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When Murray Rothbard Schooled James Buchanan on Basic Economic Theory and Method

May 2, 2014 in Economics

By Joseph Salerno


Working for the Volker Fund during the 1950s and early 1960s provided Murray Rothbard with the opportunity to read and write reviews and memos on hundreds of books on the social sciences, especially economic theory and political economy. Happily this amazing treasure trove of Rothbardiana is available in the Rothbard archives housed at the Mises Institute.

While employed by the Volker Fund, Rothbard was also hard at work researching and writing his great treatise on economic theory, Man, Economy, and State. Rothbard thus was not only reading widely but also thinking deeply about economic theory and method, as he sought to deduce new theorems to advance the mainline Austrian theoretical tradition originated by Carl Menger. This tradition included not only native Austrians like Bohm-Bawerk, Mises, and Hayek but Anglo-American economists such as Philip Wicksteed, Edwin Cannan, Lionel Robbins, William Hutt, John Bates Clark, Frank A. Fetter, and Herbert Davenport.[1]

In 1960, the 34-year old Rothbard read an economic textbook by Clark Lee Allen, James M. Buchanan, and Marshall R. Colberg.[2] In a memo to Ivan R. Bierly of the Volker Fund, Rothbard wrote: “The more I read of the general, all-around works of the ‘Chicago School’ of economics, the less I am impressed.”[3] Regarding the Allen, Buchanan, and Colberg book in particular, Rothbard commented, “I was impressed neither by the technical economic analysis nor by the more politico-economic sections.” 

Rothbard found fault with much of the policy analysis in the book as applied, for example, to cyclical instability and unemployment, the gold standard, monopoly, public utility regulation, collective goods, foreign aid, and taxation for egalitarian purposes. Rothbard concluded his discussion of the politico-economic aspects of the book with the following observation:

[I] think it important to emphasize that this book brings home as few have done to me how much can go wrong if one’s philosophical approach—one’s epistemology—is all wrong. At the root of all the troubles of the book lies the weak, confused, and inconsistent positivism: the willingness to use false assumptions if their ‘predictive value’ is of some use. It is this crippling positivist willingness to let anything slip by, to not be rigorous about one’s theory because ‘the assumptions do not have to be true or realistic anyway,’ that permeates and ruins this book.[4]

Rothbard gave Bierly an example of how this “pervading positivist epistemology” vitiated the technical analysis of Buchanan et al.[5] The authors constructed a “fixed-demand” …read more


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