Murray N. Rothbard The Making of an Austrian Economist

PART I

Neoclassical Training, 1945–1949

MURRAY ROTHBARD STARTED HIS CAREER with a foundational training in neoclassical economics. At Columbia University, he learned from highly regarded professors and demonstrated a thorough understanding of the positivist method, Keynesian and Marshallian economic theory, and institutional empirical analysis. Crucially, Rothbard perceived the fact that critical errors existed in these disparate strands of knowledge, although he could not yet articulate them. But the recognition itself motivated him to take the highly important step of contacting the free-market Foundation for Economic Education and the William Volker Fund, thereby discovering Austrian economics.

Columbia University

At a young age, Rothbard proved to be extremely gifted. Born in 1926 to Raya Babushkin and David Rothbard, a petroleum chemist with conservative political leanings, Rothbard skipped grades “with disconcerting rapidity.” His elementary school teachers recognized their pupil’s “inquiring mind” and “desire really to know reasons, origins, [and] exceptions” of various phenomena. He started at Birch-Wathen high school in the seventh grade and enrolled at Columbia University in 1942 at the age of sixteen. He was just nineteen when he received his AB degree with honors in economics and mathematics in 1945. He was soon accepted into Columbia’s PhD program.

At Columbia, Rothbard learned economics through the lens of the emerging “neoclassical synthesis” that was rapidly transforming economic science in the mid-1940s. It combined the aggregative macroeconomics of the Keynesian revolution with neoclassical Marshallian partial equilibrium theory and Walrasian general equilibrium. This synthesis considered economic science as the analysis of the determination of unrealistic equilibrium prices in a world without a temporal structure of production against the backdrop of total spending managed by an activist government. Economic theories needed to be expressed in mathematics and tested through empirical research. Influential neoclassical works included John R. Hicks’s Value and Capital, George J. Stigler’s The Theory of Price, and Paul A. Samuelson’s Foundations of Economic Analysis. Samuelson first used the term in 1955, in the third edition of his famous textbook Economics.

In the mid-1940s, Columbia University was a leading academic institution in the US and housed one of the top three economics departments in the nation. Located in New York City, the hub of American intellectual life, Columbia rivaled the University of Chicago and Harvard University, producing more doctoral students than either institution. Prominent examples include Arthur F. Burns (1934), a future Columbia professor and chairman of the Federal Reserve, and Milton Friedman (1946), the influential University of Chicago professor and Nobel Prize laureate. When future University of Chicago professor and Nobel laureate George Stigler started to work for Columbia after World War II, he “felt that [he] was joining one of the truly great universities” which had a “consistently high quality economics department.” Stigler did not exaggerate; notable professors included John Maurice Clark, a Marshallian and pioneer in Keynesian economics; Harold Hotelling, the eminent mathematical statistician; Ragnar Nurkse, a prominent international trade and development economist; and Joseph Dorfman, an influential historian of American economic thought. The latter noted that the “pervasive ideal of the University as a research center” dominated the economics department: seven faculty members and five doctoral students had become president of the American Economic Association.

Though Rothbard’s conservative background alienated him from Columbia’s liberal students and professors, he flourished in the intensely intellectual environment. One notable influence was Benjamin H. Beckhart, the professor for his graduate course in banking theory. Beckhart was a disciple of H. Parker Willis, a former professor at Columbia. Although Willis was one of the major architects of the Federal Reserve System, he sharply criticized the expansionary policies it pursued in the 1920s, which were championed by the leading neoclassical monetary and business cycle theorist Irving Fisher. Rothbard reminisced that during his graduate career, he “was a Willis-Beckhart anti-Fisher” economist.

Rothbard was also influenced by Burns and Dorfman and impressed both professors despite the fact that back in “those days there was not much give and take” during lectures and students “didn’t really know the professors very well.” Burns, who had befriended Rothbard’s father, “enjoyed having [Rothbard] in [his] classes” and expected Rothbard to make “a prominent place for himself” in the world. Rothbard reciprocated the appreciation, reminiscing that he thought Burns “was a brilliant theorist” and his “critique of orthodox theory and so forth, was excellent” despite not “publish[ing] in that area.” Burns’s criticisms included Keynesian macroeconomics incorrectly building on the Marshallian theory of the firm, the illusory nature of the concept of excess capacity in monopolistic competition, and issues with the causes of business cycles in Walrasian general equilibrium. Dorfman also recognized Rothbard’s talent and ended up serving as his dissertation advisor, and once it was finished Rothbard reported Dorfman as being “very anxious to have the book published” with Columbia University Press. Rothbard held an extremely high opinion of Dorfman as a historian of economic thought, noting that “his knowledge of the sources is unparalleled.” In his last major work, Rothbard acknowledged Dorfman as one of his most important “mentors.”

Lastly, there was the newly hired George Stigler, who taught Rothbard in a class on price theory in the fall of 1946. Stigler and Friedman constituted the core of the modern Chicago School, which used Marshallian price theory and Fisherian monetary macroeconomics to criticize select Walrasian and Keynesian aspects of the emerging neoclassical synthesis. Stigler’s free-market orientation contrasted with other faculty members and impressed Rothbard. In his first two lectures, Stigler attacked rent control and the minimum wage, shocking students back into “the Neanderthal Age” before the New Deal. Rothbard, ostracized because of his conservative views, relished this “free-market viewpoint” at Columbia.

