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Murray Rothbard, An Exceptional American

March 2, 2017

It is a bit jarring for me to point to economist, political theorist, and historian Murray Rothbard (1926–1995) as an example of American exceptionalism.

It is a bit jarring for me to point to economist, political theorist, and historian Murray Rothbard (1926–1995) as an example of American exceptionalism. Rothbard was a fierce critic of all aspects of the federal government, and for him, and many of his followers, referring to “American exceptionalism” is equivalent to claiming that the federal government, and by extension the United States, are sacred and can do no wrong. He utterly rejected this idea, and considered himself an enemy of the state.

On the other hand, Rothbard was indeed an exceptional American. His scholarship was crucial to the rebirth of the Austrian school of economics, the development of modern libertarian/classical liberal thought, and the development of the theory of anarcho-capitalism. In developing these he played an important role in building America’s modern liberty movement.

And perhaps combining Rothbard and American exceptionalism isn’t as jarring as it seems at first blush: His history of the American Revolution, Conceived in Liberty (1979), argues America was indeed exceptional in that it was founded on the revolutionary principle of individual liberty. In this sense, America is exceptional because it was founded on philosophical principles, and those principles are among the things that Rothbard worked to advance. In what follows I’ll survey a few of Rothbard’s key contributions and their importance.

Austrian School of Economics

Murray Rothbard was an instrumental figure in the rebirth of the “Austrian” school of economics. The insights developed by this school lead to the conclusion that the free market is absolutely necessary to the development and advance of human civilization. To explain, a short digression into economics is necessary.

This school of thought, so named because of its founding in Vienna, was one of the original developers of the modern subjective theory of value crucial to modern economics. Objects do not have value in themselves; value is not intrinsic. Instead, an object becomes a good and is given value when an individual decides the object would be useful for satisfying his/her purposes. The subjective theory of value, and the intellectual revolution it inspired, lead to a deeper understanding of the market system as an organizing principle for society. Market prices of goods depend entirely on their relative usefulness to individuals. There is no way for such private, subjective information to be assembled and communicated except by market trading.

The resulting prices communicate the relative values people place on different goods, and the opportunity cost of using resources in one employment instead of another. Owing to this focus, the Austrian school also emphasized the uncertainty of economic decision making and the importance of disequilibrium and entrepreneurship. For the early Austrians, such as Carl Menger, Friedrich von Wieser, Eugen Böhm-Bawerk, Ludwig von Mises, and Friedrich Hayek, entrepreneurship and competition in markets are indispensable. As a corollary, the Austrians also developed some of the most devastating critiques of socialism and Marxism, refuting the labor theory of value and showing that central planners have neither the knowledge nor incentives to plan an economy. In all of this the Austrians became the strongest champions of the free market of any of the contemporary schools of modern economics; the others — centered in the English-speaking world — tended to Keynesian intervention and more sympathy for central planning.

With the advent of World War II, the Viennese economists fled Europe, and the Austrian school essentially died. One scholar, Ludwig von Mises, continued economic research in this line, and in 1949 he began resurrecting the school at New York University. His first important student was Murray Rothbard.[1] Rothbard, a doctoral student in economics at Columbia University, attended Mises’ seminar and quickly began absorbing and developing Mises’ ideas. It was Mises’ influence that pushed Rothbard to prominence as an Austrian school economist, and he became a leader in developing and popularizing the ideas of the school.

The Austrian school was indeed reborn, and it is now alive and vibrant in the United States. Rothbard was an instrumental figure in this. An astoundingly prolific author, he wrote on both pure and applied theory. His books Man, Economy and State (1962) and Power and Market (1970) lay out a complete theoretical analysis of the market and government. But he was not just a pure theorist and did important work in applied economics. His America’s Great Depression (1963) is, in my view, the single best application of Austrian theory to explaining historical events. In it, Rothbard first explains the Mises-Hayek theory of the business cycle, in which interventions by a central bank trigger a boom-bust sequence, and next addresses alternative theories from Keynes and others. He then proceeds to carefully analyze the history of the 1920s’ boom and bust. Like Milton Friedman, he lays blame for the bust on Federal Reserve policy, but he also makes clear the role of the Fed in precipitating the stock market bubble and crash of 1929 and the destructive effects of Hoover’s subsequent interventions in the market, interventions that turned a crash into a depression. America’s Great Depression is a masterful work.

Works such as these persuaded a small core of economists to continue working in this line, and in addition to New York University, the Austrian approach spread to schools such as Auburn University and George Mason, as well as undergraduate programs such as Grove City College and Hillsdale College. Today Austrian ideas are having influence beyond these locales, including in policy institutes such as Heartland. My personal judgement is that, after Mises and Hayek, Rothbard was the most important in attracting young minds to Austrian thinking (Kirzner is likely more influential in academic circles.) But an essential route for the spread of Rothbard’s ideas is his libertarianism.

Rothbard as Libertarian

Murray Rothbard was a fierce advocate of individual liberty and saw this as inextricably woven with his economics.[2] Rothbard saw individual liberty as, first of all, a supreme value, an end in itself. Secondly, he recognized the instrumental role of liberty as a means to human thriving and flourishing. In this he combined Aristotelian metaphysics and epistemology with a Lockeian conception of natural rights. For Rothbard, the natural rights of the individual are the foundation on which any just social order is based… and only a just social order can be tolerated. Any social organization, such as the state, is only a means to an end: the liberty of the individual and the well-being of the individual as the individual sees it, and not as defined by some philosopher-king, central planner, or progressive advocate of “fundamental change.”

