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Advancing Austrian Economics, Liberty, and Peace

Advancing the scholarship of liberty in the tradition of the Austrian School

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  Introduction Part: a  |   b  |   c |


Introduction to
Man, Economy, and State
with Power and Market


by Joseph R. Stromberg

Why a scholar’s edition of Man, Economy, and State?

Those who have some inkling of the significance and content of the late Murray N. Rothbard’s Man, Economy, and State may ask just why the Ludwig von Mises Institute has prepared a new scholar’s edition of a work that has been nearly always in print since its publication in 1962. There are many good reasons behind the decision. One is that Rothbard’s book was a landmark contribution to the revival of Austrian economic thought after World War II.

     World War II and the subsequent cold war created a climate in which state prestige was at a high watermark. In these circumstances, most economists saw their role as one of advising governments on how best to organize, regulate, and plan “national” economies, whether to win wars or to provide social justice. The minority of economists who resisted the spirit of the age undermined themselves with compromising arguments resting on theoretical premises that they shared with their opponents. From both a free-market and an Austrian standpoint, such defenses of the free society and market economy were very unsatisfactory.

     Friedrich A. Hayek’s The Road to Serfdom (1944) and Ludwig von Mises’s Human Action (1949) had made a dent in the monolithic edifice of statism but were nonetheless chiefly appreciated in the ranks of what Rothbard called the Old Right movement. Hayek’s book had drawn forth a stream of violent criticism from New Dealers and their academic allies, while Mises’s treatise had met with a combination of summary rejection, puzzlement, or silence from the academic world. Rothbard set out to address the intelligent reading public’s ignorance of or indifference to Austrian economics with a textbook, which would, as he wrote to Alfred D. Chandler, “be one of the few, if not the only, non-collectivist book suitable for the college level” and “would be the only one to apply Misesian methodological principles, which demonstrate that historical facts cannot ‘prove’ any theory.”[2] 

     The textbook would develop Mises’s theoretical framework in a step-by-step fashion so as to demonstrate the unity and elegance of economic science. It would be readable, straightforward, and systematic, and designed so that the educated reader could, with sufficient effort, grasp the fundamentals and the applications of Austrian economics. In the course of the writing, the textbook became a general treatise in its own right—but that is getting ahead of the story.

     In its new form, Rothbard’s book achieved the goals he had set for the textbook, while giving him the elbow room to pursue difficult questions further and to develop his own original insights and extensions of Mises’s system. In a real sense, Man, Economy, and State served many who came into Austrian economics in the ’60s and thereafter as a full-blown introduction to economic science, which could be read before reading Human Action or alongside it. Its unity, systematic organization, and clear exposition made it a basic text of the Austrian revival. And, interestingly enough, the book has seen use as a textbook for advanced students.

     Despite unfavorable reviews in mainstream economics journals, Man, Economy, and State—like its predecessor and inspiration, Human Action—became a sort of underground classic. It sold well enough to be reissued by Nash Publishing on behalf of the Institute for Humane Studies (IHS) in 1970 and by the Ludwig von Mises Institute in 1993 (reprinted 2001). Power and Market, too, was reissued in 1977 under the joint sponsorship of IHS and the Cato Institute.[3]

     Man, Economy, and State came out in 1962 in what Rothbard would call a “truncated” form. For reasons to be explained below, Rothbard had been required to shorten drastically a projected third part (or volume) dealing with government intervention, thus leaving out important sections that dealt with state intervention and that sketched out a pure free-market alternative. This scholar’s edition of Man, Economy, and State includes those sections, which were previously published as Power and Market. In addition, this edition sensibly puts Rothbard’s extensive and interesting notes at the foot of each page, where ideally they should have been all along.

     In preparing this introduction, I have quoted extensively from Rothbard’s letters and memos, organizing them into a narrative of the writing of Man, Economy, and State. Letting Rothbard speak for himself gives a very complete view of how the book came to be. Rothbard’s intentions for the book and his progress in fulfilling them and the various problems of theory and exposition that he tackled emerge in full. Given the amount of material on hand, this has come very close to having Rothbard write his own introduction to an edition which, by restoring Power and Market to its rightful place, realizes as far as possible Rothbard’s original plan of the work

     I have also thought it useful to say something about the merits and contents of the book. Man, Economy, and State has become something of a classic, even standard, work in Austrian circles over several generations. This results certainly from its clarity and scope, and also from its uncompromising consistency and radicalism in pursuing the logic of human action in the economic realm. It is altogether fitting that, in its 40th year, Rothbard’s book should be republished in full in a quality edition.

1. The Man and the Book

     In the mid-1940s, the precocious Murray N. Rothbard earned two degrees at Columbia University (B.A., June 5, 1945; M.A., June 4, 1946), and began work on his Ph.D., which would be awarded October 11, 1956. Nothing that Rothbard studied at Columbia would have led an outside observer to predict the lines of analysis that Rothbard would pursue in his long career as a public intellectual, whether in economics, history, politics, or philosophy. Nor could such an observer have foreseen, on the basis of courses taken, that Rothbard would make a substantial contribution to the revival of Austrian theory, a contribution to which Rothbard brought a number of innovations and original ideas.