The Positivist Method

During Rothbard’s studies, the economics department entered a transition period between clashing methods. Historically, most economists utilized the deductive method to understand economic phenomena and developed theories by tracing out the logical implications of their starting assumptions. Lionel Robbins’s An Essay on the Nature and Significance of Economic Science remained the outstanding exposition of this approach. In the early 1900s through the 1930s this method was eschewed by many economists at Columbia, which turned into a stronghold of “Wesley [Clair] Mitchell and A.F. Burns’ Baconian institutionalism.”

Taking a page from the work of Sir Francis Bacon in the seventeenth century, institutionalism eschews theoretical analyses that are grounded in general assumptions about human behavior. Instead, it advocates using narrow hypotheses that are discovered from the copious collection and organization of facts. Mitchell was heavily influenced by the founding institutionalist Thorstein Veblen; one of the creators of the National Bureau of Economic Research (1920), an organization that pioneered in institutional research; and a professor at Columbia from 1913 to 1944. Burns, Mitchell’s PhD student, shared his wariness of simple theories and supported detailed empirical investigation. They coauthored Measuring Business Cycles, a leading institutionalist work that practitioners of the neoclassical synthesis attacked as “Measurement without Theory.”

Their critics were not practitioners of the old deductive method, but defenders of the new method rapidly taking hold at Columbia—the “positivist line.” Positivism argues that the economist must form tentative hypotheses from basic assumptions about human nature and then test these hypotheses based on their ability to explain empirical phenomena. Both the positivist and institutionalist approaches champion empirical analysis, but only positivism allows for a body of economic theorems that precede investigations of historical episodes.

Positivism rapidly gained strength in the economics profession, displacing the deductive approach and institutionalism, and Rothbard remembered his time at Columbia as one “surrounded by positivists.” Notably, he took a “term course on the Philosophy of Economics” with Ernest Nagel, an important expositor of positivism. In his lecture notes, Rothbard showed that he recognized the positivist criticisms of institutionalism, despite not yet realizing the profound defects in the positivists’ own approach. “Institutionalists,” Rothbard records Nagel as lecturing, argue that “universal economic theoretical laws are illegitimate” because theory is “only relative to particular historical situations” and “certain stages of historical society.” Although “they deny this,” institutionalists’ “methodology is purely Baconian, simple fact-gathering” because economists must continually “gather extensive and sufficient factual data out of which the theory will eventually grow.” In contrast, positivists argue that the economist must first construct a hypothesis and then test its consequences. “A theory must: 1) explain 2) afford means for prediction . . . [and] the essential task of empirical data [is] to verify a theory.”

A common institutionalist criticism of economic positivists is that the assumptions of “neo-classical economic theory are unsound,” particularly the “assumption of carefully-calculating rationality—the economic man” who always prefers more wealth to less. According to the institutionalist critics, this premise is false because “we know that people are driven by irrational whims, inconsistencies, etc.” and “there is no deliberate, rational ordering of conduct.” If the positivists admitted this, then they would have to discard the structure of hypotheses built on the assumption of self-interested individuals maximizing monetary profits. However, as Rothbard continues to write in his recording of Nagel, “this criticism is valid” but “not fatal to the theory [because of] the final and complete answer . . . in a superb article by John Stuart Mill,” a classical economist who was also a protopositivist.

“Mill,” Rothbard records Nagel as saying, argued that “economic science considers mankind as occupied solely in wealth-activities.” This admittedly “is only an approximation [that] must be corrected for other impulses,” such as leisure and the desire for present consumption. But approximations are appropriate because to “develop an adequate theory . . . you must simplify, idealize, and even make assumptions that are clearly contrary to known existing fact!! . . . The empirical justification of this is the ability to introduce supplementary assumptions later that will bring [the theory] close to the facts.” As long as the revised theory can be empirically verified and used for prediction, the continued use of unrealistic assumptions is warranted. Far from criticizing the unrealism of assumptions, then, positivists like Nagel champion their use.

Rothbard notes the conclusion of Nagel’s reasoning. “Mill’s methodology is perfectly sound. The correct approach is to assume economic man, develop the theory, and then hope you can make the supplementary assumptions” that are grafted onto the original unrealistic assumption of a carefully calculating money maximizer. This contrasts with the “rigid institutionalist methodology” that criticizes economic hypotheses for being founded on assumptions about the behavior of individuals that are not supported by detailed empirical evidence.

Rothbard believed that Nagel made “the most convincing case for neo-classical economic theory” and sent his lecture notes to Burns, “the foremost representative” of the Institutionalist School. “One of the reasons why Professor Nagel was more convincing than other neo-classicists,” Rothbard wrote to his professor, was that “Nagel is ever-sensitive to tautologies and quick to insist on the necessity for empirical verification.” Burns, impressed with Rothbard’s lecture notes, sent them to Friedman, a former student and a current colleague at the National Bureau of Economic Research who was writing a paper on economic method. Friedman wrote on top of the notes, “Arthur: many thanks. I found it interesting, and, of course, agreed.”

At this stage of his intellectual evolution, Rothbard possessed only an “instinctive feeling or insight . . . that there was something wrong with” institutionalism and positivism. Positivists were right to criticize institutionalists for their attempt to discover theories from their intensive empirical work of sifting through reams of data. At the same time, the institutionalists were on the mark when they attacked the positivists’ use of false assumptions because their supplementary assumptions only covered up, and did not substantively change, the theoretical edifice built upon false premises. Consequently, Rothbard realized that “when the institutionalists were criticizing the orthodox [positivists] they were right and, when the orthodox people were criticizing the institutionalists, they were right.”

