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Review: The Public Choice Theory of Murray N. Rothbard, a Modern AnarchistAuthor(s): H. E. Frech IIISource: Public Choice, Vol. 14 (Spring, 1973), pp. 143-154Published by: SpringerStable URL: http://www.jstor.org/stable/30022711

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THE PUBLICCHOICETHEORY OF MURRAY N. ROTHBARD,

A MODERN ANARCHIST*

H.E.

Frech ///

In recent years, a smallbut growingradical ntellectual movement hasgaineda degree of prominence. The members of this loosely defined group are verydissatisfied with the power of the modern State. Consistingof conservativeswho

have become disillusionedwith conservativepolitical figuresand new Leftists who

have become disillusioned with governmentpower, the movement uses labels like

radicallibertarianism, narchism,and anarchocapitalism.Although not all of those

in this smallgroupareanarchists, he anarchistsare an important nfluence.

One of the key intellectual leadersof the movementis MurrayN. Rothbard,who is one of the few U.S.-trainedanarchisteconomists. For severalyearshe edited

a publicationcalledLeft and Right which wasdesignedto pull libertarian lements

of both groupstogether. Until recently he sharedthe editorshipof the Libertarian

Forum with KarlHess,a New Left anarchistwho once wasa speechwriter or BarryGoldwater.Rothbardacknowledgesan intellectual debt to the Austrianschool and

to his mentor LudwigVon Mises,althoughhis analysisdiffers in many ways from

that of Von Mises.

Rothbard's challengingand unorthodox professional writings span a wide

range of public choice topics including the stateless society, criticismsof publicchoice theorists,the theory of the State,democracy,externalitiesand publicgoods,monopoly, human and property rights, public and private coercion, and econo-

mists' value judgments. His analyses are not always correct but they are often

originalandinvariably timulating.Thispaperprovidesa criticalreviewof Professor

Rothbard's ittle knownpublicchoice theories.

The Stateless Society

In discussingthe necessity of government,Rothbard (1970a, Ch. 1) beginswith an excellent critique of the standard arguments for the necessity of

government o settle conflict.

First, a typical statementwould hold that the state is necessary o define and

initially allocate property rights. Rothbard suggests the allocation of initial

propertyrightsto those who find andtransformnaturalresourcesby their labor.University of California, Los Angeles and the National Center for Health Services

Research and Development, DHEW. Thanks are due to Paul B. Ginsburg, Michigan State

University, for many helpful comments on earlier drafts. The views expressed here are not

necessarily those of either affiliated institution.

143



144 PUBLIC CHOICE

A single, ultimate arbiter of conflicts (e.g., the U.S. Supreme Court) is

considered non-essential.1 Citizens of different countries maintain successful

relations without a final arbiter over them. In relation to each other, individuals of

one country and individuals of another country exist in anarchy.

The danger of a free-market defense and property right enforcing agency

turning its physical power to criminal uses, perhaps colluding with a free-market

court of law to make fraudulent decisions is considered. He agrees that some such

organizations will become criminal. Rothbard is not a romantic utopian, believingthat men will suddenly become full of goodness in a stateless society. The analysisis interesting precisely because he does not believe that conflicts of interest will

evaporate when the State is abolished. He argues that in a stateless society:

... there would be no regular, legalized, channel for crime and

agression, no government apparatus the control of which

provides... for invasion of person and property ... a would-be

criminal police or judiciary would find it very difficult to take power,since there would be no organized State apparatus to seize . . . To

create such an instrumentality de novo is very difficult . . .historically,it took State rulers centuries to establish a functioning State apparatus

(1970a, p. 5).

The author then argues that the checks and balances resulting from the existence of

freely competitive defense agencies and judiciaries provide stronger protection than

those of the American governmental system, where, after all, the institutions are

agencies of the central government.

Rothbard's model of free-market defense and conflict settlement is interest-

ing. If Smith believes that he has been injured by Jones, he files suit or presses

charges within his own voluntary defense agency. Smith's defense agency holds a

trial. If Jones disputes the verdict, there will be another trial either in a competitive

Appeals Court or in the defendant's (Jones') defense agency's court. The AppealsCourt decision or that of Jones' defense agency, if it agrees with Smith's agency,

may "then be taken by the society (italics added) as binding." For as Rothbard

notes:

Every legal system needs some sort of a social-agreed upon cutoff point,a point at which judicial procedure stops and punishment against the

convicted criminal begins. (1970a, p. 5)

Further, in a footnote he asserts that:

1However, as we shall see, Rothbard's own model of a voluntary society contains such a

final arbiter.