     In a letter to William F. Campbell in April 1951, Murray Rothbard described his training in economics in the 1940s: “I myself took my education at Columbia, when that institution was transforming itself from Deweyan pragmatism to logical positivism—so I grew up surrounded by Positivists.” Rothbard took a course “on the Philosophy of Economics with Ernest Nagel,” who “adopted the Samuelson-positivist line in an all-out methodological war with the other great tendenz in Columbia economics at that time: Wesley Mitchell and A.F. Burns’s Baconian institutionalism.” Rothbard added, “Nagel of course had never heard of praxeology at the time, and unfortunately, I hadn’t either.”[4]

     Joseph Dorfman, a distinguished historian of American economic thought, was Rothbard’s Ph.D. adviser at Columbia. But Dorfman was essentially an institutionalist. Rothbard commented later to several correspondents that his mentor Dorfman was an excellent historian of economic thought, but not a good economic theorist.[5]

     In an interview taped in December 1972, Rothbard reminisced about his education in economics at Columbia University:

I had a definite, instinctive feeling or insight or whatever that there was something wrong with all the schools of economics. I was very unhappy with all the economic theory. I thought that the institutionalists, when the institutionalists were criticizing the orthodox, Anglo-American economics, that they were right and, when the orthodox people were criticizing the institutionalists, they were right. The criticisms were right, and I believed that the simple supply and demand stuff was correct, but I didn’t really have a good theoretical base. I wasn’t happy with any theories offered. And then when I read Human Action, the whole thing just slipped into place, because everything made sense.[6]

     As these quotations suggest, Rothbard’s instructors in the university had entirely skirted the Austrian School. As he wrote later,

I had gone through Columbia College and to Columbia’s graduate school in economics, passing my orals in the spring of 1948, and not once had I heard of Austrian economics, except as something that had been integrated into the main body of economics by Alfred Marshall 60 years before.

Thus Rothbard had to learn of Austrian economics through his Old Right connections at the Foundation for Economic Education (FEE).[7]

     The Old Right, as Rothbard and others have used the term, was a loose movement of opposition to the domestic and foreign policies of Franklin D. Roosevelt’s New Deal, concentrated in the right wing of the Republican party. The national symbol of this movement was Senator Robert A. Taft of Ohio, who was, in Rothbard’s view, its least “hard-core” figure. Congressman Howard Buffett (R-Nebraska) and essayists like Frank Chodorov, John T. Flynn, Isabel Paterson, and Felix Morley followed a much more consistent “line,” which drew from a uniquely American synthesis of classical liberalism and republicanism.[8]  

     The Old Right outlook, as expressed by its most radical adherents, held that the best government governs least, that society is self-regulating and should be left alone, and that the unhampered market economy and free trade are part of liberty and are keys to economic prosperity. In the early 1950s, this program implied avoidance of state-enhancing wars (so-called “isolationism”), strict construction of the Constitution, and support for federalism (“states’ rights”), as against New Deal–style bureaucratic centralization, economic “planning,” and social engineering. Old Right heroes were people like Thomas Paine, Thomas Jefferson, Richard Cobden, and John Bright.

     Rothbard was virtually the only adherent of the Old Right at Columbia University. He was, however, in contact with Old Right organizations as early as 1946.[9] Through FEE, Rothbard learned that “Ludwig von Mises, whom I had heard of only as contending that socialism could not calculate economically, was teaching a continuing open seminar at New York University. I began to sit in on the seminar weekly.”[10] Thus Rothbard attended the now-famous Mises Seminar almost from its beginning in 1949. Rothbard’s “right-wing libertarian” instincts matured into well-grounded theory when he became a student of Mises. He found Mises’s hard-core laissez-faire economics and his uncompromising attitude quite congenial. Rothbard probably first met Mises at a FEE lecture in the summer of 1948.[11]

     Rothbard wrote two reviews of Mises’s great treatise Human Action not long after its 1949 publication.[12] Rothbard characterized Human Action as “a work of monumental grandeur” which presented “a complete structure of economic science,” a structure “firmly grounded in praxeology, the general principles of individual action.”[13]

2. The Writing of Man, Economy, and State


     In the fall of 1949, Herbert C. Cornuelle, president of the Volker Fund, asked Rothbard to write an economics textbook that would present the main ideas of Mises’s Human Action to the intelligent reading public.[14] The goals and progress of the work can be followed in Rothbard’s correspondence and in the memos and reports concerning the book, which Rothbard wrote for the directors of the Volker Fund.

     In a letter to Herbert Cornuelle in November 1949, Rothbard said,

When Mises first discussed with me the project for an economics textbook and guide for the intelligent layman, he asked me to prepare an outline. I did so, and he likes the outline. Now, he suggests that I write a representative chapter.[15]

The rest of the letter dealt with expenditures, time, and various arrangements.

Writing to Alfred D. Chandler in June 1950, Rothbard discussed his concept of his “textbook”:

At first, I visualized the “pegging down” of Mises to be in the form of a college textbook, since a sound economics textbook is desperately needed. In conversations that I’ve had with Mises, however, he has expressed preference for a book directed primarily toward the intelligent layman, but also usable in college courses. I definitely agree, since the traditional textbook format would hamper the development of the book.