However, Rothbard did not then fully grasp the alternative to institutionalism and positivism, the deductive method, which had been the traditional approach in economics. Furthermore, he did not know that there existed recent improvements in this method. The praxeological method constructed theorems using only assumptions that were self-evident, meaning that neither the assumptions nor the theorems required empirical verification. In particular, the fundamental axiom of praxeology is that humans act in ways that they think will maximize their psychic income, of which monetary income may be only one part. In the first edition of his book, Lionel Robbins had actually articulated the basics of the praxeological method before he watered it down in the second and more influential edition. But, as Rothbard recalled, “Nagel of course had never heard of praxeology at the time, and unfortunately I hadn’t either.”

A Marshallian Criticism of Keynesian Theory

Rothbard recalled that as an undergraduate he “cut his teeth” on Alfred Marshall’s Principles of Economics by participating in an intense “college seminar, a senior seminar, [that] spent the entire year on Marshall, going through every chapter.” In the early twentieth century, Marshall’s treatise served as the quintessential book on neoclassical price theory. Quite famously, Marshall fused the classical economics of Adam Smith and David Ricardo, who argued that cost determined the value of goods, with the marginalist revolution of William Stanley Jevons, Carl Menger, and Léon Walras, which argued that marginal utility determined price. Marshall pioneered partial equilibrium analysis, focusing on an isolated industry and assuming firms in it cannot influence input and output prices. He used it to show that “the shorter the period which we are considering, the greater must be the share of our attention which is given to the influence of demand on value,” while “the longer the period, the more important will be the influence of cost of production on value.” This is because in the long run “fitful and irregular causes in large measure efface one another’s influence” and production will adjust and push output prices back to where they correspond with given input prices. Ultimately, for Marshall, the important conclusion is “that the value of a thing tends in the long run to correspond to its cost of production.” But Marshall’s major failure went unnoticed: by assuming an industry could not influence its cost of production, the economist fails to explain how the input prices are formed in the first place.

Marshall’s partial equilibrium framework and stress on the long run enormously influenced the profession and caused it to downplay the marginalist revolution’s insights about utility. Neoclassical economics became forever associated with Marshall, and the impact was so severe that Rothbard did not directly read any of the marginalist revolutionaries while at Columbia. He recalled that in preparation for the history of thought section of his PhD oral examination, he asked his examiner, John Maurice Clark, if he should read Jevons. To Rothbard’s astonishment, Clark replied, “What’s the point? The good in Jevons is all in Marshall.”

Marshall’s dominance inspired Edward H. Chamberlin and Joan Robinson’s monopolistic competition revolution in the 1930s. This crucial component of the neoclassical synthesis discarded the concept of industry in favor of just focusing on an isolated firm that is so small it cannot influence input or output prices. This was a state of “perfect competition,” an ideal situation which economists used to judge the actions of real-world firms. The theories were mathematically elegant but, according to Rothbard, even more unrealistic and erroneous than theories based on the Marshallian industry.

Marshall’s legacy even extended to new macroeconomic theorists in the 1930s. John Maynard Keynes, whose General Theory of Employment, Interest and Money had revolutionized the discipline, was a student of Marshall’s and had taken his lectures at Cambridge University. Marshallian partial equilibrium analysis greatly influenced Keynesian macroeconomics. However, Rothbard had learned in one of his classes with Arthur Burns that Keynes made a crucial mistake when he tried to construct his macroeconomics on the Marshallian microeconomic edifice.

Rothbard explained this insight in an article he wrote for analysis, a small periodical edited by the libertarian writer Frank Chodorov. Rothbard learned of Chodorov “at the Columbia University bookstore one day in 1947” by stumbling upon a pamphlet titled Taxation Is Robbery. Its caustic perspective on taxation enormously influenced Rothbard and accelerated his shift from free-market conservatism to radical libertarianism. Rothbard and Chodorov started to correspond that summer, and Chodorov asked Rothbard to “do a little writing for my broadsheet, on a . . . debunking of Keynesianism,” the bête noire of many conservatives and libertarians. Rothbard, well-versed in Marshallian economics and criticisms of the Keynesian system, quickly agreed and wrote a lengthy piece titled “Spotlight on Keynesian Economics.” 

Rothbard started by defending “‘neoclassical economics,’ which is grounded on careful analysis of economic realities,” and then attacked “the Keynesian theory . . . that drastically oversimplifies reality.” He proceeded to construct the basic Keynesian model. “Aggregate national income . . . [is] equal to the aggregate of income received” and “the fundamental equation of the Keynesian system is aggregate income = aggregate expenditures.” Aggregate expenditures are equal to consumption expenditures, determined by “a stable, passive function of income (the famous consumption function),” and investment expenditures that are “effected independently of the national income.” 

He then explained how, according to Keynes, an increase in spending can increase employment. If “expenditures increase . . . because of an increase in private investment,” consumption is no longer equal to the fraction of income determined by the consumption function. Consequently, “income payments to consumers” will increase, and they increase consumption spending. Businesses respond by “expand[ing] their output of consumer goods” and once again pay out higher incomes that consumers spend. This process continues until “consumption is again equal to” the given “percent of income” determined by the consumption function. With the important assumption of constant “money wage rates,” “for every level of national money income, there corresponds a unique, definite volume of employment.” 