REVIEW ARTICLE 145

The Law Code of the purely free society would simply enshrine the

libertarian axiom: prohibition of any violence against the person or

property of another (except in defense of someone's person or

property) ... and the implications of this axiom. The Code would thenbe applied to specific cases by the free-market judges, who would all

pledge themselves to follow it. (1970a, p. 197)

Thus, Professor Rothbard seems to accept the point made by Hayek, that a free

society must be one under the rule of law so that the use of force is predictable

(1944, 1970).

However, the agent which applies this law when there is a dispute is

"society," which acts when two courts agree, and accredits legitimate courts, ordecides how to initially allocate property on the basis of Rothbard's principle of

first use.2

But the principle of first use is not a clear rule. What constitutes first use of

land? Setting foot on a continent? Hunting? Growing crops? What proportion of

the land one claims must be physically used? There is no immediately obvious rule.

The tasks of settling conflicts at this highest level of decision (the "society"

level) are going to be formidable, even with many decisions being made at lowerlevels in the competitive court system. But we are told that "there is no such thingas 'society' apart from its constituent individuals" (1970a, p. 214, fn. 15). What

then is this mysterious "society" which performs the function of ultimate arbiter?

There can be only one answer. Rothbard's society is simply an unorganized groupof individuals who threaten to use force against anyone who violates a widely held

principle or interpretation. Further, this group has a monopoly in the sanctioningor use of force. Although this group is unorganized and may vary in composition

according to the issue at hand, it meets the definition of a government. Professor

Rothbard has provided us with a highly imaginative model of a civilization whichhas no monopoly in the supply of defense services but it is not a model of a

stateless society.

Another problem arises within this model of free market defense supply.

Clearly certain kinds of defense are at least partially public goods wherein exclusion

is difficult. For example, if one private defense agency sets up a defense againstnuclear missiles, it cannot exclude non-subscribers from the benefits provided.

Thus, the classic free-rider problem will arise for some kinds of defense, leading to

(perhaps catastrophic) underproduction of some defense services. Rothbard's

2Accrediting may be difficult since courts would have an incentive to favor members oftheir own defense organization.



146 PUBLICCHOICE

consistent misunderstanding f the importanceand consequencesof the free-rider

problem leads to his neglect of this collective good aspect of defense and other

goods as well.

Criticism f Public ChoiceTheorists

Public choice theorists Anthony Downs, James Buchanan and Gordon

Tullock, who have broughteconomicanalysisto bear on the actions of governmentand democracy, come in for specific criticism. Rothbard asserts that theseeconomists areverywrong n:

...regardinggovernment

assimply

another nstrumentof socialaction,

very much akin to action on the free market... My view is virtuallythe reverse, or I regardgovernmentaction andvoluntarymarketactionas diametric opposites, the former necessarily involving violence,

aggressionand exploitation, and the latter being necessarilyharmoni-

ous, peacefulandmutuallybeneficialfor all. (1970a, p. viii)

Aside from the recurringdifficulty that Rothbard'smodel containsno externalitiesand no monopolies, this passage betrays a thorough misunderstandingof an

importantmessagen the recent

publicchoice literature.

The scholar memtioned by Rothbard do argue that government actionshould be treated like behavior in the market- but not in the sense that it is

mutually beneficial to all participants.Indeed the literature s clear on the pointthat governmentactionusuallyinvolves osers as well as gainers.Typicallythe losersare quite well identified in the model as the bulk of society, often in a consumingrole, while the gainers are members of a small interest group- commonly the

producersof a specific product (BuchananandTullock, 1962, ch. 19, Olson, 1971,

pp.165-168 andDowns, 1957,

pp. 252-257).

These theorists have argued that government action should be treated

similarly to market action only in the sense that standardmodels of rationalindividualchoice should be appliedto individuals n theirrelationsto government.One should not treat the same men as self-interested n the market and perfectaltruistspursuingthe "public interest" when functioning as politicians or voters

(Buchananand Tullock, 1962, ch. 4, Downs, 1957, pp. 282-283). Tullock (1971)informativelyuses the sameassumption n examiningrevolutions.