     Rothbard continued:

The book I have in mind would, at least for the first volume, steer entirely clear of all institutional and factual material, such as how many Federal Reserve banks there are in the United States, etc. The book would be exclusively devoted to a rigorous, clear elucidation of basic economic principles, so written that each part flows logically from the part preceding. In such a way, the theory of the unhampered market, based on an analysis of individual action, would be completely developed. The next part would be devoted to an analysis of the different conceivable types of governmental intervention, and their effects on the economy. Still again, there would be no extraneous cluttering up with factual material in this part. The result would be a basic volume of economic principles.


Another volume might apply these principles to an explanation of the economic history of our world, especially America. Case histories of the effects of governmental intervention in the course of world history might be demonstrated.[16]

The book would be

one of the few, if not the only, non-collectivist book suitable for the college level, it would be the only one to apply Misesian methodological principles, which demonstrate that historical facts cannot “prove” any theory; the theory must be used as an explanation of historical facts.[17]

     Responding in early January 1951 to a letter from Rothbard, Herb Cornuelle wrote with great enthusiasm, “This is excellent. I hope the attached letter to Prof. Mises expedites matters.” That letter asked Mises, “Have you seen Murray Rothbard’s ‘Money Chapter’? Do you have any comments about it which you would care to pass on to me?”[18]

     Herb Cornuelle’s next letter to Rothbard, in February, quoted Mises’s reaction to the “Money Chapter”:

I think that Rothbard’s Chapter on Money and Banking is very satisfactory. It certainly proves his ability to write a textbook much better than all those I have had an opportunity to see. I hope he will continue his work as soon as he will have finished his thesis.[19]

Cornuelle now offered Rothbard financial support from the Volker Fund so that the project could go forward.

     Writing to Herb Cornuelle in March 1951, Rothbard said,

[t]o set forth adequately what is involved in the projected textbook, I think it instructive to cast a brief look at the economic texts now, and heretofore, available. For example, take a very popular textbook of today, Bowman and Bach, Economic Analysis and Public Policy, 2nd ed., 1949. Bowman and Bach is being used in innumerable colleges today. It amounts in total to 931 pages. In this huge book we find a fantastic jungle, a hodgepodge of almost every conceivable fashionable doctrine and set of facts (most of them fallacious), and presented in an amazingly chaotic fashion. Thus, B&B begins this principles text with a discussion of income, confronts the reader with a table of “income levels” (with accompanying chart), shifts to a paragraph on “the problem of waste,” into a discussion of “middlemen,” then to another chart of occupational distribution of workers, a few pages on prices, a shift to a discussion of partnerships and corporations, discussion of the anti-trust laws, a two-page chart of the Insull Holdings, etc. The rest of the book follows the same pattern—a chaotic jumble of charts, statistics, theoretical curves (including the whole jargon of “monopsony, oligopsony,” etc), historical tid-bits, and a little theory. No wonder that most students emerge from economics courses in a bewildered daze, knowing only that economics “has something to do with numbers.”

     Earlier textbooks, Rothbard observed, had been “much better, although this is no great accomplishment.” But even with

the most popular textbook of the pre-l920 era, Ely’s Outlines, . . . we still find an unsatisfactory situation. The book begins with a discussion of patents and division of labor, then suddenly plunges into a discussion of economic history (before the theory has been presented!) Categorically, I would say that there have been only two suitable textbooks printed in English, Taussig’s Principles, 1911, and Fetter’s Principles, l915.[[20] ] There is a great deal of excellent material in these works. Taussig, however, suffers . . . from an English neo-classical slant, which leads him to a discussion of Production, before discussing Value and Demand, and a general malemphasis on Labor and Costs. Fetter is about the best text available. In particular, he has the only correct discussion on the interest rate and its true basis. However, he is very sketchy on utility and demand, poor on some aspects of capital (being overly antagonistic to Böhm-Bawerk), and introduces some erratic terminology. No textbook has a proper presentation of the Austrian “period of production” analysis of capital.

     Hence, it was clear that

even for the pre-l920 period, there was no textbook in English which presented a full, sound picture of economics as then developed, mainly in Austria. Since then, the disparity has become far worse. Not only have the great developments by Mises been neglected, but hodgepodges of newer fallacies have been hastily added, until economics, as presented in present-day textbooks bears little relation to the subject as it could be accurately presented.

     It followed that

[t]he need for a sound textbook is, I think, starkly evident. What I have in mind for a textbook would be a pioneering project. As far as possible, I would try to create an edifice such as you saw in the “money chapter,” namely, a logical step-by-step development of the Misesian theoretical structure. At each step, the reader would be enlightened through simple, hypothetical examples, until, slowly, but relentlessly, he would find himself equipped to tackle the economic problems of the day or to read further in the writings of the masters. I am convinced, that, by this step-by-step method, the beginning reader, student or intelligent layman, can grasp the most difficult theoretical concepts. And since he would have to accept each step, he would then be prepared to digest and accept each further step. I said “relentlessly,” because, through this method, even the most confirmed socialist, would step-by-step, beginning with simple praxeological axioms, at the end, suddenly find himself realizing the absurdity of his socialist and interventionist beliefs. He would become a libertarian in spite of himself.  