Therefore, increasing national income can increase overall employment. The “grand Keynesian climax” is that the “level of income determined in the free market” may produce substantial amounts of unemployment because money wage rates are above their market clearing levels—the famous “underemployment equilibrium.” 

After explaining the model, Rothbard applied Burns’s argument. He devotes the bulk of his criticism to the consumption and investment functions. “Keynesianism,” Rothbard explains to Chodorov in a letter, “originates in standard Marshallian neo-classical equilibrium theory.” Keynes was a Marshallian because he applied to the entire economy the partial equilibrium assumption that an isolated firm “can expand or contract its output . . . without changing . . . the cost curve and the price line.” From the microeconomic perspective, this assumption is “generally true, because the firm is so small in comparison to the rest of the economic system.” But the problem with Keynes is that he extended this Marshallian assumption to the macroeconomy, particularly the “large aggregates—consumption and investment.” He stressed that the economist “cannot postulate that the determining functions will remain constant while the adjustment process is going on, since you are now dealing with the whole economy instead of a small unit.” 

Rothbard elaborated on this point in his article. Investment will change unevenly because “each firm will have to make its own adjustments to its own particular experience. . . . Profits will be distributed unevenly . . . [and] new firms will enter the economic system.” The consumption function will change because of changes “in the distribution of income” and variables besides present income such as “past income, expected future income, . . . prices of commodities, [and] cash balances.” The false assumption that the consumption and investment functions are constant constitutes “the basic fallacy of the Keynesian system.” 

Rothbard’s article, which Chodorov thought “excellent” but unpublishable because of space constraints, shows Rothbard’s current state of development as an economic theorist. He thoroughly understood the Keynesian model and its reliance on “misleading aggregative concepts.” But he focused his criticism far too narrowly on the determinants of aggregate expenditures and how Keynes misapplied Marshall’s partial equilibrium analysis. He failed to realize the faults in Marshallian partial equilibrium analysis and that Keynes simply compounded its errors by applying faulty microeconomic reasoning to the macroeconomy.

An Institutionalist Dissertation

By the spring of 1948, Rothbard had passed his orals and was busy writing his doctoral dissertation. He had decided to write it along institutionalist lines, building upon his master’s thesis, “Contemporary Opinion of the Depression of 1819–1821.” The institutionalist Joseph Dorfman, his dissertation advisor and a Columbia PhD (1935), was an expert in amassing a large number of facts to analyze the development of economic ideas. He dedicated his five-volume magnum opus, The Economic Mind in American Civilization, to “the first-born” of Veblen’s intellectual heirs, his dissertation advisor Wesley Clair Mitchell, who “read numerous drafts and [offered] words of encouragement.” The Economic Mind was a massive compilation of the views of various economists, businessmen, and politicians on economics, cataloguing what they wrote and whom they influenced. Subsequent historians of thought recognized Dorfman’s institutionalism and systematization of facts. “We are all indebted to Dorfman,” Paul K. Conkin wrote, because his work was “encyclopedic. He missed no one.”

In his dissertation Rothbard set out to elaborate on Dorfman’s insights concerning economic thought during America’s first business cycle, the Panic of 1819. He focused on proposals to encourage economic recovery “and the speculations, controversies, and policies arising from them.” These included debtors’ relief, monetary reform, public works, and protectionism. In each chapter, Rothbard used primary and secondary sources to provide a thorough recounting of contemporaries’ views about the panic, what proposals they advocated, and how they influenced policies at the federal and state levels. He especially concentrated on early nineteenth-century monetary thought, with the bulk of the dissertation focused on debates over monetary expansion and bank credit restriction.

The dissertation, which Rothbard had mostly finished by mid-1951, provided a plethora of information on individuals’ perspectives that historians could reference, but it had major weaknesses. Rothbard later admitted he “didn’t analyze the causes” of the panic, nor did he provide an account that explained why proposals differed among individuals. In other words, Rothbard’s dissertation lacked a theory of the business cycle or a theory of why various individuals proposed certain remedial actions. He did not attempt to test a theory that preceded the collection of facts—the positivist approach—nor did he try to emulate the institutionalists by developing a theory from the amassing of facts.

This shortcoming would not have been a major issue if the dissertation had served its primary purpose of allowing Rothbard to receive his PhD and graduate from Columbia. This guild card would have enabled him to advance in the academic profession and possibly obtain a position at a prestigious university. But this he could not do because, he lamented, a “monkey-wrench ha[d] been thrown into [his] timetable on finishing the thesis.” Despite Dorfman having “approved it in glowing terms,” Arthur Burns, “a member of the final committee examining the work,” surprisingly shot it down. The two professors had different visions for the dissertation: “Dorfman is a historian of economic thought [and] has little use for the facts [of the business cycle] and wants major emphasis on” contemporaries’ proposals about how to recover from the panic, while Burns “is only interested in the facts of business cycles” rather than contemporary opinions about policy. Dorfman, who was “scared stiff of Burns,” sided with Burns. Unless the “professorial prima donnas” could “iron out their differences” or Burns left the committee, he could not graduate.

