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Source link: http://archive.mises.org/1687/reviews-of-rothbard/

Reviews of Rothbard

March 10, 2004 by

On the Man, Economy, and State page, reviews of Man, Economy, and State, by Mises, Hazlitt, Hoppe, Salerno, Raimondo, and others as we scan and put up:

Ludwig von Mises: As the result of many years of sagacious and discerning meditation, [Rothbard] joins the ranks of the eminent economists by publishing a voluminous work, a systematic treatise on economics…. 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 all essential studies in in these branches of knowlege will have to take full account of the theories and criticisms expounded by Dr. Rothbard.

Henry Hazlitt: It is in fact the most important general treatise on economic principles since Ludwig von Mises’s Human Action in 1949.

Hans-Hermann Hoppe: Man, Economy, and State is Murray Rothbard’s main work in economic theory. It appeared in 1962, when Murray was only 36 years old. In it Murray develops the entire body of economic theory, in a step-by-step fashion, beginning with incontestable axioms and proceeding to the most intricate problems of business cycle theory and fundamental breakthroughs in monopoly theory. And along the way he presents a blistering refutation of all variants of mathematical economics. The book has in the meantime become a modern classic and ranks with Mises’s Human Action as one of the two towering achievements of the Austrian School of economics. In Power and Market, Murray analyzes the economic consequences of every conceivable form of government interference in markets. The Scholars Edition brings both books together to form a magnificent whole.

Joseph T. Salerno: The revival of Austrian economics as a living scientific movement can be dated from the publication of Rothbard’s Man, Economy, and State in 1962, a contribution to Austrian economics and to pure economics in general that ranks as one of the most brilliant performances in the history of economic thought.

The book was a two-volume treatise of nearly 1,000 pages written in scintillating English that logically deduced the entire corpus of economic theory step by step from the undeniable fact of purposeful human action. It integrated the insights and theorems of dozens of previous Austrian economists from Menger to Mises into a systematic and comprehensive organon of economic theory. Perhaps the greatest of Rothbard’s many contributions in his treatise was the elaboration of a unified theory of production, extending over five of the treatise’s 12 chapters and encompassing the capital structure, interest rate determination, factor pricing, and the entrepreneurial role in production.

While many elements of the theory had been developed previously by various Austrian economists, they had never been fully integrated and several elements were still missing. Rothbard’s methodical treatment of production repaired one of the few serious gaps remaining in Austrian economics after Mises. Rothbard’s book also contained critiques of contemporary neoclassical and Keynesian theories and a critical analysis of typical state interventions into the economy.

In 1970, Rothbard published Power and Market (1970), an exhaustive typology and analysis, based on value-free economic theory, of the myriad of government interventions into the economy. One of its many innovations was to identify and analyze taxation and government spending as types of intervention into the free market economy rather than, as in the long-entrenched conventional view of economists, the necessary means for creating and enforcing a legal framework for the market economy. The book also contained the first analysis of free market defense agencies from an Austrian perspective as well as a path-breaking Wertfreipraxeological critique of antimarket ethics. (QJAE, 5.1)

Justin Raimondo: As is apparent from the opening pages of this monumental work, they don’t write ‘em like this anymore. In the present day and age, economists, as a rule, rarely bother with writing books. Today, the frontiers of economic knowledge are explored in the pages of specialized academic journals and in brief, highly technical articles and notes. In a field that really ought to be “English only,” the language of this priesthood of specialists is abstract mathematics. Inscrutable to outsiders, the literature of modern economics is read only by those fellow specialists who inhabit a particular subfield. Like every other field of human knowledge, economics is fractured into numerous subcategories, none of which appears to have much connection with the other. Thus it is possible, in this Wonderland we live in, for a distinguished scholar in the field to know everything about the wage patterns of 19th-century Appalachian coal miners and nothing about the most basic principles of economics. Incredibly, with the exception of textbooks for undergraduates, very little discussion of economic theory and empirical work is written in English.