     Rothbard added that

the format [of the book] grows out of the writing itself. . . . Incidentally, I was pleased to learn from Mises that he is pleased with my recasting of format, rather than sticking to the format of Human Action. Human Action is more discursive in topics, and more condensed in its discussion of topics, assuming more or less the knowledge . . . that my textbook would contain. In short, I shall try to do for Mises what McCulloch did for Ricardo. . . .[21]

     Toward the end of June 1952, Rothbard wrote to Herb Cornuelle:

I am happy to say that I am coming along on the first “Fundamentals Chapter” of the textbook, and that it is almost finished. I’ve written about 95 pages so far, and frankly I am highly enthusiastic about it. It is a patterned development of the fundamental implications of the assumption of Human Action—for the first time bringing to the surface and clarifying the step-by-step nature of the edifice which Mises had constructed, but more or less had taken for granted that his readers would understand. I hope to send it to you soon. The next chapters will be a continuation of the deductive pattern for the exchange economy.[22]

     At the beginning of October 1952, Rothbard submitted the first of a series of Progress Reports to the Volker Fund, covering his work on the economics principles book and on other projects.  This report dealt with the period January 1 to October 1, 1952. Subsequent reports were submitted every six months.

     In this first report, he wrote:

When the work for the Fund began, on January 1 [1952], I had already prepared, for Professor Ludwig von Mises, a prospective outline of the book, and a chapter on “Money and Banking on the Unhampered Market,” of approximately 90 pages.

Rothbard explained that he had written 78 pages on “Money on the Hampered Market”—intended to stand on its own—but had concluded that “it would be best to present money as part of an integrated structure of economic thought.”

     Accordingly, he had dropped back to begin the first chapter, laying the theoretical groundwork of the textbook:

I turned from the money section to go back to the fundamentals chapter. As I proceeded to work on it, reading, writing, etc., I began to envision the plan for the work as a whole. It involved a complete scrapping of the very tentative outline that I had worked up over a year before. The old outline was similar to what could be called the orthodox textbook approach: it proceeded as follows: Nature and Scope of Economics, The Characteristics of the Market, Consumer Demand, Supply, Competitive Price, Monopoly Price, Wages, Capital and Interest, Money and Banking, The Business Cycle, International Trade, and then a brief outline of Government Intervention and Socialism.

     Logical and methodological considerations had driven him to a new view:

I realized that this book could not, like the old outline and especially other textbooks, proceed along the old lines of scattered treatment of isolated sections. Such a method is defective; it conveys no sense of the grand sweep, of the coherent system integrating and pervading all aspects of sound economic doctrines. The aim I set myself was to fulfill the essence of Mises’s structure of praxiology [sic] by spelling it out, step by step, in one coherent, integrated structure. I realized that it is possible to begin with one simple, self-evident assumption: human existence, and deduce all propositions in economics from it. The essence of human existence is human action, and once action is defined, all further [economic] truths can be deduced by logical implication. First, the few, immediate implications can be deduced from the existence of human beings and their action; then, further implications can be deduced from the first ones, etc. Actually, this is the only assumption necessary; the only further premises are introduced in order to limit the deductions to realistic situations, and can be empirically demonstrated as true. The object is to take the reader each step of the way. Since he must agree to the original assumption, and to each of the deductions based on ordinary rules of logic, he must, after reading the book finish with an acceptance of the entire body of sound economics.

     He included here the outline of the first chapter, which came to 142 pages, including an appendix on “Praxeology and Economics—relationship of economics to ethics and psychology.” He noted that “[t]he complete step-by-step structure can best be seen in the text itself. Action is the choice of means toward future ends, and each aspect of the definition is taken up and its implications studied and interrelated.”

     Introducing another outline, he wrote, “[t]he second chapter introduces interpersonal relations into the analysis.” First, the “regime of hegemonic exploitation [is] analyzed. Society is defined as [a] pattern of interpersonal exchanges, free and coerced.”

     In this chapter, he had only pursued “[t]he analysis of entrepreneurship and of production” to the point shown in the outline, “because no complex economy could exist under conditions of direct exchange. Direct exchange is chiefly valuable because it allows analysis of exchange, supply, and demand and its fundamentals without [the] disturbing factor of money.”

     Now Rothbard described how he worked:

Procedure. The work that is put into a chapter is organized as follow[s]: first, decision on the general subject-matter that the chapter will cover. Next follows readings in books that, upon scanning, appear to have insights to offer. Notes are taken on the readings, developing the important points mentioned. Thus, readings for the Fundamentals and Direct Exchange chapters included, in addition to several works of Mises, Benham, Menger, Böhm-Bawerk, Wickstead [sic], Bastiat, Boulding, and many others—including old and obscure books and journal articles. After a sufficient amount of readings, I begin to write the chapters, and find that one section flows step by step from the preceding one. As a result, the completed chapter is in many respects an original product, since either entirely new points have been brought out, or the points of the other authors integrated in a different way into the whole structure of economics. Thus, particularly for a textbook type work, many essential points must be deduced originally or with the help of other works. Mises sets the general outline, but the book cannot simply be a paraphrase of Human Action; it must be an elaboration of the implicit structure of praxeology that Mises has developed.