Rothbard’s training at Columbia powerfully shaped his intellectual development. His education provided him with foundational knowledge of the rising neoclassical synthesis, which prepared him well for a career as an orthodox economist. He had learned methodological, theoretical, and empirical techniques from some of the best professors in the nation. However, he did not yet grasp that much of what he learned was false. Positivism could expose the flaws in institutionalism, but the errors in the positivist method remained hidden. Marshallian price theory enabled Rothbard to attack the weaknesses in the Keynesian model, even though use of this price theory severely weakened his own argument. Rothbard’s dissertation exemplified the institutionalist approach to economic history, yet it did not illuminate the causal forces behind the mountain of facts. Furthermore, Rothbard avoided discussion of earlier thinkers because he was taught that subsequent economists always improved upon their ideas. Rothbard concluded that his neoclassical education made him “very unhappy with all the economic theory” because it lacked “a good theoretical base.” Perceiving that there was more to economics, he started to search for answers outside of his university.

The William Volker Fund

Rothbard soon found the appropriate organizations that could further develop his understanding of economic theory. It started with discovering scholars that shared his conservative and libertarian perspective. While taking Stigler’s class on price theory in the fall of 1946, Stigler referred the students to a publication he had coauthored with Friedman, Roofs or Ceilings?, a pamphlet on how rent control created housing shortages. Stigler explained that an obscure organization called the Foundation for Economic Education (fee) in New York recently published their pamphlet because “nobody else would.” By November, Rothbard wrote to fee for the work. By contacting the organization, he “unwittingly ‘entered’ the libertarian movement” and soon discovered Austrian economics.

Leonard Read had founded fee in that year, intending it to serve as the nucleus for free-market teaching and scholarship, a field in serious disrepute since the New Deal and the Keynesian revolution. The “creation of fee,” Rothbard reminisced, “marked the beginning of the modern libertarian movement in America.” Read established the institution thanks to a grant from the William Volker Fund, an organization that was rapidly transforming its mission away from charitable activities and into promoting conservative and libertarian scholarship, including works written by Chicago School economists. Harold Luhnow, the new president of the fund, also provided indispensable funding for the first meeting of the Mont Pelerin Society and indirectly worked with the free-market Earhart Foundation and Henry Regnery Company. Most importantly, Luhnow used his resources to help an obscure economist, Ludwig von Mises, then languishing at New York University (nyu).

Mises was the doyen of what remained of the Austrian School of economics. In sharp contrast with the neoclassical synthesis, Mises used the praxeological method of economic reasoning to develop a body of qualitative theorems that explained real-world price formation, the entrepreneurial function in allocating resources in an uncertain world, the temporal structure of heterogeneous capital goods, and permanent alterations in the economy caused by changes in the money supply. Mainstream economists dismissed Austrian economics because praxeological reasoning stood diametrically opposed to modern mathematical reasoning and empirical testing. Despite reaching similar free-market conclusions, Chicago positivists also found Austrian economic theories outdated. Even Mises’s former disciple, Lionel Robbins, who had fallen under the personal influence of Keynes during World War II, had repudiated Austrian economics.

Despite its greatly diminished numbers and influence during the 1940s, the Austrian School had, on two earlier occasions, boasted some of the most famous economists in the world. In the first instance, Eugen von Böhm-Bawerk of the University of Vienna clashed with Alfred Marshall about capital theory in the early 1900s. The second instance occurred during the 1930s when Hayek, then at the London School of Economics, having advanced Böhm-Bawerk’s capital theory, used it in his debate with John Maynard Keynes on monetary and business cycle theory. These prominent debates reflected well on Mises because he was a student of Böhm-Bawerk’s and his writings heavily influenced Hayek. But with the rise of the neoclassical synthesis in the late 1930s and early 1940s, the Austrian School’s influence rapidly dissipated.

This collapse adversely affected Mises. It was an unfortunate turn of events for a man who might have received a Nobel Prize in the 1920s had the award been established at that time. Instead, Nationalökonomie, his monumental treatise in the tradition of Böhm-Bawerk’s Capital and Interest that expounded the entire corpus of Austrian economic theory, sank without a trace in World War II. Even worse, the Nazis forced Mises to flee to the United States. Mises was relegated to a part-time position at fee and a visiting professorship at New York University’s Graduate School of Business. The latter was a temporary position, but the Volker Fund’s financing soon made it permanent. Hayek didn’t fare much better than Mises: after the war, the economics department at the University of Chicago contemplated hiring him, but its members rejected his capital theory and methodological views. Instead, Hayek landed a Volker Fund–financed position at the Committee on Social Thought at the university, spending the 1950s writing on subjects outside of economics in semiobscurity.

Unlike Columbia University, New York University was then a poorly ranked school that did not begin to ascend in the rankings until the 1970s and 1980s. Even at this academic backwater, the faculty and administration dismissed Mises as a free-market crank who had nothing to contribute to the profession. Israel Kirzner, Mises’s graduate assistant and doctoral student in the 1950s, remarked that “Mises was marginalized by the rest of the faculty” and “there may have been cases where students were advised against taking his classes.” Most of Mises’s students were business majors without any real interest in economics who signed up for his classes because they heard he “gave everyone a B.” Needless to say, New York University was not an academic institution for someone of Mises’s eminence.

In 1949, while busily at work on his dissertation, Rothbard discovered Mises and Austrian economics through his connections at fee. The yawning gap in his Columbia education suddenly became apparent to Rothbard: previously he had only heard of Mises as someone who argued “that socialism can’t calculate.” In fact, he “didn’t even know that Mises was still alive.” He now learned that Mises was starting a graduate seminar on September 29th at New York University, sponsored by the Volker Fund. He also found out that Mises’s English-language version of Nationalökonomie, substantially revised and retitled Human Action, was scheduled to come out in mid-September by Yale University Press. Several scholars protested the decision, but Yale’s conservative- and libertarian-minded editor Eugene Davidson pushed it through. Corresponding with Herbert C. Cornuelle, an associate of Leonard Read turned Volker Fund administrator, Rothbard got in touch with Mises. Cornuelle told Mises that Rothbard was “one of the most outstanding [classical] liberal economic students [who was] interested in the possibility of attending your seminar.” Mises agreed to let Rothbard participate in the seminar. When Rothbard started to attend Mises’s seminar and read Human Action, he embarked on the next phase of his intellectual development.