The sheer breathtaking scope of Rothbard’s vision is enough to spark an idealist’s interest in the “dismal” science. Here is economics for living, breathing human beings; not statistics, computer models, and arcane mathematical symbols. First published in 1962, Man, Economy, and State is something very different from the narrow worm’s-eye view of the field afforded by modern economics texts: a systematic treatise, a comprehensive synthesis of economic thought, a majestic overview of basic principles and their application. Except for Ludwig von Mises’ monumental Human Action (1949), Rothbard’s book is the only such treatise published since the early 20th century, when the “principles” book was the standard form in which economists presented their ideas. Designed to be accessible to any interested reader, and presupposing no formal training in economics, mathematics, or statistics, the book covers nearly all of basic economic theory, from barter and indirect exchange to competition and monopoly, public expenditures, money and interest, and inflation and the business cycle.

As the heir and champion of the great Ludwig von Mises, Rothbard is the leading figure in the so-called “Austrian” School of economics. Founded in the 1870′s by the Viennese economist Carl Menger and his successors, the Austrians emphasize the human aspect of economic behavior. This reverses the modern trend, which reduces human beings to a series of numbers in some planner’s grand design. The economists of the 20th century, always eager to appear “scientific” and up-to-date, adopted the outlook and methods of experimental physics. The Austrians, in contrast, maintain that the social sciences, and economics in particular, require a method closer to logic. Thus, Austrians favor verbal reasoning over mathematics, causal explanations over formal descriptions of “equilibrium,” and an emphasis on the subjective nature of economic decisions and knowledge. They also tend to be strong advocates of laissez- faire capitalism, even more so than members of the better-known Chicago School. Deriving the principles of economics from self-evident axioms, the Austrians see the free market not merely as the most efficient allocator of scarce resources, but, more importantly, as part of the natural order of things.

Given the popularity of the pragmatic-empiricist Chicagoites among establishment conservatives, it is easy to see why, even with the political and moral collapse of socialism, the free market is nowhere in sight; who, after all, is willing to go to the barricades for an empirical study? But men have laid, and will lay, down their lives for what they believe to be the natural order, especially if they see it violated by government on a daily basis. Rothbard is a breath of fresh air for all those who are looking not for policy-wonk cost-benefit analyses and arguments for “efficiency,” but for a philosophy of the social sciences, of which economics is but one branch.

It is impossible in a review to do justice to the scope and depth of the book’s contents. Among the author’s original contributions are a treatment of the theory of interest as integrated into the theory of the firm (in Chapter 7) and a discussion of monopoly (in Chapter 10) in which Rothbard demolishes the concept of a free-market monopoly and proves that no one can maintain a stranglehold on the economic life of a nation unless it is enforced at gunpoint, i.e., by the government. This volume is a gold mine of numerous insights and observations on topics ranging from business organization and comparative economic systems to legal philosophy, history, and psychology.

In addition to presenting a general theory of economics itself, the author rebuts numerous fallacies and misinterpretations, including most of the common policy prescriptions of the time. Since this book is a reprint of the earlier edition, his discussion covers only those fallacies that were around as of 1962. The last 30 years have spawned many more, and it would have been nice to have an updated edition, but this is a minor quibble. Out of print since the early 1970′s, Man, Economy, and State is the necessary antidote to the nonsense that passes for economics these days, an indispensable weapon in the battle against the redistributionist schemes of the Washington power elite.

The significance of this work is tied up with its history, and so you should know that Man, Economy, and State was originally published as part of a series sponsored by the now-defunct William Volker Fund, which also funded Mises’ salary at New York University, as well as part of Hayek’s at the Committee on Social Thought at the University of Chicago. The Volker series also included Mises’ Epistemological Problems of Economics and Israel Kirzner’s first book, The Economic Point of View. Rothbard worked as a full-time analyst for the Volker Fund, tracking down the few free market-libertarian scholars that existed and making it possible for them to continue and expand their work. The fund was the main link in the network of Old Right economists, who were never for a moment reconciled to the welfare-warfare state, and its collapse was due in part to the crisis that occurred in the conservative movement of the 1950′s.