Nearly all of Rothbard’s writing is influenced by his libertarianism, and without question he was one of the most influential libertarian thinkers of the second half of the 20th century. His Power and Market (1970) presents a case that all forms of government intervention lead citizens to be worse off. In For a New Liberty (1973) and The Ethics of Liberty (1982) Rothbard builds both a practical and moral case for a libertarian society built entirely on natural law and natural rights. Rothbard used both passion and reason in his case for liberty, and these and other of his works have been enormously influential in developing the modern libertarian movement.

Rothbard was associated with the Libertarian Party for a time, but broke company with it after 1980, arguing that it was insufficiently libertarian. (Oddly, for a short period in 1999 he served as economic advisor for Pat Buchanan’s campaign for the Republican presidential nomination, odd since Buchanan is quite hostile to free trade and free markets.)

Rothbard the Anarchist

Rothbard was, in addition, a founder and developer of modern anarcho-capitalism. His ideal libertarian society would be stateless. Things usually thought to be state functions, including law and courts, police services, and defense against external aggressors, could be provided by entrepreneurs in the free market, in his view. However, his primary argument for abolishing the state was that he saw the state as incompatible with individual rights. A state necessarily involves taxation, as well as a near monopoly on coercion. To him, strict respect for individual rights was incompatible with such compulsion, hence he opposed the state first of all on moral grounds.

However, he also made a consequentialist argument for anarcho-capitalism. In For a New Liberty, he laid out an argument for how all of government might be replaced with market-based private services, and why private provision would be better. In his arguments, Rothbard takes on the more difficult cases for the market, such as provision of education, roads, environmental protection, and policing services. His analyses are always thought-provoking and often convincing (to me, at least), such as in his case for replacing compulsory government schooling with private education. One need not be an anarchist to appreciate his cogent arguments for getting the government entirely out of things it does so badly (e.g. education).

Unfortunately, Rothbard also sidesteps some difficult problems. The primary argument for having a state at all is that the state can overcome the public goods/free rider problem, while private entrepreneurs cannot. Rather than addressing this argument, Rothbard effectively denies the problem exists, which is no answer at all and certainly does nothing to assuage the doubts of critics. Similarly, in response to the challenge that his proposed private protective agencies would fight among themselves and oppress people, he simply asserts this would be too costly for them and they’d realize peaceful cooperation and trade are more profitable.

Well, no. One could use this logic to “prove” that Al Capone would never order the St. Valentine’s Day massacre of the North Side gang, or that Hitler would never invade Poland. There’s nothing special about whether we call an organization a “state” or not that changes the benefit-cost analyses of the leaders in these matters. Perhaps it’s possible that under certain circumstances an anarchic society could be peaceful and stable, but Rothbard simply ignored the most difficult problems for his theory.

That, to me, illustrates Rothbard’s primary flaw. It seems to me that for him, no argument is too shallow so long as it leads him to a libertarian conclusion. His dedication to liberty is admirable, but as the 19th century French economist Frederic Bastiat warned, “The worst thing that can happen to a good cause is, not to be skillfully attacked, but to be ineptly defended.” In my view, by not taking arguments for a minimal state sufficiently seriously, Rothbard ends up deceiving himself and supposing that the case for his anarcho-capitalism is airtight. I think it is not, and there are other examples of this sort of error in Rothbard’s economic, political, and historical writing.[3]

However, all people have flaws, and all thinkers err. What ought to matter is not one’s mistakes but the total net contribution, and, unquestionably, Rothbard’s contributions were great. Murray Rothbard was a genuinely important figure in promoting careful economic analysis (especially of government interventions that had too often been regarded uncritically). He passionately and unceasingly promoted individual liberty and free markets.

Given his devotion to the American ideal of liberty, I think it is fair — and hope it will not disturb him too much should he be reading this somewhere — to call him an example of American exceptionalism.

[1] Other important students included Israel Kirzner, Hans Sennholz, and George Reisman.

[2] This is a point on which I diverge from Rothbard. Economics concerns cause-and-effect relations, while normative analysis concerns good-bad or desirable-undesirable. These are separate concerns.

[3] Two examples: In An Austrian Perspective on History of Economic Thought (1995), Rothbard engages in a remarkably unfair attack on Adam Smith, whom he regards almost as a villain, a view his friend and fellow Austrian economist Mark Skousen corrects in The Making of Modern Economics (2002). Or in For a New Liberty Rothbard goes through a series of convoluted arguments to try to show that Soviet foreign policy was strictly non-interventionist. This would be difficult to explain to Finns and Poles under assault by the Red Army in 1939, or Estonians, Latvians, and Lithuanians in 1940. But in both cases Rothbard’s errors served his larger arguments, and so were left to stand even when authoritatively challenged.

[Originally Published at American Spectator]

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Charles N. Steele is an associate professor at Hillsdale College, where he holds the Herman and Suzanne Dettwiler Chair in Economics.