After the chapter is first written, revisions follow . . . Mises’s seminar this year, for example, promises to offer revisions of my chapters. Furthermore, other areas of knowledge inevitably impinge on the book. Thus, I had to read in contract law for a discussion of contract in the free market, in John Locke on self-ownership and ownership of children, etc.

     Rothbard next dealt with a departure from Mises’s system:

One important source of revision promises to be the philosophical system. For example, in my appendix to the Fundamentals chapter, I deal with the relationship between economics and ethics, and had adopted the standard Max Weber position that there can be no science of ethics, and that value-judgments are purely arbitrary. I have come to believe that there can be a science of rational ethics based on human nature and what is good for human nature. This revision of concepts has already resulted in rewriting this appendix. How far this will result in revision is impossible to state at the present time; certainly the general body of praxeological analysis will remain untouched. I am already contemplating changes in the very first section, however, where the axiom of action is defined, in accordance with this Randian philosophy.[[23] ] Also, I believe that the philosophy will compel a change in the analysis of labor, its pleasures and pains—derived from Mises’s analysis of disutility of labor, joy of labor, etc.

      He now planned to break up his chapter on money: “How money permits calculation will be shown, and the resulting measurements,” followed by “subsidiary analyses of Pricing under Indirect Exchange, demonstrating how demand and supply analysis apply to money, and the role of utility, revenue, and cost in such exchange.” Part of the money chapter would go here, followed by “the Pricing of Consumer Goods, of Capital Goods, of Labor Services, and of Nature Resources.”

     After sketching out a set of projected chapters for “Part I,” dealing with “analysis in detail of the Unhampered Market,” Rothbard wrote that

Part II will introduce, step by step, the types of possible government intervention in the market, and the effects of such intervention. . . . Business cycles will be shown as consequences of government intervention. . . . Finally, the nature of Socialism and the impossibility to calculate will be analyzed. Also, the difference between bureaucratic operation and profit operation.[24]

     In a further departure from his original outline, he had decided that “the fallacies can be taken care of in appendices” and that “it would be best to omit any historical sections, thus keeping the work on the pure theoretical, scientific, level. Historical illustrations can enter as illustrations” but, otherwise, “it should be left to the reader to apply this knowledge to any and all historical situations to which the laws are applicable.” He noted that the critique of “Blum and Kalven on Progressive Income Taxation,”[25] which he had recently written for the Volker Fund, had helped him work out his ideas for this section.

     By now he had written 366 pages; with 90 from the money chapter, this came to 456, but it would be impossible to predict the time needed for each new section, since each “presents its own problems which might require more or less reading, more or less writing and revisions.”[26]

     In early October 1952, Rothbard mailed to Richard Cornuelle “part of the original Fundamentals Chapter—those pages which contain charts.”[27] As we shall see shortly, these charts became, briefly, a matter of some controversy. At the end of December, Dick Cornuelle wrote Rothbard, thanking him for a letter of December 29. Cornuelle commented, with reference to ethical rationalism, “I think the revision in your thinking that this represents is a basic and important one.”[28]

     Rothbard replied with some enthusiasm early in January 1953, saying:

I am very glad that you agree with the change in my philosophical position, and think it important. Mises, despite his bitter criticisms (and correct ones) against the positivists, has accepted the crucial point of their position—that values are only subjective and a matter of taste or “emotion” that cannot be decided on rational grounds. What I have done is to go back to the “classical” ethical position that, aiming as we must at individual man’s happiness, there is a “science” of ethics, which can formulate the rules for such “virtuous” action.[29]

He was also “glad to hear about the confirmation of the grant on the textbook.” By the end of the month, Rothbard had heard from Herb Cornuelle that he would be paid $1,500 quarterly “to enable you to prepare and write an economics book.” The grant would run through 1954.[30]

     Early in February 1953, Herb Cornuelle wrote Rothbard, “We have encountered considerable difficulty with Figure 6 in your manuscript.” To this, Rothbard answered:

Enclosed is [the] disputed chart returned once again, with two revised pages of text which should make the situation clear. The whole point of the irregularity of scale, which I should have made clear in the text, is that values cannot be measured in any sort of scale, they can only be ordinally compared. This, one of the key points of the chapter, rests on the fact that a person can and does compare an infinite variety of goods and prospects as to whether they are more or less valuable; but he can only rank them—he cannot compare and measure distances between ranks, since there is no way of objectively fixing a unit for such subjective processes. Hence, I deliberately made the distances between the numbers on the value-scale irregular in order to point up the fact that there is no sense in any concept of any sort of distance between the ranks on the scale. I hope that the revised text now makes this diagram clear.[31]

     By the second week of March, Rothbard had submitted Chapter 3 of the original “textbook.”[32]

     In early April, Rothbard submitted his Progress Report for the period of October 1, 1952, to April 1, 1953. In these months, he had completed Chapter 2, which “first introduces interpersonal relations into the analysis.” He had written sections on “Types of Exchangeable Goods” and “Enforcement Against Invasive Action.” With regard to indirect exchange, Rothbard wrote,

[m]ost existing textbooks tend to present this material in a series of disconnected chapters, and the effect is to fail to present an adequate analysis of each of the chapters. The various parts of economic analysis can only be correctly presented and fully comprehended as integral parts of a total picture, and therefore care must be taken to be sure that each section flows logically from the section preceding.