Rothbard's own theory assumes that individualsas voters and politicanspursue their own interest at the expense of others. In this regard,he is applyingstandardmodels of rationalchoice to governmentaswell as to marketaction. And



REVIEW ARTICLE 147

only in this assumption can one accuse the public choice theorists of treating

government as being "very much akin to market action."

ExploitationTheoryof theState

The essence of Rothbard's theory of the State is given in this statement: "(In)

all instances of intervention ... one set of men gains at the expense of other men"

(1970a, p. 13). His is an exploitation theory, but it is very different from Marx's.

For Marx held that there were classes created by the market, one of which used the

machinery of the State to further its interests. Rothbard, however, believes that the

relevant classes are created by government action - the exploiters being those

within and without the government who gain from the activity while the exploitedare those who lost by it. In this conception, these groups are constantly shifting as

different individuals switch positions on different issues.

The unequivocal statement that coercion can never improve everyone's

welfare is based on Rothbard's strange theories about the absence of free market

monopoly and the unimportance of externalities, which are discussed below.

However, we can reformulate his theory to say that the possible benefits of

coercion are always outweighed by the costs of government operation, especially

the opening up of areas where purely exploitative government action can be

expected to occur. In terms of the Buchanan and Tullock (1962) analysis of

collective decision making, the external costs incurred by individuals in allowingless than a unanimity rule for decision-making are so high that the optimal rule is

always unanimity (a perfectly voluntary system). Further, Rothbard hints at an

analysis close to Tullock's (1967, 1970) when he discusses the "scramble to be a

net gainer rather than a net loser" (1970a, p. 12). As Tullock points out, the

scramble involves considerable resource costs.

Leavingthe issue of whether or not State action can ever be beneficial to all

citizens we can turn to the theory of the actual operation of the State. Rothbard's

analysis of the actual operation of the State is in the spirit of the analysis of the

actual operation of the State is in the spirit of the analysis of public choice

theorists, with the one important exception of constitutional choice, to which we

will return. He insists on analyzing State action in terms of the private gains and

l6sses of the citizens, rather than in terms of the idealized government model so

thoroughly demolished by such theorists as Downs (1957, ch. 15) and Buchanan

and Tullock (1962, chs. 3, 4). Thus Rothbard sees most government action as a

grantof

special privilegeto some

group.He considers safety and quality standards, child labor laws, minimum wage

laws, unemployment payments, conservation laws, patents, traffis, public utility



148 PUBLICCHOICE

regulationandantitrust aws to be governmentgrantsof monopolisticprivilege.Theauthor'sview of economic regulationas a method of usingthe power of the Stateto exclude competitiorsanticipatesStigler's heory of regulation(1971).

The State typicallyintervenes n behalfof a few (saythe producersof a good)againstthe many becausethe minority which will be affected a greatdeal expendsconsiderable time becoming informed and influencingpolicy while the majoritywhich is affected but little per person does nothing (Rothbard,1970a, pp. 16,17,

153, 154). As Downs (1957, ch. 13, 14) has shown, this is rationalbehavior forcitizensof a democracywhen information s costly.

Omission of constitutionalchoice is a serious weaknessin Rothbard'swork.

For, as Buchanan and Tullock (1962) have shown, the considerations in anindividual'schoice calculus are quite different for constitutional as opposed to

government operating decisions. Clearly, at the operating level, individualswill

supportgovernmentaction on the basisof the privatebenefitsaccruing o them, asin Rothbard'sdicussion of State behavior.But, when considering he rules underwhich the government s to operate,eachindividual,not knowinghow the rules are

going to work out in terms of his privatebenefit, will choose rules in line with the

general interests of society. Although Rothbardis correct that for each operatingdecision of a government,some gain and some lose, at the constitutionallevel, all

may supportthe governmentbecause all correctly expect to gain in the net effectof the multitude of issueswhichwill be acted upon.

