In my remarks this evening, I would like to set the stage for the Rothbard Graduate Seminar by addressing a pernicious and deeply entrenched myth about Murray Rothbard and Man, Economy, and State: namely, that Rothbard possessed a superficial knowledge of mainstream economics when writing his treatise. Nothing could be further from the truth. In fact, Rothbard deeply engaged with mainstream economic theory throughout his treatise. This is not surprising given that, when Rothbard wrote his treatise, he was a well-trained neoclassical economist who was completely conversant with the research methods and various strands of doctrine that composed the emerging “neoclassical synthesis.” This synthesis of the ideas of Alfred Marshall, Leon Walras, and John Maynard Keynes would come to dominate academic economics in the U.S. by the mid-1950s. The leading architects of this approach were John Hicks, Franco Modigliani, Alvin Hansen and, especially, Paul Samuelson.
Rothbard enrolled at Columbia University in 1942 at the age of sixteen. At age nineteen he received his A.B. degree with honors in economics and mathematics and soon after enrolled in Columbia’s Ph.D. program in economics. In the 1940s, Columbia University was a leading academic institution in the U.S. and housed one of the top three economics departments in the nation. It rivaled the University of Chicago and Harvard University, producing more doctoral degrees than either institution. Notable faculty included Arthur F. Burns, the foremost institutionalist and a leading authority on business cycles; John Maurice Clark, a leading Marshallian and pioneer in Keynesian economics; Harold Hotelling, the renowned mathematical statistician; Joseph Dorfman, an institutionalist and influential historian of American economic thought; and George Stigler, the founder of Chicago price theory.
Rothbard took courses with all these eminent economists but was especially influenced by the institutionalists Burns and Dorfman, and there was mutual admiration between Rothbard and both professors. Burns expected Rothbard to make “a prominent place for himself” in the world. Rothbard recalled that in his lectures Burns “was a brilliant theorist” and his “critique of orthodox theory . . . was excellent.” Rothbard held Dorfman in high esteem as a historian of economic thought, writing that “his knowledge of the sources is unparalleled.” He acknowledged Dorfman as one of his “mentors” along with Ludwig von Mises in the dedication of his two-volume treatise on economic thought. Dorfman in turn appreciated Rothbard’s abilities and agreed to chair his dissertation committee. When the dissertation was completed, Dorfman lobbied to have it published by Columbia University Press.
In addition to studying the institutionalist approach under its contemporary leaders and learning Chicago price theory from its leading light, Rothbard spent an entire year in an honors seminar going chapter by chapter through Marshall’s Principles of Economics, then the bible of neoclassical economics. But Rothbard did not just absorb different theoretical approaches and doctrines at Columbia; he also immersed himself in the study of conflicting economic methods, namely, institutionalism and positivism.
Prior to the 1940s most economists, going back to the British classical economists, utilized the deductive method to develop economic theories by tracing out the logical implications of a handful of general assumptions about human behavior and the technical conditions of production. This methodological approach culminated in the early 1930s in Lionel Robbins’s monograph, Essay on the Nature and Significance of Economic Science. However, beginning in the early 1900s the deductive method was rejected by many economists at Columbia in favor of the Baconian empirical method championed by the Institutionalists. According to this method, economic theories could be discovered only by the painstaking and copious collection and collation of facts. During the 1940s, however, both the deductive and institutionalist methods were being rapidly swept aside by the on-rushing tide of positivism. The positivists argued that economic theory is developed by forming tentative hypotheses from basic assumptions about human nature and then testing these hypotheses based on how well they predict historical or future patterns of economic facts. Both the positivist and institutionalist approaches thus champion empirical analysis, but only positivism allows for a body of economic theorems that precedes investigations of historical episodes.
It was during this period of methodological ferment and transition that Rothbard took a course on the philosophy of economics from Ernest Nagel, one of the leading exponents of logical positivism. Nagel’s criticisms of institutionalism favorably impressed Rothbard, who took copious notes on Nagel’s lectures. Commenting that Nagel made “the most convincing case for neo-classical economic theory,” Rothbard sent his lecture notes to Arthur Burns. Burns was impressed with Rothbard’s notes and sent them to Milton Friedman, a former student and then colleague of Burns’s at the National Bureau of Economic Research. Friedman was then writing his famous article on “The Methodology of Positive Economics.” Friedman wrote at the top of the first page of Rothbard’s notes, “Arthur: many thanks. I found it interesting, and, of course, agreed.”