The outline of Chapter 3, “The Pattern of Indirect Exchange,” followed. He had written 61 pages.

     Next he gave part of the outline of Chapter 4, “Money and Prices.” So far he had analyzed the prices of consumer goods. Now came more of the outline. Eighty-eight pages had been written, he said, with some discussion of monopoly and more to follow. Analysis of money-component would come next, but “this will have to be expanded and integrated into the previous price analysis, detailing the relationship between the supply and demand for goods and for money.”

     Importantly, “[i]n addition to the above work, the philosophic change mentioned in the first progress report has been completed, and carried through into a revision of sections of the previously-written material.” Further:

Most important was a thorough revision of the very first eight pages of the work—the pages which state the original axioms upon which the entire work is based. The revision purged the original formulation of its definite philosophical pessimism, of the idea that human beings are constantly in a state of dissatisfaction and that man could only be happy in a state of inactive rest, such as in Paradise. Such a philosophic view is contrary to the natural state of man, which is at its happiest precisely when it is engaged in productive activity. The revised part eliminates the philosophic pessimism from praxeology.  

     Thus, the new discussion of labor (six pages) in Chapter 1 “makes it clear that labor by itself can be either pleasurable, neutral, or painful as the case may be—although no one would engage in it if not for the end product to be derived.” Rothbard mentions here two papers he had presented to Mises’s seminar, which had some bearing on issues addressed in the textbook.[33]

     On October 5, 1953, Dick Cornuelle wrote Rothbard that he had received his latest Progress Report. He commented, “[t]he people here take unusual satisfaction in this project. They were especially pleased to see that the work on your thesis is moving along.” Now, he added, “[i]t would seem to be time to begin to anticipate some of the problems of the publication of the textbook.”[34] Before that could happen, however, the project took a decisive turn as the result of a discussion between Rothbard and Cornuelle.


     The topic under discussion was nothing less than a complete change in the direction of Rothbard’s book. The question posed was whether he should continue the textbook or write instead a general treatise on economics. Full treatment of the matter is found in the memo Rothbard wrote to Dick Cornuelle in February 1954.

     Rothbard wrote: “Ever since your last visit to New York, when you asked me about the status of my project as a textbook or a treatise, I have devoted considerable thought to this matter.

“The original concept of this project,” he pointed out,

was as a step-by-step, spelled-out version of Mises’s Human Action. However, as I have been proceeding, the necessary elaborations on the sometimes sparse framework of Mises has led inevitably to new and original presentations. Now that I have been proceeding to the theory of production where the whole cost-curve situation has to be faced, Mises is not much of a guide in this area. It is an area which encompasses a large part of present-day textbooks, and therefore must be met, in one way or another. Mises, in his treatise, deals only tangentially with the problem and really with good reason, but a more detailed treatise, or one that attempts to be a textbook, must tackle this issue. After much thought about the problem, and many false writing starts, I have come to the conclusion that the whole complex of cost curves is (a) based on anti-realistic assumptions, such as that of pure competition, and (b)—and here I derived much benefit from a recent remark of yours—errs in basing itself on technological rather than economic assumptions. The whole emphasis on size of firm, cost curves to plant, etc., I am convinced is all erroneous speculation on technological irrelevancies (although I believe that the land vs. capital differentiation is a valid economic one). I am further convinced that the reason for this whole line of approach, now glorified in the texts as the “theory of the firm,” is that these economists hope somehow to find statistical laws and constant relations, and therefore are engaging in what they think is a more empirical than deductive analysis. It is this constant search, and futile one, for empirical “verification of theory” that has been responsible for all neoclassical errors and deviations from Marshall on.

     There were other issues as well:

A further complication has arisen. A textbook, traditionally, is supposed to simply present already-received doctrine in a clear, step-by-step manner. But not only would my textbook fly in the face of the doctrine as received by 99 percent of present-day economists, but there is one particularly vital point on which Mises, and all other economists, will have to be revised: monopoly theory. When I wrote the first draft of Chapter 5, which is now being completely rewritten to omit the “theory of the firm” and cost-curve approach, I began to approach the conclusion of which I am now convinced: that there is no such thing as “monopoly price” versus “competitive price” on the free market. This is indeed a revolutionary approach, and as far as I know no other economist has stated this. It is true that, in practice, lots of right-wing economists have maintained that examples of monopoly-price on the free market are “minor” and “unimportant,” confined, say, to diamond mines and local water-works. But this concession, in principle, has always troubled me greatly. Mises takes the “neo-classical” position in holding, that there is competitive price and monopoly price and that the latter results when either one firm has an inelastic demand curve at the competitive price, or else many firms band together in a voluntary cartel, and then the inelastic demand curve to the cartel permits a restriction of supply and a rise in price. Mises states definitely that whenever a monopoly price is instituted, the principle of “consumer sovereignty” receives a great setback. Mises’s ethics do not permit an outright value-judgment, but the inference is pretty clear that a monopoly price situation is a highly unfortunate one.