Democracy and VotingSchemes

In his analysis of democracy and voting schemes, Rothbarddiscusses thetechnical issues of direct versus indirect democracy,and the ephemeralnature ofthe "will" of the people. He statesthat the most powerfulargument or democracyis that democraticprocess providesfor peaceful changeof government.However,

Rothbardstates that:

... this argument.., .completely overlooks the possibility of thenonviolent overthrow of the government by the majority by civil

disobedience,i.e., peaceful refusalto obey governmentorders.(1970a,pp. 144, 145)

But the reasonthis possibility is not given seriousconsiderationby manypoliticalscientists or economists is that such a peaceful revolution would face a greatfree-rider problem. The revolutionists would face serious danger (in trulyauthoritariansocieties, probably death), while those agreeingwith the revolutioncould share in its benefits without personalrisk. Political action in a democracy



REVIEW ARTICLE 149

faces a similar ree-riderproblem,but the consequencesof political opposition to

the rulingpartyarefarless serious.

Indeed, as Tullock'srecentpaperhas shown,revolutionswill not normallybeable to enlist very much of their supportfrom the general populace. Becauseanyindividualwould benefit from a revolution whether or not he took part,he has the

incentive to participateonly if he gets some private gain from it (e.g., a job or

position of power) (Tullock, 1971).

In fact, Rothbard's model for nonviolent revolution is inconsistant with his

analysiselsewhereof the nature of governmentaction. The bulk of his most recent

book is devoted to demonstratinghow most governmentactions were promotedby

and benefit a small group at the expense of a larger group which is unable to

organize o oppose the measures.His revolutionarymodelrequires he opposite.

Pursuingthe argumentthat democracy'smost important virtue is peaceful

change, Rothbard, apparently tongue in cheek, proposes a novel model of

democracy which is designedto completely eliminatethe need for revolutionby

assuring hat the faction which would win a revolutionwill alwayswin at the polls

(1970a, pp. 145-147). The voting system would not allow votes to women or the

old or infirmbut would allow plural voting for those militarilytrainedandvotingwould be made more difficult. Interestingly, f we look at voting systems in earlydemocracies,we see that women did not vote, that voting was more difficult and

that only propertyowners could vote. It seems quite likely that propertyowningmales were more likely to be willing and able to fight and to hire others to assist.

Perhapsgovernmentswhich are subjectto revolution will tend to institutea voting

systemwhich is reasonablyclose to Rothbard's"bullet-substitute"system.

Theoryof Externalities and Public Goods

According to ProfessorRothbard, "interdependencies re all around us andthere is no rationalway to isolate a few servicesandcall them collective"(1956, p.

258). He then gives the example of the economies of mass production which

become possible for each consumer only because of all the purchasesof other

consumers.The errorhereis simple.Externalitiesare relevantat the marginonly.

Further, his analysis of the generalpublic good problem shows a lack of

understandingof the key free-riderproblem: ". . . where some consumersare not

satisfied with the marketproduction of some (public)benefit, they are at perfect

liberty to subsidizethe investorsthemselves"(1970b, p. 890). He makes a similar

assertion concerning a cartel pricing (1970b, p. 570) where he argues that

consumerscould bribeproducers o producethe efficient quantity.



150 PUBLIC CHOICE

The crucial point which Dr. Rothbard seems so intent on missing is that the

costs of transactions in the market are not zero. In the case of a public good with

imperfect exclusion, fantastic bargaining costs would have to be incurred. Thus,

individuals may all be made better off by agreeing to be coerced.

The related argument that since coercion causes someone to alter his activities

and thus is against his interest is based on a simple fallacy. As Baumol points out

(1965, pp. 181, 182), the choice is not between restriction and non-restriction of

one person's activity, but between restriction and non-restriction of many person'sactivities simultaneously. If the activity in question is very harmful (e.g. pollutionof a common air basin), each individual could be made better off by a generalrestriction.

Rothbard's attempted rebuttal repeats his error:

If the decision were truly voluntary, no tax coercion would be

necessary-people would voluntarily and publically agree to pay their

share of contributions to the common project. (1956, p. 256)

Theoryof Monopoly

Rothbard's treatment of monopoly is a novel one. He argues that "the theoryof monopoly price is illusory when applied to the free market" (1970a, p. 29), but

that it does apply to government grants of monopoly power. This theory of the

impossibility of monopoly price in the free market results from his belief that the

competitive price is not conceptually identifiable, while the free market price is.