The fund was, in large part, a casualty of the struggle between the Old Right and the New and the breakup of the conservative-libertarian alliance over the issue of the Cold War. With the Volker Fund’s demise, the hard-core free-market analysis of economic thought represented by the Austrian School was largely absent from the ranks of the conservative establishment; the incursions of neoconservative pragmatists and ex-Marxist social scientists who envisioned a “conservative welfare state,” as Irving Kristol puts it, thus met with little resistance in the councils of the right. The publication of this new edition of Man, Economy, and State, together with Power and Market, therefore comes at just the right time. As libertarians and conservatives rediscover their common Old Right heritage and cast aside Kempian nostrums of neoconservative welfare statism, this book will do much to instruct a new generation of conservative activists who understand that knowledge is the prerequisite for activism.

The author of 20 books and more than 1,000 articles, Murray N. Rothbard has been a mentor and an inspiration to the partisans of liberty since the early 1950′s. If he had written only Man, Economy, and State, it would have been enough to secure him a permanent place among the luminaries of libertarian thought. As it is, the astonishing range of his writings, from economics to ethics to history to political journalism, reveals the mind of a polymath, so unlike the modern intellectual’s narrowness of vision that the two seem representative of different species. He is comfortable everywhere, and just as capable of turning out a knock ‘em-sock ‘em political polemic as of writing the magisterial Man, Economy, and State.

Murray Rothbard, the happy scholar-warrior of liberty, is a national treasure.

[Justin Raimondo is the author of Reclaiming the American Right: The Lost Legacy of the Conservative Movement (Center for Libertarian Studies) and the famed columnist for AntiWar.com. This is adapted from a published review of a previous edition (Chronicles, November 1994)]


Tough Crowd March 13, 2004 at 6:36 pm

Wow! Rothbard sure gets good reviews, from those who already agree with him. What about the rest of the economics profession? Can we see some references to reviews from those folks too?

David Heinrich March 14, 2004 at 3:04 pm

“Tough Crowd”, so, anyone who writes a favorable review is disqualified, because they wrote a favorable view? Also, Rothbard has received praise from many individuals other than those in the Austrian school. Most importantly, the common reader praises Rothbard, because he writes to clarify and express his views to all, not to hide questionable views behind a wall of mathematical mumbo-jumbo (sorry, but only economists with their heads in the clouds think that mathematics can illuminate, allow us to understand, and predict human action to the extent that mainstream economists seemed to have imagined).

Other reviews:



As for reviews from mainstream economists, you’ll have to look around. There aren’t many well-organized useful sites by mainstream economists).

Jeffrey March 15, 2004 at 1:08 pm

Two more archival reviews of Rothbard’s Man, Economy, and State are online (someone email that fellow who said Mises.org only runs positive reviews). One is from the American Economic Review–very unhappy about this book. The other is from the Southern Economic Journal, also critical, but nonetheless says: “These volumes are refreshing in their originality, and challenging in the boldness of their approach. They constitute a comprehensive and thorough analysis of the principles of Austrian marginal-utility economics, which are carefully explained and clearly illustrated with many examples. This work is probably the most accurate and detailed praxeological analysis of the economy which has yet been written.”


David Heinrich March 15, 2004 at 11:13 pm

A response to the criticisms of MES in The Southern Journal of Economics:

Rothbard de-emphasizes costs of production, insisting that costs are price-determined, rather than price-determining. To the extent that costs of production are analyzed, they are given the subjective interpretation of psychic costs involved in the disutility of labor and waiting.

Obviously, there are costs of production. However, costs of production are not the factor in determining the price of the goods sold. A good can be sold when a buyer wishes to buy up to a certain maximum limit ($X), which is equal to or above the minimum price at which the seller is willing to sell the good ($Y). The buyer has a sense of how high he will pay for the good (either an absolute limit he sets, or an inuitive fly-by-wire feel). Likewise for the seller and how low is the price at which he will sell the good. As it happens, sellers will sell goods at prices below their costs of production. This is because, if the market really doesn’t want to buy their product at the COP or higher, they are going to lose more money by not selling, as opposed to selling.

I would make the following observation, regarding the COP. Firstly, a large portion of the cost of production is not recoverable. Secondly, there is a small portion of it that is recoverable. For example, if I make a computer, and later cannot sell it at the cost of production, I can recover some costs of production, but not others. I cannot recover the labor-associated costs. Nor the opportunity-cost.

