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Essential Books
Murray Rothbard
Murray Rothbard was a student of Mises, and an economist and philosopher
of considerable genius. His masterly economic treatise, Man, Economy and State,
builds on the philosophical foundations of Mises's Human Action while
clarifying ambiguities and making important new contributions.
Although it is a massive and extremely comprehensive work, it is also the
best introduction to economics currently available. It is a complete
'Principles of Economics' in the style of Smith,
Marshall, and Menger;
in other words, the totality of Rothbard's economic 'system' is presented in
this volume. Rothbard takes a highly structured approach to presenting the
material, beginning with the fundamental axioms of human action, progressing
through supply and demand, direct and indirect exchange, and all other
major economic concepts.
Rothbard frequently uses fictional examples to
great effect - for
instance, the
first chapter is based around a Robinson Crusoe scenario to demonstrate the
axiom of human action,
while the following chapters gradually add extra 'characters' to the
situation to demonstrate the effects of exchange and market forces.
For those of us with some background in mainstream mathematical economics,
the text is liberally sprinkled with graphs and diagrams. These are something
of a rarity in Austrian textbooks and serve as useful learning aids. However,
Rothbard makes it clear that they are strictly for illustrative purposes
only - there is no particular information 'stored' in the
graphs themselves, making the use of the calculus, so revered by mathematical
economists, irrelevant.
Rothbard tackles some important topics that Human Action does not cover (or
only covers scantily), such as copyright and patent law, pollution and its
relation to property rights, and antitrust.
Along with Human Action and Socialism, Man, Economy and State
forms the nucleus of the Austrian economic literature.
Most of us are familiar with the traditional high-school history class
explanation of the Great Depression. It goes something along these lines:
unrestrained, laissez-faire capitalism simply collapsed of its own weight in
1931; a period of unprecedented misery followed until the great Franklyn
Delano Roosevelt implemented the glorious New Deal, which put America onto
the road to recovery which eventually ended with the triumph of War
Socialism.
Murray Rothbard, of course, was no mainstream economist, and this
detailed account of the Great Depression turns the conventional wisdom
on its head.
At the heart of Rothbard's argument lies the Austrian theory of the
business cycle. Briefly, the theory states that the 'boom-and-bust' cycle
is not the result of mysterious and unexplainable peaks and troughs in
consumer demand, nor the 'anarchical' nature of capitalist production methods.
Instead, the 'boom' stage of the process is fuelled by governmental
expansion of the money supply via central bank machinations.
These monetary expansions artificially lower the natural rate of
interest, giving entrepreneurs the impression that they are breaking even
or making profits when in fact these results are simply illusions created
by a distorted money supply. Once the economy adjusts itself to the new money
supply, many of these investments are proven to be erroneous (just look at
our recent dot-com boom and bust for a modern demonstration of this
theory).
The first section of this book is a more comprehensive introduction to
the Austrian cycle theory stated above. Rothbard then uses data collated throughout
the '20s and '30s which detail the massive credit expansions embarked upon
by the newly-formed Federal Reserve.
While liberals hail FDR as a hero, Rothbard argues that the thinly veiled
socialism of the New Deal
placed almost unbreakable shackles on America's economic recovery and made
the Depression drag on until the arrival of the Second World War.
The gold standard basically ended with the Depression, and the Western
world has been subject to persistent and painful boom-bust cycles ever since.
Rothbard's book is a powerful argument for the reinstatement of a sound
monetary and banking system.
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