____________________

Murray N. Rothbard, “My Autobiography,” n.d., p. 9, quoted in Justin Raimondo, An Enemy of the State: The Life of Murray N. Rothbard (Prometheus Books, 2000), p. 29.

Margaret Elizabeth Nells and Leah Sibley, “Report of Murray Rothbard,” December 21, 1934, quoted in Raimondo, An Enemy of the State, p. 35.

Office of the Registrar, “1944–1945 Courses for Murray N. Rothbard,” June 5, 1945, Rothbard Papers; Raimondo, An Enemy of the State, pp. 23–36, 42; Joseph Stromberg, introduction to Man, Economy, and State with Power and Market, scholar’s ed., by Murray N. Rothbard (Mises Institute, 2004), p. xxii.

Joseph T. Salerno, introduction to Man, Economy, and State with Power and Market, 2nd scholar’s ed., by Murray N. Rothbard (Mises Institute, 2009), p. xxi.

Salerno, introduction to Man, Economy, and State, pp. xxi–xxiii, xli–xlii. John R. Hicks, Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory, 2nd ed. (Oxford University Press, 1946); Paul A. Samuelson, Foundations of Economic Analysis (Harvard University Press, 1947); Paul A. Samuelson, Economics: An Introductory Analysis, 3rd ed. (McGraw-Hill, 1955); George J. Stigler, The Theory of Price (Macmillan, 1946).

George J. Stigler, Memoirs of an Unregulated Economist (Basic Books, 1988), pp. 16, 42–43.

Joseph Dorfman, “The Department of Economics,” in A History of the Faculty of Political Science, Columbia University, ed. R. Gordon Hoxie et al. (Columbia University Press, 1955), p. 205. Dorfman, “Department of Economics,” pp. 201–5; Milton Friedman and Rose Friedman, Two Lucky People: Memoirs (University of Chicago Press, 1998), pp. 43–44, 441–43; Lewis A. Froman, “Graduate Students in Economics, 1904–1940,” American Economic Review 32, no. 4 (1942): 818; Murray N. Rothbard, “Statistics: Destroyed from Within?,” in Making Economic Sense, 2nd ed. (Mises Institute, 2006), p. 28; Malcolm Rutherford, The Institutionalist Movement in American Economics, 1918–1947: Science and Social Control (Cambridge University Press, 2011), pp. 223–26, 247; Stigler, Memoirs of an Unregulated Economist, pp. 45, 87.

Murray N. Rothbard to Alex Tabarrok, August 28, 1993, p. 3, Rothbard Papers. Dorfman, “Department of Economics,” p. 196; Raimondo, An Enemy of the State, pp. 36–42; Murray N. Rothbard, America’s Great Depression, 5th ed. (Mises Institute, 2008), pp. 76, 164, 173–81; Rothbard to Tabarrok, August 28, 1993, p. 3.

Walter Block and Walter Grinder, “Rothbard Tells All: Interview with Murray Rothbard,” December 1972, p. 12, Rothbard Papers.

Arthur F. Burns to David Rothbard, May 27, 1948, p. 1, Rothbard Papers.

Block and Grinder, “Rothbard Tells All,” p. 12.

David Gordon, introduction to Strictly Confidential: The Private Volker Fund Memos of Murray N. Rothbard, ed. David Gordon (Mises Institute, 2010), p. 4; Murray N. Rothbard, Man, Economy, and State with Power and Market, 2nd scholar’s ed. (Mises Institute, 2009), p. 732; Murray N. Rothbard, “Breaking Out of the Walrasian Box: Schumpeter and Hansen,” in Economic Controversies (Mises Institute, 2011), p. 261.

Murray N. Rothbard to Ivan R. Bierly, November 14, 1959, p. 1, Rothbard Papers.

Murray N. Rothbard to Kenneth S. Templeton, May 5, 1955, p. 1, Rothbard Papers.

Murray N. Rothbard, An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith (Mises Institute, 2006), p. ii. Raimondo, An Enemy of the State, pp. 43–44; Rothbard to Bierly, November 14, 1959, pp. 1–2.

Murray N. Rothbard, The Betrayal of the American Right (Mises Institute, 2007), p. 66. J. Daniel Hammond and Claire H. Hammond, eds., Making Chicago Price Theory: Friedman–Stigler Correspondence 1945–1957 (Routledge, 2006); Rothbard, Betrayal of the American Right, pp. 65–66; Joseph T. Salerno, “The Place of Mises’s Human Action in the Development of Modern Economic Thought,” Quarterly Journal of Austrian Economics 2, no. 1 (1999): 59, 61.

Frank H. Knight, “‘What Is Truth’ in Economics?,” Journal of Political Economy 48, no. 1 (1940): 1–32; Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 2nd ed. (Macmillan, 1935).

Murray N. Rothbard to William F. Campbell, April 2, 1961, p. 1, Rothbard Papers.