What I can recover is some of the material costs. If I tear it apart, I can recover part of the costs of the plastic, chips, electronics, monitor, keyboard, etc used to make it. From what I can recover, you must deduct several costs of recovery: (1) The cost of tearing the computer apart; (2) The amount by which the parts have depreciated; (3) The opportunity cost; (4) The cost of selling the parts individually. Let’s call this the Adjusted Cost of Recovery (ACOP).

Now, to determine whether or not I will tear apart the computer, we need to consider how much money I would obtain if I sold it. Thus, I would need to determine the highest price at which a consumer would buy the computer. From that, I will need to subtract the cost of finding that consumer and selling the good to him (opportunity cost and cost of sale). Lets call this the Adjusted Gain From Sale (AGS).

If the adjusted cost of recovery is greater than the adjusted gain from sale, I will not sell the computer as a whole, but will tear it apart and sell it’s parts separately. If I am in such a dysmal situation, I have obviously done a very poor job, as I have put various goods together in such a form that not only is the new good’s value less than the adjusted cost of production, but is also less than the cost of production.

Ultimately, it is the interaction between buyers and sellers that determines the price at which goods are sold. The relationship the entrepreneur perceives between the cost of production and the market value of the produced good will determine whether or not the entrepreneur actually produces the good. Barring other considerations, if the entrepreneur thinks that he can’t recover the cost of production, he probably wont make the good. However, entrepreneurs make mistakes. He may think that he can recover the cost of production, but reality may not bear him out. Mistakes such as this, even for the best entrepreneurs, are unavoidable.

to say the very least. These axioms are not “apodictically true” in the absolute sense, but are relative truths, subject to so many qualifications that they cannot support Rothbard’s logical arguments. In the absence of the necessary qualifications, this reviewer would reject the axioms as meaningless nontruths.

What qualifications? The author here merely asserts this, and does not (nor, I argue can he) back it up. There is no qualification of the action axiom. Likewise for the variety of resources, human and natural. We clearly live in a heterogenous world. Regarding leisure being a consumer good, this is something that is also undeniably true, though different individuals may place different value on it. At the very least, everyone needs a certain number of hours of sleep; hence, leisure is, at least to that extent, a consumer good. Regarding the axiom of indirect exchange, it’s simply a limiting condition for when indirect exchange is occuring.

Finally, the money-profit maximization postulate for firms is the one least central, and is simply a “rule of thumb”, with frequent exceptions. This is the one area where I am uncomfortable with the Austrians. However, even here, the Austrians are much more intelligent about this than mainstream ecomists, who almost always act as if monetary profit is the only thing considered by individuals. Regarding my criticism of Austrians here, it is really splitting hairs, but I don’t think that this should by any means be called a “postulate” (minor axiom). Rothbard partially soothes my concerns here by noting in his discussion of this axiom that it is a specific case of the more generalized form, that firms always aim to maximize their psycic profit (which is completely redundant with the action axiom).

Involuntary unemployment, the concentration of economic power in the large corporation, and economic growth and development are among the contemporary economic problems which the author fails to recognize, either because he denies the existence of these conditions, or because he denies that such conditions constitute problems to a free market economy. Therefore, even if, for purposes of argument, we accept Rothbard’s analysis as logically valid, it would be of limited and doubtful usefulness as an intellectual tool for solving practical economic problems.

Well, Rothbard illustrates how these problems really don’t exist, or how they really arent problems. He does not just assert that they don’t exist, with no argument to back it up. Using praxeology, he shows how they cannot exist or are not problems; and he uses historical facts to illustrates (not prove) his points. Austrian economics has proposed real solutions that would work for real problems caused by The State, and shown how decried “problems” with the free market aren’t fixed by State Intervention (or perhaps they are “fixed”, but new problems are created).

Third, the analysis of monopoly is untenable, because grants of privilege by the state are identified as the sole source of monopoly. This analysis denies the existence of monopoly originating in the market power of large corporations and cartels.