Rothbard argues that marginal cost considerations vary for different time

periods, thus "there is no simple, determinant 'marginal cost' " (1970b, p. 612).The marginal cost of standard monopoly analysis is the long run marginal cost,

which is analytically quite determinant. Choice-relevant cost may not be observablein general (Buchanan, 1969), but monopoly clearly results in lower output and

higher prices.

It is interesting that Von Mises, whom Rothbard claims as his mentor,suffered from no such blindness to free market monopoly. Von Mises argues that

"monopoly prices are an important market phenomenon" (1966, p. 278) and that

while "as a rule. .. monopoly... is brought about by government action" (p.

361), "some world cartels would exist even in the absence of any government

interference" (p. 366). Most importantly, Von Mises is full aware of the harm doneto the consumer by voluntary monopoly:



REVIEW ARTICLE 151

(The consumer) is not so well served under monopoly prices as under

competitive prices ... Capital and labor which are withdrawn from the

production (with) ... monopolistic restriction . . . are employed for the

production of other things... But the consumers value these other

things less. (p. 385)

Rothbard's view that free-market monopoly is not even identifiable, much

less harmful to consumers, plays an important part in his exploitation theory of the

state.

HumanRightsas PropertyRights

At his best in this discussion, Rothbard masterfully demonstrates that "thereare no rights but property rights" (1970a, p. 176). The fact that all human rightssuch as free speech or freedom of assembly can be boiled down to property rightshas been obscured by government ownership of such facilities as streets. Conflictinginterests concerning the use of the streets for assembly or automobile travel can

only be solved arbitrarily. If ownership were private, it would be clear that no rightof assembly existed - only the right to rent or buy space for a meeting would exist.

Professor Rothbard's analysis of the classic case for the limitation of

individual rights by public policy is splendid. Consider Justice Holmes' famousstatement that no man can have the right to cry "Fire!" in a crowded theater.

Crying "Fire!," whether by a patron or by the theater owner, is a violation of

property rights. If the owner, or his agent cries "Fire!," he is depriving the patrons

of their rights, resulting from the owner's promise, to see a show of some sort. If

another patron shouts "Fire!" he is denying the right of the owner to put on his

show. Thus:

The person who maliciously cries "Fire!" in a crowded theater . . . is a

criminal, not because his... "right of free speech" must be prag-

matically restricted on behalf of the . . . "public good", but because he

has clearly and obviously violated the property rights of another human

being. (1970a, p. 177)

EconomicPower:CoercionPublicand Private

In clarifying the nature of the State, Rothbard excellently sharpens the

language, which is so often used as a blunt weapon by economists and political

philosophers. Private coercion is based on a change in the terms of, or refusal to

make, an exchange. But government coercion is ultimately based on violence or the

threat of violence. This passage points out the distinction:



152 PUBLICCHOICE

A refuses to make an exchangewith B (perhapsby layinghim off from

his job) ... B brandishesa gun and ordersA to make his exchange ..

either B is committingviolence andshouldbe stoppedat once, or ... B

is perfectlyjustified in taking this step becausehe is simply "counter-acting the subtle coercion" of economic power wielded by A. (1970a,

pp. 169-170)

Thus,economic poweris the powerheld in varyingdegreesby everyone,to makeor

not to make voluntary exchange.This power is very differentfrom the threatened

or actual use of physicalforce which forms the basis of the State.

Economics,Economists,Values ndPublicPolicy

Rothbard has an interesting theory of the usefulness of economics which

provides, by extension, an explanation for a bias toward State intervention.The.

economist in a free market can explain the workingsof the market,but little else.

Rothbard's comments on the ability of economists to forecast are not compli-

mentary:

...(the economist) is of little aidto the businessman.He cannot forecast

future consumer demandsand future costs as well as the businessman;

if he could, then he would be the businessman.The entrepreneur swhere he is preciselybecause of his superiorforecastingability on the

market.(1970a, p. 189)

But government actions require more difficult and longer chains of theoretical

reasoningto enable the decision-makero evaluatetheirconsequences.Further,the

economist is "indispensableo any citizen who framesethical udgments n politicsbecause ethics is dependent on the actual effects of actions." The politicaleconomist is very valuable. Thus, by extension of Rothbard's analysis, the

economics profession has vested interests in governmentintervention.This holdstrue even if economists wereneverto be employedor subsidizedby the State itself.