Although Rothbard was favorable to Nagel’s positivist criticisms of institutionalism, he rejected out of hand the statistical basis of the positivist method. Specifically, he enrolled in a graduate mathematical statistics course offered by Hotelling but quickly became disillusioned when he realized after a few lectures that statistical inference was based on what he called the “groundless assumption” of a normal distribution.
At this stage of his intellectual evolution, Rothbard recalled that he 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 by amassing and sifting through reams of data. At the same time, the institutionalists were on the mark when they attacked the positivists’ use of false assumptions. Their addition of more realistic supplementary assumptions only covered up, and did not substantively change, the theoretical edifice built upon false premises. Rothbard’s elite Columbia education thus left him with an inchoate feeling that something was wrong with both approaches to economics. He later reflected that he “tended to agree with institutionalist critiques of Keynesians and mathematicians, but also with the latter’s critiques of the institutionalists.”
Unfortunately, Rothbard did not then fully grasp the alternative to institutionalism and positivism, the deductive method, which had been the traditional approach in economics from its inception as a science in the 18th century. Furthermore, he did not know that significant improvements had been recently made in this method by Ludwig von Mises. The praxeological method logically deduced theorems only from assumptions that were self-evidently true, meaning that neither the assumptions nor the theorems required empirical verification. As Rothbard recalled, “Nagel of course had never heard of praxeology at the time, and unfortunately I hadn’t either.”
Returning to doctrine, Rothbard was thoroughly trained in Keynesian economics at Columbia, where the faculty included both old-style Keynesians along Alvin Hansen-Seymour Harris lines and what Rothbard called the “younger mathematico-Keynesians” such as Albert G. Hart. In addition, Burns, whom Rothbard hailed as a “a brilliant theorist,” engaged with Keynesian economics in his courses. Burns criticized Keynesian macroeconomics for inconsistently building on Marshall’s microeconomic, partial-equilibrium theory of the firm. In an unpublished article written in 1947 for Frank Chodorov’s Old Right broadsheet, analysis, Rothbard set out the full Keynesian model and then elaborated a Marshallian critique along the lines suggested by Burns.
By the time he completed his course work at Columbia, then, Rothbard was a well-trained, if somewhat uneasy, neoclassical economist well versed in all the elements of contemporary economic theory and method that would soon coalesce into Samuelson’s so-called “neoclassical synthesis.” This theoretical approach would dominate economics from the mid-1950s until it crashed and burned during the stagflation of the mid-1970s.
After passing his orals in 1948, Rothbard embarked on his doctoral dissertation. Completed by 1951 and entitled “The Panic of 1819: Reactions and Policies,” it was a thorough examination of contemporary opinion on the causes of and remedies for the panic. Although Rothbard amassed a plethora of facts for his dissertation, he refrained from any theoretical investigation. He did not try to empirically test a theory along positivist lines, nor did he seek to discover a new theory from a mass of facts as the institutionalists taught. Burns, a member of Rothbard’s committee, was dissatisfied with the dissertation, and his mentor Dorfman deferred to his more formidable colleague. Rothbard’s Ph.D. degree was finally awarded in 1956, after Burns departed Columbia for a post in the Eisenhower administration.
Despite learning from distinguished economists at Columbia, Rothbard by his own admission “had never been able to find a comfortable home in economic theory.” But Rothbard took a huge intellectual leap forward when he discovered through FEE the thought of Ludwig von Mises and read his recently published magnum opus, Human Action. Rothbard began regularly attending Mises’ weekly seminar at NYU. Even before completing Mises’s treatise, Rothbard converted to Austrian economics and adopted Mises’ praxeological approach to economic theory, which revitalized the deductive method by grounding it in the fundamental fact of human action. At about the same time, Rothbard realized that the limited-government, laissez-faire position was “logically untenable” when he was unable to answer the objection raised by left-liberal friends that if people could collectively decide that government should provide police, courts, and military defense, then why couldn’t they decide that government should also operate steel mills or dams. Rothbard’s epiphany led him to adopt a pure anarcho-capitalist position.
The absurd myth that Rothbard ignored mainstream economic theory in constructing his theoretical system is laid to rest once and for once his schooling in economics is taken into consideration. Indeed, Rothbard’s conversion to praxeology would not have been so swift or complete had he not undergone such intensive and high-level training in the economic methods and theories of the day. On the other hand, despite his intellectual brilliance and his independent recognition that many core doctrines of the orthodox economics of the time were profoundly erroneous, Rothbard would never have developed into the economist he became without his encounter with Mises and Human Action.