrians on).

Thus, it seems certain highly-regarded Austrians have been quite wishy-washy on certain topics which have been widely overlooked by their supporters. Is it intentional, or just intellectual laziness? It could be either, and it’s difficult to say which is worse.