Murray N. Rothbard The Making of an Austrian Economist

INTRODUCTION

IN A LETTER HE WROTE to the philosopher Louis Rougier in December 1962, Ludwig von Mises referred to “the systematic exposition of the whole doctrine of praxeology in my book Human Action and nowadays in the brilliant book of a younger man, Murray N. Rothbard, Man, State and Economy [sic].” Mises concluded his letter by entreating Rougier: “But, please, first of all read the book of Rothbard.” Earlier in the year, Mises had written a review of Rothbard’s work, describing it “as an epochal contribution to the general science of human action, praxeology, and its practically most important and up-to-now best elaborated part, economics.” “Henceforth,” Mises continued, “all essential studies in these branches of knowledge will have to take full account of the theories and criticisms expounded by Dr. Rothbard.”

These highly laudatory appraisals were uncharacteristic of a man who was very sparing in his praise of other economists’ work, writing in Human Action that “there never lived at the same time more than a score of men whose work contributed anything essential to economics.” But Mises was not exaggerating: Rothbard’s Man, Economy, and State: A Treatise on Economic Principles is one of the most important and influential books written in the Austrian tradition. It is an outstanding treatise in economic science that spells out, builds upon, and refines Mises’s praxeological system. Starting from the action axiom and other self-evident assumptions, Rothbard systematically deduces the workings of the free-market economy and the consequences of government intervention. Man, Economy, and State, therefore, is inseparably linked with Human Action, and to understand the praxeological system one must heed Mises and “read the book of Rothbard.”

Many readers of Rothbard’s treatise believe that he wrote it in the early 1960s while working for the William Volker Fund. However, Rothbard actually finished the bulk of Man, Economy, and State by 1956. The manuscript included Power and Market, which he wrote as the original chapters on interventionism. Rothbard spent most of the latter part of his tenure at the Volker Fund using his theoretical system to evaluate contemporary economics publications, incorporating references to those he found of value into his treatise. There are other crucially important facts about the writing of Man, Economy, and State, of which even many Austrian scholars may not be aware. Rothbard was a Columbia PhD student with a thorough grounding in neoclassical economic theory and the positivist method when the Volker Fund originally commissioned him to write a textbook version of Human Action. Rothbard subsequently decided to transform the textbook project into a full-blown treatise after realizing that his original chapter on production theory was deeply flawed and gaps existed in Mises’s own production theory. Thus, Rothbard relied heavily on Eugen von Böhm-Bawerk and his own innovations to complete a systematic analysis of capital and production that he could then integrate into the structure of economic theory.

The only significant archival research thus far on the writing of Man, Economy, and State was Joseph Stromberg’s helpful introduction to the first scholar’s edition, which provides a summary overview of Rothbard’s progress in writing his treatise. The general absence of research on Rothbard’s development as an economist in the 1950s accounts for what we view as an underappreciation of his contributions to economic theory by many serious readers of Man, Economy, and State. To these economists, Rothbard either made insignificant contributions relative to other Austrian economists, created his own line of economic thought distinct from other Austrian economists, or failed to distinguish his version of Austrian economics from neoclassical economics.

For example, Lawrence H. White, in his introduction to F. A. Hayek’s The Pure Theory of Capital, describes contributions by Ludwig M. Lachmann, Israel M. Kirzner, Peter Lewin, and Roger W. Garrison that brought together “Hayek’s analysis of the structure of production with Mises’s ‘pure time-preference’ analysis of interest.” In contrast to his descriptions of these thinkers, White only lists Rothbard in passing, omitting his contributions and how he substantively combined Mises’s and Hayek’s approaches. Peter J. Boettke recognizes Rothbard’s influence on his own thinking and has written about some of Rothbard’s theoretical innovations. However, in his review of Rothbard vs. the Philosophers, he states that “Rothbard represented something different from either Mises or Hayek as an economist and as a political economist” and “Rothbard, and Rothbardianism, must be understood as its own distinct branch of the Austrian School of Economics.” Karen I. Vaughn, in her Austrian Economics in America: The Migration of a Tradition, concludes that “Rothbard’s version of Austrian economics was in principle not very different from neoclassical economics. . . . What was clearly and unquestionably distinctive about his writing was the pervasive and unequivocal free market message he delivered.” We believe that these remarks inadequately convey the scope and originality of Rothbard’s contributions because they are not informed by a thorough knowledge of how Rothbard arrived at his theories and the process of his transformation as an economist.

The goal of this book, then, is to fill the gap in Rothbardian scholarship and present an intellectual biography that shows Rothbard’s evolution from a neoclassical graduate student to a pioneer in Austrian economics. Our thesis is twofold. First, Mises was correct: Man, Economy, and State represents “an epochal contribution” to praxeology. The mainline of Austrian economics runs from the seminal writings of Carl Menger through Böhm-Bawerk to Mises and Hayek and then to Rothbard. Second, the culmination of Rothbard’s efforts was the creation of a postwar theoretical edifice that rivaled both the neoclassical synthesis and the Chicago School and was distinctly different from neoclassical economics. Given these contributions, Rothbard is Mises’s most important successor, or heir.

In writing this book, we extensively quote Rothbard’s letters, memos, and other documents as well as extant draft chapters and unpublished sections of Man, Economy, and State. Unfortunately, the Volker Fund papers are scattered across multiple institutions, and many of these files are hard to obtain. Other archives of affiliated organizations, such as the Earhart Foundation, are closed off for the foreseeable future. This has limited our primary sources largely, though not entirely, to the Murray N. Rothbard Papers at the Mises Institute. When the draft pages of Man, Economy, and State are unavailable, we use the final version and other writings Rothbard was working on during this time. When unpublished primary sources are not available, we quote from the secondary source it was referenced in. We hope that this book encourages scholars to utilize the archives of other Austrian writers and prominent Austrian-affiliated institutions when writing about the history of Austrian economic thought.