Rutherford, Institutionalist Movement, pp. 251–52. Arthur F. Burns and Wesley Clair Mitchell, Measuring Business Cycles (National Bureau of Economic Research, 1946); Wesley Clair Mitchell, “Quantitative Analysis in Economic Theory,” American Economic Review 15, no. 1 (1925): 1–12; Murray N. Rothbard, “The National Bureau and Business Cycles,” in Making Economic Sense, pp. 243–46; Rutherford, Institutionalist Movement, pp. 127–29, 228–29, 231, 233–56.

Rothbard to Campbell, April 2, 1961, p. 1.

Rothbard to Campbell, April 2, 1961, p. 1. David Gordon, The Essential Rothbard (Mises Institute, 2007), p. 9; Ernest Nagel, The Structure of Science: Problems in the Logic of Scientific Explanation (Harcourt, Brace & World, 1961).

Murray N. Rothbard, “Professor Nagel’s Reply to Institutionalist Criticism of Economic Theory,” Summer 1948, pp. 1–3, Rothbard Papers.

Rothbard, “Professor Nagel’s Reply,” p. 5. Marian Bowley, Nassau Senior and Classical Economics (George Allen & Unwin, 1937), pp. 60–64; John Stuart Mill, Essays on Some Unsettled Questions in Political Economy (London, 1844).

Rothbard, “Professor Nagel’s Reply,” p. 5.

Rothbard, “Professor Nagel’s Reply,” p. 5.

Murray N. Rothbard to Arthur F. Burns, August 23, 1948, p. 1, Rothbard Papers.

Rothbard to Burns, August 23, 1948, p. 1. Friedman and Friedman, Two Lucky People, pp. 29, 164; Milton Friedman, “The Methodology of Positive Economics,” in Essays in Positive Economics (University of Chicago Press, 1953), pp. 3–43; J. Daniel Hammond, “Early Drafts of Friedman’s Methodology Essay,” in The Methodology of Positive Economics: Reflections on the Milton Friedman Legacy, ed. Uskali Mäki (Cambridge University Press, 2009), pp. 69–70. The Friedman marginalia can also be found in Murray N. Rothbard to Arthur F. Burns, August 23, 1948, p. 1, Arthur F. Burns Papers, Duke University Archives.

Block and Grinder, “Rothbard Tells All,” p. 6.

D. P. O’Brien, Lionel Robbins (St. Martin’s Press, 1988), pp. 24–29; Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 1st ed. (Macmillan, 1932); Salerno, “The Place of Mises’s Human Action,” p. 51.

Rothbard to Campbell, April 2, 1961, p. 1.

Murray N. Rothbard, “Menger and Böhm-Bawerk,” in “The History of Economic Thought Lectures,” transcribed by Thomas Topp, p. 143, https://www.stephankinsella.com/wp-content/uploads/publications/others/rothbard-history-economics-thought-iii-transcript.pdf. Alfred Marshall, Principles of Economics, 8th ed. (Macmillan, 1920).

William Stanley Jevons, The Theory of Political Economy (London, 1871); Alfred Marshall, Principles of Economics, 1st ed. (London, 1890); Carl Menger, Grundsätze der Volkswirtschaftslehre [Principles of economics] (Vienna, 1871); David Ricardo, On the Principles of Political Economy and Taxation (London, 1817); Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (London, 1776); Léon Walras, Éléments d’économie politique pure [Elements of pure economics] (Lausanne, 1874).

Marshall, Principles of Economics, 8th ed., pp. 348–50. Robert B. Ekelund Jr. and Robert F. Hébert, A History of Economic Theory and Method, 6th ed. (Waveland Press, 2014), p. 359.

Rothbard, Austrian Perspective, 1:xiv.

Edward H. Chamberlin, The Theory of Monopolistic Competition: A Re-Orientation of the Theory of Value (Harvard University Press, 1933); Joan Robinson, The Economics of Imperfect Competition (Macmillan, 1933).

Murray N. Rothbard, “The Theory of Monopolistic or Imperfect Competition,” November 28, 1954, p. 6, Rothbard Papers.

Rothbard, “Theory of Monopolistic or Imperfect Competition,” pp. 1–7.

John Maynard Keynes, The General Theory of Employment, Interest, and Money (Cambridge University Press, 1936); Tiziano Raffaelli, “Keynes’s Apprenticeship with Marshall in 1905,” History of Economic Ideas 8, no. 2 (2000): 121–52.

Gordon, introduction to Strictly Confidential, p. 4.

Rothbard, Betrayal of the American Right, p. 69. Frank Chodorov, Taxation Is Robbery (Human Events Associates, 1947).

Frank Chodorov to Murray N. Rothbard, June 11, 1947, p. 1, Rothbard Papers.

Murray N. Rothbard, “Spotlight on Keynesian Economics,” October 20, 1947, in Strictly Confidential, pp. 223–40. Rothbard, Betrayal of the American Right, p. 69.

Rothbard, “Spotlight on Keynesian Economics,” pp. 227–28.

Rothbard, “Spotlight on Keynesian Economics,” pp. 229–30.

Rothbard, “Spotlight on Keynesian Economics,” pp. 230–31.

Murray N. Rothbard to Frank Chodorov, September 20, 1947, pp. 1–2, Rothbard Papers.

Rothbard, “Spotlight on Keynesian Economics,” pp. 232–33.

Frank Chodorov to Murray N. Rothbard, September 17, 1947, p. 1, Rothbard Papers.

Rothbard, “Spotlight on Keynesian Economics,” p. 233.

