Man, Economy, and State: A Treatise on Economic Principles. - book reviews

ONE OF the unhappy casualties of World War I was the old-fashioned treatise on economic "principles." This was a work not too technical to be read by the intelligent layman, on the one hand, nor, on the other, like current textbooks, a choppy and oversimplified compilation of currently fashionable doctrine. One of the last of the species was Frank W. Taussig's Principles of Economics, first published in 1911. The spirit of that book was revealed in a passage from the preface: "I have tried in this book to state the principles of economics in such form that they shall be comprehensible to an educated and intelligent person who has not before made any systematic study of the subject. Though designed in this sense for beginners, the book does not gloss over difficulties or avoid severe reasoning. No one can understand economic phenomena or prepare himself to deal with economic problems who is unwilling to follow trains of reasoning which call for sustained attention. I have done my best to be clear, and to state with care the grounds on which my conclusions rest, as well as the conclusions themselves, but have made no vain pretense of simplifying all things."

It is the announced purpose of Murray Rothbard's Man, Economy, and State (two volumes running to a total of one thousand pages) to write in this spirit and "to fill part of the enormous gap of forty years' time." And he has succeeded. He has given us a work in the tradition of Taussig, Wicksteed, Fetter, Knight, and Mises, a comprehensive study of principles, which treats economics as a coherent edifice, not a fragmented study of utility," "monopoly," "international trade," labor," agriculture," public finance," and "linear programming." Such a unified edifice, as Rothbard explains, can be built only by treating economics as a deductive science using verbal logic. For "if economics proceeds by deductive logic grounded on a few simple and evident axioms, then the corpus of economics can be presented as an interrelated whole to the intelligent layman with no loss of ultimate rigor."

This was the method of the Austrian" economists. It is the method of Ludwig von Mises. In fact, Rothbard, a former student of Mises, frankly takes off from Human Action: "From now on, little constructive work can be done in economics unless it starts from Human Action.... In one sense, the present work attempts to isolate the economic, fill in the interstices, and spell out the detailed implications, as I see them, of the Misesian structure."

What contributions has Rothbard made to the structure? He indicates some of them in his own preface. His book begins by deducing the entire corpus of economics from a few simple axioms": "the Fundamental Axiom of action-that men employ means to achieve ends"; that "there is a variety of human and natural resources"; and that leisure is a consumers' good." He is not afraid to be old-fashioned enough to begin with "Crusoe economics" before he takes up interpersonal relations, and barter before he takes up indirect exchange through money. One of the features of his consumption-and-production theory is the resurrection of Professor Frank A.

Fetter's brilliant and completely neglected

theory of rent-i.e., the concept of

rent as the hire prices of a unit service.

Capitalization then becomes the process

of determining the present values of the

expected future rents of a good. The Fetter-Mises

pure time-preference theory of

interest is synthesized with the Fetter

rent theory [and] with the Austrian theory

of the structure of production.

Rothbard also expounds "a completely new theory of monopoly-that monopoly can be meaningfully defined only as a grant of privilege by the state, and that a monopoly price can be attained only from such a grant. In short, there can be no monopoly price in a free market."

So far I have adhered to Rothbard's own summary. But I am not sure he has done full justice to his own contribution. For example, I do not recall any book (with the possible exception of the works of Mises, Fetter, and Bohm-Bawerk) that gives so full a recognition to the inherent and omnipresent (but neglected) role of time, not merely in the explanation of interest, but in all economic activity. Rothbard constantly emphasizes time as an indispensable factor in all production, and as a necessary but "scarce" means to all our ends.

On a score of other major points, also, he contributes lucidity and light: his excellent description of the enormous benefits of a money economy over one of direct exchange; his explanation of why a separate theory of "international" trade is unnecessary and why the balance-of-payments problem" for a nation is no different from that for an individual; his rigorous exposition of a pure time-preference theory of interest; his mordant exposure of labor-union fallacies; his beautiful explanation of why the free market, far from being "anarchic" or "planless," is the only organization under which true economic balance and order are possible.