     Rothbard disagreed:

I have come to the conclusion that this theory is outright nonsense. I do not differ with Mises rashly on matters of economic theory, but in this particular case I think he has not freed himself from the shackles of the old neo-classical approach. The key question here is this: How do we know what the “competitive price” is? If we go to the illustration of this approach in, for example, Fetter’s Economic Principles, we find a competitive price, and the monopolist assessing his demand curve at this price. But, in reality, we never know the competitive price. The competitive price is a result of action, and not a given. Even if we can observe a man restricting his investment and production in a product, and raising price, we can never know if this is a movement from “competitive price” to “monopoly price” or from “sub-competitive price” to “competitive price.” As Mises has told us again and again, a concept divorced from real action and employed as an actual reality and even an ideal, is invalid. Therefore, the whole concept of competitive price vs. monopoly price has to go by the board. On the free market there is only the “free-market price” which in turn is competitive, since buyers and sellers freely compete with each other. And this is true not only for the individual seller, but also for a cartel. For I have come to the perhaps even more revolutionary conclusion that there is nothing in the world wrong with a cartel when it is voluntary. When many firms merge or form a cartel, what happens? In effect, the assets of many individuals are pooled and directed by them all, in accordance with their proportionate ownership and their contract. But how does this process differ from the formation of an ordinary corporation, when different individuals pool their capital and assets according to their voluntary contract? Not in the slightest.

     It followed:

that it might be advisable to eliminate the term “competitive price” altogether, and substitute simply “free- market price,” which is always the “best price” because it is the voluntarily-agreed price of all the individuals on the market. Then, we may contrast the action of government, with its impositions of monopoly privilege, etc.

     In the light of such problems, it “has become evident from my work on the book, that the result cannot be a textbook of general principles in the traditional sense. It is too revolutionary vis-à-vis received doctrine and even some areas of Misesian doctrine.” Further:

Even if the work were put out as a general textbook, it would not be generally accepted as such. The college instructors choose their textbooks almost the way women choose this year’s hats: is it “modern”? Does it have the “national income approach,” does it have the latest Department of Commerce statistics, etc.? The hopelessness of this approach for the imparting of economics is evident, but this is the overwhelmingly dominant approach.

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[Page numbers to Man, Economy, and State and Power and Market appearing in parentheses refer to the present edition.]

[1] The Rothbard Papers, held at the Ludwig von Mises Institute in Auburn, Alabama, include Murray Rothbard’s letters and correspondence (1940–1995), memos and unpublished essays (1945–1994), and drafts of published works, as well as rare Old Right and libertarian movement materials. 

[2] Murray N. Rothbard to Alfred D. Chandler, June 25, 1950; Rothbard Papers. Alfred D. Chandler, Jr., went into business history, taught at the Massachusetts Institute of Technology, Johns Hopkins University, and the Harvard Business School, edited collections in business history and wrote many works, the most famous of which is The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass.: Harvard University Press, 1977).

[3]Murray N. Rothbard, Power and Market (Kansas City, Mo.: Sheed Andrews and McMeel, 1977).

[4] Murray N. Rothbard to William F. Campbell, April 2, 1951; Rothbard Papers. Campbell was an economist of Misesian views who, under the influence of Russell Kirk, became an adherent of Wilhelm Röpke’s “third way” position. See William F. Campbell, “An Economist’s Tribute to Russell Kirk,” Intercollegiate Review 30, Fall 1994, pp. 68–71.

[ 5]Rothbard to Kenneth S. Templeton, May 5, 1955, Rothbard to Ivan Bierly, November 14, 1959, and Rothbard to Harry Elmer Barnes, December 13, 1959; Rothbard Papers.

[6] Walter Block and Walter Grinder, “Rothbard Tells All: Interview with Murray Rothbard,” December 1972, p. 6; Rothbard Papers.

[7] Murray Rothbard, “The Betrayal of the American Right” (unpublished book manuscript), pp. 86–87; Rothbard Papers. On the Old Right generally, see Murray N. Rothbard, “Life on the Old Right,” Chronicles (August 1994): 15–19, reprinted in Joseph Scotchie, ed., The Paleoconservatives: New Voices of the Old Right (New Brunswick, N.J.: Transaction Publishers, 1999), pp. 19–30. For background on the post-World War II “right-wing” think tanks, including FEE, see Eckard Vance Toy, “Spiritual Mobilization: The Failure of an Ultraconservative Ideal in the 1950’s,” Pacific Northwest Quarterly 61 (April 1970): 77–86. From 1951 to 1962, Rothbard wrote hundreds of internal book reviews for the Volker Fund; on his work in this period, see especially Sheldon L. Richman, “Commentator on Our Times: A Quest for the Historical Rothbard,” in Walter Block and Llewellyn H. Rockwell, Jr., eds., Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard (Auburn, Ala.: Ludwig von Mises Institute, 1988), pp. 352–79.

[8] For a sketch of the Old Right outlook, see Rothbard, “Life on the Old Right,” and Rothbard to Thomas Fleming, memo: Books That Formed Me, January 24, 1994, 3 pgs.; Rothbard Papers.

[9] See William M. Curtiss (Executive Secretary of FEE) to Rothbard, November 25, 1946; Rothbard Papers.

[10] Rothbard, “Betrayal of the American Right,” p. 87; Rothbard Papers.