Perhaps his explainsthe common observationthat economistsare so often found

defending the status quo. Closely related is the author'sprovocativediscussionof

economicsandimplicit moralizing.

In Rothbard's view, economists cannot absolve themselves of the respon-

sibility for makingvaluejudgmentswhen pronouncingon public policy by simply

adopting the values which they attribute to the community. He claims that,

"... uncriticallyadhering o all the prevailing thicaljudgments s simplyto engagein apologeticsfor the statusquo" (1970a, p. 191). In this conceptionthe economist

who advises on the best way to achieve a certain goal is thereby



REVIEWARTICLE 153

committing himself to that goal. Economists cannot escape by assuming that

everyone'sends are ultimately the same.Clearly,some ends, such as the desirefor

power overmen, cannot be simultaneouslyachievedby manyindividuals.

But Rothbard overstateshis case. Advisingon the least-costway to achieve a

goal may only signify that the advisor s againstwaste.This is especiallytrueif the

advisorbelieves that the choice of a goal is insensitive to his impacton the cost of

achieving he goal.

Summaryand Conclusions

The case against the State presented by Rothbardis very disquieting.His

frustrating misunderstandingof the problems of monopoly and externalitiesweakens the argument,but one can easilyreformulate t in a moreelegantway: The

costs of State action are so great that they outweigh any possible improvementof

efficiency fromreducingmonopoly or internalizing xternalities.

Clearlythe mass murdersandwars and enslavementswhich havebeen carried

out throughout history by States exceed by a wide margin he ill effects of private

enterprise crime. And if we look at government activities within a relativelycivilized democracy like the U.S., we see that most governmentaction benefits a

small group at the expense of a largergroup (e.g. tariffs, subsidies,occupational

licensure).The assertionthat the net benefits of many governmentactivitiesare

negative is not an easy one to reject, however radical it may sound. However,

Rothbardhas not demonstrated he possibilityof a statelesssociety.

REFERENCES

1. Baumol, William J., Welfare Economics and the Theory of the State, 2nd

edition, HarvardUniversity Press, Cambridge, Massachusetts, (1965).

2. Buchanan, James M., Cost and Choice: An Inquiry in Economic Theory,

Markham,Chicago,(1969).

3. Buchanan,James M. and Gordon Tullock, The Calculusof Consent:LogicalFoundations of Constitutional Democracy, University of Michigan

Press, Ann Arbor, (1962).

4. Downs, Anthony, An Economic Theory of Democracy, Harper & Row, New

York, (1957).

5. Hayek, Friedrich A., The Road to Serfdom, University of Chicago Press,

(1944).



154 PUBLIC CHOICE

6. , The Constitution of Liberty, University of Chicago Press,

(1960).

7. Olson, Jr., Mancur, The Logic of Collective Action: Public Goods and the

Theory of Groups, Revised edition, Schocken, New York, (1971).

8. Rothbard, Murray N., "Toward a Reconstruction of Utility and Welfare

Economics," in On Freedom and Free Enterprise, Mary Sennholtz,

editor, D. Van Nostrand, Princeton, New Jersey, (1956), pp. 224-262.

9. , "The Mantle of Science," in Scientism and Values, HelmutSchoeck and James W. Wiggins, editors, D. Van Nostrand, Princeton,

New Jersey, (1960), pp. 159-180.

10.,

Power and Market: Government and the Economy, Institutefor Humane Studies, Palo Alto, California, (1970a).

11.,

Man, Economy, and State: A Treatise on Economic Principles,2nd edition, Nash, Los Angeles, (1970b).

12. Stigler, George T., "The Theory of Economic Regulation," Bell Journal ofEconomics and Management Science, Vol. II, No. 1, Spring 1971, pp.3-21.

13. Tullock, Gordon, "The Welfare Costs of Tariffs, Monopolies and Theft,"WesternEconomic Journal, Vol. V, No. 3, (June 1967), pp. 224-232.

14. ,"The Cost of Transfers," Kyklos, XXIV (fasc. 4, 1971),629-643.

15.

,

"The Paradox of Revolution," Public Choice, Volume XI, (Fall1971), pp. 89-99.

16. von Mises, Ludwig, Human Action, 3rd edition, Henry Regnery, Chicago,(1966).