[Murray N. Rothbard: The Making of an Austrian Economist by Joseph T. Salerno and Patrick Newman. ( Mises Institute, 2026; x + 196p.)]
The authors have cast illuminating new light on both Murray Rothbard’s early career as an economist and on the significance of Man, Economy, and State and other works of the same period.
As a student, Rothbard had a great deal going for him. Not only did he have a brilliant intellect; Arthur Burns—one of the most senior professors at Columbia University—was a family friend and regarded him highly, as did the great historian of American economic thought Joseph Dorfman. Moreover, the Columbia economics department ranked with Harvard and Chicago as the best in the country.
Unfortunately for Rothbard’s academic success, he rejected both of the dominant methodological approaches at Columbia. The older view was institutionalist; it held that economists should collect data, with the hope that careful study would reveal a statistically significant pattern. Arthur Burns—who had been a student of Wesley Clair Mitchell, the founder of the National Bureau of Economic Research—accepted this view. In opposition were the positivists, who held that one must first arrive at a hypothesis, which can then be tested. Rothbard found that each school made convincing criticisms of the other. He especially liked a course given by the philosopher of science Ernest Nagel, who defended the positivist position. I recall that Rothbard told me that he was impressed that Nagel always took students’ questions seriously, as if he could learn from them.
Rothbard found what he was looking for when he read Mises’s Human Action, shortly after its publication in 1949. He was immediately impressed with the deductive praxeological method, which, unlike its positivist rival, started with the undeniable truth that man acts, not with false or uncertain hypotheses that were useful for testing. (Sometimes praxeology uses imaginary constructs like the Evenly Rotating Economy, but, as Salerno and Newman note, these are always discharged once they have served their use.) Rothbard secured permission to attend a seminar on the book that Mises was giving at New York University, and Mises soon recognized him as his star student.
He suggested to Mises that he prepare a textbook that would explain Human Action to students and would fill in the details of the deductions that Mises had omitted. He wrote a sample chapter on money that Mises liked; and, on Mises’s recommendation, he received a grant from the Volker Fund, which also paid Mises’s salary, to write the book.
He accordingly set to work on the book, meanwhile endeavoring to finish his dissertation, later published as The Panic of 1819: Reactions and Policies. He intended it to be a “union card” needed for access to academic employment, and, as a result, it did not contain any theoretical analysis of the panic, though it remains to this day a standard work. Unfortunately for him, Burns, who was on his doctoral committee, refused to approve the dissertation; and he did not obtain his degree until 1956, when Burns’s leave of absence allowed Dorfman to accept it.
Rothbard—unable to get a tenure-track position—devoted nearly all his time to learning more about economics. He expanded the idea of a textbook into a comprehensive treatise on economics, and this is what became Man, Economy, and State, which was published in 1962. (I well remember my excitement in reading it within a few months of its publication.) The authors note that the book was part of an even larger manuscript that had been finished by early 1956, but the full version could not be published owing to the failure to find a university press that would accept it intact. As a result, one of the most valuable parts of the treatise—a comprehensive classification and discussion of all types of intervention into the free market—had to be omitted, becoming available only in 1970 as Power and Market.
In his analysis, Rothbard distinguished three types of government intervention: autistic, binary, and triangular. The first was a directive to people that did not involve the transfer of money, e.g., the prohibition of the use or sale of certain drugs. Binary intervention was the forced transfer of funds from one person to the government; taxation is the principal instance of this. Triangular intervention is the prohibition or regulation of an exchange, e.g., price control and rent control. Many of the analyses were similar to those of Mises’s, but Rothbard differed from his mentor, who held that the rejection of these interventions did not breach value-neutrality. Mises argued that one could show that, from the standpoint of those who favored an interventionist measure, it would fail to achieve its purpose; but Rothbard countered that the interventionist might wish to benefit particular people or groups, even at the expense of those hurt by the intervention.
In the main part of the treatise, Rothbard greatly expanded the treatment of the structure of production from Mises’s discussion. He integrated the account of the structure of production developed by Böhm-Bawerk, whom he regarded as the greatest economist of all time, with Mises’s pure time preference theory of interest; and, again improving on Mises, he purged the remnants of the Ricardian theory of rent from praxeology, using instead Frank F. Fetter’s theory. Further, he showed that it is false that a capitalist will always expand his business until marginal revenue equals marginal cost, because instead he may make more money by transferring some of the profits to another business in which he has invested.
I could go on for a long time discussing Rothbard’s innovations, but I will confine myself to three more. First, he showed that a monopoly price cannot exist on the free market; the alleged monopoly price is indistinguishable from the free-market price. Rothbard deemed it important to show this, as it was a key thesis of his that no welfare losses that could theoretically, even if not in practice, be corrected by government intervention, are possible. Second, he argued that all business cycles are exogenous to the free market. Finally, applying Mises’s calculation argument against socialism, he showed that the lack of a market for a capital good would limit the extent to which a business could expand, as islands of calculational chaos would be created.
Salerno and Newman show that Rothbard was a creative genius of the first order.