As Rothbard has shown, monopoly prices cannot originate on the free market. There are always competitors waiting to take advantage of opportunities created by over-pricing. Not only in the same area, but also in alternate solutions to the same problem. Cartels are unsustainable, and they invite competition into the field. One must conclude that if a company has obtained “monopoly size” in a market, that’s because it has arrived first and capitalized, or because it has outcompeted all competitors. However, the “monopoly prices” so decried cannot exist. Indeed, how could we possibly tell if the company was charing “monopoly prices”? This is a bunch of vague mumbo-jumbo. Furthermore, as Rothbard has shown, there is a practical limit to the size that a corporation can grow to, and after that point, it starts to run into calculation chaos.

Rothbard does not recognize that concentrations of market power can be used coercively to establish monopolistic restraints of trade. Consequently, he develops an indefensible double standard of monopoly, according to which governmental monopoly is condemned as very bad, while corporate monopoly is regarded as nonexistent or harmless.

If a company obtains “monopoly size” on the free market, it could not be because of coercion, but only because customers *chose* to purchase their products, as opposed to purchasing competing products, or not using said kind of products. One wonders what the revier think the word “coercion” means. Rockefeller didn’t point a gun to anyone’s head and mandate they buy his oil. The critic is succumbing to the nirvana fallacy here: there is no such thing as “perfect competition” (and Austrians don’t ever assume there is for any analysis), and furthermore, we can’t even determine the prices that “perfect competition” would produce. We should not be comparing the free market to a “perfect competition” scenario, but to what we’d have without these entrepreneurs — nothing.

Considering that, Rothbard has no double standard. He does not oppose the possibility of a company achieving “monopoly market share”, nor does he even declare it’s completely impossible. He is not really opposed to “monopoly prices” in the conventional sense, either, for that is a non-sensical position, as there’s no way to tell if one price is a “monopoly price” or not. Rothbard is opposed to The State using coercion to create monopolies. The only way there can be monopoly prices is if The State has used coercion to enforce a monopoly and ban competition.

Fourth, there is a complete absence of empirical verification. Rothbard not only fails to verify axioms, postulates, and conclusions, but also insists that empirical verification is not proper analytical procedure, because he regards economic truth as empirically indeterminable.

The reviewer here is not stating his unjustified and incorrect assumption that economic truths need to be determined empirically and that they can be determined empirically. As Mises has shown, this is impossible, as history is a complex phenomena, and open to multiple interpretations. We do not need to verify economic truths, because we already *know* the fundamental truths of economics, as we are human beings and can determine this by introspection.

The reader is asked to accept both assumptions and conclusions as economic dogma, and is allowed to question only the internal logical consistency of the system.

The reader is not “asked” to accept them. The reader cannot help but accept them; any denial of such is non-sensical. You cannot logically and consistently deny the action axiom.

The postulates are not so fundamental, but they too need no empirical verification. The diversity postulate is a priori to human action, and a result of the physical realities of this world. I have explained this above.

Alex March 15, 2004 at 11:46 pm

Wow, thanks for clearing up a lot of points that critics have taken MES to the cleaners for.

It laughed at the point that the Southern Journal of Economics made on the COP affecting the price of the good. I believe Hazlitt took this common fallacy that mainstream economists have to the cleaners. No one will buy a good unless he deems the utility he would have by purchasing said good as being higher than keeping the good (or goods) he would have had without making the purchase; few people could care about how much time someone spent in the good (and if they did care, it would be because the believed it would affect the utility of the good in question; not out of charity or some ridiculous economic ‘theory’ that states that consumers would spend more than the COP.)

Lastly, the critique on Rothbard’s view of monopoly theory is ridiculous. Apparently there is no difference, in said authors mind, of being forced to pay for something at a lower ‘market price’ (I said market price because State monopolies might charge less for goods, but the real ‘cost’ of the good is externalized onto taxpayers through regulations and taxation) versus the true cost of a good in a market setting, where no strings are attached and no one has a gun pointed to his head and is being forced to subsidize the cost of the good.

Looking at it this way, one could surmise that State monopolies ‘cost’ more than market ‘monopolies’.

Again, the mainstreamers get it all wrong with Austrian economics. Even relatively deep introspection can do away with these criticisms; surely a trained economist should be able to do the same before submitting such rubbish.

I guess the main reason why I don’t like mainstream economists is their foggy approach to economics and their support for State intervention and quasi-free market views.

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