Today would have been the ninety-fifth birthday of the iconclastic Austrian economist and libertarian theorist, Murray Rothbard.
Those who knew him personally will write about his his encyclopedic knowledge and seemingly endless energy. Others will focus on his monumental contributions to economic history and libertarian political philosophy–contributions that continue to inspire scholarship.
However, his technical contributions in economic theory, particularly as seen in Man, Economy, and State, are also staggering. Probably the last great treatise ever written in economics, MES contains deep insights for the professional economist, and is even accessible to the principles student. How many economic treatises can make that boast?
Due to his pathbreaking and often controversial arguments in other areas, Rothbard’s contributions to organizational economics–what is near and dear to our hearts at CSOC–are sometimes overshadowed. In Man, Economy, and State, Rothbard’s impressive command of the extant economic literature is on display in the footnotes, and he notably appropriates and expands Coases‘ approach to the business firm.
In my view, Rothbard extends the Coasian analysis by focusing on what are (sometimes) called “internal transaction costs.” Coases’ paper had spent more pages elaborating the “external transaction costs” of market contracting and did not develop his thinking about the costs of internal organization–which he referred to as “decreasing returns to the entrepreneurial function”–to the same extent. (For those familiar with the Austrian approach, yes, Coase doesn’t seem to distinguish between the “manager” and the “entrepreneur”.) Rothbard improved on Coases’ foundation by demonstrating that there is an ultimate limit on the size of the firm: the ability to engage in economic calculation. When spot prices for certain inputs cease to exist because the firm is the only producer, “calculational chaos” ensues. Peter Klein has done the most to further these important insights.
Interestingly, it’s probably not a stretch to say that Rothbard was one of the first scholars of any stripe to appreciate and promulgate Coases’ transaction cost perspective. Though Coases’ article had been published in 1937, it wasn’t until after the blossoming of the New Institutional Economics in the 1970’s that his article became widely appreciated. Rothbard’s early adoption of the Coasean perspective demonstrates his willingness to engage and appreciate truth whatever its source. In fact, Rothbard arguably did not even see MES (when he was writing it) as a distinctively “Austrian” treatise, only a text that appreciated the “best” in economics up to the date of his writing.
Happy birthday, Murray!