The outline of this book is as follows. “Part I: Neoclassical Training, 1945–1949” describes Rothbard’s educational background at Columbia University before he met Mises. Although Columbia rivaled Harvard University and the University of Chicago as a leading center of economic thought in the country, Rothbard perceived that something was amiss in the Marshallian economic theory and institutionalist and positivist methods he learned during his graduate studies. In his search for answers, he discovered the Foundation for Economic Education, where he heard about the Volker Fund and met Mises. “Part II: A Misesian Textbook, 1949–1953” marks the beginning of Rothbard’s immersion in Misesian thought and Austrian economics. After Rothbard corresponded with Mises while reading Human Action in late 1949, Mises asked Rothbard to write a textbook version of Human Action that explained praxeology to college students. Embarking upon the project, Rothbard quickly demonstrated his mastery of Misesian theory. He elaborated several deductions that were missing in Human Action, explaining how a strictly ordinalist conception of marginal utility leads to downward-sloping demand curves and how equilibration of market prices occurs in a world of uncertainty.

Rothbard achieved an intellectual milestone in late 1953, as explained in “Part III: A Böhm-Bawerkian Treatise, 1953–1955.” When Rothbard moved from consumption to production theory, he realized Mises had written relatively little on the subject. Consequently, he relied upon the standard Marshallian partial-equilibrium analysis he had learned at Columbia. By early 1954, Rothbard recognized the multiple errors in this isolated-firm approach and that he would need to move beyond Mises’s work and make his own original contributions. The result, an Austrian or dynamic general equilibrium theory that focuses on the capitalist-entrepreneur’s central position in the structure of production, constitutes one of the key contributions of Man, Economy, and State. Rothbard concluded his treatise by analyzing government intervention into the economic system. “Part IV: The Rothbardian Theory of Interventionism, 1955–1956” shows Rothbard’s construction of an integrative and systematic theory of government policy, a notable advance beyond Mises’s disparate chapters on the subject. The capstone of this analysis was his improvements upon Mises and Hayek’s theory of the trade cycle, which consisted in demonstrating the “exogeneity” of the causes of the business cycle to the market economy and the hitherto neglected beneficial aspects of credit contraction.

With the essentials of the treatise finished by mid-1956, “Part V: Applying the Treatise, 1956–1962” explains the next stage of Rothbard’s intellectual development. It documents how Rothbard spent the next several years evaluating new economic literature for the Volker Fund. Rothbard sharply criticized writings by economists of the Chicago School, notably Milton Friedman and George J. Stigler. In particular, he found serious deficiencies in their positivist method, Marshallian production theory, and monetary adjustment process. Significantly, he criticized the contemporary textbook of Mises’s doctoral student Israel Kirzner for falling into the same errors he had when formulating a neoclassical production theory in 1953. But Rothbard did not criticize every contemporary publication. He eagerly incorporated and referenced writings that applied the praxeological method to theory, such as Capital and Its Structure, by Lachmann, an Austrian economist whom he extensively corresponded with. The book ends with the setbacks to Rothbard’s prospective research program, which resulted from the collapse of his main institutional backer, the Volker Fund. Although Man, Economy, and State received scant attention from the economics profession, Mises, as we noted, lauded Rothbard’s pathbreaking achievements in praxeology and economic science.

Murray N. Rothbard: The Making of an Austrian Economist is written for everyone interested in Rothbard’s economic theory and Austrian economics in general. We hope it will serve as a useful complementary volume to Man, Economy, and State by elucidating Rothbard’s many contributions and the process by which he developed an integrated structure of economic theory using the praxeological method.

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Ludwig von Mises to Louis Rougier, December 6, 1962, p. 3, Ludwig von Mises Collection, Grove City College. Ludwig von Mises, Human Action: A Treatise on Economics (Yale University Press, 1949); Murray N. Rothbard, Man, Economy, and State: A Treatise on Economic Principles, 2 vols. (D. Van Nostrand, 1962).

Unless otherwise noted, all spelling, punctuation, and italics in quotations are taken from the cited source.

Ludwig von Mises, “A New Treatise on Economics,” New Individualist Review 2, no. 3 (1962): 41.

Mises, Human Action, p. 869.

Murray N. Rothbard, Power and Market: Government and the Economy (Institute for Humane Studies, 1970).

Joseph Stromberg, introduction to Man, Economy, and State with Power and Market, scholar’s ed., by Murray N. Rothbard (Mises Institute, 2004).

Lawrence H. White, introduction to The Pure Theory of Capital, by F. A. Hayek, ed. Lawrence H. White (University of Chicago Press, 2007), p. xxxiv.

White, introduction to Pure Theory of Capital, pp. xxxiv–xxxvi.

Peter J. Boettke and Christopher J. Coyne, “The Forgotten Contribution: Murray Rothbard on Socialism in Theory and in Practice,” Quarterly Journal of Austrian Economics 7, no. 2 (2004): 71–89.

Peter J. Boettke, “Rothbard vs. the Philosophers,” Coordination Problem (blog), February 1, 2010, https://www.coordinationproblem.org/2010/02/rothbard-vs-the-philosophers.html. Roberta A. Modugno, ed., Rothbard vs. the Philosophers: Unpublished Writings on Hayek, Mises, Strauss, and Polanyi (Mises Institute, 2009).

Karen I. Vaughn, Austrian Economics in America: The Migration of a Tradition (Cambridge University Press, 1994), p. 98.

Shortened to Rothbard Papers in the footnotes.

Ludwig M. Lachmann, Capital and Its Structure (London School of Economics, 1956).