Murray N. Rothard, “Contemporary Opinion of the Depression of 1819–1821” (master’s thesis, Columbia University, 1946), Rothbard Papers.

Joseph Dorfman, The Economic Mind in American Civilization, vol. 1, 1606–1865 (Viking Press, 1946), pp. v, xii. Joseph Dorfman, The Economic Mind in American Civilization, vol. 2, 1606–1865 (Viking Press, 1946); Joseph Dorfman, The Economic Mind in American Civilization, vol. 3, 1865–1918 (Viking Press, 1949); Joseph Dorfman, The Economic Mind in American Civilization, vol. 4, 1918–1933 (Viking Press, 1959); Joseph Dorfman, The Economic Mind in American Civilization, vol. 5, 1918–1933 (Viking Press, 1959).

Paul K. Conkin, Prophets of Prosperity: America’s First Political Economists (Indiana University Press, 1980), p. xii. Raimondo, An Enemy of the State, pp. 42–43; Rutherford, Institutionalist Movement, pp. 226, 239.

Murray N. Rothbard, The Panic of 1819: Reactions and Policies (Columbia University Press, 1962), p. viii.

Murray N. Rothbard, “A Conversation with Murray N. Rothbard,” in The Rothbard Reader, ed. Joseph T. Salerno and Matthew McCaffrey (Mises Institute, 2016), p. 30.

Murray N. Rothbard to Herbert C. Cornuelle, October 16, 1951, p. 1, Rothbard Papers. Raimondo, An Enemy of the State, pp. 43–44.

Block and Grinder, “Rothbard Tells All,” p. 6.

Milton Friedman and George J. Stigler, Roofs or Ceilings? The Current Housing Problem (Foundation for Economic Education, 1946).

Rothbard, Betrayal of the American Right, p. 66. Rothbard, Betrayal of the American Right, pp. 65–66; Murray N. Rothbard to Foundation for Economic Education, November 23, 1946, p. 1, Rothbard Papers.

Murray N. Rothbard, “Toward a Strategy for Libertarian Social Change,” April 1977, p. 132, Rothbard Papers.

Brian Doherty, Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement (PublicAffairs, 2007), pp. 181–87; Jörg Guido Hülsmann, Mises: The Last Knight of Liberalism (Mises Institute, 2007), pp. 865, 867; Michael J. McVicar, “Aggressive Philanthropy: Progressivism, Conservatism, and the William Volker Charities Fund,” Missouri Historical Review 105, no. 4 (2011): 197–200; Murray N. Rothbard, The Essential von Mises (Mises Institute, 2009), pp. 39–40; Rothbard, “Toward a Strategy for Libertarian Social Change,” pp. 131–33.

F. A. Hayek, Hayek on Hayek: An Autobiographical Dialogue, ed. Stephen Kresge and Leif Wenar (University of Chicago Press, 1994), p. 94; Samuelson, Foundations of Economic Analysis, pp. 117–18; George J. Stigler, Production and Distribution Theories (Macmillan, 1941), pp. 179–227.

Jeffrey M. Herbener et al., introduction to Human Action: A Treatise on Economics, scholar’s ed., by Ludwig von Mises (Mises Institute, 2008), pp. v–x; Hülsmann, Mises, pp. 141–50; Salerno, “The Place of Mises’s Human Action,” pp. 38–57; Mark Skousen, The Structure of Production, new rev. ed. (New York University Press, 2007), pp. 28–33, 43–83; Nicholas Wapshott, Keynes–Hayek: The Clash That Defined Modern Economics (W. W. Norton, 2011).

Eugen von Böhm-Bawerk, Kapital und Kapitalzins [Capital and interest], 4th ed. (Gustav Fischer, 1921); Ludwig von Mises, Nationalökonomie: Theorie des Handelns und Wirtschaftens (Editions Union, 1940).

Simon Bilo, “Mises and His Money,” Review of Austrian Economics 33, no. 1 (2020): 131–34; Lanny Ebenstein, “Hayek’s Divorce and Move to Chicago,” Econ Journal Watch 15, no. 3 (2018): 309–18; Hayek, Hayek on Hayek, pp. 126–28; Hülsmann, Mises, pp. 746–98, 845–53; Salerno, “Place of Mises’s Human Action,” pp. 57–59; Paul A. Samuelson, “Bertil Ohlin (1899–1979),” Scandinavian Journal of Economics 83, no. 1 (1981): 358.

Israel Kirzner, interview by Brian Doherty, February 9, 1997, quoted in Doherty, Radicals for Capitalism, pp. 206, 212.

New York University, “A Brief History of New York University,” in Faculty Handbook (New York University, 2024), pp. 7–8; Doherty, Radicals for Capitalism, pp. 205–12; McVicar, “Aggressive Philanthropy,” pp. 198–200; Rothbard, Betrayal of the American Right, p. 66; Rothbard, Essential von Mises, pp. 103–4, 106.

Block and Grinder, “Rothbard Tells All,” p. 6.

Ludwig von Mises, Human Action: A Treatise on Economics (Yale University Press, 1949).

Herbert C. Cornuelle to Ludwig von Mises, June 17, 1949, p. 1, Rothbard Papers.

Doherty, Radicals for Capitalism, pp. 182–83; Herbener et al., introduction to Human Action, scholar’s ed., pp. xiii–xiv; Hülsmann, Mises, pp. 883–86; Rothbard, Essential von Mises, pp. 103, 110.