[11]Leonard Read to Rothbard, June 24, 1948; Rothbard Papers. This was an invitation to attend a meeting on July 8, when Ludwig von Mises would be speaking.

[12]Ludwig von Mises, Human Action: A Treastise on Economics (New Haven, Conn.: Yale University Press, 1949); Murray N. Rothbard, “Praxeology,” analysis (May 1950): 4; and “Review of Human Action,” Faith and Freedom (September 1950): 14–15.

[13] Rothbard, “Review of Human Action,” p. 14. 

[14] Block and Grinder, “Rothbard Tells All,” December 1972, pp. 2–6.  Rothbard writes that

the unique Volker Fund concept . . . involved not only the subsidizing of conservative and libertarian scholarship—conferences, fellowships, book distributions to libraries, and eventually direct book publishing—but also the granting of funds to individual scholars rather than the usual foundation technique of granting funds en masse to Establishment-type organizations and universities (such as the Social Science Research Council). (“Betrayal of the American Right,” p. 96)

Further, the Volker Fund’s “contributions were vital in promoting and bringing together a large body of libertarian, revisionist, and conservative scholarship” (“Betrayal of the American Right,” pp. 96–97).

[15] Rothbard to Herbert C. Cornuelle, November 28, 1949; Rothbard Papers. This sample chapter is later referred to as “the Money Chapter.”

[16]This refers to a series of 12 essays Rothbard had written by some time in 1949, of which three were published: “Not Worth a Continental,” Faith and Freedom 1, no. 3 (February 1950): 9–10; “The Edict of Diocletian,” Faith and Freedom 1, no. 4 (March 1950): 11; and “The Railroads of France,” Ideas on Liberty (September 1955): 42–43. All 12 case studies are in the Rothbard Papers.

[17] Rothbard to Alfred D. Chandler, June 25, 1950, 2 pgs.; Rothbard Papers.

[18]H. Cornuelle to Rothbard, January 9, 1951; H. Cornuelle to Ludwig von Mises, January 15, 1951; Rothbard Papers.  

[19]H. Cornuelle to Rothbard, February 10, 1951; Rothbard Papers.

[20]Referring to F.W. Taussig, Principles of Economics, 2nd ed. (New York: Macmillan, [1911] 1916), and Frank Fetter, Economic Principles (New York: The Century Company, [1915] 1918).

[21]Rothbard to H. Cornuelle, March 14, 1951, 3 pgs.; Rothbard Papers. “What McCulloch did for Ricardo” refers to John Ramsay McCulloch’s Principles of Political Economy (New York: Augustus M. Kelley, [1864] 1965).

[22]Rothbard to H. Cornuelle, June 28, 1952; Rothbard Papers.

[23]In the existing carbon copy, the word appears as “Bandian,” presumably a strikeover. Rothbard clearly intended to write “Randian” as shorthand for the notion of “rational-ethical” philosophy. That he was not dependent on the Randian system, as such, in his search for a scientific ethics is shown by his early awareness of Thomistic philosophy as  revealed in his letters. Cf. Rothbard to H. Cornuelle, April 23, 1952, Rothbard Papers, which discusses the work of neo-Thomist philosopher Livio C. Stecchini as looking toward “a philosophy of ethics.” There are at least seven letters by Rothbard on such subjects as Aristotelianism, Thomism, and natural rights in the period 1952–57 alone.  

[24]Memo to Volker Fund: Progress Report, January 1 to October 1, 1952, 13 pgs.; Rothbard Papers.

[25]Murray N. Rothbard, “The Uneasy Case for Degressive Taxation: A Critique of Blum and Kalven,” Rothbard Papers; published in Quarterly Journal of Austrian Economics 4, no. 1 (Summer 2001): 43–61.

[26]Memo to Volker Fund: Progress Report, January 1 to October 1, 1952; Rothbard Papers.

[27]Rothbard to R. Cornuelle, October 3, 1952; Rothbard Papers. Richard Cornuelle, the brother of Herb Cornuelle, had come to work for the Volker Fund by this time.

[28]R. Cornuelle to Rothbard, December 31, 1952; Rothbard Papers. The previous letter, Rothbard to R. Cornuelle, December 29, 1952, seems to be missing.

[29]Rothbard to R. Cornuelle, January 3, 1953, 3 pgs.; Rothbard Papers. Rothbard refers to Erich Fromm as a possibly useful source of inspiration in this (rational-ethical) connection.

[30]H. Cornuelle to Rothbard, January 28, 1953; Rothbard Papers.  

[31]H. Cornuelle to Rothbard, February 4, 1953, and Rothbard to H. Cornuelle, March 3, 1953; Rothbard Papers. Figure 4 in Rothbard’s, Man, Economy, and State, may descend from one of these disputed graphs.  

[32]Audrey M. Hanson to Rothbard, March 9, 1953, and R. Cornuelle to Rothbard, March 16, 1953; Rothbard Papers.

[33]Memo to Volker Fund: Progress Report, April 1, 1953, 10 pgs.; Rothbard Papers. These items, “Fisher’s Equations” and “Stable Money,” are in the Rothbard Papers.  

[34]R. Cornuelle to Rothbard, October 5, 1953; Rothbard Papers. The Progress Report for October 1, 1953, appears to be missing.

( Introduction continued)

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